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Int. J. Production Economics 111 (2008) 27–41

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The design and operation of distribution centres withinagile supply chains

Peter Baker�

Centre for Logistics and Supply Chain Management, Cranfield School of Management, Cranfield University, Bedford MK43 0AL, UK

Received 24 February 2006; accepted 22 September 2006

Available online 31 January 2007

Abstract

Although the need to respond to volatile market places has been addressed in recent years by the concept of agility, the

precise role of distribution centres within agile supply chains has only been partially explored. This paper examines this

particular area by means of nine case studies into how individual business units design and operate distribution centres to

provide a rapid response to their markets. The solutions used by these companies are categorised to form a framework for

addressing this subject and as a basis for further research into the practical application of agility at the distribution centre

level.

r 2007 Elsevier B.V. All rights reserved.

Keywords: Warehousing; Agility; Flexibility; Capability; Competency

1. Introduction

With many markets becoming volatile anddifficult to predict, the focus of supply chainmanagement has needed to ‘‘shift from the idea ofcost as an order winner to responsiveness as themarket winner’’ (Christopher and Towill, 2002,p. 1). Cost, however, remains a market qualifier insuch situations (Mason-Jones et al., 2000) andtherefore agile supply chains are faced with thetwin pressures of providing greater responsivenesswhilst keeping costs at a low level.

In general, the minimisation of inventory is key toachieving these objectives, by means, for example, ofsubstituting information for inventory (Christopher,1998). Distribution centres thus need to assist the

front matter r 2007 Elsevier B.V. All rights reserved

e.2006.09.019

34 751122; fax: +44 1234 752441.

ss: peter.baker@cranfield.ac.uk.

rapid flow of goods through the supply chain, usingtechniques such as transhipping between warehousesites (Herer et al., 2002) or cross docking and in-transit merging (van Hoek, 2001). Productionpostponement at the distribution centres may alsobe part of this agile strategy (Marvick and White,1998), including such activities as final packaging,labelling and configuration to customer require-ments (Maltz and DeHoratius, 2004).

However, national statistics indicate that inven-tory has remained at a constant level in recent years,in relation to changes in Gross Domestic Product,in the US and UK economies (Frazelle, 2002a;Office for National Statistics, 2005), whilst empiri-cal research has indicated that the use of crossdocking and postponement is somewhat limited(Baker, 2004). In fact, it is recognised that theholding of inventory may form part of an agilestrategy as decoupling points may be useful to

.

ARTICLE IN PRESSP. Baker / Int. J. Production Economics 111 (2008) 27–4128

separate lean manufacturing practices (which aremore effective in stable supply situations) fromdownstream agile supply chains that serve volatilemarket places (Naylor et al., 1999). This needfor decoupling points is becoming increasinglyimportant with global sourcing which tends to beassociated with increased lead times.

The purpose of this paper is to explore howcompanies are in fact responding to the need foragility, particularly as regards how they design andoperate their distribution centres to support theirresponsiveness to the market. Modern distributioncentres are frequently very large in size as a resultof the benefits of consolidating inventory and thelong supply lines resulting from global sourcing(Harrison and van Hoek, 2005). These largedistribution centres frequently contain significantlevels of automated equipment in order to containoperating costs within such complex sites (Pfohlet al., 1992). With the warehouse buildings havingapproximately a 25-year depreciation period incompanies’ accounts and the equipment about a5–10-year depreciation period, reconciling this longlife of assets with supply chain agility is a significantissue.

2. Context

Agility is a business-wide concept that has itsorigins in manufacturing flexibility (Aitken et al.,2002). It may be described as a ‘‘managementconcept centred around responsiveness to dynamicand turbulent markets and customer demand’’ (vanHoek et al., 2001, p. 146). Indeed, agility involvesnot only responding to changing market conditionsbut exploiting and taking advantage of thesechanges as opportunities (Sharifi and Zhang, 1999).

Whilst the concept therefore addresses particulartypes of markets (Childerhouse and Towill, 2000),the need for agility is becoming increasinglyimportant as product life cycles shorten and globaleconomic and competitive pressures lead toadditional uncertainty (Christopher, 2000). In thisenvironment, companies need to locate inventoryand capacity at strategic points in the supply chainto facilitate the flow of goods to market (Strattonand Warburton, 2003).

In order to provide this responsiveness, firmsrequire flexible capabilities across a number of areas,such as product development, manufacturing andlogistics. Within each area, specific competencies arerequired to provide these capabilities (Zhang et al.,

2002). A well-known example of a competence atdistribution centre level was documented by Stalket al., (1992), namely Wal-Mart’s cross-dockinglogistics operation, which enabled goods to be‘‘pulled’’ by consumer sales data directly fromsuppliers. In fact, the whole logistics operation canbe viewed as a resource base within a firm to supportnew strategic positions such as sales expansion andnew marketing channels (Abrahamsson et al., 2003).Where these resources are not perfectly imitable bycompetitors then they may present a source ofcompetitive advantage to the firm (Barney, 1991).With the long life of warehouse assets, it is thuspossible that distribution centres may either form asevere constraint on future flexibility or provide asignificant advantage, by facilitating a response tomarket changes that competitors may find difficultto imitate.

