Warehouse ManageMent for Wholesale Distributors

Warehouse ManageMent for Wholesale DistributorsThe AdApTive Supply ChAin neTwork

SAP White Paper SAp for wholesale distribution

Content

4 Executive Summary

5 The Evolving Supply Chain Network

5 Move Beyond Supply-driven efficiencies

6 Adaptive Supply Chain Networks

7 Beyond Push Versus Pull

7 Tools and Technology for Today’s Supply Chain

8 Warehouse Management Business Processes

8 inbound processing 8 Appointment

Scheduling 8 yard Management 9 receiving 9 Cross-docking 9 replenishment10 outbound processing10 wave Management10 picking and packing10 inventory11 Slotting

12 Enhancements to Functionality and Utility

12 value-Added Services12 data-Collection

Technologies12 Analytics12 preconfigured

Analytics12 warehouse Stock

Analytics12 warehouse workload

history12 For More information

For wholesale distribution companies, supply chain management has risen from the fast-paced warehouse envi-ronment to the top of the Ceo’s agen-da. responding to the demands of a highly competitive global environment, traditional linear supply chains are evolving into complex global ecosys-tems that are highly responsive to customer requirements.

“pull,” or demand-driven, environ-ments, working in conjunction with traditional “push” environments, are known as adaptive supply chain net-works (ASCns). in an ASCn, all stakeholders in the supply chain, both within and outside the enterprise, share knowledge, make collaborative deci-sions, and sense and respond immedi-ately to changing conditions. Multiple ASCns, including those outside a company’s sphere of influence, must work together to create an ecosystem.

Two key functions, planning and exe-cution, make up the ASCn. not sur-prisingly, within these two seemingly different business processes is a com-mon goal: profitability. when organiza-tions seek to change planning and exe-cution processes merely to cut costs without considering the effects on the other parts of the business, they may ignore the economics of the larger sup-ply chain or give it less importance. An ASCn provides the framework from which a level of economic responsive-ness can be realized. within the con-text of a fully integrated enterprise resource planning system, an ASCn can lead to more efficient operations and profitable growth.

An ASCn is the catalyst to enhance financial position and improve supply chain economics. without an ASCn, the potential for growth is limited to improving linear processes and opti-mizing single points within the network. These benefits rarely, if ever, affect the ecosystem as a whole. however, a wholesale distribution Ceo is con-cerned with strategies for improving the ecosystem.

This white paper describes how an adaptive fulfillment network, which is part of a larger ASCn, deals with sup-ply chain execution processes that reside in distribution centers but impact the larger ecosystem of an ASCn.

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4 SAP White Paper – warehouse Management for wholesale distributors

For wholesale distribution companies, single-channel supply chains are no longer the norm. Today’s supply chains have become increasingly complex, crossing geographical and cultural boundaries in a matter of moments, with products flowing in numerous directions. organizations may choose to outsource all or portions of the sup-ply chain. Therefore, quickly adapting to changes is no longer an exception but simply “business as usual.” Maxi-mum visibility into the entire supply chain is absolutely essential to turn real-world, real-time information into a competitive advantage.

driving the rapid evolution of today’s supply chains are two factors. First, companies exist in a global, networked business climate. Because business partners are now around the world as well as down the road, staying compe t-itive and becoming faster, smarter, and more productive are more complicated than ever. in a business climate that demands an immediate response to continuous business changes and the requirements of customers and share-holders, many companies are focusing on core competencies and partnering to fill in the gaps. in these partnerships, collaboration, outsourcing, and infor-mation sharing become critical success factors.

Second, companies need innovation to remain profitable – moving beyond cost reduction toward innovation and profitable growth. The velocity of change in customer needs and trends makes innovation a key competitive

differentiator for achieving profitable growth. The best-performing com-panies integrate innovation into the heart of their business processes.

Move Beyond Supply-Driven Efficiencies

A number of supply chain execution components are changing rapidly. For example, there are continuing pressures to reduce overall supply chain costs in ways that must be inno-vative but tempered by profitability. Today’s market conditions demand close adherence to the “perfect order” in which the right products are deliv-ered to customers on time and in good condition. At the same time, profit margins must be protected.

