Supply chain solutions improve accuracy, efficiency and productivity

BY MICHAEL KRABBE

Special to The Wholesaler

Supply chains for companies in the wholesale industry face a myriad of challenges as their businesses grow or merge (i.e., “consolidate”) and as their business strategies change.  The pressure to reduce costs in supply chain activities while striving to provide quality customer service is common throughout all industries. But there are specific challenges wholesale distributors face daily that prove even more difficult. These challenges may include varied SKU sizes, varied order sizes, numerous shipment methods, or growing value-added services. They may also include product reservations (i.e., “reserved product”), new skus that have not been rationalized with older SKUs, and pressures from vendors to increase purchase quantities because of upcoming price changes. 

Given these challenges, it can be difficult for wholesale distributors to see the forest through the trees!  Distribution center management is often more focused on combating daily fires than on improving the distribution center’s processes to accommodate future growth.

One company has managed to see past the trees and invest in its supply chain to reduce ongoing costs, yet accommodate its business growth -- from $770 million in annual revenue to more than $2.4 billion. Many companies would not have seized this opportunity to invest in their distribution network, but this company did, and its results have been impressive:

• Picking productivity increased 25%
• Picking efficiency increased 48%
• Order cycle times were shortened
• Order accuracy rates increased to 99.9%.

The challenge: Rapid growth causes bulging at the seams

WinWholesale, the third-largest wholesale distributor in the U.S., is a privately held company that earns more than $2.4 billion in annual revenue and employs in excess of 5,000 people nationwide.  Headquartered in Dayton, Ohio, WinWholesale is not a franchise organization. Instead, it’s a collection of more than 470 independent corporations and 103 Noland locations (a wholly-owned subsidiary with locations throughout the southeastern U.S.) that distribute products and equipment for residential and commercial construction markets in 44 states in seven industries:  

• Plumbing supplies (e.g., fixtures, pipes, fittings, and water heaters) through 253 Winnelson companies
• Industrial PVF supplies (e.g., industrial pipes, valves, and fittings) through 48 Windustrial companies
• Heating and cooling (e.g., heating, ventilation, air conditioning and refrigeration) through 59 Winair companies
• Electrical supplies through 63 Winelectric companies
• Water supplies through 30 Winwater Works companies
• Pump supplies (e.g., pumps and accessories for water systems) through eight Winpump companies
• Fastening supplies (e.g., fastening hardware and related tools) through three Winfastener companies.

The company operates five distribution centers located in Dayton, Ohio; Phoenix, Ariz.; North Haven, Conn.; Prince George, Va.; and Denver, Colo.

During the past 10 years, WinWholesale has grown from earning $770 million in annual revenue to earning nearly $3 billion. As the business grew, it began to experience problems in several areas:

• Its paper-based warehouse management processes were inefficient and unable to keep up with growth without adding additional employees.
• Its distribution centers were operating over capacity, leading to excessive overtime, decreased efficiency and a significant increase in costs. This led to a reactive “firefighting” mentality.
• Its facilities’ sub-optimal storage and inefficient picking patterns created unnecessary costs.
• The seasonality of its business created additional strains, such as frequent overstock and out-of-stock conditions.

In other words, the processes that had worked for them when they were smaller were no longer tenable.

Paper processes aren’t scalable

WinWholesale relied intensely on manual paper processes:

• Employees received inbound shipments and returns on paper
• Employees located inventory based on paper reports
• Employees used paper pick lists to plan pick routes
• Employees hand-wrote bills of lading for its carriers.

Paper processes aren’t scalable solutions, so as the business grew, the number of employees WinWholesale needed increased proportionally. This, in turn, increased costs without necessarily improving efficiency. The company clearly needed a scalable solution.

Distribution centers out of capacity

Business in the distribution centers was increasing sharply as WinWholesale centralized its purchasing operations and increased the numbers and types of products it carried for its member organizations. This change enabled the organization to benefit from economies of scale as it could purchase in bulk from manufacturers. Member companies were then able to purchase inventory more easily and cheaply from the corporate distribution centers.

