Keep Projects Alive

Aug. 1, 2003
As long as your business is alive, project management should never end. Success comes with constant measurement and adjustment.

This is the fourth and final part of our automation series, however when it comes to automation, nothing is ever final. Whether you divide a project into steps, stages or phases, it is cyclical, and you eventually come back to step one. That’s the way it should be if your company is growing and changing. If it’s not, automation will be a waste of time, anyway.

Even if you serve customers through a third-party logistics provider, its automation becomes your automation, and you should be in on its justification process. For example, AT&T works with ATC Logistics (ATCL) to fulfill orders for handsets and accessories. The two companies worked closely to define clear business processes to get these products to the stores in the timeframes AT&T required. Technology is used as a tool to reenforce those business processes.

"If you don’t have a proven business process that solves the problem you want to solve, automation won’t help you," says Bill Conley, president of ATCL, and former head of Fedex Europe Logistics and Fedex Asia Logistics. "We first made sure we had the correct processes, then layered technology on top of that. We use an Oracle 11 ERP (enterprise resource planning) system and Red Prairie WMS (warehouse management system) and TMS (transportation management system) to reenforce the business processes and streamline wherever we can the flow of information across the enterprise. This gives our customer full visibility to everything we’re doing."

Once you’ve been through the phases that bring you to go-live, the first post-installation steps should take you back to the baseline assumptions you put into your request for proposal. Conley says you need to make sure those assumptions are still correct and valid. Second, see if you’re achieving any unexpected benefits and start documenting those. That will help you fine-tune your next project. If you don’t see immediate benefits from those adjustments, don’t be discouraged.

"The additional returns that come out post-implementation usually appear a little later in the cycle — 120 or 180 days out," he concludes.

Your responsibility

If you are the automation project’s manager, you’re also the champion. A champion should be a detail person who knows the terms of the automation contract and makes sure the vendor lives up to his responsibilities post-installation.

"If you write your expected metrics into the contract, that gives you some teeth," says Mike Kotecki, senior vice president, sales, HK Systems. Remember, automation is a culture change, and the vendor should be a partner in the transition. Kotecki recalls a project HK did with Gold Kist, an Atlanta-based chicken processor.

"We sold them their first piece of automation, did everything fabulous, but together, HK and the client didn’t think through the cultural change that this very manual facility was about to undergo," Kotecki admits. "We learned from that and made it part of the process. As custodians we need to make sure the employees and management, and everyone in the supply chain, are all aware of and adapted to this new level of automation."

Gold Kist’s automation included an automated storage and retrieval system (AS/RS) and a WMS. When the company hit a snag, it relied on manual intervention to deal with it.

"If you’re not knowledgeable about data keeping and automated tracking of material, you can cause more damage than you know by manually moving things around or not telling the system where a piece of material is being moved," Kotecki explains. "Another problem is not fully embracing maintenance functions. If someone buys a new Ferari, that purchase will quickly prove unrewarding if you don’t do regular maintenance on it. The same goes for automation. You need to culturally commit to more extensive periodic and remedial maintenance than if it were a lift truck. Now that Gold Kist has embraced those functions, its investment has been more than paid pack."

How do you find out if your investment is paying you back?

Do a modernization audit.

Kotecki cites four types of modernization audits clients perform on an ongoing basis:

1. Pure cost. Your automation investment might have resulted in a tremendous spare parts issue because the parts are failing and you can’t afford not to upgrade to remedy the situation.

2. Mission. Your customers may have switched from buying your product in cases to eaches. Therefore, the mission of your automated system may no longer be appropriate.

3. Safety. The system’s age or some revised regional safety standards might have made your previously safe system a cause for concern.

4. Function. New technology developments might make more sense for your application.

To avoid the cost of obsolescence, Kotecki suggests you work out a discounted modernization plan with your technology vendor where over a period of time the vendor will upgrade you at a discounted rate.


Stewardship requires ongoing training, and leading vendors offer the training users need to take ownership of a system. Brian Keiger, vice president of AGV system sales for Transbotics, recalls when a leading CD manufacturer — one of the largest in the world — first invested in an automatic guided vehicle system.

"Once we got their system up and running, we had a month of just sitting with them, going through analysis and making sure the throughputs and production they wanted were being met," Keiger explains. "We have software that plots areas of potential improvement, and the manufacturer has since invested in some training."

The company has learned to program and monitor its own system. If it wants to increase production it can make the necessary changes in the layout and programs. This is important to them because the CD manufacturing environment changes constantly.

"We love supporting them, but they don’t call every time someone steps in front of the bumper and stops the vehicle," Keiger adds. "They’ve taken ownership. Anyone with a two-year technical degree that understands Windows can learn the programs. Three guys took the training and then trained their people internally. They want to control their own destiny. They don’t want to have to rely on us every time something goes wrong. A lot of it is common sense troubleshooting."

Christopher Arnold, logistics operations executive with Intelligrated, another material handling systems vendor, also bears the title "customer advocate." He not only represents the customer during an equipment purchase, he looks for ways to improve the client’s operations. That doesn’t always require equipment. Again, people are often your most important assets.

"We spent a significant amount of time working with a customer’s associates and were able to identify a way for them operationally to save potentially $4.5 million in one facility with no new equipment — just utilizing the associates they had more efficiently," he explains. "It meant moving some associates from one area to another, changing from a push environment to a pull. That allowed them to flow more freight and bought them a year-and-a-half to find ways to maximize their existing automation."

Key performance indicators

Many of the people interviewed throughout the course of this article series recognize a tendency among customers to assume that automation will be the cure-all for their problems. When that assumption leads to failure, that’s an important lesson.

