MH&L’s Innovators of 2011 Putting Excellence Within Reach

Kraft Foods has built sustainability into its business strategy. Through the EPA-sponsored SmartWay partnership, Kraft adopted new technology like auxiliary power units to reduce idling at distribution centers and many plants. It also reduced its governed top speed on all over-the-road tractors from 65 to 62 miles per hour.

Trucking Alternatives: Kraft ships wheat via waterways to its Toledo, Ohio, flour mill. Now, ships make bigger deliveries less frequently. The company has saved a million road miles, replaced 10,000 truck shipments and reduced 2,000 tons of CO2 emissions in the process.

Packaging: Kraft came up with new designs that use less material and let it ship more products per pallet, meaning fewer trucks on the road. For example, its redesigned Crystal Light powdered beverage packaging uses nearly 10% less material per package and 25% less material in its shipping trays. That eliminated 250 tons of packaging per year. Kraft can fit 33% more packages per pallet, meaning fewer trucks on the road.

Facilities: Kraft’s 400,000-square-foot Springfield, Mo., warehouse is actually underground, using natural caves to warehouse products. The caves maintain a cool temperature, and facilities use about 65% less energy than conventional warehouses, and reduce CO2 emissions by about 4 million pounds annually.

The company’s 800,000-square-foot Morris, Ill., warehouse is LEED-CI Gold certified. It uses energy-efficient fluorescent lighting with multi-level lighting controls, resulting in a 60% reduction in lighting energy usage. Its HVAC ventilation system improves air quality and reduces power consumption by 40%.

High Technology: Through its “Super Truck” initiative, using software provided by Transportation/Warehouse Optimization (TWO), Kraft can optimize outbound replenishment truckloads, maximize weight and cube and ultimately put more products on fewer trucks. It has already taken the equivalent of about 1,500 trucks off the road, which takes over a million miles off of the U.S. highway system.

Kraft Foods’ private fleet and its top 50 carriers use Oracle Transportation Management to measure truck movements and design new trip segments to minimize “empty miles.” Last year this helped the company eliminate more than 500,000 miles.

Since Kraft’s story ran in MH&L:

In May Kraft announced expanded sustainability goals to include its Cadbury and LU businesses acquired since 2007. By the end of 2015 Kraft Foods plans to:1

• Increase sustainable sourcing2 of agricultural commodities by 25 percent;
• Reduce energy use in manufacturing plants by 15 percent;
• Reduce energy-related CO2 emissions in manufacturing plants by 15 percent;
• Reduce water consumption in manufacturing plants by 15 percent;
• Reduce waste at manufacturing plants by 15 percent;
• Eliminate 100 million lbs. of packaging material;
• Reduce 50 million miles fromtransportation network.

“As we near the end of 2011, we’re making steady progress toward our expanded transportation/distribution sustainability goal,” says Mike Cole, senior director, North America transportation, for Kraft Foods. “Our success is the result of many individual projects. We’re looking at our supply chain end-to-end around the world for opportunities, as our approach is about all of us taking steps, big and small, to do our part.”

Judges’ Comments:

“I found it interesting that such a large company attacked multiple issues with clear common sense approaches to lower costs and improved performance.”—Thom MacLean

“Kraft illustrates that most companies have lots of ‘fat’ they can reduce, whether through environmental/sustainability initiatives or just blocking-and-tackling efforts.”—Ron Giuntini

“Kraft does not rely on the implementation of a single technological solution. Instead it optimizes many areas across the company through design and process improvements. While not all of these changes would be applicable to all companies, the mindset of evaluating potential reduction in materials, pollution and costs should stimulate thinking on the part of others to evaluate their own operations.”

—Bert Moore

Komplett ASA: Excellence in Distribution

Scandinavian Internet retailer Komplett ASA optimized distribution by upgrading its 270,000 square-foot distribution center with automated high-speed storage and picking of small goods.

The company delivers PC components, PCs and other related electronic equipment to consumers and companies throughout Norway, Sweden and Denmark.

In 2010, this retailer posted sales of more than $700 million, while servicing 675,000 active online customers. From its 270,000 square-foot central distribution center in Sandefjord, Norway, the company fulfills all of its orders and ships to its customers throughout Scandinavia. In 2010, Komplett prepared and shipped 1.4 million orders, or nearly 4.3 million items.

These production volumes represent throughput after the company’s move to an automated distribution center. The company selected Swisslog’s AutoStore as the central system for the distribution center’s automated storage and fulfillment operation. The system is designed for operators requiring both dense storage and efficient piece- and small-case picking.