Companies must move beyond supply-driven efficiencies. Today’s preferred business model is fast becoming a “pull,” or demand-driven, environment. The ultimate source of demand is the customer. profitability can be realized by monitoring both the product velocity of consumption and the rate of return. Supply chains need to be balanced on the basis of a new set of “push” and pull dynamics. organizations must anticipate customers’ requirements and improve responsiveness to their demands by bringing high-quality, value-added products to market faster than the competition. The business processes supporting distribution oper-ations need to be adaptable. innovation that takes into account customer expectations can yield a profitable and responsive supply chain network.

the eVolVing supplY Chain netWorkThe ulTiMATe SourCe oF deMAnd

5SAP White Paper – warehouse Management for wholesale distributors

To meet the challenges of rapidly changing market dynamics, wholesale distribution companies must transform traditional linear supply chains and their sequential processes into virtual communities or ecosystems – that is, into adaptive supply chain networks (ASCns). These networks are com-munities of customer-centric compa-nies that thrive by intelligently adjusting to changing market conditions. Such companies share knowledge, quickly seize new market opportunities, and proactively respond to shorter and less predictable product life cycles. These actions help companies and their part-ners avoid supply chain problems.

Adaptive supply chain networks enable all participants – customers, suppliers, and logistics providers – to sense changes in demand and supply con-ditions as they occur and to share the critical knowledge needed to respond intelligently. The result is a supply chain network that not only is demand driven but is able to leverage its assets to influence demand wherever appropri-ate. This requires a dynamic synchro-nization of demand-driven planning, logistics, and network execution based on real-time information.

Companies need the ability to do the following:• Synchronize supply with demand

by balancing push and pull network planning in order to replenish and produce supply on the basis of actual demand

• Sense and respond with an ASCn in which distribution, transportation, and logistics are driven and integrat-ed into real-time planning processes

• enable network-wide visibility, collab-oration, and analytics across the extended supply chain

despite these requirements, most of today’s best-practice supply chain processes do not provide this flexibility because they are based on a sequen-tial plan-execute model. The goal of planning and then executing on the plan has its natural limitations. unfor-tunately, planning occurs in an abstract world that is detached from the turbu-lent world of execution, both physically and in timing, and the result is often a mismatch between these two worlds. however, when things change in the real world, an ASCn has the ability to sense these changes, enabling com-panies to respond with timely and intel-ligent actions.

aDaptiVe supplY Chain netWorksriSing To The ChAllenge oF MArkeT dynAMiCS


Success in supply chain network execution requires integrated planning and execution that is put in place before, not after, the fact. An adaptive fulfillment network, which is part of the larger adaptive supply chain network, provides the flexibility to incorporate both push and pull models for supply chain execution.

in the traditional push model, a whole-saler determines stocking and replen-ishment levels, and schedules are set in advance of sales. This approach relies on sophisticated planning tools, such as distribution requirements plan-ning systems, to time-phase the move-ment of products through the distribu-tion channel. The objective is to forward-allocate as little inventory as practical while satisfying customer ser-vice goals.

Tools and Technology for Today’s Supply Chain

while distribution requirements plan-ning and the push model have their place, today’s tools and technology allow actual demand to initiate the process and pull products into the distribution network. replenishment activities are based on actual demand rather than just a forecast. By making various efficiencies possible, such as smaller manufacturing and replenish-ment quantities, this approach helps companies realize lower inventory lev-els and lower losses due to obsoles-cence. it also enables companies to reduce or eliminate barriers between customers, suppliers, and trading

part ners, the effect of which is to reduce or eliminate expensive emer-gency orders, out-of-stock problems, and disrupted processes.

Although pull systems have significant advantages, there are situations where they must be combined with push, or forecast-based, systems. Because an adaptive fulfillment network provides a higher degree of global visibility and performance management, there is flexibility to use both or either of the models to best meet current supply chain planning and execution require-ments. with heightened awareness of actual production, inventory, opera-tions, and consumption events, com-panies can respond accordingly.

An adaptive fulfillment network pro-vides the ability to track and trace to meet or exceed consumers’ growing demands and fulfillment expectations. it also provides inclusive, real-time views of inventory across multiple systems and enables supply chain managers to rapidly implement a new course of action to respond to unanticipated changes in business processes, chan-nels, or interactions with suppliers.

beYonD push Versus pullAn AdApTive FulFillMenT neTwork


Warehouse ManageMent business proCesses AChieving induSTry-leAding CApABiliTieS

For an adaptive fulfillment network to succeed, warehouse staff need to manage warehouse activities, including inbound and outbound processing, facility management and storage, physi-cal inventory, and cross-docking, both planned and opportunistic. Successful companies take advantage of new data collection technologies, such as radio-frequency (rF) scanning, voice recog-nition, and workload-balancing tools, to make processes more efficient.

