OPTI MI ZI NG ORDER CONSOLI DATI ON How to Plan and Design the Most - - PowerPoint PPT Presentation

OPTI MI ZI NG ORDER CONSOLI DATI ON

How to Plan and Design the Most Beneficial Order Consolidation Methods and Equipment for Your Order Fulfillment Operation

Order Consolidation

What

Webster says consolidation is “the joining or two or more into one”. For fulfillment ~ the gathering of items from multiple, independent areas of a fulfillment

• peration into a single, shippable,

contained unit.

Do you have a need?

Order Consolidation

Why

Complex and “Big Box” operations must select items from areas which are either

• 1. independent in nature (refrigerated,

flammable, valuables, etc.)

• 2. geographically remote

Customers prefer one package delivered on time for each order

Do you have a choice?

Case Study Overview

• Neiman Marcus Direct operates the Neiman Marcus,

Horchow, Burberry, and formerly Chef’s catalogs in addition to NeimanMarcus.com.

• Orders are selected or picked from multiple areas -

Flat Apparel, Hanging Apparel, Full Case Goods, Security, and Home Textiles – and must be consolidated into one carton for delivery to the customer.

• The areas are not connected in any way within the

facility.

• Neiman Marcus customers have very high

expectations.

• NMD has no choice!

Order Consolidation

When… Where… How…

These are the questions we must answer to

• ptimize our order consolidation process!

Case Study Problem Statement

• NMD had outgrown the capacity of the existing

Consolidation area.

• The method was to place orders on shelving – pre-

assigned staging locations – until all items were present.

• Orders were then pulled daily and conveyed to

Packing.

• 2,500 orders per day required 12 people to

consolidate orders.

• Occupied 6,000 square feet of mezzanine space in

the path of needed Hanging Apparel expansion space.

Where to begin…

• 1. Understand your operation
• 2. Know the expectations
• 3. Plan for the future
• 4. Research the possibilities

• 1. Understand your operation

Volume Order Profile Product Characteristics SKU Depth Product Movement Process Flow

Case Study Statistics

• Volume = 2,800 orders per day
• 3.8 units per order
• Nearly unlimited product size assortment –

apparel, accessories, home décor, rugs, etc.

• Depth of sku limited due to sizes and

assortment

• Items picked to totes and conveyed to

Consolidation

• Security Picking and all Packing followed

Consolidation

• 2. Know the expectations

Service Standards Cycle Time Accuracy and

Quality

Safety Loss Prevention and

Security

• 3. Plan for the future
• Business Growth
• Profile Changes
• Product Mix

Evolution

• Marketing Initiatives
• Competitive

Advantages

Case Study Planning Criteria

• Plan for 4,000 orders per day
• Same day shipping of completed orders
• 75% of orders complete Consolidation in one

day

• 25% of orders may be in location for 36

hours

• Security Merchandise must be adjacent to

Consolidation

• Larger full case items moving to another

facility

• 4. Research the possibilities
• Separate solutions from sales
• Match the technology to the application
• Stretch beyond your gut feel…in both

directions

• Consult objective counsel
• Be creative

Case Study Options

• Existing Methods – Shelving

– Expand building to add needed space – Expand mezzanine within facility

• Put to Light
• Unit Sortation
• Vertical Lift Modules
• Horizontal Carousels

What next???

• 5. Develop each concept
• 6. Calculate the

investment required

• 7. Determine the ROI
• 8. Evaluate the risks

• 5. Develop each concept
• Work stations
• Space
• Labor Hours
• Support Functions
• Existing Potential
• Systems Requirements

• 6. Calculate the investment
• Capital Investment
• Execution Expense
• Depreciation Write Off
• Disruption Costs

Case Study Comparisons

2 / 4 2 / 4 2 / 4 3 / 8 5 / 12 Labor Required (Average/Peak) Interface with host polling Relocates Security also 3,000 (reclaimed) $400,000 Horizontal Carousels Interface with host polling Relocates Security also 2,500 (reclaimed) $650,000 Vertical Lift Modules Major interface, real time Requires separate packing 8,000 (open floor) $900,000 Unit Sortation Minimal interface None 9,000 (mezzanine) $450,000 Put to Light None None 12,000 (mezzanine) $300,000 Expand Existing Operation Information Technology Support Support Functions Impacted Space Utilization (square feet) Capital Investment Process / Equipment Option

• 7. Determine the ROI
• Return / Investment
• Payback
• Net Present Value

(cash flow analysis)

• Internal Rate of

Return (after tax or pre-tax)

Case Study Financial Analysis

CONSOLI DATI ON MHE TECHNOLOGY COMPARI SON - I RR/ SAVI NGS ANALYSI S Horizontal Carousels vs. Bin Shelving with Carts Method

Carousel, Bin Method vs. Cart Method Project Year "0" 2005 2010

Capital Investment Variance ($92,154) Annual Depreciation Expense Variance

• ($18,431)
• Annual Maintenance Expense Variance

+

• ($1,704)

($1,704) Annual System Expense Variance +

• ($1,000)

($1,000) Annual Labor Expense Variance +

• $68,033

$98,058

Gross Annual Savings (Pre-Tax)

• $46,899

$95,355

Memo: Cumulative Savings

• $46,899

$391,739

Tax (41% ) ($19,229) ($39,095) After Tax Gain/ Savings $27,670 $56,259 Depreciation Add-Back $18,431

• Net Gain/ Savings

$46,101 $56,259 After Tax I nternal Rate of Return =

50.5%

• 8. Evaluate the risks
• Qualitative factors
• Chance of failure
• Impact on sales
• Effect on service
• Capability of internal

resources

• Critical path of

schedule

from “The Far Side”

Case Study Solution

• Horizontal Carousels were selected due to:

– Space Utilization – available unused space in

• ld fur vault, opened existing space for GOH

expansion – Labor Savings – 7 to 9 FTE’s at peak, 4 FTE’s average – Service I mprovements – immediate shipping of completed orders – Return on I nvestment - IRR was indisputable as best choice – Risks – minimal for systems, training, and culture

Optimize Order Consolidation

• Consider all of the factors, then…
• Select the solution that most benefits your

application.

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