Whilst there are some differences in the preciseunderstanding of the terms agility and flexibility(Abrahamsson et al., 2003), the starting point forthis research is the capability to respond to threetypes of agility that have been described by vanHoek (2001), namely:

�

Volume variance, for example caused by season-ality, product life cycles and end consumerdemand fluctuations. � Time variance, for example urgent orders. � Quantity variance, for example small orders,

possibly at item rather than case level.

These variances represent different logisticschallenges and therefore the competencies requiredto be able to respond to each in a cost effective andtimely manner may, in turn, be quite different innature.

In examining the required competencies, distribu-tion centres may be viewed as part of a wider systemi.e. the whole supply chain that forms part of acompany’s competitive framework (Christopher,1998). Stevens (1989) recognised the differentsystem levels of supply chains and particularly theinherent need for integration at the external (e.g.with suppliers and customers), internal (e.g. withmanufacturing) and functional (e.g. within distribu-tion) levels. This systems approach corresponds tothe framework used in analysing manufacturingflexibility, by, for example, Yusuf et al. (1999) whoproposed three levels of agility, namely inter-enterprise, enterprise and resource levels, and byKoste and Malhotra (1999) who examined five tiers

ARTICLE IN PRESS

External integrationSupply chain level

Business unit level

Physical distribution level

Warehouse level

-suppliers

-customers, etc

Internal integration

-manufacturing

-marketing, etc

Distribution network

-number, size, location-own, lease,out source-flows

Distribution centre-building -staff

-processes-systems

-equipment

Fig. 1. Hierarchical framework for examining distribution centre competencies.

P. Baker / Int. J. Production Economics 111 (2008) 27–41 29

ranging from the strategic business unit through toindividual resource (e.g. machine) level.

At the distribution function level, distributioncentres are frequently part of a network of ware-houses serving the customers. The design of thesenetworks involves such decisions as the number, sizeand location of warehouses, as well as whether theyshould be owned, leased or outsourced (Lambertet al., 1998). At the level of the individualdistribution centres, the necessary resources includelabour, space, material-handling equipment, andinformation systems, as well as the integration ofthese resources, in terms of processes (Frazelle,2002a).

These lead to a hierarchical structure for examin-ing distribution competencies as shown in Fig. 1, setout in a similar format to that described formanufacturing flexibilities by Koste and Malhotra(1999).

Whilst this paper focuses on how distributioncentres are designed and operated to provide agility,the wider system responses are also examined asthese normally form part of an integrated solution.

3. Research method

The research in this paper was based on casestudies of six European companies, five in the fastmoving consumer goods (FMCG) sector and onein publishing (serving booksellers and academicinstitutions). Where separate business units haddistinctly different supply chains, it was decided that

the business unit would be the appropriate unit ofanalysis. In total, nine business units were examinedfrom the six companies. The focus in all case studieswas on outbound distribution.

The first part of the research was undertaken bysemi-structured interviews with directors or seniormanagers examining their view as to the nature ofthe requirement for agility in their supply chains.The interviews were based on the three categories,plus sub-categories, of agility identified by vanHoek (2001). In addition, the interviewees weregiven the opportunity to add any other categories ofagility that they believed were relevant for theirparticular operation. The exact requirement of theseagility types was explored with the companies, andeach sub-category was assessed by the intervieweeson a Likert scale of 1–5. Metrics were recordedwhere appropriate, as a record of the degree ofagility required (for example, for seasonality, theratio of peak to average volumes was recorded).This relatively straight-forward method wasadopted as the main purpose of the researchis to explore the responses to perceived agilityrequirements, rather than measure the degree ofagility itself, for which other possible methods maybe appropriate, such as the use of fuzzy logic (Linet al., 2006).

The second part of the research was conductedduring visits to representative distribution centreswithin the networks of the business units. Thedistribution centres included two European Distribu-tion Centres (EDCs), four National Distribution

ARTICLE IN PRESSP. Baker / Int. J. Production Economics 111 (2008) 27–4130

Centres (NDCs) and three Regional DistributionCentres (RDCs), serving parts of the UK. Thesefacilities were within the UK, except for the EDC andan associated NDC, which were located in Poland.The site visits involved undertaking a familiarisationtour of the facility, recording the operational details ona survey form used in previous research and conduct-ing semi-structured interviews with the distributioncentre managers (or appropriate senior managers).The semi-structured interviews were based on the typesof agility identified during the interviews with supplychain management, having scored three or above onthe five-point Likert scale during those interviews. Foreach of these types of agility, the distribution centremanager was asked how the warehouse was designedand operated to meet the particular requirement. Theresults were set out within the competency frameworkoutlined in Fig. 1.

