Strategic Insight The DC In The Supply Chain - fast forward Goods may not linger long in today's DC, but a lot happens during their short stay.   July, 2006 - DC Velocity Magazine By: David Maloney, Special Projects Editor

There was a time when warehouses were, well, sort of like big old warehouses. They were places to store things until a customer needed them. But those days are long gone. Today's warehouses have evolved into modern distribution centers that have become the center of the supply chain universe.

Inside these high-tech buildings, there's a lot more than storage taking place. The facilities house activities like cross-docking, sequencing, postponement, value-added services and same-day processing, to name just a few. "Instead of being a depository of inventory, the distribution center is now used as a service center," says Bob Shaunnessey, executive director of the Warehousing Education and Research Council (WERC). "This requires facilities to be more flexible to respond to the different needs of the supply chain."

That need to remain nimble-to adapt easily to changing circumstances, customer needs, order profiles and products handled-is reflected in the design of today's DCs.*

Just passing through!

In some facilities, a large volume of product never enters storage at all. These facilities serve merely as cross-docking centers, where workers receive shipments, break them down, reassemble them and then send them on their way. Cross-docking requires the facility to be both information rich and highly flexible. Sophisticated conveyors and sorters are often employed to accept a pallet load of cases and then sort them to a multitude of destinations, each representing a customer, location or process. These facilities must also have plenty of space available to accumulate products until they are ready to be shipped.

In many instances, cross-docking is made possible by suppliers who perform value-added services before the products are shipped. Customers often ask their distributors to pre-label cartons for individual stores or their own select customers so that when the products arrive as a full truckload, workers at the receiving docks can quickly unload individual cartons and send them through sortation systems that read the individual bar-coded labels and then sort each carton to its designated shipping dock. Once there, the cartons are gathered with products from other suppliers into a load destined for the retail outlet or customer.*

The Virtual DC
Customers who have their suppliers perform these functions are bound to ask an obvious question: If I'm already getting my supplier to pre-label and organize my receipts for me so that they can be cross-docked upon arrival, why do I even need a distribution center? Couldn't I save money simply by having my supplier ship the product directly to the store?

That is where the concept of the Virtual DC comes into play. Best Buy currently uses 34 different suppliers for electronic and appliance repair parts. National Parts, a subsidiary of third-party service provider Fidelitone Logistics, coordinates the supply chain for these parts and acts as a clearinghouse on behalf of Best Buy. But National Parts does not warehouse these parts. Nor do they pass through a Best Buy DC. Instead, National Parts has a virtual warehouse with a paper inventory only. Its stock bypasses the traditional warehouse and is shipped directly from suppliers to service repair locations on a consistent, predictable basis.

"It is designed to bring standardization for all their repair parts," explains Tom Giovingo, executive vice president of Fidelitone Logistics. Giovingo explains that this direct-ship arrangement, which eliminates the need for a DC to handle the parts, saves time and money, reduces transportation requirements, and minimizes the potential for damage caused by handling.

"It sometimes comes down to an economic decision," explains Giovingo. "Is it better to stock products or to pay freight directly from the supplier to the customer?"

Of course, no virtual warehouse can function without accurate and current information on what inventory is in the pipeline and where it's going. "It is just as important for us to provide clients with information as it is to ship their items," says Giovingo.*
What will the role of the DC be in the future? Well, that depends on how much it transforms itself into a service center.

"The traditional reasons of having storage are declining," says John Langley, professor of supply chain management at Georgia Tech. "DCs of the future are those that add value in other ways." 
*Excerpts from the July 2006 article.