Inbound Processing

effective warehouse management, frequently supported by specialized warehouse management software solutions, includes the following inbound processes:• Appointment scheduling• yard management• receiving• Cross-docking• replenishment

Appointment SchedulingAppointment scheduling enables com-panies to provide transportation carri-ers with a predefined time to arrive at the warehouse facility. detailed infor-mation can also be provided, such as specifying that the carrier deliver the trailer to a specific dock door or leave it in a staging area to be unloaded as business needs require.

effective appointment scheduling took on a new urgency when the u.S. Fed-eral Motor Carrier Safety Administra-tion enacted hours-of-service (hoS) regulation changes in october 2005. These hoS modifications effectively created an immediate 8% decrease in carrier capacity by limiting the number

of hours a driver can work. They also redefined the way the time is calculat-ed. For example, unload times are now considered part of a driver’s available day, even though he or she is not phys-ically driving – which reduces a driver’s availability.

when there are no controls determin-ing when carriers arrive at a port, rail yard, or other distribution facility, the result is long lines with wait times that can stretch into hours. This situation negatively impacts the carrier, the driv-er, the loading/unloading facility, and the general public that has to put up with traffic congestion. By creating an appointment schedule, lines can be shortened and workload planning can be managed more effectively.

hoS changes have another major impact: they are forcing shippers and carriers to collaborate in new ways. it is no longer viable for a shipper to demand that a trailer arrive at a specific time and then ignore it for hours at the carrier’s expense. And when a carrier promises that a trailer will arrive at the shipper’s facility at a certain time, the carrier must keep that promise. now, these two groups that have historically been in conflict must work together.

hoS regulations and the constantly rising costs of shipping mandate that shippers and carriers collaborate to optimize their business processes. Appointment scheduling is the first link in the optimized process. Shippers are providing carriers with realistic, mutual-ly agreed-upon time frames, and, in turn, carriers are providing shippers with more capacity.

yard Managementwarehouse management systems (wMSs) have expanded beyond the traditional four walls of the warehouse to include interactions with the entire ecosystem. For example, yard manage-ment has become the vital link between point-to-point transportation and local delivery operations. organizations bring yard management into play when the transportation or distribution group completes the planning, and the physi-cal assets of warehouse management interact with transportation management.

Today’s adaptive fulfillment network mandates a collaborative approach to tendering profitable loads in a capacity-constrained environment. yard manage-ment helps carriers manage the appointment process at distribution centers to direct the physical move-ment of filled trailers for inbound pro-cessing and empty trailers for out-bound processing. Carriers are not the only beneficiaries. in a wholesale distri-bution environment, operations person-nel can use visibility in the yard to bal-ance priorities. A spike in demand from a customer may trigger a change in the timing of several deliveries. in addition, the visibility of product across all yards (including off-site peak-season overflow lots) can greatly improve the profitabili-ty of a given product.

For yard management, an adaptive ful-fillment network offers the following benefits:


• improved relationship between carri-ers and shippers

• increased asset utilization for capa city-constrained trailers

• enhanced visibility for business pro-cess owners outside the distribution facility

• Better dock utilization, resulting in higher throughput rates

• decreased labor costs

receivingThe receiving process includes all the steps that occur when a facility receives the goods – ranging from pro-cessing advanced shipping notifications (ASns) to processing goods receipt. The ASn 856 standard is key to streamlining inbound receiving process-ing as this electronic record contains both order and Sku details, including quantity, associated with a unique bar-code identifier. The receiving process itself can be enhanced by using rF devices, resulting in greater inventory accuracy and reduced labor costs. These devices not only collect data but also inform the user of any potential errors.

with proof of delivery, the goods recipi-ent informs the sender that the delivery has been completed as planned – that is, the right material has been delivered undamaged and in the correct quantity. proof of delivery also triggers an invoice to be sent from the sender to the recipient.

