Operations leaders are constantly pressed to have faster cycle times and satisfy customer and corporate goals, all while staying within a strict budget. In the past, they could simply beef up capacity to meet these expectations, but supply chain spending and budgets are not what they once were. Organizations are starting to focus on more internal cost efficiencies considering softer margins and changing customer behaviors. One such impactful change that supply chains are considering helping achieve these organizational goals is either to consolidate or deconsolidate facilities. While there are several common strategic metrics that will help drive the decision at the executive level, the high-impact operational tasks required to execute the change don’t get nearly the attention they deserve and are often left to the operators to figure out.
The greatest chance for success is keeping the focus on your customer; this is true in consolidation, deconsolidation, or any other number of initiatives. Prioritizing processes, capacity and labor to ensure uninterrupted engagement with customers and consumers will help keep the strategic focus on organizational changes without causing new problems with current sales and service levels. Below are some suggested areas of focus, commonly overlooked by the executive level, when working through a facility consolidation or deconsolidation:
Facility Consolidation:
- Capacity Stress Test
A capacity stress test (or just stress test) is a great way to get an instant read based on real world circumstances, how much throughput any one or multiple processes has within your facility. While focusing on customer-centric processes, the recommendation is to stress test the order fulfillment flow (order picking, sortation and packing, and loading shipping). Within your current SLA’s, build up a backlog of orders to simulate order levels from the to-be consolidated facilities. Release the orders under normal staffing levels all at once and measure your throughput. The results will offer a great view into the minimum and maximum order volumes each process can support and where your bottlenecks are likely to appear post consolidation.
- Order Wave Management
If your facility manages demand through pick waves, consider building waves by pre-consolidated facilities for an interim period as part of the physical inventory consolidation. Segregating inventory long-term shouldn’t be necessary but temporarily segregating the picking allows for consideration of different order profiles and volumes. This also gives leaders a chance to evaluate what the new demand mix is going to look like for optimizing labor. If your facility streams orders, you can accomplish a similar goal by constraining picks to certain pick stations.
- Diverting Customer Returns
Diverting or withholding from consolidating customer returns is also a tactic while your other facility workstreams have time to stabilize and catch up with increased demand. Customer returns are generally a more labor-intensive receiving process requiring some type of quality disposition to both initiate the customer credit and inform on the next steps for the returned product. To allocate the right amount of oversight to ensure customers get their return credit timely, try to retain the returns processes with the pre-consolidated facilities as long as possible. If that’s not feasible, possibly due to a lease term or other timelines, try to divert the returns to a non-consolidated facility temporarily until you can stabilize the new, consolidated site.
Facility Deconsolidation:
- Assessing Inventory Turn
Evaluating your SKU inventory turn can help you to prioritize the slower or lower volume products to send to a new site before moving higher demand products. Regardless of what’s driving the deconsolidation effort, such as rebalancing of volume across all departments or prioritizing moving one complete process out of your building, lower demand products will allow the new site to stabilize and ramp processes while minimizing customer impact and service risk.
- Rebuild Your Labor Plans
It’s important to note that, while this point is being offered under the guise of deconsolidation, evaluating your labor models is relevant for any level of facility change. With either facility consolidation or deconsolidation, it’s important to connect with your planners, production controllers, and team leads early to allow for internal alignment ahead of deploying any changes that will impact labor. In addition to allocating the right resources and skill levels to processes, there’s also potential shift changes, required training and adjustments in pay scales that could be necessary to support the new normal. The last thing you want to do is see volumes dip from your facility only to have Cost Per Unit go up because of a miss in expectations when staffing departments. Taking the opportunity to rebalance your teams to fit the new volumes will serve your company well in the long run.
- Retain Certain Process Capabilities
Even after the physical move to new facilities has occurred, retaining some minimal infrastructure or capabilities tentatively will help mitigate disruption and risk. Continuing to support these processes in some limited capacity either short term or long term can provide some relief for the new facility seeking to normalize processes while trying to ramp or offer an on-demand capacity release value if volumes spike. It also allows for a period of stabilization where leaders can assess the strengths and weakness of the new space to develop practical and effective future state processes.
While there are a monumental number of tasks often related to either facility consolidation or deconsolidation, these are a few high-impact and mission critical ones which can directly impact EBITDA and the overall health of your organization. While the totality of the tasks required to execute a facility change like this is far more than what’s described above (inbound/receiving, inventory management, roles/responsibilities, etc.), the minimum path to viability is through focusing on your customer first. Start with an honest and scrutinizing review of your order flow to ensure the customer experience and service is consistent if not improved. Ensuring that customer-facing processes will continue unfazed will give Leaders the buffer needed for everything else required to bring buildings together or strategically split them apart.
