In life and in business there are distinctions. A distinction suggests the perception of dissimilarity, as the result of analysis and discrimination. For example, when a carefully made distinction is made between two material handling designs for the same business a difference may refer only to the conditions of being dissimilar, for example the difference between a tilt tray sorter and a cross belt sorter.

A distinction in life and business is the concept of “right versus wrong” versus “what works for some does not work for others.” You may be asking where the author is coming from. There is difference of opinion in the material handling and industrial engineering consulting arena as to how to design a distribution center. Who is most qualified and who can produce the best solution for a client? In this example, let's assume that the distribution center is a 450,000 square foot facility that will be used to distribute merchandise to 100 retail stores. The prospective client is considering using an industrial engineering consulting firm that is focused on a solution design that is unbiased versus the use of a Material Handling Integrator (MHI) whose livelihood is based upon selling and installing equipment. Note, the distinction is not to be righteous (right versus wrong) but “what works” for the client versus “what does not work.” Remember a distinction suggests the perception of dissimilarities as the result of analysis and discrimination.

Let's explore the approach and differences between an unbiased industrial engineering consulting firm and a material handing integrator. The approach and methods by the two parties is based upon the end goal. Yes, both parties will explain to the client that their perspective solutions have the client's best interest in mind, however we will look at the metrics used by each party to determine the best solution for a client. The metric that is predominantly used by both independent consulting firms and material handling integrators to evaluate facility design solutions is Return on Investment (ROI). To paraphrase Elli Goldratt (Author of The Goal, Its Not Luck and the Hay Stack Syndrome) “metrics derive behavior, tell me how you measure me and I will behave accordingly, if you measure me illogically then expect me to behave illogically.”

However there is a key distinction between independent consultants who have no affiliation with equipment vendors and who receive no compensation for their designs versus a material handling integrator who has the main objective of selling and installing equipment. A material handling integrator's metrics drive the entire organization (Sales Person, Design Consultant, Project Manager) to design solutions where by equipment (conveyor, racking, warehouse control system, sorters, ASRS, etc.) are the focus of the design.

Many MHI vendors have started process improvement consulting practices, or facility design consulting practices, as part of their total services solution. It is the experience of the author that the MHI vendor will heavily discount, if not provide these services for free. Is it because the MHI vendor is a non-profit organization? Or is it because the MHI vendor would rather discount a solution design knowing that theforfeit cost of service can be overcome by selling equipment to the client where the profit is greater? The selling strategy is creative, but does it warrant the best and unbiased solution for the client?

In addition, are alternative designs and conceptual solutions free of bias? If your depository of services offerings were pick-to-light, conveyor and racking,and you had no experience with WMS or voice technology would the MHI evaluate the latter? The goal of many MHI vendors is “to convert the facility design to metal” as stated by former facility design consultant.

The design approach for both an independent consulting firm and MHI vendor are similar but there are key differences during the design life cycle that a buyer should be aware of.

We will look at each one of major twelve (12) process steps and compare them between each party.

STRATEGIC PLANNING

Step 1. Establish A Project Team / Plan Objectives and Priorities
Both parties should take this approach. However, this process is critical to the independent consulting firm. Process improvement will be as much a part of the solution as material handling equipment. A cross-functional project team should be created. This team will consist of warehouse, information systems, sales, accounting personnel and consulting resources. The team should be limited to around five members. The team will interact to establish the objectives and priorities for the development of the warehouse strategic plan. The team will quantify these objectives and priorities for use as a guide in warehouse alternative generation and apply as the criteria for the qualitative analysis. The team will obtain a consensus on the objectives, priorities, and evaluation criteria.

