Supply chain players can more effectively manage product flow, reduce costs and improve flexibility in their distribution centers by borrowing process improvement tools and techniques from the manufacturing world.

1. • Cognizant 20-20 Insights
How to Leverage Manufacturing Best
Practices to Create Competitive
Advantage in Distribution Centers
By borrowing process improvement tools and techniques from the
manufacturing world, supply chain players can more effectively manage
product flow, significantly reduce costs and improve flexibility in their
distribution centers.
Executive Summary For large DCs, spread across millions of square
feet, both planning and execution excellence
Manufacturing has evolved by embracing highly
provide opportunities to leverage manufacturing
refined processes for planning and execution. This
industry best practices. Focal points include:
has helped many manufacturers rapidly improve
their operational effectiveness and productivity • Planning: Forecasting resources, including
while removing waste from each and every step labor and equipment, to more effectively utilize
of their production processes. capacity, drive world-class order fill rates and
minimize costs by “rightsizing” the labor force
Overall, manufacturers have benefited from being to meet demand. DC managers have also begun
the focal point of value creation (materials, labor, to leverage planning aspects of JIT (just-in-
etc. required to produce a product), as their role time) and TOC (theory of constraints) from the
in the process represents the largest percentage manufacturer’s production planning handbook
of cost within the supply chain. This status has to better manage freight flow and handling
helped manufacturers propel the development across facilities.
and standardization of process improvement
tools and techniques, such as Value Stream • Execution: Tools and techniques to manage
Mapping, 5S, Andons, collaborative forecasting the production shop floor, including process
and planning, Kaizen, just-in-time inventory, and management approaches (such as Lean) to
approaches adopted across the entire Toyota reduce or eliminate waste and Andon systems
Production System. Increasingly, these tools and for exception management to improve order fill
techniques are being embraced by supply chain accuracy and throughput. Automation and an
players to reduce inventory within their distri- emphasis on execution flexibility are two other
bution centers (DCs) and to more effectively areas where distribution center operations are
manage product flow, with an eye toward signifi- adopting best practices from the manufactur-
cantly reducing costs and improving flexibility. ing world.
cognizant 20-20 insights | november 2012

2. This white paper explores key aspects of how cost and improves order cycle times. Previous-
players across the supply chain can leverage best ly, DCs conducted their planning in a vacuum,
practices pioneered and perfected by manufac- which often resulted in under-utilized resources
turers. or excessive overtime, negatively impacting
cost and order cycle time. We expect this trend
Production Planning Rigor in the to continue, going forward.
Distribution Center
• Just-in-time: JIT is a management system
Management of the distribution center and its defined to remove waste from different opera-
resources, in terms of labor, equipment and space, tional elements, such as inventory (raw mate-
already borrows heavily from manufacturers’ rials, WIP and finished goods). At a high level,
production planning and control best practices JIT means having exactly what is needed in
(see Figure 1). This trend will accelerate in the exactly the right quantity at exactly the right
near future and will include some of the following: time. While we will discuss some of the execu-
tion principles of JIT in the next section, from
• Capacity planning and utilization: Sophisti-
a planning perspective JIT imposes the chal-
cated labor management solutions are increas-
lenge of accepting and distributing freight with
ingly leveraging capacity planning algorithms
little to no inventory in the warehouse. This has
to determine labor needs in various areas of
implications on supply chain network design,
the DC based on the demand profile. The in-
supplier collaboration, scheduling inbound
coming freight on advance shipment notifica-
freight and overall supply chain risk. The goal
tion (ASNs) determines the inbound resource
is to ensure that the right freight keeps moving
need, both for labor and space in the DC for
in the network with little to no storage at a
storage. Demand placed on the DC determines
single node. In a world where being responsive
the outbound labor needs for order filler/load-
to demand will be critical for retailers, master-
er hours. These are also linked to transporta-
ing this just-in-time capability will be key to
tion requirements to help determine capacity
success.
for outbound trailers.