Arnold adds that automation can expose every mistake happening in your facility and multiply it by whatever speed you just increased your flow-through. Even if it looks like you’re succeeding, is 99.95% accuracy good enough?

"From an accuracy or exception standpoint that’s not good enough," he opines. "If they receive 250 orders a day, and the average order size is 500 units, that’s 125,000 units they may ship to customers every day. If they mis-pick only 63 times, that’s 99.95 percent accuracy. However, statistically that means that 22 percent of the customers will receive an error. When those orders come back to your facility for additional handling, what will that cost?"

If you maintain key performance indicators (KPI), you’ll be able to answer that question. These are measures that help you assess how your systems and people are working together to meet your priorities. If your priority is inventory efficiency, you may want to measure the on-hand inventory that has been paid against inventory that has not. You may want to compare actual SKUs to system SKUs. Then there is inventory days on hand, inventory visibility and total damaged inventory.

Other KPIs involve order fulfillment, receiving, labor productivity and operational productivity (see KPI sidebar on page 28).

Accurate measures will help you generate useful data and that’s a great way to reduce costs and achieve the best return on your automation investment. Just as a mother’s work never ends, neither does that of a project manager. Your results must be improved, not just maintained. That’s the beauty of automation. It provides you with additional tools and insights into material handling that you may never have considered. MHM

Key Performance Indicator Measurements


-- Paid Inventory Ratio (On-hand inventory that has been paid against inventory that has not)

-- Inventory accuracy % (actual SKU units/system SKU units)

-- Inventory Days On Hand (Monthly inventory $s (avg)/daily Sales Per Month)

--Inventory Visibility % (Total damaged inventory $s/Total inventory at cost)

Order Fulfillment

-- Order Fill Rate (Orders filled complete/total orders shipped)

-- Order Accuracy (Orders error free/total orders shipped)

-- Order Cycle Time (Hrs.) (Actual ship date/customer order date)

--On-Time Delivery (Orders on-time/Total orders shipped)


-- Dock to Stock Hours (Total dock to stock hours/Total receipts)

-- $ value per unit received (Total received inventory $s/Total units received)


-- Units per labor hour (Orders, units, items or lines picked or packed/total DC labor hours)

-- Sales per labor hour (Total sales/Total DC labor hours)


-- Cost per labor hour (Total variable costs/Total labor hours)

-- Storage Utilization % (Total cubic feet occupied/Total available capacity cubic feet)

-- Rate (Volume/Hours worked)

-- Utilization % (Hours worked/Hours paid)

-- Productivity (Rate/Utilization)

-- Costs as % of sales (Total DC costs/Total revenue)

-- Cost per unit or case (Total DC costs/Total units or cases shipped)

SOURCE: Intelligrated.

AGVS Manages Newsprint and Its Information

At San Jose Mercury News, AGV Products installed a ten-vehicle, side-loading automatic guided vehicle (AGV) system, replacing the newspaper's old AGV System. After paper rolls are weighed and unwrapped, AGVs move them to rack storage (with over 900 locations) or directly to the press. Calls for a paper roll are made automatically from the press itself or can also be initiated manually via a touch screen located at the reel stands. The newspaper scans each roll to document weight and any exceptions or damage, thus creating the evidence trail needed to obtain credit from suppliers. Tracking software built into the system transmits newsprint inventory data to the paper's own AbitRol Inventory System, allowing the paper to share information with parent company, Knight Ridder, Inc. Other system features: automatic battery charging and laser bumpers.

Lessons Learned — Project by Project

Herbalife International is a $2 billion company in the nutritional and personal care industry. Back in 1997, it was filling orders manually in its Los Angeles and Memphis distribution centers. Just as in a grocery store, a worker would wheel a cart among the shelves searching for the right items. They’d pick to simple gravity roller conveyers. The first picker used a notification-to-ship document, which doubled as a pick list, to guess which size of carton would fit the order. The person then found the items in his or her pick zone, checked them off the list, and sent the box to the next zone. The process caused frequent errors. The pickers could mistake the location, the item number, or the quantity. They could mark items they forgot to pick as completed.

The solution came with technology — a pick-to-light system. Under the Kingway CAPS Spectrum pick-to-light system, upon arrival, each order is scanned. A computer runs a weighing and cubing program to determine the ideal size and number of boxes for it. The boxes receive bar-coded labels that give the contents, weight, and shipping method.

The boxes are conveyed to each pick zone, where the pickers scan them. The displays on the flow racks tell the pickers what to pick and where to send the boxes next. The system’s only low-tech feature is a big clip the pickers put on each box before filling it. That indicates which box in line is the current one.

Using the same space it used in its manual operations, Herbalife increased its order volume more than 50 percent while it decreased the error rate close to zero.

"The system met all of our goals," says David Kratochvil, senior vice president of Herbalife’s supply chain and distribution operation. "We did an evaluation 12 months after installation to see if we got the return we were expecting on it. We exceeded it. We’re picking faster, better, and keeping our costs in line."

Post-project evaluations have taught Herbalife important lessons for succeeding projects.

After the first implementation in the Los Angeles DC, the project team spent half a year refining the system before implementing it in their Memphis DC. That installation took just two days and, except for one software glitch, went smoothly.

A year later, Herbalife put the same system in its Netherlands DC. This building supplied 10 European countries using 10 pick teams in 10 pick areas. To increase productivity, Herbalife wanted everyone to pick from one set of products using one pick system.

The company merged the pick functions in two phases. First it implemented a single pick line without the automation. The staff got used to the pick line without the Kingway system turned on for six months and then they turned on the lighted part of the system. This phased approach — to project implementation and learning — has proven successful.

For More Information...

... contact the following companies mentioned in this article:

AGV Products

ATC Logistics

HK Systems


Kingway CAPS


Red Prairie