A workshop was then held, attended by repre-sentatives from five of the six companies. At thisworkshop each company was given the opportunityto refine its responses in the light of the additionalcategories of agility identified during the research.In addition, the results were discussed in the form ofthe hierarchical framework and some initial conclu-sions were developed.

4. Research companies

The nine business units taking part in the researchwere drawn from the manufacturing, wholesaling,retailing and direct selling sectors, as set out inTable 1.

4.1. Argos Direct: non-food, non-fashion direct

delivery

Two business units of Argos Direct were includedin this research.

Argos Direct, Delivery Only (ADDO) covers itemsdelivered directly to a consumer’s home, where two

Table 1

Business units taking part in the research by sector

Argos

Direct

(ADDO)

Argos

Direct

(ADSI)

Argos

Stores

Avon

Europe

Manufacturer *

Wholesaler

Retailer *

Direct seller * * *

people are required for delivery owing to the weightor nature of the item.

The distribution network of ADDO comprisestwo RDCs; these being located at Stafford andBedford, with the latter being the focus of thisresearch and comprising 665,000 ft2 (61,800m2) infloor area. Whilst seasonality and product lifecycles were important issues for this businessunit, the accommodation of growth has presenteda particular challenge owing to the large cubicmeasurement of the product lines.

The long lead times resulting from the geographiclocation of many of the suppliers (e.g. in the FarEast) has limited the extent to which inventoryholding levels can be tackled at the supply chain andbusiness unit level. The distribution network hasthus been expanded by means of additional ware-house area. This has been achieved by rentingadditional warehouse space and by building anadditional RDC (which is managed by a third-partyoperator). At the distribution centre level, theadditional warehouse space has been designed withthe nature of the goods and flexibility in mind,comprising mainly wide-aisle adjustable palletracking and block stacking.

Argos Direct, Stocked In (ADSI) covers items thatcan be delivered directly to a consumer’s home bythe driver alone, where these items have typicallybeen ordered by Internet or telephone.

The ADSI distribution network also comprisestwo RDCs, located at Tipton and Welwyn GardenCity; the latter being the focus of this research andcomprising 160,000 ft2 (14,900m2). The businessunit perceived seasonality and product life cyclesas the two key areas of agility required in its supplychain, accentuated by rapid growth in recent years.There are two catalogues per year with about onethird of the 8000 stock-keeping units (SKUs)changing for each catalogue. The peak seasonthroughput is about three times above the averagelevel for the year.

Avon

Poland

Blue-

heath

Major

retailer

Global

drinks

company

Major

academic

publisher

* * *

* *

*

* *

ARTICLE IN PRESSP. Baker / Int. J. Production Economics 111 (2008) 27–41 31

Changes of this magnitude required carefulplanning and co-ordination at all levels. Someexamples included the following. At the supplychain level, suppliers were requested to hold stockand deliver in more frequently. The cataloguechanges were coordinated at the business unit level,involving merchandising, purchasing and logisticsfunctions. At the distribution network level,changes were made to the RDC delivery areas,whilst at the distribution centre level, there werestaff and process changes (such as pickers loadinglarge items directly onto the vehicles at peakperiods).

4.2. Argos Stores: non-food, non-fashion retailer

Argos operates 580 stores in the United Kingdomand Eire from a network of six Regional DistributionCentres, three National Distribution Centres, twoDirect Import Centres and two ‘‘Extra’’ DistributionCentres (for their extended product range at largestores). In total, about 13,500 SKUs are supplied tothe stores. The focus of the distribution centre levelresearch was a 340,000 ft2 (31,600m2) RDC locatedat Lutterworth in Central England.

The company has experienced rapid growth, withdouble-digit sales growth in each of the last fouryears. The distribution network infrastructurehas been expanded and restructured to accommo-date this growth. Five distribution centres wereopened and one closed, adding a net 1.3million ft2

(121,000m2) to the warehousing capacity, within athree-year period. Up until this period, all ware-housing was undertaken in-house, but the increasedpace of business resulted in the normal 18–30 monthtime span to plan, build and commission a newbuilding was not sufficiently agile. The decision wastherefore taken to use third party logistics contrac-tors where greater speed was required. The thirdparty logistics (3PL) contractors often had ware-houses readily available of about the right size inapproximately the right location and also had themanagement and staff resources to react quickly.Thus, during this period, two 3PL warehouses wereopened with different contractors, one of 225,000 ft2

(21,000m2) and the other of 325,000 ft2 (30,200m2).Each warehouse was operational within 6–7 monthsof starting the project planning.

On the other hand, where expansion was part of along-term strategic plan, it was decided to continueon the in-house route. One example of this was a650,000 ft2 (60,400m2) distribution centre that was

opened to act as a national distribution centre forsmall items, an import centre (comprising a 90,000pallet high bay) and a returns centre.