• Sales and operation planning: Many have be- • Leveraging the theory of constraints: TOC
has been utilized to plan around bottlenecks in
gun integrating their planning process with
manufacturing plants. DC managers have start-
sales and finance to identify and react to de-
ed to identify and plan around the bottlenecks
mand fluctuations proactively, which reduces
in their respective buildings. For some, the bot-
If the Practice Fits, Borrow It
Manufacturing Distribution
Just in Time Theory of Capacity Planning
Constraints Algorithm in LMS
Capacity Planning
Theory of Just in Time
Planning Constraints in Inventory
Integrated Sales & Order Filling Management
Ops Planning
Domain
Best
Practices
Andon Six Sigma Andon Alerting
Mechanism in DC
Poka-yoke Automation
Poka-yoke Automation in DC
Execution Toyota Production Defect (Robotics,
System Prevention AGV, ASRS)
Lean Manufacturing Lean Tools
(Value-stream Mapping, (Value-stream Mapping,
Kaizen, 5S) Kaizen, 5S)
Figure 1
cognizant 20-20 insights 2

3. tleneck might be the order-filling operations empowering all front-line employees to identify
where an increasing amount of automation is and escalate issues instead of viewing opera-
utilized to increase productivity. For some cus- tional challenges as belonging exclusively to
tomer fulfillment operations, the bottleneck DC management. This extends responsibility to
might lie in the order packing and consolida- employees in receiving, hauling, replenishment,
tion area. In such situations, DC management order filling and shipping.
teams are identifying and putting in place pro-
cesses to alleviate these bottlenecks by man-
• Poka-yoke: This term — introduced in Lean
manufacturing to denote “mistake-proofing”
aging the workloads at these work stations. — emphasizes designing processes in a man-
ner that reduces the chance of the process
Execution Principles from the
producing a defect. The intent is to keep the
Manufacturing World defect from moving downstream and causing
Industrial engineering principles and various pro- huge amounts of rework or lost productivity.
ductivity improvement methodologies such as
In DCs, we see several instances of processes
TPS (Toyota Production System), Lean manufac-
designed to catch issues as soon as they
turing and Six Sigma have evolved over the past
occur, including defining thresholds for
several decades in the manufacturing domain.
order quantities to prevent inventory dis-
Increasingly, some of these principles have been
crepancies; providing visual aids to workers
applied to DC management, as well. The following
to encourage adherence to
are key principles adopted by supply chain
SOPs; implementing RFID to DCs are increasing
execution leaders for designing processes to
ensure the correct merchan- their adoption of 5S
enhance the overall productivity of their distribu-
dise is processed through the
DC, from receipt to customer principles, or “sort,
tion centers. (See Figure 1 for additional insights.)
• Power to the people (Andon): Some of the shipment; and installing shine, set-to-order,
main principles advocated for effective shop scales and exception handling standardize and
floor control center around associates and the processes to verify shipment
team on the ground. Lean and JIT principles integrity prior to goods sustain.”
provide workers and teams with the authority leaving the warehouse. Since
to supervise themselves and stop production customers have enormous choice of which
when an issue is found. This authority and the retailers they purchase from, order fulfill-
ability to highlight issues as early as possible ment accuracy can be a key differentiator. We
prevent defects from emerging later in the believe DCs will continue to focus on “poka-
production process and causing rework. yoke” in the future.
