Best Practices Consortium Supply Chain Best Practices Consortium Distribution Center Configurations and Trends Executive Seminar Track 2, Session A September, 2006

Scope This session covers strategies for designing distribution centers (DCs) to meet changes in customer demands, product line expansion and seasonal volatility, as well as to minimize costs. Trends: Business changes, technology requirements, product processing, etc. Space: How much, how configured and how utilized? Operational Requirements: What are the driving forces on DCs today for basic operations?

How Have We Been Doing? Reported initiatives and trends Imports increased dramatically and changed our ideas on processing inbound and in inventory levels.

Where Do We Think We’re Going? Projected initiatives and trends Have we solved the key issues, or are we using labor to make it happen? Direct-to-consumer is real and must be addressed.

Space – How Big and How Used? Is the trend toward Mega Centers still alive and how will we use this space moving forward? Receiving – 12% Shipping – 14% Storage – 57% Packaging/Value Add – 17% “Best” Retail DC Space Allocation Average DC Stats 1000ft x 500ft rectangle 38 ft clear 30% have mezzanines 64% are considered regional DCs 45% of storage is standard pallet rack 18% of storage is still bulk on the floor

Automation – Is Everyone Using It? Retail is far ahead of industry in general in using automation. There is a significant challenge to justify automation in case pick and pallet pick operations versus piece level pick operations or very high volume operations

Inbound and Outbound Profiles Inbound product is arriving via all modes today.

Inbound and Outbound Profiles Outbound volume is still truckload, but not “true” truckload.

Dock Profile and Set-up Docks are historically a bottleneck if they are not managed correctly. Do you manage your docks or do they manage you?

Your Expectations for this Session What would you like to discuss? What would you like to learn from this session? How will outside influences affect internal operations and costs? What are these influences? What are the advantages of different distribution center configurations and/or equipment? How big is too BIG? Can we share good and bad DC designs/experiences? What should be considered when designing? What are the trade-offs? Other?

Potential Discussion Points What do your DCs do for your business? How do you measure the success of the distribution group? How much Systems Technology do you have? How much Technology do you think you need? How have imports impacted your distribution operations? How has your direct-to-consumer business impacted your distribution operations? To what degree do you leverage automation versus labor in your operations? Has it paid off historically?

Potential Discussion Points (continued) What equipment should be used for various types of operations? Are you planning or considering a new DC in the near future? What is the driving force behind it? How do you determine how much space you need for new operations? How much input do your DC managers get? When do you know you are in trouble in distribution? What do you monitor? How do you handle space capacity constraints, both short term and long term? How do you handle volume capacity constraints, both short term and long term?

Important Takeaways While there are many interesting DC facts and comparisons profiles in Benchmarking & Best Practices, some of the more important are focused around the trends that evolve them such as: Space is critical – DCs are using vertical cube more efficiently. This allows for more flexible space to support customization of product and automation to facilitate more rapid deployment of inventory to the customer, whether it is a storefront or the end user. Velocity and automation go hand-in-hand – The best practice for handling inventory is to receive and re-distribute as quickly as possible. The intelligent application of automation in distribution is proving highly effective in expanding service offerings and handling demand variability.

Important Takeaways (continued) Focus on profitability – As operations continue to grow in throughput, a penny or nickel per case can easily justify the expense in automation required to meet those volumes. But determining what level of automation best fits your needs and investing in it will put you ahead in the long term. Docks are still the constraint – Always design for more than you need. Always allow enough space to bring product in and to most efficiently build outbound loads, whether they be full trailers, multi-stop routes, or parcel shipments. Imports are changing the world – As imports increase, distribution and supply chain logistics are becoming more visible and more critical to overall company success. Knowing what is coming and when, as well as processing it efficiently, will define your future success.

Questions?

Benchmarking & Best Practices References Information on DC trends and operations can be found in the following references: Reports and Analysis Analytical Reports DC configuration and Basic Operations DC Operations Overview Warehouse Management Systems Executive Seminar Presentations Distribution Center Configurations and Trends Distribution Center Operations Practices Distribution Center Slot Management Practices Distribution Center Labor Management Distribution Center Costs and Performance Metrics Warehouse Management Systems - Current Practice and Trends Outsourced Distribution Center Operations and Value Added Services Note: Available for downloading at www.supplychainconsortium.com