Capital Funding Project Comparison

How to Get Your Project Justified
Picture yourself standing outside of your CFO’s office. The purpose of the meeting is to introduce a plan you and your team have devised that will improve operations at the distribution center. As you wait for the word to go in, your mind wanders to four months ago when you stood in a similar spot. You had just left a meeting with your President and CFO; one that you were not prepared for.

Sure you had plenty of anecdotal information about how this new piece of sorting equipment was going to improve operations. Your peers told you this project was a “no-brainer.” What you expected was a pat on the back. What you got was rejection. Your CFO said the project was not going to be funded because it lacked sufficient comparative justification.

What did he say? Comparative what? After attending some seminars on project justification, you now are ready to speak to C-level people in “their language.” Here is what you learned.

Distribution center projects are most often initiated by a need to improve one of these variables: storage capacity, productivity, or throughput capacity. Any successful project will create value. In the financial world this “value” is expressed in discounted future cash flows, and value is created only when companies invest their capital (in a project) at returns that exceed the cost of capital. Lost yet?

Project Justification works best where an organization needs to quickly select projects and decide where to invest resources. If being right the first time is becoming a requirement then you should use a disciplined approach to the analyze project’s financial justification and project justification business case.

Getting to know your CFO will help as you input your project variables into financial spreadsheets. While you’re preparing your plan consider all projects involve these variables:

• Capital investment – Property, building and/or equipment
  
  
• Savings - storage capacity, productivity, or throughput capacity
  
  
• Measurement - Do you have metrics from a baseline benchmark
  
  
• Demonstrate a cash flow timeline – costs and savings by year
  
  
• Duration - Project the payback period
  
  

Would you like a copy of this spreadsheet? Using the Morrison Company website place ROI in the contact us page.

You Do That? - Facility Assessments

Objective Observation Turns up Operational Efficiencies
Ever notice something “new” about an office building you’ve seen thousands of times on your commute in? Was it the new car in the parking lot, a different sign on the building, or the way folks access the property from the Interstate?

Want to bet how many times you walked by an obvious aspect of your warehousing or manufacturing operation without even noticing that “one-thing” that may mean a big change? The change may be a safety issue, a way to cut cost or improve efficiencies. Why not invite a storage and material handling expert to conduct an objective facility assessment? If you do here’s what you can expect.

Before we step into your back room we’ll conduct a client interview. We will listen as you describe your present system: how product is received, processed for storage, pulled for use within the facility and finally shipped.

Next we’ll address your goals. What is causing your distress? What would you like to accomplish but don’t know how to accomplish it? What ideas do you have that you are considering or have seen elsewhere? What if anything is management forecasting as far as growth, product mix, new processes or eliminating processes? Armed with this information we’ll venture out.

The on-site assessment consists of two elements:

1. Information Collection

- Understand the storage medium (pallets, gaylords, supersacks, cartons, bags, drums, etc.)

- Determine what equipment if any is being used to move product through the facility (fork lift, conveyor, pallet jack, etc.).

- Know how many trucks, people, hours per shift, and number of shifts that are presently required to accomplish the daily, weekly, monthly tasks.

- Understand the frequency of product changes that occur in a given period.

- Determine causes of product changes: seasonal or market fluctuations, customer demands, and supplier restrictions.

- Determine frequency and type of work-related accidents.

2. On-site Observation. We’ll spend time observing the operation at different times of the work-day to see how things are handled presently.

Operations Best Practices

Work Flow Analysis
At some point you will either be involved or asked to lead a workflow analysis for your department or company. Below is background information provided by the Owen Graduate School of Management at Vanderbilt University in Nashville.

Most organizations have traditionally been organized by function, such as purchasing, manufacturing, marketing, engineering, and accounting. This practice continues: human, physical, and financial resources are often managed by function, and most coordination is intra-functional rather than inter-functional. However, many organizations are finding that they must also manage processes – such as order fulfillment, new product introduction, and inter-organizational supply chain management – that span their separate functional units and that integrate their activities with those of other organizations. These processes are essential to the well being of organizations in a dynamic competitive environment.

Workflows can be based on routine processes. However, all workflows can be described in terms if a common set of components, which include the following:

• An informational element is an item or variable of interest to the process, such as sales volume, quantity on hand, purchase date, customer number.
  
  
• A report is a collection of information elements that are handled together in one or more activities.
  
  
• An activity is anything that takes an input set of information elements into some transformation that yields an output document. In general, there is a many-to-many relationship between information elements and activities.
  
  
• A resource is an entity that is essential for the execution of one or more activities. Thus, each activity has an associated set of resources.
  
  
• A process is a collection of activities that together transform a collection of predetermined inputs into a set of relevant outputs. The input set of elements is called the source of the process, and the output set is known as its target.
  
  
• A workflow system is an organization of the activities, resources and information elements needed for one or more processes within an organization.

• What activities, resources and information elements does a particular activity depend upon?
  
  
• More generally, what are the relevant interactions between different activities information elements and resources?
  
  
• What is the impact of the removal of a component of the workflow upon the relevant process?
  
  
• What is a viable structure for a specific process?
  
  
• How, in complex workflow systems can specific relationships if interest be isolated and analyzed effectively?

Monitoring and managing resources, activities, and processes can be a daunting task unless an automated means is used. One method prescribed by Vanderbilt University is the use of Metagraphs. Using the link below you’ll discover the rationale behind this analytical tool.

If you want your business to attract and retain good clients, your comprehensive people strategy must include a recruiting and selection strategy that attracts and retains quality employees. Following a well-thought-out, structured process will help you best match the right people to the right jobs in your company.

Owen Graduate School of Management at Vanderbilt University.

Industry Case Study

Catalog Distribution Center Expansion
Even prior to Sears purchasing this company, their reputation in the catalog industry was one of high efficiency. Since the purchase, Sears uses the expertise of this company to improve its distribution strategies. Two or their four locations needed expansion to meet the increased demand. Two projects were undertaken while the distribution centers were in full-time operation.

The scope of first project was to design and install a decked rack storage system for a 200,000 square foot addition to an existing facility. This storage and retrieval system was to be used to store corrugated cartons of reserve product.

The second project was to design and install staging flow rack for a 50,000 square foot building addition to their campus of distribution centers. Included in the second project was the dismantling of and moving the existing rack to the new location.

Both projects tested the expertise of the engineering and project management services of Morrison Company. Since the justification for the projects included expansion of existing facilities, it was imperative the work be accomplished at the same time ongoing storage and retrieval operations were in place.

Working with the client’s on-site management team, Morrison Company engineers devised a plan to dismantle existing racking without endangering the workers or their picking throughput. This was accomplished by simultaneously erecting the new storage locations and shifting merchandise. Maintaining a tight communication process enabled the client’s warehouse management picking software to be updated.

Installation crews were scheduled around peak picking times to allow for a safe job site, and efficient assembly of the racking components. This process repeated itself over a six week cycle culminating in an on time project completion.

For more information on this project or examples of other case studies, refer to the Morrison Company website.