Finding a Single-Source Supplier for an E-commerce Supply Chain

By Rush Fullerton, Contributor

Overview:

Today’s supply chains are driven by the competitive tenets of e-commerce—speed, accuracy and access to a broad inventory—all delivered at low cost. This mandate has driven distribution centers to become increasingly complex and dependent on automation systems, while raising the stakes to threaten critical damage in the event of cost overruns or project delays. Concentrating supplier responsibility for these automation projects with a single, lead provider simplifies vendor management and accountability, enabling companies to approach a single point of contact and avoid juggling delays and charges from multiple contractors.

But not all single-source suppliers are created equal. Each comes with their own in-house technology offering, including approaches to outsourcing, design and simulation capabilities, geographic locations, aftermarket resources, experience and more. The trick is to pick the right supplier with the right blend of attributes to get the job done well, on-time and on-budget.

This article serves as a guide to help large distribution centers select the best supplier for their needs, including what qualities to consider and how those translate to real-world success or failure.

What Does the DC Need?

The first step in finding the right single-source supplier is defining the role of the DC in today’s competitive e-commerce landscape. Gone are the days of distribution centers as de facto storage units, holding static inventory that awaits shipment on pre-defined, regular schedules. DCs today are high-tech hubs that play a critical role in moving a wide range of products to customers all over the world, as quickly as possible.

DCs have to be time-sensitive and cost-conscious, which means keeping logistics costs low and performance high to retain customers and stay profitable. Giants like Amazon and Walmart set the pace of e-commerce, and pressure from the “Amazon effect” trickles down to the rest of the supply chain.

First and foremost, today’s DCs must be built for speed. They are the critical hubs that make the promise of next-day delivery a reality, which also influences the design of distribution networks as a whole. Well-placed DCs can accelerate service and set up last-mile delivery for success. DCs are also popping up closer to populated areas, which means pressure to implement smaller, more space-efficient systems to mitigate the impact of more expensive commercial real estate prices, while housing massive, diverse inventories consumers expect. Stuck between record-high commercial real estate prices and storage pressures from ever-expanding inventories, the modern-day DC needs to avoid bottlenecks; optimize product flow; and make the most of available space.

With such tightly packed delivery schedules, downtime is not an option, as competitors are only a click away, ready to welcome dissatisfied customers. To keep products flowing and customers content, new projects must be online in time for peaks, and maintenance operations must keep systems running strong without interfering with high-traffic times. Otherwise, operations can pay a high price, with unplanned downtime costing companies as much as $260,000 an hour.

To survive in the vigorously competitive e-commerce landscape, DCs must be finely tuned machines with efficient, flexible automation that allows operations to meet competitive service levels—while keeping costs under control.

Selecting the Right Partner

Automation projects have a lot of moving parts, from design, engineering and manufacturing, all the way through installation and commissioning. A breakdown anywhere in the process can derail the whole project, resulting in delays and running up unplanned costs down the line. As the old idiom goes: “What costs a dime in engineering costs a dollar in the shop and $100 in the field.”

What are the criteria to consider when selecting the right system supplier?

• Cost: Automation has the potential to cut costs, if integrated properly, or drive them up significantly, if done poorly. With costs uniform across the board, the most important concern is determining who will get the job done
• In-house capabilities and capacity: Introducing subcontractors can also mean introducing extra risk of errors and delays. Larger in-house capability means a supplier can move resources around internally, without relying on a limited pool of outside specialists.
• Experience: A supplier should have a strong track record of success with projects of a similar size and type.
• Technology: Consider technology in the sense of both material handling solutions, like robotics and sortation, and the design process, like 3D mapping and simulations.
• Aftermarket support: Post-installation support can mean the difference between a successful peak season and a downtime disaster, or a cost-effective retrofit and a complete system rebuild.

