Retrofitting the DC

New construction is not an option for most, and rapid changes in the marketplace means companies are looking for opportunities within their existing space.


Warehouse automation has been getting a lot of attention lately as food and beverage companies struggle to deal with a proliferation of SKUs, labor issues, and pressure from retailer grocers for smaller, more frequent orders. Underlying these challenges are demands for faster and more flexible delivery and greater order accuracy.

It’s not surprising that most companies don’t have the option for greenfield construction—instead, they’re looking at how to retrofit their existing DCs to not only keep pace with today’s demands, but position themselves for what’s ahead.

 

The view from above

While the recession kept a lot of non-critical spending on hold, many companies have arrived at a “tipping point,” according to Mike Kotecki, senior vice president at Dematic.

“People are generally confident about the economy, they’re hiring again. Some are more comfortable doing point solutions, while others are ready to ‘rip the lid of this thing’ and blow their competitors out of the water,” he says.

Aside from an improving economy, a number of other factors are pushing companies to make automation and technology investments now, as opposed to later, with SKU proliferation being one key driver.

Brian Sherman, vice president of accounts for WITRON, says grocery retailers’ DC retrofits are oftentimes in response to SKU proliferation, which is occurring in part because of combined growth in private label and brand name products.

“Some estimates are that SKUs are growing 1 to 3 percent annually,” Sherman says.

Paul Deveikas, division president of engineering integration at Wynright Corporation, is also hearing from his customers about capacity constraint issues due to SKU growth.

“Their DCs are typically designed for storage, not flow-through, which means pallet handling rather than less-than-pallet or case handling, and it’s a significant change for them,” he explains. “Furthermore, DCs are faced with managing higher volumes or orders comprised of smaller quantities. That’s a particular issue for the food and beverage industry and it’s really impacting their route cycles—increasing routes, managing routes, hitting route windows—it’s become very complex today.”

Deveikas says that DCs have tried to keep up by using floor locations for case picking, but with ongoing SKU growth “they’re simply running out of floor pallet locations.” And, while some DCs are looking for case storage locations for picking, “that ends up driving replenishment labor, which is unnecessary and nobody wants to do it.”

Introducing different types of vehicles in the DC for picking is another way DCs are trying to cope, but that results in more congestion in the aisles, he says.

 

All eyes are on labor

Without a doubt, labor remains one of the biggest challenges for DC operators, and the long-term outlook is even grimmer.

Baby boomers—those born between 1946 and 1964—added 9.4 million people in the 16-24 age group to the U.S. population during the 1960s, and 7.3 million people in the 1970s. They’ve started turning 65 years old, however, which means that every day for the next 18 years, roughly 10,000 more will hit the age that has traditionally been associated with retirement, according to the Pew Research Center in Washington, D.C.

Not only are many in the labor pool headed for retirement, but the cost of labor coupled with the difficulties in retaining valued labor are real headaches, especially in the less than desirable warehouse sector, says Greg Cronin, executive vice president at Intelligrated.

“In the 1980s, companies who had previously upgraded with a lot of automation suddenly reverted to using more labor in the warehouse. Today, they’ve realized that the costs are too high to continue this way, so they’re considering automation because in addition to being cheaper than labor, it’s also faster and much more accurate,” Cronin says.

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