Cross-dockingwith cross-docking, inbound goods can be directed straight from goods receipt to goods issue without going into stor-age. Cross-docking eliminates dupli-

cate goods movements within the warehouse, optimizing the goods flow from inbound to outbound and shorten-ing routes within the warehouse. This accelerates the flow of goods and avoids unnecessary storage of goods in the warehouse.

when properly executed, cross- docking can reduce labor costs, increase the throughput velocity of a facility, and improve customer service. it can eliminate interim storage needs and reduce warehouse execution tasks. Cross-docking can also provide more effective and efficient warehouse operations management in terms of capacity and scheduling.

replenishmentone of the greatest challenges for any high-volume facility is the timing of replenishments. replenishment is the act of keeping the picking locations filled with enough products to meet demand. This is both an art and a sci-ence. The science entails using mini-mum and maximum quantities for a giv-en location, as well as periodic velocity analysis by slotting (discussed below). The art is in timing the completion of the tasks and managing the workforce throughout this process.

A wMS enables companies to make decisions about outbound processes while carrying out inbound processes. replenishing forward-pick locations is a very important process in any distribu-tion facility and is an example of how inbound processing works in concert with outbound processing.

incorrect minimum or maximum quanti-ties or poorly located products destroy productivity. if the maximum is set too low, there will be as many associates refilling locations as there are associ-ates picking. This is a very inefficient and expensive operation. if the mini-mum is set too high, then full-case replenishment may not fit in the loca-tion. if replenishment tasks are not completed on time, then the order fill rate will drop. As the active-picking locations remain empty, the continual processing of outbound orders will cre-ate a less-than-satisfactory experience for the customer, as well as a massive backlog of orders that may not get shipped on time. Conversely, if replen-ishment tasks are completed ahead of schedule, the resulting backlog of prod-ucts to be shipped will become a bot-tleneck that could require overtime to complete the tasks and clean up the area – also not a profitable situation.

As the integration point between inbound processing and outbound pro-cessing, replenishment makes opera-tional efficiency and customer-centric effectiveness possible. For example, on the basis of what works best for a company, the warehouse can be opti-mized to accommodate predetermined shipping processes. Conversely, an optimal warehouse arrangement can be implemented first, and then shipping processes can be based on the physi-cal location of the goods.


A wMS needs to keep this task as transparent to the consumer as pos-sible. does the customer care if the product came from a pallet, case, or broken-case area? The answer is no. however, in an efficiently run ware-house facility, it does matter how and from where the product is picked.

The balance of meeting customer expectations and running a profitable operation can be best measured by order-pick accuracy. Shipping orders that are missing products, when clearly the expectation is to “ship complete,” can destroy the faith of the customer. This can lead to expensive and unnec-essary back-order situations that could be avoided through proper processing.

A wMS can assist in selecting in the right shipping carton for packing. it is in the best interest of the customer and the shipper alike to make this decision correctly. if a carton is the wrong size, damage can occur. A carton that is too small can cause the contents to be exposed beyond the design of the cor-rugated box. A carton that is too large can use expensive packing materials that expose the contents to potential damage and erode profit margins. in addition to the potential of a customer’s claim, the carrier may reject an in-transit damage claim if the carrier’s customer service agent determines that the packing materials are inappro-priate for a particular shipment. The bottom line is that customers, business partners, and internal operations all benefit from effective and efficient pick-ing and packing.

Inventory

A successfully deployed wMS can turn inventory into a strategic, competitive advantage. A perpetual or continuous inventory can be created to keep book inventory continuously in agreement with stock on hand within specified time periods. And reconciliation between book inventory and stock on hand can be accomplished as often as after each transaction.

Cycle counting based on Sku velocity is one method of creating a perpetual inventory. Because a count is being conducted daily or even more frequent-ly, the annual physical inventory becomes a historical reference. Before a perpetual inventory process is imple-mented, corporate auditors should approve the processes involved. By certifying the counting process, the auditors assure the Ceo and CFo that the inventory is accurate.

Outbound Processing

outbound processing includes the following processes associated with preparing and shipping goods to their destination:• wave management• picking and packing

wave ManagementThe goal of wave management is to meet customers’ requirements in the most cost-effective, efficient manner by grouping and sequencing customer orders, minimizing labor, and maximiz-ing efficiencies. For example, if a com-pany is trying to achieve 100% utiliza-tion from a large private fleet of trucks, it may want outbound shipments deliv-ered to the dock on the basis of trans-portation schedules. in this case, replenishment and picking are planned for transportation efficiency. on the other hand, if customer orders are received from catalog and online sales and arrive throughout the day, transpor-tation schedules should be arranged around systematic and periodic order picking and fulfillment.

A wMS must be flexible enough to allow configuration and changes to the replenishment processes to reflect changing business needs. it should also enable replenishment tasks to be interleaved with other warehouse tasks, such as picking and packing.

picking and packingTo the customer, the most visible result of any fulfillment operation is the com-pleted order with the right product, in the right quantity, and at the right time. Therefore, the accuracy of picking and packing is paramount.


