Last April, Herren secured a great opportunity to work with Good360, a local non-profit organization that facilitates the distribution of product donations from large retailers to small charities nationwide. Good360 had a strategic goal of reaching $1B in annual production donations, but they were unsure if their warehouse could process enough products to meet such an ambitious goal. To determine if their strategic goal could be reality, they tasked Herren Associates to evaluate and develop improvements for their main (Omaha) warehouse and corporate office.
The Omaha warehouse had several distinguishing features from other warehouses.
• The leased warehouse space is located within a warehouse owned and operated by CargoZone
• Their location on the second floor (mezzanine level) of the warehouse required a forklift for shipping and receiving pallets (paid service from CargoZone).
• Production space had to be flexible to accommodate variable and unpredictable donation types.
• Total storage space was approximately 2070 pallets (between the mezzanine level and CargoZone loaned space). Storage in the mezzanine was free; however, storage in the CargoZone required an additional fee.
• With the exception of 3 temporary production workers, the remaining production staff was volunteers.
Herren spent two weeks analyzing and developing recommendations for Good360. During the first week, Herren visited the Omaha warehouse to watch the current operations, to interview the stakeholders, and to review operating procedures. Using traditional industrial engineering techniques and methodologies, Herren began developing new warehouse layouts and product flows. Additionally, Herren created new SOPs to prevent bottleneck processes.
In the second week, Herren analyzed the data collection practices for the Omaha warehouse, the future ERP implementation strategy, and the corporate operations. Herren delivered a data collection plan that included key metrics and visuals to help capture and understand process trends. This was the basis for the future ERP implementation strategy. Finally, at a high level, Herren reviewed corporate strategies in order to provide several recommendations to reduce production time and increase revenue.
Herren developed seven actionable recommendations in order to maximize operations at the warehouse, with the potential to reach $1B in new product donations in the future.
Optimized Warehouse Layout
The first warehouse layout was designed to improve the current operations of the Omaha Warehouse by implementing small changes that would have the largest production impacts.
1. Dedicated Shipping/Receiving lane – creates an assembly line flow and reduces congestion
2. Products received directly in production– Travel time reductions
3. Finished pallet staging moved to shipping gate – Reduces congestion
4. Cartons moved closer to production – Travel time reductions
5. Staged goods pick strategy – Speed based picking, travel time reductions, and improved product flow
The second warehouse layout was designed to maximize the production and storage space potential of the entire facility. This layout would require additional research and capital to execute, and would have a minimum capital investment of $18,000. The benefits of this layout would include:
1. Increased warehouse space by 60%
2. Reduced holding cost (more staged in mezzanine)
3. Increased number of production lines in new space
4. Creation of dedicated multi-sort production lines
Herren recommended that Good360 should invest in a new pallet hand truck and sortation bins to improve production flow and efficiency. At an estimated cost of $700, the pallet hand truck would allow a smoother transition of pallets in shipping and receiving for increased donation volume. At an estimated cost of $900, the sortation bins would also improve the efficiency and effectiveness of Good360’s multi-sort operation.
Future Metrics Collection
In addition to having a functional ERP, Herren recommended that Good360 should track five specific metrics to understand the warehouse’s capabilities. These metrics included:
1. Product Classification
2. Inventory Turnover
3. Warehouse Utilization
4. Product Cycle Time
5. Quality of Goods
One of the main process bottlenecks occurred when products finished production and were uploaded into the catalog for purchase. An in-depth analysis revealed that communication and research times were slowing the overall process. To fix this issue, Herren developed a Fair Market Value tool to improve communications, knowledge management, and cycle time between the end of production and catalog uploading.
1. De-branding – Address de-branding early in the process by having corporate work with donors to ensure donations are de-branded ahead of time
2. Aged Merchandise – Selling product at a discounted admin fee based on arbitrary measures can cause a loss in potential revenue
3. Admin Fees – Change B2B admin fee structure to meet the value of the cargo transported
4. Website Advertising Revenue – Start looking for revenue streams through advertising on your website
ERP Implementation Strategy
Herren developed a report for Good360 on best practices for implementing an Enterprise Resource Planning (ERP) system. In the current economic environment, businesses must improve their information systems and design processes to provide agile and dynamic forecasting capability. To achieve this, final objective data analytics must be captured at every step in the supply chain in order to assure a high-quality output. Herren provided recommendations to Good360 for their ERP system so that they could capture this data automatically, eliminating human error and expediting the analysis and implementation of determined results. Typical ERP system modules include features and functions for accounting, human resources (HR), manufacturing management, customer relationship management (CRM), and other business functions in order to facilitate every element of the operations process. ERP systems with supply chain management functionality also include inventory and purchasing planning tools as well as quality management capabilities. ERP software is often configured with specialized components for a particular industry or type of manufacturing, with Good360 requiring tailored features for nonprofit charities. To best represent Good360 requirements, Herren Associates broke down their recommendations into four categories – Financials, Operations and Logistics, Sales and Marketing, and Human Resources. They then provided process maps outlining each category and highlighting data points for system collection and analysis.
A key observation while reviewing Good360’s current operations was the need for purposeful measurement, and an understanding of how this can be used to both provide knowledge of current capabilities as well as how current processes can be improved. Implementing Herren ERP recommendations successfully would provide a framework to collect the necessary information; that, along with Herren’s data description would enable successful application into everyday operations.