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Midwest Retailer Extends Its Network

Jan. 16, 2008
Passion and commitment helped CDW manage layers of growth for over a decade, but when its land-locked facility couldnt grow any more, it was time to add

Passion and commitment helped CDW manage layers of growth for over a decade, but when its land-locked facility couldn’t grow any more, it was time to add a new location. One of its goals was to move its culture with its new operations.

Ending 1995 with a 52% rise in net sales and 48% profit growth, computer and technology retailer CDW had outgrown its existing facility and committed in March 1996 to a 27-acre site in Vernon Hills, IL. The initial construction would provide a 100% increase in space and included 100,000 square feet of warehouse space in the Chicago-area community.

Due to continued growth, that 100,000 square feet only lasted a year before the company had to add another 100,000 square feet, says Lisa Tegtmeyer, senior director of operations. The two facilities were designated for inbound and outbound shipments. “We brought the product into one warehouse, kind of went through the wall, and everything shipped out of the other warehouse,” recalls Tegtmeyer.

A quick look at some statistics shows the kind of challenge CDW faced. As it began construction on the Vernon Hills facility, CDW was coming off a year with 52% growth in net sales, reaching $628 million. Gross profit had jumped 48% to $80 million. Its volume of orders finished the year at just under 1 million shipped—43% ahead of the previous year. The rationale for investing $23 million to $25 million in a new facility and incurring an additional relocation cost of just under $1 million to move to a larger parcel of land closer to Chicago’s O’Hare Airport was fairly straightforward.

Though that year’s annual report indicated the construction and relocation would likely mean the company would not pay a dividend in the following year, growth and solid cash flow, along with some credit facilities, would easily cover the costs, according to founder Michael Krasny.

When 1997 closed, the company had relocated to its new campus and state of the art warehouse and sales now topped $1 billion. Order volumes had doubled 1995’s level to reach 1.8 million shipments.

A print-and-apply operation labels orders that are sorted and routed to lanes where the designated carrier will pick them up.

“Two years later, we were out of space again and built another 265,000 squarefoot warehouse which used all of the available land at the Vernon Hills site,” continues Tegtmeyer. That move necessitated another shift in operations.

“We configured a ready-ship warehouse and broke the warehouses down with a receiving warehouse in the middle,” explains Tegtmeyer. Products were received and segregated into two categories. One category was ready-ship, which Tegtmeyer describes as items that would be shipped to customers using the original manufacturers’ packaging. The other items went into a conventional pick and pack operation.

Warehouse 1 was pick/pack, she continues, and Warehouse 3 is where CDW handled the ready-ship items. It was also where the sorters were located, so that’s where carriers made their pick ups.

The facility is automated, but that did present some problems during the expansion because CDW had done an add-on and another add-on. The layout wasn’t optimal. “It was efficient, but not as efficient as we wanted, says Tegtmeyer. “As you continue to grow, you need to work smarter and not just add space, she cautions.

CDW had reached a point where it was still growing, but it had run out of land in Vernon Hills. It was clear CDW needed a second distribution facility to supplement operations in Vernon Hills.

Through all of this rapid growth, CDW hadn’t developed a disaster recovery program. Without an actual event as a motivating factor, CDW management decided it was time to get proactive. “We run a same-day facility,” says Tegtmeyer. “We start at 1:00 a.m.,” she says. The sizable sales team is on the phones and can take orders up until 7:00 p.m. on items CDW has on hand and they ship that night. There are hundreds of thousands of items that arrive in a day and are processed and ship the same day, adds Tegetmeyer. Alluding to the potential impact of a disruption, Tegetmeyer says that if the facility didn’t have power for a day, that equates to thousands of boxes that don’t ship. So, having a backup is very important.

Faced with the need to expand its distribution network and to accomplish a goal of developing some back up redundancy, the next question was “where?” The two primary things CDW looked at, explains Tegtmeyer, were where their goods were coming from and where they were shipping to. Taking the exercise a step further, “We worked with our carriers because we wanted to make sure that we were going to grow and build in the same areas.” The carriers looked at three years of data to help CDW identify shipping trends. DCW looked at where its vendors were and the percentages of their volumes coming from the various vendors. Along with all of this, CDW asked carriers where they would be adding hubs and terminals. “We wanted to make sure all of that tied in,” says Tegtmeyer.

Some of the data came from CDW’s own records, but, “We wanted to work with carriers on time lines and delivery times,” she points out. That includes modeling ground transport times on inbound less-than-truckload (LTL) shipments and outbound parcel shipments—about 95% of CDW’s outbound is parcel.

Expanding a facility and then expanding again, CDW learned to work smarter.

Though the ready-ship items Tegtmeyer described move into the CDW facility and are shipped to customers without further repackaging, there are also some direct shipments that never see a CDW facility. Based on some select criteria, shipments that would move to the CDW warehouse and then be expedited back to a customer in the same region as they had been shipped from are “tagged” for direct shipment. Despite its heavy volumes, that still represents a small number of orders.

