A case study in opportunity

by Bob Footlik

During and after a recessionary period, the astute distributor can seize many opportunities for competitive advantage. An entrepreneur who prepares wisely and moves quickly can recover and grow through outperforming the competition. One method of doing this is to jump into markets where the recession created a vacuum. One of our clients recently did this, and the lessons are instructive for all wholesale distributors.

We have worked with this client since 1983, when we designed a new central distribution center for their corporate headquarters. The facility, while handsome, is not lavish, and serves the needs of the immediate market area during the day, with order picking for the branches at night.

This provides 16-hour utilization of the building and effectively doubles the stage areas and available loading docks. Initially, the concept was to resupply the branches with materials on an as-needed basis. As the branch business grew and information process became more immediate, this function evolved into providing the branches with materials according to strategic and well defined rules, and picking all orders for next day will-call and delivery.

This operational strategy significantly raised inventory turns, enhanced the service level, and provided some unexpected bonuses. By pulling orders under controlled conditions, without interruptions, productivity and quality more than doubled. The warehouse staff could focus on what they were doing, and a new warehouse management system directed them along an optimum path, with multiple batched orders. This differed dramatically from picking at the branch level where individuals pulled one line, one order at a time, while waiting on the counter and trying to receive truckloads of materials.

Surprisingly, the new practices did not reduce labor at the branch level. The number of lines written on every order changed. Tracking this statistic showed a more than 30 percent increase in order line count and a similar improvement in the dollars per order.

Gross profit skyrocketed. With more business per order, and the same labor at branch level, but less labor overall, the cost per line went way down. Couple this with the improvements in quality and service from a planned, scheduled, reliable system, and customer satisfaction began to win more market share. By retraining all the branch employees, and redefining their role, more time is spent in focused selling, and less time is wasted by inefficient operations. At one branch, this accelerated the need for more and better space.

System improvements highlight branch inefficiencies
With increased counter trade, parking at one of the branches became scarce to non-existent. Even with the acquisition of employee parking spaces a block away, too little parking was available for peak times at the counter. The customer’s solution of double parking, and using other parking lots, drew the attention of the neighbors and the local police.

Customer who received parking tickets hesitated to come back, and market share dropped. The distributor implemented a stopgap solution of encouraging more visits throughout the day. It gave certificates for food and beverages at a local restaurant to counter customers from 10 a.m. to 1 p.m. Though expensive, it temporarily spread out the demand to a more manageable level, and enhanced customer loyalty.

As business increased, and resupply turned into an every-night operation, the lack of decent loading facilities became more acute. Without a truck height dock and adequate staging areas, dropping materials at night resulted in congestion and confusion the next morning. Shifting to direct customer delivery sidestepped some problems, but branch materials and will-call orders still remained a significant problem.

Every deficiency of the branch building magnified: low ceiling heights, too little space for stock, an inefficient layout (they used the wood shelving and homemade racks left over from a previous tenant), inadequate lighting and a tight counter area. Clearly, a move to a better facility was in order, but they were reluctant to move very far and risk losing counter traffic. Everything pointed to a move but remained in limbo because there was nowhere to move to.

Sometimes a solution falls in your lap
A chance conversation with the owner of a newly rented employee parking lot revealed the landlord would downsize and needed to sell his property to prevent bankruptcy. This building was far less than perfect. The parking area and rear yard were environmentally contaminated, the ceiling height was only 10 feet, many load bearing interior walls cut into the space, mediocre loading facilities could not accept modern trucks, poor roof maintenance necessitated replacement, and obsolete environmental systems were worthless. All these problems reduced the price.

Balanced against this were the three most important attributes of real estate: location, location and location. Unfortunately, tearing the building down would open up the property to current zoning and code restrictions that would preclude rebuilding at anywhere near the same size. The question was: What can we do without breaking the bank?

This is where we became part of a team effort.

An architect is taught to design a structure, and the client will adapt to it. The engineer designs the process or layout, and expects the architect to wrap the building around it. Both strategies fail, especially in a major remodeling project. The role of the materials handling consultant is to act as a bridge between the needs of the operation and the physical reality of a facility that is intended as a marketing tool. The layout must take into consideration physical reality and the client needs, as defined by personnel who will use the facility, and market demands. Teamwork is an absolute necessity.

First, we needed to create a master plan for ultimate usage of the overall facility. This necessitated measuring the existing structure and noting significant structural features, along with potential areas for improvement.

With knowledge came insight. For example, although many walls were required to support the structure, a ribbon of windows just under the roof indicated a lintel above the glass. Significant parts of the walls could be removed without compromising structural integrity.