4.3. Avon Cosmetics: manufacturer and direct seller

The research examined two business units.Avon Europe distributes goods to the company’s

national operations from its 86,100 ft2 (8000m2)EDC located at its Garwolin manufacturing plant inPoland. The throughput of the EDC has grownrapidly since it became operational in 2000. Thisgrowth has partly been accommodated by detailedoperational planning software, developed in addi-tion to the Warehouse Management System. Thishas enabled the EDC to be effective at near capacitylevels, particularly at peak seasonal periods.A further challenge has been the change in thequantities ordered with more case picking nowneeded from the largely narrow aisle pallet store.This has been achieved in part by changes in pickingprocess, such as case picking from drop pallets.

Avon Polska serves representatives in the Polishmarket from its 94,700 ft2 (8800m2) warehouse,again co-located at the Garwolin site. This is largelyan item pick operation, utilising flow racks andconveyors. A major challenge has been the veryseasonal and promotional nature of the goods. Thishas been handled by close internal business unitlevel co-ordination and by reviewing and changingthe Pareto classifications of the goods on a regularmonthly basis. The latter involves moving the picklocations of goods so that the new fast-moving linesare located in the prime pick slots, whilst lines thathave finished their promotional activity are relo-cated to slower moving slots.

4.4. Blueheath: Internet wholesaler

This is a fairly new company, established in 2000,to serve independent and multiple grocery retailers.The company has experienced rapid growth, aidedby its focus on information technology in such areasas inventory control and customer communications.The distribution operation has been set up as aflexible network of companies, with separate con-tracts in place for warehousing, ambient, chilled andfrozen deliveries. The transport operation makesuse of spare capacity in existing operations and thisaids volume flexibility and growth. The warehous-ing uses 90,000 ft2 (8400m2) of a 138,000 ft2

(12,800m2) shared user 3PL facility at Tamworth,

ARTICLE IN PRESSP. Baker / Int. J. Production Economics 111 (2008) 27–4132

operated by Gist, and this again provides flexibilityfor future growth. Up to 50% temporary staff isused at peak to provide responsiveness to demandvariance.

4.5. Major retailer

In order to provide a more agile response to its1400 stores, this major non-food retailer has workedclosely with a 3PL provider to develop a logisticssolution. A major challenge has been that ofquantity variance, as the operation has moved frompack replenishment to item replenishment for itsmedium and slow moving lines, which are stockedat a 136,000 ft2 (12,600m2) NDC located in theMidlands of the UK. This has enabled store staff toreplenish items directly to the shelf in accordancewith actual sales and therefore reduced the timespent by staff in the stores. It has also freed upback-of-store stockrooms as selling space, whereappropriate. By reducing lead times and simplifyingthe store replenishment process, on-shelf availabilityhas also been increased.

Providing this ‘‘store friendly’’ capability hasinvolved changes to many aspects of the fulfilmentoperation. In terms of infrastructure, a high-levelconveyor has been installed between two nearbywarehouses so that the daily despatches can beintegrated. The processes have changed substan-tially so that item picking can be undertaken. Atpresent, goods are stored on pallets and unloaded atthe time of replenishing the pick face into totes orcartons ready for item picking. In future, it isplanned to receive goods in totes directly fromsuppliers. The UODs (units of despatch) have beenchanged so as to provide two sizes of crates foreffective transport utilisation. These changes haveinvolved substantial equipment investment in termsof conveyors, stacker lifts and flow racks. Thechanges affecting the staff involved flexibility ofworking between warehouses, multi-skilling and6-day working.

4.6. Global drinks company

The company is a manufacturer of a wide rangeof alcoholic drinks, with many global brands. Thisresearch covered two product groups distributed viathe company’s 238,000 ft2 (22,100m2) NDC to bothon-trade customers (e.g. brewers and pub groups)and off-trade customers (e.g. national retailers andconvenience stores) in the UK.

A key distribution challenge for the company isthe handling of the seasonal peak at the end of theyear, when about 60% of the annual volume isdespatched within a 3-month period. This challengehas been compounded by rapid year-on-yeargrowth, as well as the narrowing of the peak season,as retailers have sought to reduce their own seasonalstockholdings.

The company achieves this high degree of flexibilityin the peak season chiefly at the distribution networkand distribution centre levels. Particular responses atthe network level include sending goods directly fromthe distilleries to the customers (as the larger volumesmake this cost effective and as this relieves pressureon the NDC), renting additional warehouse space,and making stand trailers available for pre-loading.At the distribution centre level, temporary staff areengaged, many of whom work each season on aregular basis and are thus familiar with the operation.

4.7. Major academic publisher

The case study focussed on the 118,000 ft2

(11,000m2) distribution centre located in the UKserving Europe, Middle East, Africa and Japan. Thesite acts as a distribution centre for the company’sown printed material, as well as a substantialproportion of third party distribution work forother publishers. The chief issues for the distribu-tion centre have been the need to accommodategrowth (of about 10% throughput per annum) andhandling a reduction in order sizes (e.g. individualbooks rather than case quantities).

