For many retailers, bringing on a new distribution center seamlessly is enough of a challenge. But for arts and crafts retailer Michaels, that was only the first objective for its greenfield DC in New Lenox, Ill. The next step is to make New Lenox the lead DC for implementation of a new supply chain strategy that will feed Michaels' 850 stores nationwide.

This 695,000 square foot facility replaces a collection of three DCs in Lexington, Ky. As of June 14th last year, shipments to more than 120 plus stores were realigned to the New Lenox facility without the stores even noticing, says Rich Sanderson, general manager at New Lenox.

It didn't take long to see improvements in distribution performance. By the end of the year, New Lenox had posted productivity gains of 35% compared to Lexington. Inventory accuracy rose to 99.2%. While Kentucky had 60% turnover among workers, New Lenox' turnover is less than 40%.

Even compared to the company's established DCs, New Lenox is already holding its own. It has already posted the highest throughput of all five DCs for a single week. By the end of 2004, its overall throughput was third best. "And by October of this year, New Lenox is expected to have the highest throughput and productivity in the company," says Les Gardner, vice president of distribution and logistics.

But that's only half the story. Like the other DCs, New Lenox distributes about 16,000 stock keeping units (SKUs) to stores in its 13 state region. An additional 24,000 SKUs are shipped by suppliers directly to all stores, bypassing Michaels' distribution network. That is about to change, says Gardner.

The new supply chain strategy calls for all 40,000 SKUs to pass through the DCs. "We need to gain better control over all inventory and simplify the receiving process for our stores," says Gardner.

Under the new plan, New Lenox will continue to stock and ship certain SKUs for the 180 plus stores in its region. Meanwhile, 8,000 SKUs now shipped directly to stores by suppliers will be stored and picked by New Lenox for all 850 stores nationwide.

But rather than shipping directly to all stores, New Lenox will ship the picks to the other four DCs. Each DC will then crossdock those items to the stores in its region.

"We're ready to go live with that starting in July," says Gardner. "This new strategy will let us control all of our freight movements and have visibility to all of our inventory."

To say the least, change is the order of the day. Not only is New Lenox new, but it fulfills store orders differently than Lexington did.

In the old system, there was almost no materials handling automation and mechanization. There weren't even any conveyors. New Lenox, however, makes extensive use of conveyors. There are 13,000 pick-to-light locations. Pick-and-pass conveyor lines running the length of the pick-to-light tunnels speed inventory through the DC. Picked items are directed by sliding shoe sorter to fluid loading lanes that feed 20 dock doors.

Split case picks are also handled differently than before, says Sanderson. Previously, picks were made in a manner to streamline order fulfillment at the DC. Now split case picks are picked to expedite unpacking at stores. That means items that are displayed near each other at the store are picked into the same cases, minimizing replenishment time at the retail outlet.

Another major change at New Lenox was the addition of 60 new stores that it services in March. That was a 50% increase over what the DC was originally handling, says Sanderson. The DC, he adds, is now at almost two-thirds of capacity.

The new supply chain strategy didn't just happen. It was four years in the making and required 75,000 labor hours of development just on the IT side, says Gardner.

Its first impact will be on the number of SKUs handled by New Lenox. The 16,000 plus standard SKUs it now supplies to the stores in its region will be reduced to 13,000. In addition, New Lenox will be responsible for picking 8,000 SKUs for all stores, and shipping them to the other four DCs that will then distribute them to the stores in their respective regions. Similarly, the other DCs will also be responsible for certain SKUs previously shipped directly to stores.

When New Lenox receives those SKUs picked by other DCs, that's when a new flow-thorough holding and sortation area on a mezzanine swings into action. Shortly after arrival at the DC, the picked cases of items will be sorted and fed to the fluid loading lanes at the shipping dock doors.

Gardner says there will be considerable benefits to the new strategy. Because stores will be receiving items shipped from a DC and not from a supplier, 90% of the detailed receiving procedure will be eliminated, saving time and expense. He also expects to have much better control of inventory levels at stores.

Even with the added step in the supply chain, Gardner says lead times for stores will shrink considerably. He estimates what once took 40 days will now take 10–12 days to move inventory into stores.

Over-the-road carrier practices will change too. Less-than-truckload and FedEx shipments will play less of a role. Now, says Gardner, Michaels will benefit from full truck load shipping efficiencies.

"The bottom line here is customers will have a better experience at Michaels because our in-stock positions will improve. In addition, the lives of people who work in the stores will become considerably simpler," Gardner says.