Tips from the Field: Critical Components of an Optimal Distribution Center

By David McMahon



It is my goal to share with you observations, practices or thoughts that come from being out there on the road working with retailers to improve their organizations. Today, I’ll give you a few tidbits that are fresh in my mind after working with a five-store, one-warehouse operation that grew from five to 25 million in volume.

I was having a conversation with this particular store’s owner about what it really takes to operate a great distribution center (DC).  We agreed that a good operations manager was important, but both felt that something even more critical than that was running the proper physical facilities with the proper retail management systems and processes.

Many times over the years I’ve received complaints with regards to warehousing: too many customer service issues, slow picking, delayed delivery of merchandise, inaccurate inventory, too much returned merchandise, trouble finding stock, employee turnover, theft, too much movement between stores, not having space, ineffective management, exceptional expenses – you name it. From my experience, the majority of these problems come from the combination of having inadequate facilities for the sales volume and poor systems and processes.

My client and I both agreed that an average warehouse manager could outperform a top manager every time if equipped with a better stage to perform their daily acts.  Even if a top manager had top processes, they would lose to the average manager with a better facility because of something called “throughput”. To put it simply, “throughput” is the idea that a facility can get more merchandise in and out faster, and in better condition, if its resources can “flow” it better. Poor facilities and inefficient systems and processes are what cause the enemy of all production: Bottlenecking.

Imagine a DC as a funnel underneath a water tap.  If you have the tap on slow, the water gets through the funnel effectively and without issue. Once you increase the speed at which the tap releases water, however, the funnel can’t process it through quickly enough causing build-up and eventually overflow. Now imagine keeping the tap on the same high speed, but adjusting the funnel to be wider and with larger filtration holes. What happens? The water goes back to flowing through effectively and without issue. This is an analogy for what happens with warehousing and distribution. The back-end logistics are the funnel, determining how much top-end volume (or water from the tap) an organization can handle before diminishing returns.

With this in mind, I summarized seven critical factors that, together, can trump a top manager:

  • Having the proper dock height for receiving and delivery trucks
  • Having adequate space for holding merchandise upon receiving freight
  • Having proper storage/racking (a place to put merchandise without moving it again until delivery, pickup or transfer to the store)
  • Ensuring there is a “signal” for moving merchandise only once; aka Kanban approach
  • Having adequate space for staging merchandise for distribution
  • The ability to keep reverse logistics (merchandise coming back into facility other than new freight received) to a minimum
  • Ensuring everyone executes the right systems, processes and equipment for the individual business situation

Whatever your current situation, it’s worth it to consider where you’d like your volume to go in the future when looking at your facilities, and whether your current systems and processes enable you to operate as efficiently and effectively as possible.

David McMahon, CSCP, CMA, EA is VP of consulting and performance group at PROFITsystems, a HighJump Company.  He holds professional certifications as a Certified Supply Chain Professional and is a Certified Management Accountant. David directs four performance groups (the Kaizen, Visionary, Gladiator and TopLine groups) and multiple consulting projects.  He can be reached at  

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