Element Logic AS, a local integrator in Norway, installed Komplett’s AutoStore system. Swisslog is the exclusive distributor of AutoStore in North America. It also distributes the system in much of Europe. The system is made up of a three-dimensional grid of self-supporting bins that are moved to pick stations by independently-operating robots. Each robot has two sets of wheels that enable it to move along two axes. This makes it possible for all robots to reach any position on the grid. The robots are equipped with a lift for picking up, carrying and putting Komplett’s 33,000 bins that are stored in the grid. They communicate via wireless controls to the WMS and Komplett’s pick stations.

Pick rates can be enhanced by adding more robots to the system. Currently, Komplett is running 55 robots, having already increased the number of robots twice since the system was installed.

Komplett also installed 1,200 linear feet of conveyor and a shipping sortation system to improve inbound and outbound material flow.

Since Komplett completed the automation, its man-hours have been reduced and its volume of orders has increased. The company has switched people from pick-and-pack to receiving because the automation increased the workload in the receiving area. The result has been a 30% efficiency increase for the entire DC operation.

Since Komplett’s story ran in MH&L:

Komplett monitors its productivity daily– including number of order lines delivered and number of manhours spent. Hours spent includes all activity door to door—management, backoffice/warehouseservice, receiving, pick&pack, shipping—also internal hours spent in testing and training when it implements changes to processes and systems.

“Our workload has ‘long-term’ seasonal variances – and short term variances from day to day,” says Pal Asbjorn Vindegg, chief operating officer for Komplett. “Leadtime expectation from order to delivery is from 2 hours to 2 days – at least 95% delivered within 24 hours. To cope with this – and deliver high productivity - we need high flexibility to adjust number of hours spent from month to month – week to week and day to day. Productivity does not come from systems alone – you need good labor management as well. That means we need to have overcapacity in systems and handling equipment. We also need a core staff of employees with high competence – able to perform a large number of different tasks and the flexibility to move capacity according to need.”

The ups and downs in the company’s productivity curve are due largely to variations in volume/seasonality and:

• A merger with competitor – separate operations but both included in numbers;
• Migration of the two into one operation;
• Change of WMS (warehouse management system);
• Changes in assortment structure; and
• Changes in order structure.

Vindegg concludes that while Autostore is an important module in its warehouse operation, sustained productivity improvement required the integration of a complete operation with inbound, conveyers, pallet-racks, WMS, routines, a skilled and motivated staff – and good staff management.

Judges’ Comments (Komplett):

“An innovative mix of equipment to form a system that is adaptive enough to meet high throughput requirements.”—James Tompkins

“This is an innovative solution applicable to many companies. While it undoubtedly required a significant capital outlay, the results seem to suggest it provides a healthy ROIand can be scaled up if necessary.”—Al Will

“This company not only selected a new concept technology, but it also planned ahead and allowed for flexibility and expansion.”—Bert Moore

“Creative use of technology for a big impact.” —Russ Meller

Jack Wolfskin: Excellence in Material Handling

European outdoor clothing and equipment specialist Jack Wolfskin moved into a new logistics center located in Neu Wulmstorf, Germany (near Hamburg). The facility relies completely on direct carton handling. Pallets, trays or other additional load carriers are not needed.

The new logistics center’s 323,000 sq. ft. footprint can be expanded by an additional 215,000 sq. ft. and is designed to allow the company to grow at this site for more than 10 years so that all of Europe can continue to be supplied from this point.

In goods receiving, automated conveyor extends into the supplier container for receiving of cartons, which are then weighed, identified, labeled and registered in the WMS.

The bandwidth of order sizes varies and ranges from one-piece orders up to the initial stocking of a shop with more than 3,000 different articles or the order of more than 1,000 pieces of a jacket by a large customer.

Jack Wolfskin’s products are supplied by about 50 longstanding partners mainly in the Far East. The goods are transported in containers by ship to the logistics center in Neu Wulmstorf. There, the cartons are transferred directly from the container to the automatic conveyor system, automatically identified, measured, weighed, provided with an internal label, and then transported to the carton warehouse. It was thus necessary to shift the labeling of the cartons to the suppliers.

In the old system, up to a day was needed to unload a container, including the manual inspection, sorting, and item-based palletization of the cartons, labeling, and provision and storage of the pallets. Now this same process takes 45 minutes.

The core of the new logistics center is TGW’s automatic carton warehouse. It stores the delivered cartons directly and without additional load carriers in the triple-depth storage structure.

“For us, it was decisive that, using a triple-deep solution, TGW managed to create an optimum ratio between storage capacity and storage density with sufficient dynamics at an acceptable relation to the investment volume,” says Christian Brandt, Wolfskin’s COO.

In the first step, a 12-aisle warehouse with 210,000 storage locations for cartons was realized. In two additional steps, the first of which is already being realized, the warehouse can be expanded to a total of 19 aisles and almost 310,000 storage locations.

The entire order picking process is supplied with goods from the carton warehouse. The goods are conveyed to the order picking zones defined by the system and provided in shelving racks. Order picking itself remains manual, but the entire process is controlled by the new system.