Step 2. Establish Database
Both parties will need the data and information below in order to design the optimal facility. The following data should be obtained:

* Planning horizon (five years, etc.)
* Growth (sales and product
* Receiving and shipping requirements
* Storage and throughput requirements
* Control system requirements, etc
* Operating procedures
* Present warehouse layout
* Material flow volumes
* Unit load definitions
* Present operating cost
* Economic evaluatiocriteria and factors
* Present storage, picking, and packaging procedures
* Order profiles
* ABC analysis (velocity movement of product)

Step 3. Document Current Processes
Both parties will document current processes using tools like Visio. There are two key differentiators that most MHIs do not complete. 1) developing cross functional flows that encompass the organizations business systems and 2) developing non-value added versus value added process flows. Value added versus non-value added processes, also known as “value steaming,” is a LEAN process for evaluating processes with an organization. The concept of LEAN and MUDA (eliminating waste) should be a key component of both independent consulting firms and MHI vendors. However, the approach to solving a LEAN distribution problem should be based upon simplicity, agility and flexibility. Material handling equipment is not flexible nor agile.

Step 4. Identify and Document Alternative Warehouse Strategic Plans
Given the database established in Step 2, material handling, storage and control systems should be considered. The methods of receiving, storing, picking, packaging, and shipping, along with the quantity of SKUs (stock keeping units) in all locations should all be questioned. The utmost of creativity, innovation, and practicality should be pursued. Various operating and material handling systems, as well as storage/handling systems, should be considered. The independent firm will view the solution as optimal only if all factors are considered: Labor, Processes, Equipment, Space and System. The Material Handling Integrator will focus more on the justification of equipment (conveyors, etc.).

Step 5. Evaluate Alternative Warehouse Strategic Plans
Define the investment, installation, and operating costs for each alternative plan. Perform an after-tax economic analysis of each alternative plan. Select the best Warehouse Strategic Plan based on the overall economic and qualitative evaluations. Qualitative factors considered should be items such as flexibility, expandability, safety, security, integration, and ease of implementation. The project team should determine these factors. Both parties should focus in this area. The independent consult will focus on all potential areas of improvement. Equipment must be justifiable.

Step 6. Specify the Plan
The selected Warehouse Strategic Plan must clearly illustrate the material handling systems, storage systems, and control systems. The result of this step should be a detailed document that will detail the four steps above and the previously described methodology. Both parties should perform this step. However, the MHI will tend to want to move quickly past this step.

DETAIL PLANNING

The detail planning phase will not be performed by the MHI. There is no incentive for the MHI to locate the least expensive vendors or the equipment that best meets the needs of the customer. The MHI has fixed contracts with rack and conveyor vendors.

Step 7. Establish Bidders List
Contact appropriate equipment and system vendors and establish a qualified list of three-five vendors for each.

Step 8. Develop and Release Equipment and System Functional Specifications
An equipment and system functional specification is a document that clearly and logically defines the required functionality and bid requirements for the required equipment and systems. The document assures that all vendors provide an equal level of functionality for the price quoted. The document is prepared by the company or their representative and then sent to the appropriate vendors. The vendors will then respond with a proposal that addresses all areas of the document. Documents can range in size from ten to eighty pages depending on the complexity of the required equipment or systems.

Provide functional equipment and system specifications with information such as the following:

* General requirements
* Description of Company
* Quantity
* Dimensions
* System Overview
* Features and Options
* Operational requirements
* Performance
* Capacities
* Throughput
* Define The Functional Areas of the Warehouse
* Receiving
* Putaway, Storage and Replenishment
* Order Initiation and Picking
* Shipping
* Miscellaneous Functions (Returns, Cycle Counting, etc.)
* Integration and Interface Requirements
* Communication Protocols
* Mainframe Interface Requirements
* Software and Hardware Requirements
* Reports and Inquiries
* List of Hardware and Software
* System Development and Implementation Requirements
* System Performance
* Project guidelines
* Training
* Maintenance
* General Instructions to Bidders
* Terms and Conditions
* Pricing format
* Schedule requirements

Step 9. Vendor Interaction
The team will provide input to vendors during the bid process. The vendors should be allowed four-six weeks to complete the bid response. Items include the following:

* Respond to questions during the bid process
* Receive bids

Step 10. Coordinate Site Visits
The team will establish dates for vendor site visits and document the requirements of equipment and system demonstrations.

Step 11. Evaluate and Select Vendors
The team will perform an analysis of the equipment and system bids.