A layout was designed to embrace this opportunity with minimal costs initially for construction and enormous labor savings for the operation.

In a branch with a high inventory turn rate and overnight replenishment from a master distribution center, ceiling height for overstock storage is far less important than floor reachable fronts where employees can easily pick products. The layout emphasized picking fronts for the widest variety of products.

Shelving aisles were held to 3 feet, and pallet rack aisles 8 feet so that two pallets could pass. Cross aisles for adequate material flow were designed to do double duty for night time staging, without compromising early morning operation.

The EPA provides an opportunity
Indoor loading docks, a highly desirable feature, appeared problematic because of the low ceiling and topography of the site. With some adroit engineering and luck, we found a perfect solution.

An attorney knowledgeable about the environment drafted a contract that forced the seller to clean up the property and provide a “No Further Remediation” (NFR) letter. This involved removing some of the dirt in the parking lot, and paving over the area. Turning this to our advantage, we moved and redesigned the loading docks to include indoor and outdoor positions. By pitching the paved area toward the rear, at the seller’s expense, we could accommodate a full 53-foot trailer and rainwater runoff for an economical rate.

Examining the roof structure revealed wood beams that could be easily cut over the loading dock area. Rebuilding the roof four feet higher, and lowering the paved approach provided sufficient height for an overhead door to accommodate the longest trailers. Bringing the vehicle indoors shortened the turning area outdoors, providing adequate space for truck maneuvering. The overall cost was relatively low, and the building modifications were easily accomplished with a chain saw.

Similarly, channeling rain toward the available drainage necessitated paving a yard storage area included in the master plan. By specifying the materials and design for this area, no additional expense was incurred by the buyer. Paving for storage was completely compatible with the requirements of the EPA and local codes.

Staying on track
As planning progressed, The architect made changes. In some cases, these were justified by interpretations of the local building inspectors and implemented. In other areas, a plan review by the materials handling consultant, and the team, resulted in significant improvements without additional cost.

Replacing the roof with tar and gravel, without new insulation, was the least expensive option, in terms of first cost. Adding 2 inches of insulation under the same roofing material had a four-year payback. Switching to a membrane roof with 4-inch insulation resulted in a three-year payback in heating expenses and a significantly cooler building in the summer.

Lighting over every aisle was specified. The initial contractor proposal called for standard fluorescent strip fixtures. Instead, we proposed using high output fluorescent fixtures, with electronic ballasts and sensors to turn on only the lights where people worked. Even without the utility company rebate, this produced a two-year return on investment. Adding the electric utilities’ support takes the return to three months. It also provided a significant public relations advantage. Environmental awareness, coupled with rapid return, turns into a strong sales point.

Selective pruning
In most remodeling projects, rebuilding is faster, easier and cheaper than cutting, fitting and patching. Small spaces, inadequate washrooms, patchwork electrical and worn out utilities made up the office are. We removed all the walls except those perfectly situated for the master plan. Everything fell into place when we moved the front door to enhance the first impression of the property and redesigned the counter entrance for ease of customer parking and loading. Essentially, we gutted the area and removed anything dead or extraneous. This left only the best parts and none of the compromises.

The client team’s definition of the function and level of finish for the display areas proved the key factor in this design work. With a majority of the orders “will call-with add on,” customers had discretionary buying power. Self-service displays and a bright, inviting counter area cater to their wants as well as their needs.

Building more market share
Customer loyalty and business is appreciated. In this manner, the facility becomes a reward, and the counter personnel emphasize this. They encourage tours and frequently invite visitors to the warehouse.

Once there, customers readily see how organized the operation has become, and how obsolete, dirty and dingy the competitors are in comparison. This raises the buyer’s expectations. Business is booming, as the word gets around.

Any competitor could remodel their existing facility, but in the light of diminishing business and market share, they don't want to spend money. In addition, as the market turns around, an already meager supply of available buildings becomes more expensive. This puts them further behind, and may even preclude catching up. In a highly competitive market, they can  only cut prices and decrease margins, a recipe for bankruptcy.

Still time to change.
If our client had the wisdom to see an opportunity and seize it, so can you. At the very least, find the perfect location for a new facility. If this is an existing structure, available now, an investment partnership may be a vehicle for controlling it so the facility will be available when you need it. Renting the property to others can provide immediate income, and help fund future remodeling. Similarly, tying up a parcel of land through outright purchase, or a first option, guarantees availability when you are ready to move.

Putting a master plan and team in place now, and preparing for the future, guarantees you can move quickly at the perfect moment.

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