This also meant additional capacity requirements, which the centers could no longer accommodate. The company needed to increase its distribution center capacity, either through new or bigger facilities.

Storage and operating processes can’t keep pace

It became clear that even with the construction of new distribution centers, the processes in those centers must change to make the most effective use of the additional space. 

The implementation of a warehouse management system (WMS) was an obvious solution for WinWholesale because of the inherent benefits these systems can provide:

• Inventory accuracy of 99.9%
• Effective locating and picking methods that provide efficient utilization of warehouse space
• Increased efficiencies when receiving, replenishment, and picking processes are automated
• Visibility to employee productivity
• Key performance indicators (KPIS) that provide the statistical information to benchmark operations for continuous improvement.

Using existing space effectively is a common problem for wholesale distributors as new products are introduced or inventory levels increase during busy times of the year.  A WMS can help with this problem by providing advanced locating logic.  Advanced locating logic employs a rule-based methodology that consists of using sku dimensions and warehouse location dimensions to calculate the most advantageous locations for products. 

Always gather the data

WinWholesale’s executives knew this was an opportunity to make changes that would help them better manage the business and its growth. This would also require substantial investments of time and money, but WinWholesale was willing to take the risk.

However, in order for the WMS to be more worthwhile, WinWholesale first had to understand its growth and future plans so the systems could be implemented more effectively for the firm’s needs. So WinWholesale embarked on a network site analysis project to help determine strategies for future growth. The project’s goals were to determine the following: 

• What new product lines should be brought into the distribution centers?
• How much new product inventory should be kept on hand?
• How much should current product inventory increase?

With this data, the company could then address its distribution center constraints, such as how much future warehousing space was needed and where to locate the facilities in the U.S. to best accommodate its 500 member companies. Once the new product lines were determined and growth percentages were captured, projected inventory levels were obtained. 

Next, WinWholesale acquired the dimensions of all of its existing and future SKUs.  It also analyzed purchasing and sales history to determine past input and outputs to refine its projections of future growth.

After final analysis and test scenarios were conducted -- including the consideration of freight costs to and from existing distribution centers -- WinWholesale determined that the optimal locations for their distribution centers were Dayton, Ohio; Denver, Colo.; North Haven, Conn.; and Phoenix, Ariz. The analysis also provided the organization with the recommended warehouse size to handle projected business plans.

Solution: A complete WMS

WinWholesale knew that an initiative to reinvent its warehouse processes while simultaneously enlarging three of its five distribution centers was more than it could do on its own. So management evaluated several vendors and systems integrators to find a partner for the project. They chose ciber, an experienced consulting company with a solid understanding of supply chain systems, processes, challenges, and solutions.

“Ciber’s technical expertise, knowledge of supply chain operations, and their relationships with wms, materials handling equipment, and racking vendors provided everything we needed in one place,” said Paul Donarum, vice president of WinWholesale Sourcing Services. “Ciber understands the challenges of supply chain and the specific challenges we face, and that made them the right choice for this project.” 

Ciber led all aspects of the project, providing project management, requirements planning, warehouse management system implementation, and integration services. Ciber helped WinWholesale select a wms system, and oversaw the systems’ implementations, configurations, testing, and training in all five of the firm’s distribution centers. These implementations required cross-functional teams of operations and information technology personnel to understand the organization’s specific business processes, so the firm’s unique needs and challenges could be addressed by the system.

And new facilities

Most importantly, WinWholesale chose ciber because of its facility and process design expertise, which would help solve the capacity constraint issues at the Phoenix, Dayton and Denver distribution centers. WinWholesale’s inventory -- which comprises a wide range of products, product dimensions and categories -- made  selection of racking and material handling equipment vendors very difficult. It also complicated the overall facility design.

