Distribution Strategy: Choosing a New DC

Distribution Strategy: Choosing a New DC

By: Jim Gitney   |     August 28, 2015

Manufacturing & Distribution ConsultantsUnhappy with your current DC? Expanding to a new region?

Whatever your reason for wanting to open a new warehouse or distribution center, you know that the decision can’t be taken lightly… and 3PL providers don’t make it easy to do side-by-side comparisons of their services and prices. There is more to developing an analysis of the options than we can cover in one brief article, but here are some reminders of key considerations.

What kind of relationship will it be?

What are the requirements of your company’s strategic plan? Will you own or lease the site? Will you run the site yourself or will a third party do it? For third-party options, will you work within a public warehouse agreement, have the site be exclusive to you, or something in between? The best choice at any point in time depends both on what you need and the space, services, and prices available.

What goes into your RFQ?

Your best bet is to provide as much information as possible about the kind of space you need (bulk liquid, bulk solid, floor storage, rack storage, bin storage), how much of it you need, what you expect your turns to be, the skills and technology required to pick & ship, and other services required like ERP transactions, pre-shipment sampling, wrapping, labeling, container loading, cycle counting, and so on.

To have any hope of comparing the quotes you receive, provide a format that the potential 3PL supplier fills in with their proposal. Request an estimate of the first-year costs. (You will still have to ask a lot of questions to be sure you are comparing apples-to-apples!) This will create frustration for the suppliers vying for your business, and how they handle working within your constraints will be an indicator of how well you’ll be able to work together for the long term.

Unknown “Local” Firms vs. Someone You Already Trust

Opening a new DC is a challenging experience, and you might prefer to share it with a partner you already trust who is also interested in moving to a new site. Certainly there can be benefits to working with someone who already knows you, your product, your systems and your customers’ requirements, but keep these considerations in mind:

  1. The new site in a new location will never be a clone of the site you know.
    • Once upon a time my most trusted 3PL DC in “location A” had a sister site in “location B”, hundreds of miles away. I also had a warehouse in “location B” that was good, but not quite as good as “location A”. The parent company for “location A” agreed that I’d transfer my “location B” inventories to their site for a modest price reduction. They transferred one of their executives from the home office to “location B” to be sure that I’d get the level of service I was accustomed to. After 3 years, we threw in the towel. Even with extensive intervention, the service never rose above mediocre. As soon as I discovered that a new merger partner was in the “location B” warehouse we’d been using before, we went back with the additional volume, a small price reduction, and a big dose of humility.
  2. There are big advantages to working with a local business having roots and an extensive network in the community. Thus begins a tale of two tornadoes.
    • One of our divisions decided to consolidate all their North America inventory into one site to simplify inventory and order management. Memphis was chosen. Not yet having learned the lesson in #1 above, we issued our RFQ to existing partners, though none of them had facilities in Memphis. The one we selected was already successfully managing multiple sites in far-flung locations. They set up a great operation, on par with our best site in Belmont, NC. Oddly, within about a year, both sites were struck by tornadoes. One of them fared much better than the other.
      The result at our Belmont warehouse was so breathtaking that it appeared on CNN and was broadcast as far away as Shanghai. Most of the roof of our hundred-thousand-square-foot warehouse was ripped off. Long strips of roofing steel were twisted around nearby trees, and distinctive yellow insulation was scattered throughout the county. The twister hit at about 3:30 am, awakening one of the truck drivers waiting on the lot to load in the morning, and setting off alarms due to the pressure drop in the fire control system. By 4:30 am, police and fire crews were on the scene and preparing for cleanup. Amazingly, at about 2 pm that day, a news helicopter took a photo showing two 53’ trailers leaving the premises with 2 of the day’s many on-time shipments. Office operations had been moved up the hill to the headquarters building. Over the next couple of weeks, our full inventory of chemicals was moved to a nearby temporary site. Within 10 weeks, the roof was replaced and the return of the inventory began. Throughout the transition, there were no late shipments as a result of the disaster. We were lucky, it’s true. But the owners of the warehouse also benefited significantly from generous community support, including police and fire services, offered after years of business interaction and neighborhood involvement.
    • The result in Memphis was less positive. Although not as devastating physically, the site lost local power for several days and couldn’t get a back-up generator in place for over 3 days. We struggled with no nearby facility to lean on for help, no network of community support pitching in. We can’t know for certain that a local business would have gotten operations up more quickly, but it seems a strong possibility.

Making it happen

Managing a DC transfer is a big job, especially if you want to have no negative impact on customers. It requires a well-thought distribution and logistics strategy and a full grasp of The Total Cost of Ownership. Group50® Strategic Planning Consultants have the experience, templates, checklists, tips and reminders that can help to you make it successful. For more information, call us at (909) 949-9083, mail us at info@group50.com or request more information here.
Good luck!


 

About the author:
Martha Rollefson is Group50’s Supply Chain Performance Improvement and Quality expert. She has multi-functional experience in the chemical and consumer product industries. Her expertise also includes Lean techniques, customer-focused performance metrics, and system-based solutions as well as the implementation of SAP. Martha and the Group50 team are all former executives from well-known manufacturing and distribution companies who understand what it takes to design and successfully implement a company’s strategic plan. Group50 has designed a series of continuous improvement assessments, workshops and strategic execution tools that will optimize business performance. Call us at (909) 949-9083 or email us at info@group50.com.

This entry was posted in Manufacturing and Distribution, Strategic Execution, Weekend Thought, on August 28, 2015
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