Materials Handling Equipment: Flex Appeal

With a swipe and a click, e-commerce is fundamentally altering consumer buying behavior. In the process, it is triggering a paradigm shift in how companies manage their distribution and fulfillment operations.

The Rise of the WCS
Case Study: Anything But Child’s Play

More shoppers are going online in search of competitive prices, and their expectations about product selection, fulfillment speed, and convenience are forcing traditional brick-and-mortar retailers to step up their game. E-commerce has made expedited shipping an expectation, not an exception—which has a resounding effect throughout the supply chain.

“A significant period of supply chain disruption is beginning,” says Karl Meyer, CEO of 3PD, a Marietta, Ga.-based provider of high-touch, last-mile delivery service throughout North America. “The way customers interact with retailers is changing.”

While the competitive stakes are amplified between virtual retailers and those with physical locations, companies that have significant operations in both spaces—”click-and-mortar” businesses—face the more compelling supply chain challenge. Nowhere is this more apparent than inside distribution centers (DCs).

“Brick-and-mortar companies are looking to find solutions that merge orders in transit,” says Meyer. “Historically, big-box retailers held inventory in domestic or import DCs, then pushed it to stores. When distribution channels shift from full truckloads into a store to orders moving one at a time through different modes to end consumers, retailers have to pass along or account for those additional costs. And they have to take volume out of the truckloads going to stores.”

The convergence of direct-to-consumer and direct-to-store fulfillment models not only dictates where companies locate distribution nodes, but also how they equip them.

“In a traditional DC, much of the activity involves picking full cases to pallet, then shipping pallets to stores through a private fleet or contract carrier,” explains Bruce Stubbs, director of industry marketing for Intermec, an Everett, Wash.-based mobile device manufacturer. “They still use the same technologies to do that, but most of the time no packing process is involved.”

This poses a problem for some companies, especially in inventory management and control.

“When they receive product, they have to determine whether to allocate a certain amount for direct-to-consumer shipments and the balance for retail store shipments, or use the same inventory pool to handle both,” says Stubbs. “Companies can separate inventory by channel, or pick from the same location and divert it to different areas within the DC.

“The situation presents many challenges—not just systematically, but also in terms of processes,” he adds. “It affects how companies lay out their facilities, and what types of materials handling solutions they deploy.”

Engineering Change

Traditional brick-and-mortar retailers looking to capture market share may feel pressured to match wits with Internet-only sellers. One way they gain competitive advantage is by pulling e-commerce operations into existing DCs that have equipment set up specifically to manage store-quantity shipments.

“Multi-channel environments are starting to diversify equipment to allow the same inventory to service both direct-to-consumer and brick-and-mortar stores,” says Bryan Jensen, vice president of St. Onge Company, a York, Pa.-based supply chain engineering consulting firm.

Equipment differentiation is tied to peak-season volumes and shipper capacity to scale with these demand changes.

The dilemma for click-and-mortars is finding an equipment solution that allows them to manage a tenfold peak for three weeks, and remain economically viable for the rest of the year. “It’s like a manufacturer trying to produce everything for the holiday season in one month,” Jensen says. “They could never justify investing in the equipment to do that.”

Companies have become creative in how they mix and match modular and semi-automated materials handling solutions to flex with demand, rather than simply throwing capital and equipment at the problem. For example, instead of buying two automated unit sorters to cover a peak, a company might maintain one unit sorter, and use a separate pick-and-put wall operation consisting of racks and bins.

Some companies adopt simpler materials handling infrastructure footprints that are more flexible. “Sometimes it doesn’t make sense to choose the most complex or expensive solution,” Jensen says. “Automation is a wonderful enabler, but it can also be rigid in what it requires to be effective.”

Companies cutting their teeth on e-commerce may hesitate to make significant capital investments without knowing what normal will look like down the road. This begins even with basic racking set-ups.

“The standard contemporary pallet rack is still the most popular way to store product, because it’s the least expensive,” says Kevin Curry, national accounts manager, Steel King, a Stevens Point, Wis.-based manufacturer of rack, rail, and mezzanine solutions. “Many companies do not want to spend capital on new brick-and-mortar. They want to build up, go faster, and utilize cube better. The more conventional way—single- and double-deep selective racking—requires an aisle and a fleet of fork trucks. That represents the lion’s share of systems in the United States.”

Automation by Design

Accelerated fulfillment expectations have forced automation into the DC. But unlike a decade ago, when fledgling e-commerce companies threw the silver-bullet solution at every challenge they encountered, companies are now more judicious in how they integrate automated and manual processes.

Shippers are less inclined to invest long term unless they possess a concrete understanding of their business needs. It may not simply be a matter of buying a different kind of conveyor system, but rather a less complex solution—or using more generally applied equipment, as opposed to specific systems that will only work under certain circumstances.

Automation brings benefits and disadvantages—which is why materials handling suppliers, integrators, and customers spend so much time and attention devising appropriate strategies. It’s also why a lot of companies that are still early in their perceived growth curve, or have yet to reach a plateau, rely on third-party logistics (3PL) service providers rather than aimlessly sinking capital into new materials handling systems and facilities.

Jensen cites the example of facilities that use a parts-to-picker strategy—whether it’s a mini-load system, multi-shuttle set-up, or robots. In effect, these tools all do the same thing: pickers stand in one place and product comes to them. This approach allows companies to automate their facilities, keep operators all in one place, and use space more economically.

Parts-to-picker systems don’t easily move above the volume of what that system will support, however. “If it performs 60 cycles per minute with 10 cranes, it’s 600 cycles a minute—no more, no less,” Jensen says. “If volume spikes, there’s no way to get to that product—and no way to fulfill those orders.”