Step 12. Finalize Layout
Redesign the conceptual layout based on selected vendor's feedback. Layout the facility to maximize storage and minimize congestion. Show details and dimensions on layout for items such as staging lanes, aisles, section views of storage equipment, forklift maintenance areas and lighting requirements by area.

In life and in business there are distinctions. The distinction is not to be righteous (right versus wrong) but “what works” for client's versus “what does not work.” Remember a distinction suggests the perception of dissimilarities as the result of analysis and discrimination. The use of an independent consulting firm will allow a company to strategically plan and implement the most cost effective system where material flow and data flow are synchronized, ultimately producing the lowest total cost of ownership and positive ROI.

I have spent the last 4½ months in Europe developing a Supply Chain Strategy for a Global Company that distributes “widgets” in Western, Southern and Northern Europe. During this time, I became immersed in the culture and business practices of the region. Now that I am back in the States, it is especially apparent to me that Europe is faced with different cultural, language and infrastructure challenges compared to the U.S.

I have provided a simple table below that illustrates the geographical region and background information on each of the countries in the European Union (EU). (Although, Norway and Switzerland are not part of the EU and most likely never will be- unless Norway’s oil reserve dries up and the Swiss decide get out international banking). The Union is made up of many countries with unique cultures, languages and business infrastructure. This presents clear business challenges to the region, especially within supply chain.

In the table below the population for each country may be slightly out-of-date, but what is important is the relative size of the population compared to other countries. Population size also provides insight into the size of the consumer market.

I don’t claim to be an expert on European Supply Chains but over the last 4 ½ months and now my third European Supply Chain design in seven years, I have learned and experienced a lot. Over the last seven years I have seen significant changes in Europe. Additional countries have joined the EU. Countries are slowly but surely building out logistics infrastructure. Most of all, European countries are starting to realize that in order to be competitive, they must act as ONE. The economy, global competition, and market conditions have taken a toll in Europe. In the past, the mission of “Think Globally and Act Locally” has only been a tagline within Europe, without real execution. Companies in Europe are now acting on this mission. They don’t have a choice.

Culture & Language:

Americans struggle sometimes with how to define our culture. . Our 250-year old culture is still taking shape and maturing, whereas European countries draw from cultures that date back over 2,000 years. Thus, the culture is much more ingrained into the rhythm of life and business and into the attitudes of their people.

During my most recent stay, I spent the majority of my time in Germany, Spain, Italy, Denmark, Slovakia and Belgium. While in Germany, I made camp in a small city called Trier. The Romans built Trier in approximately 180 AD; Trier was the largest Roman Empire North of the Alps. Today there are numerous historical Roman artifacts in Trier: Porte Negra, the Coliseum, and numerous bath houses. The people of Trier are proud of the fact that they live in the oldest city in Germany. There is a strong and rich legacy that strongly influences attitudes and practices.

As an American visitor in Trier and throughout Europe, I clearly felt the distinct and rich heritage of art, architecture, food, language, religion, and family ties and tradition. Now consider how the culture of each country influences business practices. Instead of one universal language in the EU, there are many different languages and dialects. There are long-standing alliances and discord between countries. And there are different mindsets that all weave together to create a colorful, and sometimes difficult patchwork in which to conduct business. Americans sometimes have a mentality of “what is good for the U.S. must be good for Europe.” Clearly however, the business landscapes are distinctly different, and must be treated accordingly. Americans need to keep an open mind and consider culture and language differences when designing a European Supply Chain.

Infrastructure:

In Europe there is perception and reality that business is conducted within Country and you cannot conduct business across borders. Many global and international companies are set up with independent operating business units in each country because of language and cultural variances. Does this matter when it comes to designing a European Supply Chains? The answer is ‘yes.’