The growth has been accommodated at thebusiness unit level, by increasing the frequency ofdelivery (i.e. smaller print runs), and, at thedistribution network level, by warehouse expansionand the leasing of further storage for bulk stock. Atthe distribution centre level, space has been freed upby introducing a range of bulk storage locations, sothat pallets may move from full pallet locations tohalf pallet to carton locations, as the pallets arediminished for replenishment. In addition, theincrease in titles has been accommodated byreducing the sizes of the pick locations (which hasa trade-off with increased replenishment frequency).Information technology, together with improvedsupplier relationships, has been used to facilitate theincreased throughput (e.g. electronic pre-advice andbar code labelling).

The variation in unit size has been handled byhaving distinct processes in place for pallet, carton,

ARTICLE IN PRESSP. Baker / Int. J. Production Economics 111 (2008) 27–41 33

multi-unit and single unit orders. For example, themulti-line orders are batch picked to a second‘‘active pick face’’ which contains books justrequired for that day’s orders. The locationsare thus used for different SKUs and differentquantities of SKUs each day. A surplus of locationsis provided to accommodate the variations inunit size requirements that occur on a dailybasis. Flexibility has been built in to the bar codetracking system so that goods can be trackedthrough the distribution centre at the pallet, caseor unit level, depending on the process stream inquestion.

5. Results

5.1. Agility requirements

For the interviews with supply chain manage-ment, the three basic categories identified by vanHoek (2001) formed a meaningful basis for discuss-ing the agility requirements. During these inter-views, two additional categories were identified,namely the presentation of the goods (e.g. as displaypallets) and the flexible handling of returns. For theaid of clarity during the discussions, it was founduseful to separate out information as a distinctcategory, and to group all requirements related tosupplier issues together. This need to react tochanges in circumstances relating to suppliers, aswell as customers, is also recognised by Stock et al.,(1999). A total of seven main categories weretherefore used during the interviews, namely:volume, time, quantity, information, presentation,inbound issues and returns. Sub-categories (e.g.seasonality and product life-cycles, as part of thevolume variance category) were as noted byvan Hoek (2001), together with certain additionalsub-categories identified during the interviews. Theresults are shown in Table 2.

The results indicate that the greatest requirementfor agility in the business units interviewed was interms of responding to variances in volume (i.e.throughput). Growth and seasonality were the 2greatest challenges for these companies, althoughdemand variance, promotions and product lifecycles were also rated highly. Rush orders andvariations in quantity requirements (e.g. itemsrather than cases) were important for a numberof the business units. Of the inbound issues,unexpected variations in delivery volumes and/ortimes (which were often interrelated) were fairly

common challenges, whilst a number of businessunits also noted flexibility issues with regard toreturns.

Having identified the types of agility that wereperceived as being important for each business unit,the research then focussed on how the supply chainmanagers and distribution centre managers actuallyresponded to these requirements. The results forsome of the most common variances are describedbelow.

5.2. Volume variance: growth

The methods used to accommodate rapid growthcentred on distribution network competencies. Bothin-house and 3PL solutions were identified. Thelatter included long-term partnering with 3PLproviders who could provide increasing space inshared user warehouses, in the case of smalleroperations, and ad-hoc partnering with 3PL provi-ders who could provide ready access to warehousespace, management and staff, in the case of largeroperations. However, competencies at differentlevels were required covering, for example, internalintegration (smaller manufacturing runs) anddistribution centre design (incorporating extragoods in/out docks for future flexibility). Theaggregated findings are shown in Table 3.

None of the companies were experiencing a fall involumes, but this would indeed need to be part ofthe ability to respond to volume variance.

5.3. Volume variance: seasonality

Seasonality was considered to be one of the keyareas where agility was needed, with the ninebusiness units having an average seasonal peak ofabout 100% above average levels. For one businessunit, this seasonal peak represented an increase of300%. The range of methods by which thedistribution centres responded to these peaks is setout in Table 4.

The most common methods of responding toseasonal variations were centred on staffing, parti-cularly the use of temporary staff, frequentlycoupled with the introduction of extra shifts. Aswell as the extra workload content in the peakseason, especially for order picking, there was alsopressure on space and renting external warehouseswas sometimes used to accommodate this. Inaddition, a variety of methods were used to adjustthe flow of goods either to mitigate the effects on

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Table 2

Results of supply chain management interviews

Argos

Direct

ADDO

Argos

Direct

ADSI

Argos

Stores

Avon

Europe

Avon

Poland

Blue-

heath

Major

retailer

Global drinks

co.

