A Case Study-Reducing the Cost Per Order and Improving Productivity within a Chemical Distribution Center-Part 2

By Kevin Reid, Don James

In the fast article we described the concern that a manufacturer, and distributor of chemical products had because of an increasing number of complaints from customers. These complaints focused primarily on quality and service issues related to the distribution function. In addition to the complaints from customers, management was concerned with a trend of in­creasing cost per order.

In order to identify the reasons for rising order costs and the causes of quality problems, the company decided to benchmark their distribution cen­ters. Each distribution center was benchmarked against the others and against the distribution centers of competitors. The benchmarks included metric and process criteria. The results of the metric benchmarking showed that all of the company distribution centers had order costs that were higher than the competitive average.

These costs ranged from 1. 1 to 11.6 times the industry average. One of the benchmarks-warehouse space utilization was less than half of the industry average. The primary cause of the poor utilization was due to the inventory being stored in floor locations that did not utilize the height of the warehouse effectively. This caused the inventory to be spread over a much larger footprint. The larger footprint caused long travel distances for order pickers, replenishment operators, and material receivers. This in tum caused poor productivity and high order costs.

The process benchmarking showed that there were no systemic issues that would explain the low productivity and higher costs. However, they did dis­cover that the warehouses were only using 10% of the capabilities of the warehouse management system. In this article we describe how the reduced order costs and improved quality by improving the warehouse layout and by using the full capabilities of the warehouse management system.