Chain of Thought

A Toast to Silver Eagle’s Survival Instincts

I never cultivated a taste for beer, but having toured Silver Eagle Distributors’ Houston DC a few weeks ago, I wouldn’t mind toasting their plans to dominate that market. I came away from my visit appreciating the subtleties of the cost of handling and distributing this beverage, if not the subtle differences among the 1,300 SKUs Silver Eagle handles. This is an amazing variety, especially considering they were only handling 400 SKUs five years ago.

Silver Eagle is the largest distributor of Anheuser-Busch products in the U.S. and the second largest beer distributor in general. In Houston alone it sells more than 47 million cases annually in 16 counties across southeast, south central and west Texas. In addition to its Houston headquarters, it has three other warehouses in the Houston area, plus one 400,000 sq ft site under construction in Pasadena, Tex. It has eight DCs all together.

Conventional logistics logic might dictate that to minimize costs, it makes sense to build a central warehouse to serve each region. Bob Boblitt, executive vice president and COO of Silver Eagle, disagrees.

“If you weigh the differences with the drive time, it’s worth it to be a closer to the customer,” he said. “Our enemy is windshield time. I can’t tell you the number of times our customer said the competition isn’t servicing them with the frequency they want because they’re too far away. We have sites located generally so we can service those special events our customers promote. It’s definitely a higher cost than what you get by centralizing your costs in one warehouse, but in terms of quality of life for our drivers, it makes sense. It’s hard enough to do their job; they’re stuck in urban traffic all day long.”

That makes it hard to hang onto truck drivers for longer than a couple years, and we all know how much demand there is for that talent. Same goes for the talent in the DC, and Silver Eagle is also trying to improve their quality of life through state-of-the-art material handling. Employees operate lift trucks (Toyota 8-Series) with layer pickers, make use of speed wrapping and weighing and are now in training to use a voice directed picking system (Motorola and Honeywell) as well as a new WMS (AGI). Silver Eagle is gradually introducing this warehouse management system into its entire system, starting with beta tests in San Antonio. This is a location based inventory system in which every SKU has a place—and given the location requirements of a product like beer it allows management to know what product is on current pull. It is also teaching them aspects of product movement that were previously hidden, Boblitt said.

“We’ve found through the implementation of this system in San Antonio that what was taking us anywhere from 3-6 months to train an employee using tribal knowledge to figure out where things are, to only 2-3 days with this system,” he explained. “In San Antonio our highest producing employee has only been with us two weeks.”

Silver Eagle has grown so rapidly and taken on so many SKUs over such a short period of time that it is anxious to get its Pasadena facility up and running. It will add 240,000 sq ft of warehousing space to the network and create better transparency so management can better observe performance and set benchmarks. For anyone with similar material handling challenges and hoping that technology will fix them, Boblitt shares this piece of wisdom:

“This is a major culture shift for people who were used to getting lost in the warehouse to all of a sudden realize they’re under a spotlight,” he said. “That’s the only negative because they have to get used to being accountable.”

The WMS vendor learned a lot too, particularly about the beer business.

“One of the things they learned is the balance we have between absolute efficiency in our warehouse and the need to be able to develop a system that ties into what our goals and objectives are out in the trade,” Boblitt continued. “There’s a big difference between distribution of some other forms of consumer non durables, dry goods and otherwise, to beer because beer has a shelf life. We have such a diverse customer base, a WMS vendor may say, ‘You really ought to make the warehouse as easy as possible on your drivers out in the trade so they can just pull a load off.’ The problem with that is it limits your cubic utilization of your trucks. They’ve had to learn that balance from us and understand it’s not as easy as if we were just distributing widgets. Beer is a unique product with a whole different set of dynamics.”

That’s why Silver Eagle doesn’t rely on third parties to move their beer, either outside or inside their DCs. They even do their own truck and forklift servicing because uptime is so critical to them. This Houston facility alone handles as many as 130,000 cases a day using six doublewide electric lift trucks for receiving. As for its over-the-road fleet, Silver Eagle participates in the Houston-Galveston Area Clean Vehicles/Clean Fleet campaign to address air quality issues. It is building a fleet of compressed natural gas (CNG) vehicles and hopes to build the largest natural gas fleet in South Texas.

When the new DC opens, trucks will be loaded by four teams consisting of three pickers and one loader. Pickers will drop off pallets in the staging area directly behind the truck to be loaded. They will then return to the pick area. Once the pallets are checked they’ll be loaded into the trucks.

Ed Pritchard, senior vice president of fleet management and purchasing, explained how these lift trucks are maintained to keep up with such a demanding pace.

“We use a quick charge system so the lift trucks can be powered up in two hours and they’re ready to go full charge,” he said. “Sending our lift trucks out to be serviced would mean higher cost and a lot more downtime. We do it in house and order all our parts through Toyota. Our operators are always beating up on these lift trucks so they’ve revised certain areas on the units so they last longer and can take the abuse.”

Silver Eagle’s $25 million Pasadena DC is scheduled to open in the second quarter of 2014. The 27-receiving-dock facility is projected to handle six to eight million cases of product annually. That sounds like a lot, but at the rate marketers dream up new varieties of brewskies I wouldn’t bet on Silver Eagle becoming an endangered species.

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