Major

publisher

Average

Volume

Growth 5 2 5 4 5 5 3 5 5 4.3

Seasonality 3 5 5 5 4 4 5 5 3 4.3

Promotions 2 4 3 3 3 4 3 4 1 3.0

Life cycles 5 5 3 2 1 3 3 3 2 3.0

Demand

variance

4 4 2 5 3 4 4 3 4 3.7

Time

Rush orders 3 4 1 5 2 1 4 3 1 2.7

Quantities

Units vs cases vs

pallets

1 1 1 5 1 2 5 1 4 2.3

Presentation

Outbound 2 1 1 2 2 1 4 3 1 1.9

Information

Customised

information

1 4 1 2 1 5 1 1 1 1.9

Inbound

Volume/time 1 1 3 1 1 4 2 4 5 2.4

Units vs cases vs

pallets

5 1 1 1 1 1 1 1 4 1.8

Presentation 1 1 1 1 1 2 5 1 2 1.7

Information 3 1 1 1 1 1 1 1 1 1.2

Returns

Returned goods 3 4 3 1 1 1 3 2 3 2.3

Key: Results show the degree of agility perceived as being needed on a Likert scale of 1–5: 5 ¼ ‘‘very high’’, 4 ¼ ‘‘high’’, 3 ¼ ‘‘average’’,

2 ¼ ‘‘low’’, 1 ¼ ‘‘very low or none’’.

P. Baker / Int. J. Production Economics 111 (2008) 27–4134

fixed assets or to take advantage of the extravolumes. These included the sequencing of inboundflows in smaller quantities from suppliers and theuse of direct deliveries to customers (by-passing thedistribution centres). The latter method has the dualadvantage of taking advantage of the greatervolumes during peak to select a more cost effectiverouting, whilst at the same time relieving pressureon the distribution centre during this heavy work-load period.

5.4. Volume variance: promotions

Supplier liaison and cross-functional planning forpromotions were only formalised in a couple of the

business units and although there were informalprocesses in the others this caused some issues forhandling the variations in volumes that occurred.The activities were either outsourced (e.g. forassembling special packs) or the extra volumeswere handled by additional staffing (e.g. overtimeand weekends). At one site, such measures as theallocation of large picking locations for promotionalitems and a change in the picking/loading processwere adopted (Table 5).

5.5. Volume variance: demand fluctuations

In terms of demand variance, the responseswere focussed on developing competencies at the

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Table 3

Methods used to respond to growth

Competency Method Number of business units

External integration

Suppliers — 0

Internal integration

Manufacturing, marketing, etc. Smaller manufacturing runs 1

Annual cross functional planning 1

Distribution network

Number/size of warehouses Additional warehouse space rented 3

Expanded use of shared-user warehouse 1

Excess space commitment in shared-user

warehouse

1

Use of 3PLs to obtain warehouses quickly 1

Revised role of warehouses 1

Use of other own warehouses 1

Warehouse expansion 1

More own warehouses 1

Flows Reduced intake from import warehouses 1

Use of drop trailers 1

Distribution centre

Building Excess docks 1

Equipment Smaller pick bins 1

Flexible storage—block stack, wide aisle pallet

racking

1

More wide aisle for SKU growth 1

Staff Additional shifts 1

Process — 0

Systems Use of information technology 1

P. Baker / Int. J. Production Economics 111 (2008) 27–41 35

distribution centre level in order to be able to reactwhenever they occurred. Most centred aroundstaffing, although there were some solutions inother categories, such as the direct shipment of largeorders to customers, by-passing the distributioncentre, and the use of additional pick slots thatcould be allocated to those items in heavy demand.The responses are shown in Table 6.

The responses relating to the external integrationwith customers related more to how non-agility wasaddressed i.e. smoothing flows within the ordercycle time (which does not affect customer servicewithin the specified lead times) or rationingdeliveries to customers in some way (which doesaffect service levels).

5.6. Time variance

For time variance (e.g. rush orders), the responseswere focussed on process and systems solutions atthe distribution centre level. Generally, these orderswere accommodated by prioritising them, for

example, by the use of real-time warehouse manage-ment systems and radio data terminals.

5.7. Quantity variance

With regard to quantity variance (e.g. being ableto respond to orders for items, cases and pallets), anumber of the business units had identifiableprocesses and workstreams in place for each typeof order. Where significant variations were takingplace (as in changing from case to item replenish-ment for stores), this involved competencies at alllevels to be able to implement the change. Formore minor variances, then the competencies werechiefly at distribution centre level, particularly interms of processes. The responses are summarised inTable 7.