While parts-to-picker solutions haven’t changed the profile of facilities the way automated storage and retrieval systems (AS/RS) did by raising roofs, they can impact the way DCs are laid out because they become the keystone in the distribution process. Their location within a building is critical to all other product flows.

Automation also has a direct, if largely unseen, impact on facilities’ physical infrastructure. More advanced technologies and conveyances—especially build-to-suit, high-rise AS/RS systems—demand precise engineering. “The machines read the product’s location, and if the rack is off one-sixteenth of an inch, the system won’t be able to retrieve that tote or part,” Curry notes.

The Waiting Game

Through process evolution and equipment investment, warehouse automation empowers companies to flex capacity and labor to meet rapidly changing business requirements. It’s not a silver-bullet solution; rather, one means toward an end. The way companies handle materials in the distribution environment continues to change.

While an element of lawlessness pervades the way industry is broadly approaching e-commerce, the lack of a defined model has also allowed companies the latitude to be creative in how they design standalone and multi-channel facilities, then align their distribution networks.

Jensen predicts more long-term capital investment will materialize over the next decade as the direct-to-consumer business matures. Distribution networks will likely be more diverse as companies depend on a mix of highly automated and less-automated facilities that they can turn on and off to match seasonality demands.

The pressure to automate will largely depend on unique shipper requirements. If a company only needs one distribution building, and its average annual output is 40 percent of peak, little incentive exists to tackle full-scale automation.

But if it operates 10 DCs and 40 percent of its peak volume is the average, it can fully automate four of those buildings, because they will always be in use. The other six facilities’ worth of throughput can be purposed as a pop-up 3PL, an augmentation of a brick-and-mortar facility, or for manual picking to support automated throughput.

“As companies come to understand the volume, complexion, and nature of their order profile, total throughput requirements, and customer service value, they can start to confidently invest in long-term fixed infrastructure,” says Jensen.

The Rise of the WCS

As much as technology is changing the way consumers buy product, it’s also shaping a new direction inside warehouse facilities. Companies are tailoring solutions that can address multi- and omni-channel distribution and fulfillment. That begins with warehouse management systems (WMS) and warehouse control systems (WCS) that orchestrate motions within a distribution center.

For example, a facility that has consolidation or accumulation positions—where workers divert totes and cartons by transport conveyor under the control of a WCS—operates with finite capacity. “Under the old paradigm, companies might use their WMS to divide work by waves, which represent the materials handling system’s capacity,” says Tom Singer, principal for Raleigh, N.C.-based materials handling integrator and supply chain consultant Tomkins International. “Businesses can’t afford to be that granular today. They need a more fluid environment, so if one lane or accumulation position is open, they can release work, rather than wait for the full wave to be completed.”

More operations are allowing the WCS to control the actual release of work to the warehouse floor. That demand is triggered not only by e-commerce, but also by organizational mandates to increase throughput and squeeze more volume out of existing facilities. It often makes more sense for the WCS to control the release and induction of work into the system, rather than running set WMS waves, and dumping totes and cartons into the system.

Using a WCS is by no means a novel concept, but it is gaining traction in a distribution environment that has been dominated by WMS machinations over the past several years. Micro-trends contributing to this change include more aggressive service levels and delivery expectations; stockkeeping unit proliferation; and smaller orders shipped with greater frequency.

“These factors put stress on systems,” says Singer. “Warehouse management systems have the functionality to support this proliferation, but they’re still wave-based and labor-focused. If companies are installing materials handling systems that need to be monitored in real time to measure available capacity, it makes more sense to turn to a WCS.”

Because warehouses have become more automated, investing in WCS—while still costly—is easier to justify. Materials handling solutions are becoming more creative, especially in terms of implementing sophisticated conveyance systems, and automated storage and retrieval systems (AS/RS) infrastructure, within existing footprints.

Shippers and service providers are also considering how to integrate robotics and automated vehicle guidance systems into different aspects of their warehouse operations.

“The opportunity to build a fully automated DC with a variety of materials handling equipment—unit sorter, AS/RS, mini shuttle—has become more viable,” Singer says.

There is not yet an established standard for how companies approach materials handling or DC optimization. With the way e-commerce has enveloped industry so quickly, many companies are pioneering their own strategies—inside and outside the warehouse.

Case Study: Anything But Child’s Play

When Toys R Us’ Canadian business recently decided to open a new distribution center in Delta, British Columbia, to support brick-and-mortar stores and direct-to-consumer fulfillment, it turned to Toronto-based third-party logistics provider SCI Logistics to help equip and operate the facility. The 180,000-square-foot DC, located near Port Metro Vancouver’s Deltaport container terminal, is positioned to receive and re-distribute goods from overseas and domestic manufacturers.

“The Delta facility complements Toys R Us’ omni-channel distribution points and assortment strategies across Canada,” says John Ferguson, president of SCI Logistics. “In addition to supporting retail stores, the goal is to ship direct-to-consumer orders from the same facility. We are working with the e-commerce and logistics team at Toys R Us to develop our West Coast direct-to-consumer strategy.”

Segmenting inventory for unique channel fulfillment has been less burdensome than the operational challenges that sortation and picking presents. SCI equipped the facility with a 25-divert automated sorter system that automatically builds orders destined to stores and the Toys R Us eastern distribution center.

“The sorter logic can be updated daily to adapt to changing demand patterns by end destination,” says Ferguson.

Scalability was important in the new DC set up. The fully automated sortation system allows Toys R Us to support large seasonal swings that are common in the retail business.

The Delta DC complements the toy retailer’s existing Canadian distribution footprint, which features three facilities that serve 74 stores, express store locations, and an e-commerce fulfillment center.