Although it is not mandatory, the best opportunity for converting to a perpetu-al inventory usually occurs during con-version or upgrade to a new wMS. during conversion, a physical inventory is taken not only to compare actual stock on hand with the system of record and book the variance but also to create a baseline. The baseline is compared with daily counts. once the auditors are satisfied that the daily counts are accurate, there is no longer a need for annual physical counts because perpetual counts are correct.

This approach to inventory control provides the following benefits:• increased inventory accuracy• reduced labor costs by eliminating

annual physical counts, which can add up to hundreds of full-time equiv-alents per facility and often encroach into overtime costs

• decreased capital investments in products with less days-on-hand inventory

• enhanced compliance with govern-ment mandates and regulations

SlottingSlotting is designed to achieve faster, more-efficient order fulfillment. it sup-ports the optimization of warehouse layout and product-placement strate-gies, reduces travel times, and boosts material handling and space utilization.

The goal of slotting is to make the facil-ity more efficient. relocating slow- moving items out of an optimal pick zone can increase throughput. placing products in a larger location or increas-ing pick faces (the presentation of an item to an employee) can reduce replenishment requirements and ensure that production plans can be met. A company can breathe life into a fully depreciated asset, such as an older distribution center, by finding through-put capacity and increased efficiencies that were not thought possible. All of these opportunities depend on the proper placement of products through slotting.


Value-Added Services

A value-added service is an operation performed on materials to enhance their value, worth, functionality, or use-fulness. Typically, value-added services are performed by workers in work centers or during normal warehouse activities. value-added services enable postponement strategies, in which finishing steps of the manufacturing process are performed at a late stage in the process chain. examples include assembly, kitting, tagging, or price marking.

Data-Collection Technologies

data-collection technologies, such as rF, enable warehouse staff to use bar-code readers, handheld terminals, and other mobile devices to capture data on the spot, enhancing both accu-racy and productivity. rF devices can be linked directly to a wMS without middleware for seamless, immediate data exchange. hardware-independent technology allows the use of devices from a variety of vendors, and easy- to-understand screens can be tailored to individual roles.

An advanced wMS can accommodate voice-recognition systems. These sys-tems use speech recognition and speech synthesis to translate data to and from a host computer. voice com-mands eliminate manual data entry and the need for paper lists or handheld ter-minals and provide gains in speed and efficiency over manual methods.

An advanced wMS integrates with material handling equipment (Mhe). in a complex distribution facility, material handling should be automated, includ-ing inbound conveyors, replenishment conveyors, pick-to-light systems, auto-mated guided vehicles, and sorting equipment and A-frames.

in general, there is significant interface complexity and inherent instability when Mhe controls decision processes. giv-en this situation, the best practice is to turn decision making over to the wMS. The wMS creates tasks, sends them to the Mhe, and receives confirmations back from the Mhe.

Analytics

organizations expect their wMS to provide analytical functionality. The technology is used for both business and technical monitoring and reporting.

preconfigured AnalyticsBusiness monitoring and reporting functionalities include the analysis of stock shuffles at different locations and stock movements across locations. Cross-location movement can be ana-lyzed by action type and cycle time.

The analytics from a wMS help a com-pany to make better process decisions based on insights from across the adaptive fulfillment network. The data is more accurate than with manual data entry, and the flow of goods can be analyzed within and across locations. The real-time awareness and increased business visibility lead to increased revenue.

warehouse Stock Analyticswarehouse stock analytics enable an immediate overview of goods and movements within a warehouse. For example, a company can analyze the slowest-moving or fastest-moving materials for a given warehouse. obso-lete parts can also be analyzed by val-ue in both a graphical format and a more detailed report.

warehouse workload historyA successfully deployed wMS pro-vides invaluable insight into warehouse workload. with this insight, the history of incoming sales orders can be ana-lyzed as can the outbound delivery quantities (sales and shipments) and line items. This can enable better labor performance and improved customer satisfaction.

workload history functionality facili-tates the analysis of goods receipts and goods issues by month. The receipts/issues variance by month can be analyzed and, if necessary, space utilization can be modified.

For More Information

To learn how SAp® software solutions can address the needs of a wholesale distribution company, call your SAp representative today or visit us on the web at www.sap.com/wholesale.

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Warehouse ManageMent for Wholesale Distributors

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