5.8. Inbound variance: volume/time

On the inbound side, the distribution centresneeded to be agile to respond to variances from

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Table 5

Methods used to respond to promotions

Competency Method Number of business units

External integration

Suppliers Supplier liaison 1

Internal integration

Manufacturing, marketing, etc Cross functional pre-planning 2

Distribution network

Number/size of warehouses Outsource off-site 1

Flows 0

Distribution center

Building — 0

Equipment Large promotional pick locations 1

Staff Weekends 1

Extra shifts 1

Process Outsource on-site 1

Pickers also load high-cube items 1

Systems — 0

Table 4

Methods used to respond to seasonal peaks

Competency Method Number of business units

External integration

Suppliers Local suppliers hold stock 1

Sequence inbound in smaller quantities 1

Internal integration

Manufacturing, marketing, etc Cross functional pre-planning 2

Transport Use of stand trailers 1

Distribution network

Number/size of warehouses Rent additional warehouse space 2

Flows Direct deliveries by-passing DC 1

Modify delivery areas of RDCs 1

Smaller replenishments from NDC to RDCs 1

Distribution centre

Equipment Hire extra materials handling equipment 1

Staff Temporary staff 6

Extra shifts 4

Overtime/weekends 3

Annualised hours contracts 1

Process Pick slot relocation 2

Systems Operational planning 1

P. Baker / Int. J. Production Economics 111 (2008) 27–4136

suppliers whilst minimising the impact on customerservice levels. The responses fell into two categories.The first was the resolution of the problem, whichwas naturally at supply chain level, by co-ordinationwith the suppliers. The second was at distributioncentre level in being able to handle these variancesif ever they occurred. For example, one businessunit had a process to cross-dock back orders

automatically, in order to expedite the goods forall outstanding customer orders.

6. Summary

A summary of the responses for the maincategories of agility identified during the study isset out in Table 8.

ARTICLE IN PRESS

Table 7

Methods used to respond to quantity variance

Competency Method Number of business units

External integration

Suppliers Unit load change 1

Customers Unit load change 1

Internal integration

Manufacturing, marketing, etc Change to store operations 1

Distribution network

Number/size of warehouses — 0

Flows Extend working week 1

Distribution centre

Building — 0

Equipment Conveyors and flow racks 1

Surplus active locations 1

Staff — 0

Process Unit, case and pallet processes/workstreams 2

Pick from bulk 1

Drop pallet 1

Extend working week 1

Pick every store every day 1

Reduce lead time 1

Systems System changes 1

IT—unit bar code 1

Table 6

Methods used to respond to demand variance

Competency Method Number of business units

External integration

Suppliers

Customers Smooth output within order cycle time 2

Prioritise orders 1

Internal integration

Manufacturing, marketing, etc. — 0

Distribution network

Number/size of warehouses — 0

Flows Drop ship large orders by-passing DC 1

Distribution centre

Building — 0

Equipment ‘‘Day’’ pick slots 1

Staff Multi-skilled staff 4

Temporary staff 3

Weekends 3

Overtime 2

Staffing above average 1

Flexible hours 1

Extra shifts 1

Part time staff 1

Process Operational planning (twice daily) 1

Systems Forecasting focus 1

P. Baker / Int. J. Production Economics 111 (2008) 27–41 37

ARTICLE IN PRESSP. Baker / Int. J. Production Economics 111 (2008) 27–4138

These results indicate that the business unitsused competencies at a combination of levels,particularly where there was prior knowledge thatsome degree of variance was likely to occur, forexample in terms of promotions and seasonality.Growth was largely handled internally, withlarge-scale growth being enabled at the businessunit and distribution network level, althoughmoderate growth could be addressed at the distribu-tion centre level. Similarly, quantity varianceinvolved multi-levels where it affected the wholesupply chain, but was handled at the distributioncentre level otherwise. Rush orders from customersand late/incomplete receipts from suppliers wereaccommodated at the distribution centre level,although, in the case of the latter, resolution ofthe issue obviously occurred in co-ordination withthe suppliers.

The detailed breakdown of the distribution centrelevel responses is set out in Table 9. This shows thecombinations of competencies used at that level torespond to different types of variance. For example,growth was largely tackled by equipment design,

Table 8

Summary of responses by agility type and competency level (number o

Competency level Agility type

Growth Seasonal Promotions

External integration 0 3 1

Internal integration 3 3 2

Distribution

network

6 3 1

Distribution centre 4 9 2

Table 9

Summary of responses by agility type and DC competency (number of

DC competency Agility type

Growth Seasonal Promotions

Building 1 0 0

Equipment 3 1 1

Staff 1 8 2

Process 0 3 2

Systems 1 2 0

time variance by process/systems solutions, whilstseasonal and demand variances were handled chieflyby staffing policies.

In the workshop discussion, it was agreed thatagility could best be handled where variances aretackled at all four levels. The supply chain andbusiness unit levels are important for planning,smoothing throughputs, resolving issues and restruc-turing the supply network, whilst the distributionnetwork and distribution centre levels need to bedesigned to handle the true variances that remain.Practical difficulties were acknowledged that neededto be overcome to achieve the type of integrationneeded. Particular examples cited include:

�

f b

De

va

3

0

1

6

bu

De

va

0

1

5

1

1

The commercial sensitivity of promotions andthus the lack of prior knowledge even within theorganisation.

� The precision of marketing information (e.g.

forthcoming promotional activity at SKU, ratherthan generic product line, level).

