I interviewed Steve Hopper who discussed Improving Operations in the Distribution Center Through Performance Risk Mitigation.
It’s great to speak with you today, Steve, and I’m looking forward to hearing your views today on improving operations in the distribution center through performance risk mitigation. My first question is: Is supply chain risk mitigation new? This seems to have been talked about before. What does it mean to you?
Obviously, supply chain businesses have been facing risk for a long time. What’s somewhat new about it is that in recent years, it became a fairly well-known practice area within supply chain to do supply chain risk management. Most of that is focused at the network level, where we’re talking about sourcing and supply of materials to the network and sites within the network. Very little focus has been paid to what happens inside the distribution centers, warehouses, and the manufacturing facilities in the network, where the day-to-day blocking and tackling of warehousing and distribution and that sort of thing happens. That’s really what I’ve been focusing on quite a bit lately with clients who begin to realize this is really important stuff.
What areas of risk are we talking about?
That’s a good question. In some people’s minds, they may think of safety and that sort of thing. I don’t want to take anything away from safety, but that’s not really what I was referring to with distribution and warehouse risk management. What we’re really referring to with this type of analysis is performance risk management, which, summed up, it’s the ability to manage risks that prevent the facility from achieving its mission, which is typically to satisfy customers as it produces, packs, and ships product and making sure those shipments are not hindered by something that goes wrong inside the distribution or warehousing operation.
How do you determine what risk is worth documenting when you do an assessment?
First of all, risks themselves tend to occur in, I would say, four primary types of areas. The obvious one that most people think of first when they think of a modern-day warehouse or distribution center is in the area of information technology, the software that runs the operation—for example, the WMS or the WCS; these kinds of software manufacturing-execution systems that may run a manufacturing operation. That’s a big component of it.
Another area in these operations is equipment and automation. Again, most modern-day warehouses have some degree of automated equipment or at least mechanized equipment, and that could be anything from conveyor systems to sortation systems, to order-picking automation, to ASRFs, AGVs; it could be something as simple keeping them running.
The third major area is what I call facilities. What that really is is services to the production operation that come from the facility level. That would include things like electricity, power; things like compressed air, because a lot of the automation and mechanization depends on compressed air to be supplied to that equipment; sometimes other systems, such as refrigeration systems, cooling systems; sometimes even dealing with special gases, like argon gas, as an example, that has to be piped in for various purposes, and if they lose these facility services, they’re in a bind.
The last major area, which is certainly one of the most important, is the area of people. In the area of people, if the operation is so dependent on one person who is, for example, a functional expert in one area of the operation and that’s the only person who can do that function, then there’s a lot of risk there because something could happen to that person; they could leave the company, they could get hurt, I’ve heard of people just dropping dead on the job. As horrible as that is, it also is going to affect the operation when there’s no one else to turn to.
Those are the four areas: people, facilities, information systems and technology and software, and the mechanization and automation.
When you prioritize and mitigate the risks, what do you focus on?
Steve: The first thing you’ve got to do is determine which risks are the most important. You don’t want to major and minor, as I like to say. What we typically recommend is a scoring system for the risks. We’re typically looking for single pints of failure, so if something should happen, you would cripple the operation. If an operation has a lot of redundancy in some function—for example, if there are eight stretch wrappers in an operation; if one stretch wrapper goes down, you’ve still got seven to fall back on, so that’s not a critical concern. But if there’s a * (5:47—unclear) in the whole facility, obviously, that’s a single point of failure, and when that’s down there’s nothing else to fall back on.
We look for the things that are single points of failure, and then we score them in two main areas. One is in the likelihood of a failure, and the second is in the impact of a failure. The first one is: How likely is it that a failure could happen? There are types of failures. They could be scored differently, but the fact that a risk should manifest itself in the fireplace, that’s the likelihood.
The second scoring component is the impact. That assumes that this failure happened, now what impact is it going to have on business and the ability to ship the product, that sort of thing. That has to have a scoring associated with it as well.
To answer your question, once you evaluate each risk independently and you put an objective score in on the risk, it gives you a list of risks that you can sort by that criteria so that you’re looking for the risks that have the highest likelihood and the highest impact. Those, obviously, would be the risks you would start with as the most important ones to mitigate.
Can you talk about how you reduce the risk?
It’s really an extension of what I mentioned a minute ago about the likelihood and impact components. What you have to do is really analyze what controls you can put in place to reduce likelihood. An example might be there that we would put some redundancy in place. If it’s on the people side, we would have multiple who could do a function so that if one of them is not available, you still have the ability to perform that function with the other person.
Or if it’s a shipping-sortation system, you might have extra components put into the system, like backup lines and things like that you can use. If it’s a compressor system providing compressed air to an operation, you might put in a backup compressor that takes over when the first one stops working. That’s one way: controlling the likelihood of an event happening.
The other side of that, though, is another set of controls. Once an event, a failure, has happened, how do you reduce the impact of the failure? There are controls you can put in place that will lessen the magnitude of the impact. For example, if a motor in a heavily mechanized piece of machinery goes down and breaks and you have to replace the motor, you obviously have to make sure you have a spare motor in stock so you don’t have to have it shipped in from somewhere with a six-week wait time to use that piece of equipment again. That would be a good example of how you might reduce the impact.
Another really important way to reduce impact is to have standard operating procedures in place that all the people in the facility understand. When a breakdown of that type occurs, everyone knows how to follow the playbook, and everyone knows what to do, what the contingency plan is in that operation.
I’ll give you a concrete example. There was a client I had that had a very complex merge, a sawtooth merge in a high-speed conveyor system that is sort of the main artery coming into their main sorter. If that merge fails, they have a plan in place, and they can staff that merge with people so that people can literally manhandle the cartons and totes that come from the individual lines and put them on the main line. It’s a labor-intensive process but allows them to keep shipping product while the merge is being prepared. That’s a documented standard operating procedure they’ve put in place in the event that should happen. That’s what we’re looking for: ways to reduce the likelihood and ways to reduce the impact.
Thanks, Steve. Can you provide a brief background of yourself?
Sure. I am the founder and principal with Inviscid Consulting, based in Marietta, Georgia. We are a consulting firm whose mission is to help clients who manage distribution and warehousing operations reduce their cost, improve their customer service, to boost capacity, and, of course, to reduce risk so that the result is really a streamlined operation that provides the best value for their investment and distribution. That’s who we work with, those kinds of companies, and improving their operations.
Thank you, Steve, for sharing today.
Thank you, my pleasure.
About Steve Hopper
Helping Businesses Plan & Streamline Warehousing, Logistics, & Distribution Operations (LION)