Putting a fresh face on an old DC

Oct. 1, 2005
L'Occitane extended the life of its existing U.S. distribution center in the face of rapid growth.

*Editor's note: This article originally appeared in Logistics Today.

If you can trust surveys to tell the story, most distribution professionals would love to stretch their warehouse in nearly every dimension. But what do you do if you can't build a new, larger distribution center (DC) or increase the size of an existing facility?

The Logistics Institute at the Georgia Institute of Technology (www.gatech.edu) recently asked 200 warehouse managers what they would change about their facilities: 31% said they would raise the ceiling height; 30% wanted a deeper building; 25% wanted a longer building; and 58% would add dock doors. Clearly, the desire is for more space and better velocity. That's understandable given that two-thirds (65%) of those responding to the study have warehouses of 100,000 square feet or less. The highprofile DCs in the million-square-foot range make good headlines, but they are clearly a minority when it comes to the average distribution center. (The average is 150,000 square feet, according to the Georgia Tech study.)

So let's take a closer look at one of those mid-size facilities. With a mere 66,000 square feet in a single distribution center on the East Coast, Chris Halkyard, vice president of supply chain for L'Occitane (www.usa.loccitane.com), has had to cope with 25% to 30% per year growth in sales and the addition of 20 to 30 retail stores per year. The highend bath and body products company has some of its fastest growth on the U.S. West Coast.

Supply chain management at L'Occitane's U.S. subsidiary has been largely reactionary, says Halkyard. Rapid growth will do that. When he joined the firm early in 2004, it had 85 stores in the U.S. In just a year and a half, it has grown to 135 stores, and it isn't slowing that pace. Bringing the logistics network and DC operations up to speed when things are changing that quickly presents an interesting challenge. Halkyard and his team have changed the configuration of L'Occitane's distribution center without disrupting service to the stores.

Much of the operation was manual and worked pretty well when L'Occitane had 30 stores, Halkyard points out. Earlier this year, the company acquired and implemented a warehouse management system (WMS) from Adonix. In the conversion to a radio-frequency-directed pick/pack operation, L'Occitane added PSC Falcon mobile terminals.

Once the WMS was implemented and workers had developed a comfort level with the new technology, the big changes started. The DC was a basic pick/pack operation where orders were picked by store and staged onto pallets. Delivery times were set up for the stores, and pallets would be accumulated in a staging area before being shipped.

The actual picking operation was a process of taking a manual cart into the DC, putting as many cartons for orders on the cart as possible. Pick to the cartons. Carry the carton to the packing area and add bubble wrap. Manually tape them shut. Write the address on it. Print a carrier label.

Receiving was also pretty basic. Goods arrive in bulk from the production plant in Provence, France. Everything is received and put away in bulk. Without a WMS, stocking was all done by sight. "It was pretty much in the dark ages," comments Halkyard.

Rent was nearly 40% of supply chain costs, Halkyard explains, so he wanted to bring in some automation that would help free some of the space - especially the 30% of floor space devoted to staging completed pallets.

One of his first steps was to "get out of the transportation business." Halkyard wanted to begin fluid loading trailers, and that meant two things. One was the addition of some conveyor systems. Another was contracting with a logistics company to take those full trailer loads to a cross-dock facility.

Halkyard brought in Stonepath Logistics (www.stonepath.com), a third-party logistics provider (3PL), because it had two facilities with a substantial amount of inbound that would be suitable to handle L'Occitane's store shipments. He began wave picking based on geography - which stores would get shipments out of each pool. Full trailer loads moved to Stonepath's Elizabeth, N.J., or Detroit facilities where Stonepath sorts and segregates shipments by store and arranges store delivery.

Key to the process was delivery schedule integrity. Halkyard didn't want to disrupt the promised delivery dates established for his stores. Another important goal was cost reduction. The 3PL was able to negotiate better freight rates based on higher volumes and Halkyard's transportation cost, including the sort and segregate operation, went down.

The next step was to restructure the layout of the 66,000 square feet L'Occitane's distribution operation had available. Halkyard comments, "We've got about 90% of the building covered with picking activity."

The new design centered on a fluid flow from receiving, straight through to a case pick/pack area. Halkyard added flow racks and conveyors so orders could move from the pick/pack area to a packing area where he installed Sealed Air Instapak (www.instapak.com) foam-in-place machines to eliminate manual bubble wrapping. Automatic taping machines also eliminated the manual process.

Another boon for the DC and stores was the carton-level manifest that is printed at the end of the process. Once an order has been scanned to confirm the item, quantity and carton, a manifest is printed and stuck right to the carton.

Halkyard worked with SJF Material Handling (www.sjf.com) to acquire the conveyors, racks and material handling equipment. SJF supplies used systems which it has dismantled, refurbished and rebuilt. Using refurbished systems vs. new saved about two-thirds of the cost on the handling systems, he estimates.

The moment of truth was approaching. The day before the shutdown that would accomplish the installation of the new systems and complete reconfiguration of the DC, Halkyard made sure the stores were covered. Working with the allocation team, he explains, "I literally had them do a huge order for the stores and doubled up on all the top selling items." He then eliminated one delivery for the following week.

As part of the conversion, L'Occitane did a complete physical inventory. Goods were scanned into a location as they were counted. For a system that had operated manually for so long, Halkyard says the inventory came out "good."

The hardest thing was learning the new locations, he says. DC workers had been doing their jobs for a long time and didn't even have to think about where items were located in the old system. Now they had a whole new geography to deal with. The WMS and scanners proved valuable in keeping things on track. If a worker scans a wrong location, the system "errors out."

The real test was starting back up. "I have an unwritten rule," says Halkyard, "I don't like to change anything after July.

L'Occitane had accomplished the complete redesign and installation in its DC in the run-up to its peak season. "Everything has to be in the stores by the second week of December," says Halkyard, and during the peak, his team will be picking 100,000 units a day.

Logistics Today spoke to him in late September, two days after he had restarted the distribution center and less than 12 weeks ahead of that critical deadline. How was he doing? "We didn't have any issues with timing [on the automated systems] and no problem with jams," he reported.

On the first day, the DC started up at noon and processed 39,000 units in about 4 1/2 hours, over one third of that peaklevel target. Picking productivity was up over 30%.

Halkyard didn't have a figure for the productivity gain on eliminating the manual processes post-picking. He was confident the changeover would contribute a 1 1/2% to 2% reduction in overall supply chain costs relative to the cost of goods sold. And if that isn't enough, he estimates the DC will be able to handle the company's growth over the next two years. By then, growth in the western half of the country may dictate a different set of solutions, but Halkyard has plenty of time to plan for that.

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