An advantage for the Vernon Hills location is its proximity to Chicago’s O’Hare Airport. That allows late cut off times for shipments. Drivers go directly from the CDW warehouse to the airport. Close coordination with carriers on security compliance helps ensure the CDW shipments can move quickly through the carrier’s airport hub and onto a flight.

Proximity to an air hub became one of the factors in CDW’s selection of Las Vegas, NV as the site for its second distribution operation. But before the decision had been narrowed that far, CDW had the results of its research as a driver.

California is one of CDW's largest bases of customer orders, points out Tegtmeyer. Illinois was another major destination state, so Vernon Hills was ideally suited for those markets.

Getting closer to California had an advantage of cutting down on some inbound delivery times given that much of the product CDW handles comes through the Port of Long Beach. But perhaps the biggest driver was still the California customer base. Representing 20% of daily shipments, CDW had established a special program called West Coast Special that let California customers pay ground transportation rates for two-day delivery from Vernon Hills. CDW absorbed the additional transportation costs to deliver in two days. The new facility put California customers in next-day reach with ground transportation cut off time, ground transportation pricing, and better margins for CDW.

Narrowing the choice of the location to Las Vegas involved careful examination of the data provided by CDW’s carriers. “We looked at where the carriers were located and where they had the ability to take on more volume,” recalls Tegtmeyer.

CDW also had to find a suitable labor pool, which meant more than locating or training for requisite skills. CDW was looking at transplanting a corporate culture. “Part of what’s special about CDW is our culture here,” says Tegtmeyer. She and the management team at CDW felt strongly about the fact that the Vernon Hills team had managed the volumes and growth and still maintained a same-day operation. Its earlier expansions in Vernon Hills had been put in place not only because they had the land, CDW wanted to keep the team together.

When the Las Vegas facility was coming online, CDW sent 50 Vernon Hills personnel to Las Vegas. “We have a director, we transferred workers, managers, team members—all across the board,” says Tegtmeyer. CDW also hired 118 coworkers from the Nevada area, and they did all of the training and watched the building being built and grew with the facility,” she continues. Tegtmeyer says this was definitely one way CDW could build a distribution facility across the country and retain its work ethic and culture. “During the transition, we had all the management team from Vernon Hills going out there and helping through the training and the whole start up.”

CDW took other lessons from Vernon Hills to Las Vegas. One of the systems that proved valuable was a print-and-apply scan tunnel. Using automated picking for ready-ship product, a coworker may pick 500 printers, put them on a conveyor, and the conveyor line takes those printers the coworker has scanned to a print-and-apply operation where a label is applied, a packing list is generated, the labels are verified, and a tracking number is assigned to that order and applied.

The sortation system checks the weight, the carrier, and other details and diverts the package to the lane where that carrier will be picking up. The auto billing system is updated and generates an invoice. All of the data from the individual order is automatically upated to the order history, including the item serial number that was collected during processing.

Carefully managing its expansion has allowed CDW to target improvements in customer service to one of its largest geographic markets, reduce transportation costs, shorten some inbound times, and maintain its corporate culture. One other lesson CDW took to its new Las Vegas site was a plan for future expansions. And, if the company continues its aggressive growth, it’s going to need them.

Purpose, Passion, and People

“As you continue to grow, you need to work smarter and not just add space.” Lisa Tegtmeyer, senior director of operations, CDW

From a clear and concise statement of purpose, Illinois-based technology retailer CDW moves quickly to describe the underlying values that drive its business. But, the real key to CDW’s success is putting the right people to work and channeling their passion to achieve the company’s stated purpose.

CDW’s statement of purpose is, “to help our customers achieve their goals by providing them with the technology advice and products they need—when they need them.” In the list of company values that make up the foundation for a strong co-worker culture, CDW puts the “how” to the “what” of its purpose statement. “It’s only good if it’s win/win,” says the list of values. The list reinforces the fact that “people do business with people they like,” and encourages positive interaction and a pursuit of excellence.

The fact that in 2007 CDW was named one of Fortune Magazine’s 100 Best Companies to Work for in America for the ninth consecutive year reflects how the company internalizes its values. And when it comes to the customer-facing side of the company, that attitude will show. It is backed up with knowledge. CDW operates a College of Sales program within its CDW University to train employees. The training includes an initial seven weeks of comprehensive sales and product training programs and weekly continuing education on new product and industry information.

With the values and guidelines established by the company, combined with what Lisa Tegtmeyer, senior director of operations, describes as a distinct work ethic and culture, it’s clear how CDW has been able to survive and thrive in the competitive market of technology retailers. In fact, CDW’s growth has been just short of explosive.

Started in 1982 when Michael Krasny sat down at his kitchen table and wrote a three-line classified ad to sell his own personal computer, the underlying realization of CDW’s founder was that people had a passion for technology, and the personal computer had a bright future. He not only set out to capitalize on that passion, he brought it into his business. And, from there, CDW has grown to nearly 6,000 employees (which CDW refers to as co-workers).

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