Operational optimization that allows consistent delivery of accurate quantities of the right items to customers is a year-round goal for any distribution center operation manager. Difficulty in achieving this consistency is heightened during the peak seasons, where many industries drive their annual profitability. While some peak seasons are well-defined and anchored to specific dates, others can include a high degree of variability in phase and amplitude. Identifying, understanding, and preparing for peak season shifts and how they will impact your operations is key to ensuring you are prepared to successfully tackle your highest demand periods. This includes creating a strategic plan of attack informed by data that factors in your team, assets, and the tools needed to get the job done.
As usual, the first step to solving a problem is identifying if you have one. When it comes to managing peak season optimization, this includes understanding timing and determining the impacts your peak shifts have on your order profile, volume, inventory, lead times, and other key operational drivers. Once you define and quantify the impact, it becomes easier to create a management and optimization plan. Evaluating historical trends and reflecting on data from previous years, overlaid with a good set of design criteria and assumptions, will provide a solid picture of what your next peak season will entail. To create an accurate historical roadmap, consider an analysis based on the following questions:
· What items drove the demand?
· How many units were ordered?
· In what frequency were units ordered?
· In what mode were they shipped?
· What customers or segments of customers drove the shift in demand?
· How many days of supply were on hand for impacted items? Was it enough?
· Where were the gaps and what would have been enough to supply the demand?
Once you can define and quantify what your business and operations will be facing, you will be ready to create a plan to successfully manage the impacts. While there are a variety of factors to consider, a focus on three primary areas can drive significant readiness to optimize distribution center operations during peak seasons:
· Material Handling Equipment (MHE)
Let’s dig into each and how strategic preparation can help drive peak season readiness.
Having the right amount of inventory at the right time is essential for executing a successful peak season. A detailed inventory analysis, evaluated with an informed set of assumptions on what the future could bring, is the basis for a strong warehouse strategy. These key metrics are guides to determine the space needed for inventory and how it varies during peak season. Once you have a clear picture of inventory fluctuations, you can create a plan to manage the shifts and changes seamlessly.
Evaluating Temporary Storage Versus Permanent Space Solutions
To accommodate peak season inventory, many operators invest in temporary outside storage (which could include outside public/commercial storage providers or dedicated on-site solutions). Others choose to expand, creating the needed square footage to accommodate their highest inventory peaks. Determining the right solution for your operation means identifying the “sweet spot” between the cost of outside storage (and all the extra touches that path requires) and the cost of adding and managing extra in-house storage capacity. This “sweet spot” varies by operation, and the analysis to determine the best solution should take into consideration factors such as the cost of expansion versus outside storage costs, the complexity in identifying and managing the off-site inventory, additional transportation, staffing, and shifts in material handling costs.
Optimizing Inventory Storage & Management
Another way to combat space and storage constraints is to optimize your current inventory storage configuration with the goals of increasing storage capacity and minimizing outside storage requirements. This can be particularly challenging for operations that have significant peak seasons (meaning the peak-to-average ratio is large and/or occurs in shorter, more condensed windows). But, it can be particularly effective for those who experience more moderate and consistent peak season fluctuations.
Space optimization can also be achieved by removing old/discontinued, or slower moving inventory ahead of peak season. A strategic inventory rationalization process can free up significant primary real estate ahead of seasonal high points.
Being able to meet customer demand is only possible if you have the appropriate personnel (and/or automation technology) in place ahead of peak season. Today’s hiring market and record-low level of unemployment mean securing the right number of employees for short seasonal tenures can be particularly challenging.
Creating a Data-Driven Staffing Plan
To be effective, a staffing plan should be developed months ahead of the peak season. To make informed staffing decisions, consider how many full-time equivalent employees (FTEs) will be required and map out how long you will need them and what skills they will need.
The calculations used to create the plan should consider estimates of productivity by task, considering the level of automation/mechanization of each process. That estimated productivity, computed with the anticipated volume to handle, will result in the number of operators needed. The next step would be to identify which tasks can be performed by full-time employees (FTEs) versus seasonal staff. It is important to consider that typically temporary labor will not have the same experience as full-time team members and therefore training could take longer. A good practice is to delegate simpler tasks to the temporary workforce, so permanent staff can focus on the more complex/critical assignments.
Considering Shift Configuration Changes
Outside of increasing staff, an optimized shift configuration can help maximize team productivity, improve morale and can be one of simplest ways to increase processing power during peak seasons. Shift configuration can help optimize the use of material handling equipment, defining what operators will use what equipment for what tasks/processes and how long each will need to be performed during the working day/week. There are a wide range of shift configurations to consider from single shift to 24/7 rotating, over-time, four-on/four-off, and more. Each has pros and cons to consider as you evaluate the goals and constraints of the operation.
Evaluating Operational Optimizations
Operation and flow optimization have a direct impact on staffing level requirements. Re-slotting, zoning, adoption of fast-forward pick areas, slapper lines, cross docking, and expedited receiving zones are examples of effective strategies that typically don’t require a high capital investment, but that can help maximize productivity resulting in less labor hours.
Material Handling Equipment (MHE)
Having the right tools to execute a job are a direct complement to optimizing the effectiveness of the personnel required to use them. As a result, MHE plays a major role in both space and staffing requirements when it comes to planning for peak seasons.
Customized Analysis to Find the Right Automation Balance
Often, a more highly automated solution will require a higher level of investment, which can typically be offset by a decrease in labor and space. Finding the right level of automation/mechanization should be rooted in evaluating the alternatives available to determine a fit for your operations and business goals. From conventional solutions that usually require more manual steps to mechanized options that reduce operational costs, the right answer is different for every operation. Ultimately, the cost and savings are intimately related to the order and inventory profile, as well as the length and severity of designated peak seasons. For example, it may be more difficult to justify expensive equipment that will only be utilized for short periods of time during the year.
Finding Efficiencies to Scale
Not all MHE solutions need to be capital intensive or permanent. Many operations are able to scale up and down, leveraging their existing MHE during peak seasons. Forklifts, tractor trailers, pack stations, and even autonomous mobile robots (AMRs), are technologies that can fluctuate as demand changes.
Looking Back to Excel Forward
Reflection is the key to preparation when it comes to optimizing operations to meet peak season demands, and considering the right metrics makes all the difference. Take a look at past seasons to analyze what went well, what went wrong, and dig into the data to get a true picture that can guide planning. By tapping into performance insights and applying them to examine opportunities to optimize storage/space, staffing, and material handling equipment, distribution center operations managers can gain significant visibility that can be applied to maximize the production potential and profitability of peak seasons.
Mauricio Castellanos is Managing Director, Partner, St. Onge Company.
This article originally appeared in the July/August, 2023 issue of PARCEL.