“WinWholesale needed to determine the design and layout of distribution facilities to obtain optimum efficiency,” said Cal Petty, director of ciber’s Supply Chain Practice. “And they needed to implement a new warehouse management system to provide real-time, detailed data about stock levels and locations. Having this information would significantly help with their capacity issues.”

To address the capacity issues, ciber utilized its Logistics Improvement Analysis to help drive the facility design phase of the project. The Logistics Improvement Analysis involves gathering and analyzing financial data and the inbound and outbound shipment data to develop growth projections. These projections were then used to design the new facilities, forecast the types and amount of material handling equipment needed, and generate labor projections.

After the initial list of material handling equipment and vendors had been identified, ciber managed the racking vendor and MBE vendor selection processes and negotiated with vendors for the best solutions at the best price.

Benefits: Receiving and shipping rates doubled with no increase in headcount

After the WMS implementations, WinWholesale began seeing benefits immediately. Inventory accuracy increased to 99.9%, both in the building and at each location in the warehouse.  Because of this WinWholesale was able to eliminate physical inventories. 

The addition of cluster cart picking for their less-than-case picks and the introduction of radio frequency (RF) directed picking led to a considerable increase in picking productivity. RF-directed picking greatly reduces the travel time for pickers. Instead of the picker choosing the path, the WMS directs them in the most efficient path.

“Since the introduction of rf-directed picking in our distribution centers, we’ve seen pick rates increase by as much as 50%,” said Jeff Porter, director of operations for WinWholesale Sourcing Services. 

The new facilities have led to productivity gains, as well. The new, larger Phoenix and Dayton distribution centers have each doubled their receiving and shipping quantities and increased order accuracy without increasing staff levels. The facility design, process engineering enhancements and introduction of ride-on pallet jacks in the distribution centers have increased picking efficiency 48%.

“The moves to the new facilities were completed smoothly-each facility was fully operational within five days,” said Porter. “Ciber’s facility and process design expertise has allowed our distribution centers to double in size and volume without adding to our headcount.  Our order turnaround time has decreased while the depth and breadth of our product lines has increased, and this has significantly increased our customer satisfaction.”

Ciber’s Petty added, “WinWholesale had several challenges before them. Though the problems were caused by significant business growth, which is a good thing, they were still impeding WinWholesale’s ability to meet customer demands. The WMS’s advanced locating logic was extremely beneficial for WinWholesale. The company was immediately able to increase the volume of its current products in the distribution centers and increase the variety of products it carried while making more efficient use of the cube of their facility.”

Key considerations when implementing WMS

If you are considering implementing a WMS system, there are several considerations to keep in mind:

• The truth is out there -- For a project of this type to be most beneficial, you must first understand the nature of your business through all its peaks and valleys. Don’t rely on memory or anecdotes-gather and analyze real data to get at the truth behind the numbers.
• It sometimes takes two -- Don’t try to take on the project alone. Find a partner who can help guide you through the various stages. Not only does this provide necessary expertise, but it helps your staff stay focused on running your business.
• No rest for the wholesaler -- Remember that once the system is implemented, your work isn’t done. It’s critical to continue to analyze the data provided by the WMS and to be flexible so you can make changes as needed to adjust to changing market needs. For example, WinWholesale continuously monitors its productivity, order fill percentages, capacity, error rates, and order cycle times.
• Only the disciplined are free -- The key to a successful project is commitment and discipline. WinWholesale experiences challenges in its day-to-day operations as all other organizations do.  However, it has the processes, procedures and systems in place to help make smart business decisions.  So if purchasing wants to double the inventory levels for a particular product line, or if sales orders have spiked to an all time high, WinWholesale is able to adjust and maintain its high level of customer service -- all because of a WMS and smart planning.

Mike Krabbe is director of ciber’s Supply Chain Practice. He can be reached at mkrabbe@ciber.com. Learn more at www.ciber.com or by calling 800/242-3799.