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Getting the most from your DC capacity

Published:Sunday | January 3, 2010 | 12:00 AM

Peter Sangster, Guest Writer. Email:

Picture your distribution centre (DC) as a funnel for the flow of goods between suppliers and customers. Sometimes that funnel gets "choked" and it appears that there is insufficient capacity to handle the needed flows.

There are different approaches that can be taken to improve the flows:

1. Make the product flow faster through the funnel through operational cycle time improvement;

2. Improve the timing of what is to go into the funnel at any one time, through better scheduling of capacity, and demand management;

3. Make some flow bypass the funnel, by making direct deliveries to customers from suppliers;

4. Keep the funnel active for longer hours by adding overtime, or another shift;

5. Add another funnel in the short term, by opening another warehouse facility, or using the services of third-party distribution service provider, for a year or two; and,

6. Take the long-term view and build a bigger funnel, by building a new DC to accommodate requirements for the next five years.

Your 'effective' DC capacity is your capability to store product volumes and flow these volumes through the DC. It is the combination of:

1. Physical capacity, which is the available building volume and yard area for storage; and

2. Process capacity, which is the capability to process product volumes for storage, receipt or delivery operations.

Capacity costs money, in the form of assets that have to be bought, and resources that have to be paid for. If you can improve your effective capacity, you can use less assets and resources for the same volume of business. Alternatively, you can use the same assets and resources for greater volumes of business.

Physical capacity within the DC can be improved by using denser storage techniques and improving layouts which make better utilisation of the DC cubic capacity.

Improving yard capacity requires improving the cycle time of inbound and outbound vehicles on the compound, and improving scheduled arrival and departure times to reduce congestion.

Process capacity within the DC can be improved by examining both material and information handling techniques to reduce cycle times on activities. Changes that improve process capacity may include cross docking, new order processing techniques, and changing material-handling equipment and operational layouts.

There is always a trade-off that has to be made between physical capacity and process capacity.

The more you use the building for material storage, the more you impede product flow, and so you reduce flow capacity.

The reverse is also true. The more you keep the facilities geared for easy flow of product, the less you can store, and so you reduce storage capacity.

Special customer requirements can reduce the DC process capacity to handle more orders, and in some situations, may even exceed your current capacity:

1. It takes the DC more time to prepare orders for customers who order more frequently and in smaller lot sizes, than for customers who order in large quantities.

2. Pricing and promotional strategies that encourage customers to make big one-time buys can produce unwelcome peaks of demand for the DC.

You can work with suppliers to reduce the physical capacity you need. The DC carries less safety stock if suppliers have high quality and delivery reliability. Smaller and more frequent shipments from the supplier reduce inventory levels that the DC has to carry. You can also work with suppliers to increase your process capacity by having supplier shipments assembled in unit loads that are easier for the DC to handle.

Purchasers should have a very good understanding of how they impact physical and process DC capacities. Both 'dead' stocks, with no sales movement, and excess stocks, which will be on hand for some time, reduce the physical DC capacity. Large purchases require special attention. When inbound shipment volumes to the DC exceed DC physical or process capacity, purchasers should establish effective decision criteria for prioritising which shipments move into the DC first.

Decision criteria, in no special order, include product profitability, the available DC capacity, potential penalty costs on idle equipment, date sensitivity of product, and importance to customers.