The conveyor system replenishes the manual picking zones with goods from the warehouse and routes the customer order cartons to the needed picking locations.

In the value-added services area, articles are labeled, repacked, specially documented, and possibly ironed or otherwise prepared according to customer requirements. From the order picking process, the system routes items requiring such post-processing to 16 ergonomically designed value-adding workstations.

Since the Jack Wolfskin story ran in MH&L:

“We’ve found a well-balanced mixture between manual and automated processes,” says Brandt. “Depending on the daily changing order structures, volumes and service requests, we can adjust throughput volume, shift models and workflows. We are now working on an extension of the facility based on the same principles we already run.”

Judges’ Comments (Wolfskin):

“Wolfskin addressed major growth issues with a bold investment in IT and material handling systems to meet today’s and future requirements. This project represents excellent design and innovative use of material handling.”—James Tompkins

“This was a huge effort at restructuring an entire operation. Its success is primarily a function of great management, not only technology.”—Ron Giuntini

“While not every company can make the leap to a completely new facility, the holistic design approach—including supplier

requirements—demonstrates the way things should be done. Even for smaller projects, it is critical to be somewhat disruptive in your thinking to uncover potential improvements—even if those changes are not made.”—Bert Moore

“Wolfskin really addressed their issues from door to door. I liked the velocity improvements made to unload containers quicker given the number of containers they handle. Likewise the value added portion sets them apart.” —Thom MacLean

Pepsi Logistics Company, Inc.: Excellence in Transportation

Mark Whittaker is vice president of transportation strategy for Pepsi Logistics Company, Inc. (PLCI). He is responsible for spending PepsiCo’s transportation budget wisely—which means finding ways to spend less every year. One way to do that is to get the rest of the company’s supply chain to join him in lowering transportation costs.

But he knew that alone wouldn’t get PepsiCo where it wanted to be competitively. He would also have to find ways to add value and generate revenue. He did that by working with his team to establish PLCI as the internal logistics services division for the various PepsiCo business units. Today PLCI is moving 40,000 shipments annually.

“Transportation is one of the first things the company goes to when we talk collaboration with customers or other shippers,” Whittaker says. “We’re looking at ways to worldwide leverage our transportation expertise and have more of a harmonized functional excellence.”

When you’re in food and beverage, excellence means overcoming the challenges of getting short-shelf-life products to market as quickly and cost effectively as possible. For PepsiCo that means making and handling products as close to their markets as possible. The company has hundreds of warehouses and over a hundred manufacturing locations in the U.S. alone to support its businesses. It also locates near its raw material sources and where it has the least-landed-cost transportation sourcing and manufacturing networks. The same goes for its international markets.

Whittaker is concerned about how the developing safety and regulatory changes like the Federal Motor Carrier Safety Administration’s Hours of Service rules will affect delivery efficiencies in U.S. markets.

“We’re hearing that 5-8% of truckload capacity could vanish over time,” he says. “We have large private fleets to support our business and we want to make sure we’re in compliance. But we’re also getting visibility to all of our transportation providers on where they stack up with safety compliance, and we’re having conversations with them on what they’re doing to improve if they have issues in certain areas.”

Whittaker went through a peer benchmarking process with eight other consumer products companies to further develop his strategy. He came away with one overarching theme: a significant transition to intermodal. PepsiCo already ships 15% of its finished goods via intermodal today, and 80% of its chilled juices go by rail. He expects his intermodal business will double.

From a sustainability standpoint, Whittaker’s goal is to move another 15-20% payload with the same carbon emissions and fuel burn, which he acknowledges is a tall order considering the heavy loads its beverages and raw materials make. He doesn’t think professionals like him should take this task on by themselves. Success depends on collaboration among shippers and the smart use of technology.

Since PLCI’s story ran in MH&L:

PLCI business has grown by 157% in 2011. The company has made significant investments in people, processes and technology to support this growth and scale the business.

It also launched a strategic transportation provider network integration strategy to support a stronger alignment between its own network and its transportation providers—including its private, dedicated and asset/non-asset based carriers. This effort will drive captured capacity into the PepsiCo network, minimizing cost and capacity volatility.

“The intermodal growth is well on its way in several areas of the business and will continue to be a big part of our freight diversification strategy,” Whittaker concludes.

Judges’ Comments

“A collaborative effort based on solid benchmarking and applying technology to improve performance.”—James Tompkins:

“PLCI is looking for new efficiencies not only to reduce costs but to protect themselves from government bureaucrats and new onerous regulations.”—Al Will

“PLCI hit a list of different initiatives aimed at reducing cost and improving service. It also dealt with issues across the supply chain to improve their chain’s performance as a whole.” —Thom MacLean