In-house Capabilities and Capacity

Due to their complexity, automation projects are vulnerable to disruption, with a breakdown anywhere in the process capable of causing delays and unplanned expenses. A single supplier maintaining in-house control is capable of mitigating this risk through tight coordination and access to an exclusive pool of resources. By contrast, using the same shared pool of subcontractors for controls, systems engineering and fabrication can mean falling in line behind existing active projects and introducing the threat of poor coordination.

All system design and controls engineering work, consolidated under one roof, enables an integrated system with various processes working together for maximum benefit, rather than individual islands of automation that add up to less than the sum of their parts. However, different vendors responsible for engineering different parts of the system risks inconsistency and disorder, from ill-fitting integration to unforeseen obstructions that can cause last-minute layout changes.

Keeping fabrication in-house ensures consistent quality and components built to suit the specific application. This also enables superior agility to adapt to changes in design or timelines, without the extra administrative or financial penalty.

Installation cannot be overlooked. With the labor challenges facing the supply chain today, a supplier with in-house installation capabilities offers a distinct advantage when it comes to getting automation projects across the finish line. Geography is an important indicator, as suppliers based elsewhere do not have the same resources in North America that they do in their home markets.

Experience – In the industry at large, and with your specific company

The material handling industry is a relatively small world, so vetting potential suppliers (with input directly from those whom they had previously done business) is not only quite possible but can provide welcome insight.

Check on the supplier’s experience with similar size projects. Have they successfully completed a wide range of projects – everything from small $5 million retrofits to $200 million greenfield installations? Do they keep work in-house or regularly use subcontractors? Consider their reputation among other industry professionals and how long they have been in business. Be sure to check on industry-specific experience, like food and beverage, pharmaceutical, parcel and e-commerce for the most relevant feedback.

Assess their past performance working with your company and others. Are they easy to manage or in need of handholding, passing off heavy lifting to the end-user? Are they a cultural fit? Do they possess the legacy, knowledge and familiarity with company-specific procedures to work as a more efficient partner?

Latest Technology

Emerging technologies are key enablers of competitive advantage in today’s e-commerce landscape, and a long-term relationship with the right supplier can provide early access. Pilot programs for robotics and IoT platforms offer opportunities to trial the latest technology and provide input on new solutions still under development.

But, even before systems are designed and equipment is selected, technology to map out DC environments can ensure a smooth process with no unpleasant surprises during installation. 3D mapping systems scan the entire building and account for the true space requirements of every support beam, conduit, light, storage rack and more, ensuring sound designs both in theory and in the real world.

In a similar manner, simulation technology can increase transparency and boost confidence by virtually demonstrating how a system will function to accomplish business goals. If a customer wants to sort 20,000 packages per hour, simulation technology can bring the proposed design to life with a variety of inputs from real-world conditions informing virtual results.

Aftermarket Support

Keeping automated systems moving requires technical labor, and with that resource in such short supply and downtime so costly, suppliers with a robust range of aftermarket offerings are exceptionally valuable. These include the supply and management of original equipment manufacturer (OEM) parts, trained technicians, condition-based services and predictive maintenance, all of which come together to keep automated systems running at peak efficiency.

Upgrades and modifications can extend the life and capability of existing systems in the most cost-effective manner possible. Of course, downtime is deadly for tightly managed supply chains, so the ability to provide a timely resolution to an unexpected outage is critical. This requires 24/7 technical support access and a broad network of service technicians, capable of providing a quick, local response to find a fast, efficient resolution.

Remember the Formula for Success

The combination of e-commerce pressures and labor challenges conspire to make the modern DC increasingly complex and reliant on carefully planned, automated systems. These projects are under strict requirements for timeliness and design, with little margin for error. A supplier with generous, in-house capacity means less disruption, more control and easier management. Pay attention to track record as a strong barometer of how vendors do business, and consider how early access to cutting-edge technology can provide an advantage in today’s competitive, e-commerce-driven landscape. WMHS

Rush Fullerton is Senior Vice President of Business Development at MHS. For more information, visit www.mhsglobal.com.