Unfortunately many companies, as a result of acquisitions, mergers, or go to market strategy, have established independent or decentralized supply chain networks to support the local business climate. It is not uncommon for a company to have different sales, administration support, and warehouses spread throughout Europe in order to service their local customer base. Many customers (Retail and Wholesale) expect that a Distribution Centric supplier and organization have in country stock and can service their needs by the next business day (17:00). I believe the last time I completed a U.S. network analysis where the client needed next-day coverage using a ground parcel network, the company had to have seven distribution centers (covering all 42,000+ US Postal Codes). You may be thinking it is simple, Europe is not that big. And you’re right, Europe is not that big compared to the U.S., but there are a number of infrastructure and tax challenges that must be considered when doing business in Europe.

It is a fact that Europe as whole is 10+ years behind the U.S. when comes to supply chain infrastructure, and in some cases, countries are 20+ years behind. I define supply chain infrastructure as air, rail and road networks, transport carrier coverage (all modes), supply chain execution technology, open trade policies (VAT Exempt), and free circulation of goods.

Two weeks ago I spent two full days with two of the larger parcel carriers in Europe (DPD and UPS). Meeting with each carrier validated my assumption about the logistics and technology infrastructure across Europe. UPS started their European operation in 1976 within Germany. This makes sense since Germany has the largest population and largest GDP within Europe. (For comparison purposes, imagine that UPS started their U.S. operations in California). The UPS European network was designed to optimize Germany, not Europe. This is not stay that UPS does not service other countries because they do. However, when UPS designed their network they designed their parcel network to optimize “in country” shipments versus all of Europe. Their major ground hub, which was built in Frankfurt, came online about 10 years ago. Similar to the U.S., UPS Europe utilizes a hub and spoke network, therefore packages most likely going through Frankfurt for sortation. UPS admits that had they had the opportunity to design a European Ground Network from scratch it would look entirely different. UPS by far has the strongest technology in Europe compared to their competition, and more importantly, it uses the same technology solution for all shipments within Europe.

In contrast to the U.S., European Parcel Carriers do not use zone & weight based pricing. Only a handful LTL carriers use tariffs. If you have ever negotiated a LTL or Parcel contract in the U.S., you understand the complexities. In Europe, these shipments are charged a flat rate, regardless of distance, but rates do include weight breaks.

DPD is an interesting company. The French Post owns approximately 86% of DPD. DPD is a non-asset based carrier that uses sub-contractors and an extensive franchise network to deliver their parcels. Unlike UPS, they use a “dynamic” ground network which is a fancy way to say that they have numerous depots and hubs and they ship point to point (line haul) from any depot to any depot. The advantage to their network is that they can improve both cut-off times and transit times. Although DPD is extremely competitive on pricing, you get what you pay for. If you are shipping cross0 border, you will be dealing with multiple entities and technology platforms.

I use the example of DPD and UPS to illustrate that even two of the largest parcel carriers in Europe do not provide a “Total European Solution.” To further validate the lack of infrastructure in Europe, I challenge anyone to find a parcel and LTL execution system that can execute rating, routing and carrier compliance labeling within Europe. I am not referring to a Transportation Management System, I am referring to a simple parcel/LTL execution system. In the U.S., we have numerous options: Kewill, Connect Ship, Logicore, Varsity Ship, and wide number of U.S. based WMS providers. In Europe it is a different game. There are companies that have “in country” solutions but there is not ONE solution provider that has a system that effectively complies with all of Europe.

The European Union (EU) was established to open up free trade between its members and allow free trade between countries, much like NAFTA. The reality is that each country wants a cut of the trade and they do this through a Value Added Tax (VAT). I have provided a VAT table below. The VAT laws in Europe are complex. I suggest that if you are going to ship cross-border (even within the EU), hire a VAT lawyer. Ultimately some participant in the source to consumption supply chain is going to pay the VAT.

In summary, when designing a European supply chain network there are many factors that must be considered, including: cost, service, inventory and risk. Regardless if the network design is for Europe or the United States always develop value stream maps from the customer backwards. However, a European network design provides challenges beyond cost and service. In a continent of diverse cultures and languages, humility, an open mind and willingness to learn will get you a long way. Of course, this practice will get you a long way in life in general too.

Always in Motion,

Jim Barnes