The Supply Chain Detective™ and the $25M Robbery!

Robbery

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The company I had just joined was only a few months away from completing a multi-year project to revamp their primary Distribution Centre. The project would cost a total of $25 million, which seemed like highway robbery.

Part of my job was to see the implementation of the project brought to a successful conclusion, reaping all of the anticipated benefits.

But as I worked through the pains of a new system implementation, and gained more first hand knowledge, it occurred to me that the system design was completely lacking in strategic value.

Had the company just had a robbery of $25 million? This was a case for the Supply Chain Detective™.

The Background to the Robbery

The company was a major national retailer. They were expanding their product portfolio well beyond the types of products they traditionally carried and sold.

The old products (ie. books) were more or less standard in format and size. Best sellers would be fulfilled and replenished in full case quantities. The rest of the products would be fulfilled and replenished in quantities as low as one for any individual store.

These individual books would be picked into cases for each store which, when opened at the store, would include any number of different books to be unpacked and sorted through by store personnel.

The new products would come in all shapes and sizes and there was no standard format whatsoever. They ranged from small trinkets to large plush toys and playground slides, from toys to clothing to electronics, and from fragile items to date sensitive items.

The company determined that their old Distribution Centre operations did not have the ability, capacity, or infrastructure that they would need to handle both the old and new products.

They engaged consulting and engineering firms who were experienced in this arena, and ended up hiring a firm and awarding a project of $25 million to install automation, a new warehouse management system, equipment and processes in their DC. The excitement in the company to make this happen was palpable.

However the people that created the new operational plans, processes and specifications for the new project had worked at the company for a long, long time. And their expertise was in the management of the old product line, because no one had actually worked with these new products before.

The engineering and consulting firms merely followed, and delivered a solution to, the specifications that they were given. They did what they were told. Could this complicity be considered robbery?

By the time I had joined the company several years of planning and implementation were behind us. It was only a few months away from startup.

But what I learned both during and after the implementation caused me to sit back and wonder what on earth everyone had been thinking. I think they may have just wasted a large part of that $25 million in a colossal robbery.

The Crime and the Clues

The startup of the new system was highly problematic. On the first day we managed to ship only 1% of our pre-startup level. After a week we were at 20%. Given that we had only overstocked the stores with 3 weeks of extra inventory we were quickly running out of time before shelves would be empty, stores would be screaming, and customers would be lost.

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It took a full month before we were at about 80% of capacity and another month before we seemed to be stable, albeit shaky. We had survived the worst of the startup, but now we had to get things running steadily and with productivity.

I spent my entire working time at the Distribution Centre. I was observing every aspect of the operation in minute detail. I would dive in and pick boxes, clear jams on the conveyor, and move packages around, so that I could not only help keep things moving but to familiarize myself with the intricate details of the operation and new system.

The core of the operation was the series of pick-and-pack workstations. Boxes of products would enter the pick and pack area, after having been pulled off shelves and racking and placed on the conveyor. At every workstation an employee would remove some quantity of its contents and put it into an outbound shipping box. This process would be repeated continuously as a never ending flow of boxes would enter this area, be opened, have some of their contents picked, and sent onwards.

In the pick-and-pack stations the boxes that were being picked into all looked like a piñata. There was a unique assortment of numerous skus all stuffed into that box. When it was full the box was sealed and pushed onto an outbound conveyor, on which it would be weighed and sent on to a final packing and shipping station.

The boxes that were being picked from would invariably get to the end of the pick-and-pack stations with some goods still in the box. Then they would be routed along the conveyor to a point where they would be put back on the racking, until it was time for them to be subsequently pulled and sent back to the pick-and-pack stations to repeat the process all over again.

At the stores they would receive these individually picked boxes. They would open them, look at the piñata that was inside, and then proceed to manually handle each and every item by hand, sorting them and putting them on store shelves.

Every single item of every single sku that went through this process was handled multiple times. And unfortunately the majority of the products went through this process.

As I witness and experienced this process in detail I also took note of an alternate process that worked through the warehouse: full case management.

Full case management was a much different experience, and it caught my eye because it was an obvious source for moving a lot of product through the warehouse very quickly.

Simply, a full case would be fulfilled and replenished to a single store as is. The case would not have to be opened at all in the Distribution Centre. If there were 10 items in the case, or 50 items in the case, the entire case was shipped directly to the store. No one needed to open it in the DC.

The case could literally be received and put on the conveyor and sent directly to shipping. No one had to handle the case. No one had to look inside for any reason.

But unfortunately the number of full case orders was very low.

And this is when the penny dropped for me.

The people who had designed the new system, and spent the $25 million, had merely replicated the old way of doing things for the old product line, and applied the same paradigms and methodology to the new product lines.

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They just accepted and assumed that all new products should also be individually picked-and-packed, just like they had done in the prior system. They just spent, or had a robbery of, $25 million to further automate and increase their volume in doing the same thing they had always done.

They spent $25 million automating a bad process, perpetuating this situation for years and years to come.

Solving the “Case”

The epiphany for me was that virtually the entire investment was wasted. While were some advantages that the automation and upgrades provided, they had fundamentally missed the mark on their entire fulfillment and replenishment strategy.

They should have started by moving the vast majority of fulfillment and replenishment to full case quantities and eliminated piece packing entirely.

The advantages would have been obvious. They would have increased productivity and throughput by over 10 times the current levels, even with the new system. They could have reduced DC operating costs by millions of dollars per year. They could have reduced store material handling costs by millions of dollars. And they could have reduced their $25 million investment to something closer to $5 million.

This lack of visioning, strategy, foresight, and change leadership had all cost the company an absolute fortune. It was negligence at best and robbery of the worst kind.

It may have cost a little more to have suppliers package goods in smaller cases so as to more easily accommodate the quantities that any particular store could sell. But that cost would be so negligible as to be redundant.

Conclusion

Unfortunately my solution was too little too late. The $25 million had already been spent. The robbery was done. The old paradigm was build into the very fabric of the operating processes.

And while I had started to flesh out my epiphany about the robbery and build it into the new Supply Chain strategy for the company, my tenure there was at an end and I was moving on to a different company with different cases to solve.

But the principle still applies no matter where you are. It is what we now call a “Don’t Touch” strategy. You should look for any and all opportunities to eliminate the need for any warehouse employee to touch goods beyond the case or pallet size in which it is received. Any time you have to break open a case in a DC you are adding unnecessary handling, time and cost, which you need to eliminate.

One of the stores that practices this well is Costco. They receive goods in full pallet quantities and put them right onto the sales floor. They remove the over packing and customers are the first ones to touch individual goods since they left the factory of manufacture.

Since our experience we have been spreading this message to any and all in the hope of preventing another “robbery”.

This was another successful outcome and experience for the Supply Chain Detective™.

Originally published on June 14, 2022.
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