Similarly, in a distribution center, each and • Process improvement: Leveraging Lean tools
every associate must be encouraged to iden- such as value-stream mapping, Kaizen and 5S,
tify issues and, enabled with mechanisms, raise many DCs are conducting rigorous and fre-
alerts to supervisors to correct them as soon quent process design reviews. Value-stream
as possible. Examples include damages, stock- mapping is designed to map a process end-to-
outs, inventory errors, order-filling errors, etc. end, with the goal of eliminating or streamlin-
ing all non-value-added activities and remov-
We are already seeing a trend in which indus-
ing process waste. DCs are also increasing
try leaders are building sophisticated alerting
their adoption of 5S principles, or “sort, shine,
mechanisms into their execution systems, such
set-to-order, standardize and sustain.” This en-
as WMS (warehouse management systems)
tails focusing on eliminating unnecessary ma-
or YMS (yard management systems). These
terials, standardizing workstation design and
alerts will let supervisors know of situations like
organizing work areas to minimize time spent
inventory issues and aging trailers that in the
looking for and retrieving tools and equip-
DC world directly impact production and ship-
ment required to complete tasks. These pro-
ment to customers.
cess improvement tools will yield results, such
Cutting-edge DCs are also using Andons to as reduced cost, improved flow and customer
maintain flow throughout the DC. Examples experience, and will result in higher employee
include installing Andons on workstations and engagement and morale.
shipping doors to signal flow/congestion issues.
DCs can dramatically improve KPIs (e.g., produc- • Automation: Increasing levels of process au-
tomation at Canon have reached a level where
tivity, quality, customer experience and cost) by
the company recently declared its intention
cognizant 20-20 insights 3

4. to fully automate camera production at its • Flexibility: Manufacturers have invested
Japanese plant. Higher productivity and bet- significant effort and dollars to drive flexibil-
ter quality were cited as the main drivers of ity through smaller batch sizes by decreas-
this achievement. Similar levels of process ing setup times, modifying network design to
maturity will be achieved in DCs over the next move vendors/suppliers closer to the point
few years as a result of greater automation. of consumption, and utilizing postponement
While automated storage and retrieval sys- and common components across product plat-
tems (ASRS) have been around for some time, forms. This emphasis on “flexible manufactur-
automating other tasks such as picking will in- ing” is manifesting itself in the shape of “flex-
creasingly gain momentum. Two trends — an ible fulfillment” for DCs. Many are being forced
increased focus on customer service within by changing customer expectations and com-
the retail industry and demographic forces petitive pressures to reshape their operations
that are increasing the cost of labor — are to support both customer and store fulfillment
pushing most DCs to explore automation as an in an increasingly complex “omni-channel” en-
alternative to manual operations. vironment.
Recent process advancements have involved As a result, DCs are processing a wider array of
some sort of human intervention, such as goods, which undercuts their ability to contain
last-stage packing or an automated guided SKU proliferation and reduce operating costs.
vehicle (AGV), where associates actually This impacts freight flow across and within
pick and deliver the goods to the packing the DC, labor productivity and facility layout,
area. As these technologies mature, become which must be fine-tuned to deliver on the
more reliable and gain acceptance — and as omni-channel fulfillment promise.
purchase/implementation costs decline — we As the move toward “fulfill from anywhere”
will see a similar shift toward reduced human continues, we expect DCs to continue
involvement, as is currently the case in the leveraging what they learn from the manufac-
manufacturing industry. turing sector to support this paradigm shift.
About the Authors
Niraj Singh is a Director within Cognizant Business Consulting and part of the leadership team for its
Supply Chain Practice. He has managed large engagements for Fortune 100 clients, worldwide, including
the U.S., Japan, Europe and India. Niraj has an M.B.A. from the Indian Institute of Management and a
bachelor’s degree in manufacturing engineering from the Indian Institute of Technology, Kharagpur.
Niraj can be reached at Nirajkumar.Singh@cognizant.com.
John Lowe is a Manager within Cognizant Business Consulting. He is responsible for managing logistics
and supply chain projects across multiple Fortune 100 clients. John has an M.B.A. from the University
of Illinois at Urbana-Champaign and has experience leading DC operations for multiple Fortune 500
organizations, including Amazon.com, TJX, Gap, Inc. and Rockwell Automation. John can be reached at
John.Lowe@cognizant.com.
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