� The writing-off and disposal of old inventory to

make way for new product lines.

usiness units)

mand

riance

Time

variance

Quantity

variance

Inbound

volume/time

variance

0 1 2

1 1 0

0 1 0

3 4 3

siness units)

mand

riance

Time

variance

Quantity

variance

Inbound

volume/time

variance

0 0 1

0 2 0

0 1 0

2 4 1

2 2 1

ARTICLE IN PRESSP. Baker / Int. J. Production Economics 111 (2008) 27–41 39

�

The alignment of performance metrics andincentives to business goals (e.g. the use of unitcost manufacturing metrics). � The organisational structure and responsibilities

(e.g. the role of supply chain management, aswell as the particular role of distribution centremanagement in decision-making).

A pre-requisite to the capability to respond tovolatile markets is thus the organisational andinformation-sharing competencies that form thebasis of much of the supply chain managementconcept. These need to be present at the levels ofexternal, internal and functional integration asnoted by Stevens (1989). The framework developedin this paper can then be used as a basis fordeveloping the capabilities to respond to thedifferent types of agility that are required by themarket.

7. Conclusions

Creating a customer focussed, responsive capabilityrequires an organisation-wide orientation towardscustomer retention, supported by an appropriatestructure and information systems (Day, 2003). Theimportance of such a demand-side orientation insupply chain strategy, and its link to agility,is supported by research undertaken by Morash(2001). However, it should be recognised that thisorientation will only offer sustained competitiveadvantage if it is a dynamic capability capable ofrenewing competencies so as to achieve continualalignment with the changing business environment(Teece et al., 1997).

The framework outlined above offers a tool forcompanies to review their responsiveness to themarket from the viewpoint of the actual operationat distribution centre level. It does however need tobe reviewed constantly to ensure that the compe-tencies are in place to respond to the types of agilitythat are likely to be faced. There appears notto be a ‘‘one size fits all’’ solution for all agilitytypes. Different combinations of competencies areneeded to address each type of agility, and thissupports Zhang et al. (2002). However, many ofthe competencies are common across a number ofagility types. For example, flexible staffing arrange-ments were used to provide agile responses toseasonality, promotions, product life cycle changes,demand variances, as well as to inbound variances.

Some of the main competencies identified by thecase studies were the ability to:

�

optimise the supply chain in conjunction withsuppliers and customers; � plan and make trade-off decisions across com-

pany functions;

� flex the space used within shared-user 3PL

warehouses (for smaller operations);

� access additional rented warehousing space

quickly;

� plan and have new warehouses operational

rapidly (either own warehouses or through a3PL);

� route flows through the network in line with

changing circumstances;

� design buildings and equipment for growth and

flexibility;

� adopt flexible staffing arrangements (for own and

temporary staff);

� put processes in place to address potential

variances; and

� support these processes with appropriate informa-

tion systems.

These competencies occur at all levels fromexternal integration (e.g. with suppliers and custo-mers) through to the distribution centre level andthis supports the view by Mason-Jones and Towill(1999, p. 62) that systems thinking is ‘‘the ideal wayto approach the problem of designing agile supplychains’’.

The framework is intended to provide a usefultool to practitioners for assessing the types of agilecapabilities required and the competencies that needto be put in place to respond to these eventualities.It can act as an initial checklist to ensure thatpotential competencies at each level have beenconsidered. The relative implication of each optionin terms of range, mobility, uniformity and cost(Upton, 1994) can then be assessed by practitioners.For example, some companies are addressing agilityin terms of cost adaptability, by reducing fixed costs(Katayama and Bennett, 1999), and this frameworkpresents a first step for identifying the possibleoptions to be examined. Such implications providean area for further research into this subject.

This case study research has been based on 9business units and has concentrated on outwarddistribution in the fast-moving consumer goodssector. Its applicability to other parts of thesupply chain and to other sectors thus needs to be

ARTICLE IN PRESSP. Baker / Int. J. Production Economics 111 (2008) 27–4140

validated, as well as a more detailed exploration ofpotential competencies at each level. In particular,further research is required to identify the commoncompetencies that are required to enable respon-siveness across a number of agility types and thusfor distribution centres to be agile in the true senseof the word.

In the case studies researched, most of thedistribution centres were dedicated to the particularcompanies involved, especially for the largeroperations. These distribution centres representexpensive fixed assets (however they are financedor operated) and are pivotal to the provision of highcustomer service levels. As noted by Frazelle(2002b), distribution centres are critical to thesuccess or failure of many companies. It is thusimperative that distribution centres are fullyintegrated into the planning and operations ofcompanies’ supply chains, and that they aredesigned and operated in order to be able to meetthe responsiveness to the market that may berequired, in spite of the fixed asset nature of majordistribution operations. In fact, this fixed assetnature can make distribution infrastructures diffi-cult to imitate by competitors and thus provide asource of competitive advantage for a company(as per Barney, 1991). This is a major challenge forpractitioners in the field.

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