Clearly, Blockbuster's DC in McKinney, Texas doesn't have it easy.

The 1 million square foot facility, which includes two mezzanines with a total of 200,000 square feet, is the company's only DC. That means it processes orders 24/6 for 4,700 stores across the country. And when it comes to new releases, shipments must be coordinated so they are available at all stores on the same date.

Meanwhile, the inventory being handled continues to change as volume rises above 140 million units a year. What was once a business of only VHS tapes now includes mostly DVDs and games. In addition, what was primarily a rental business now includes retail sales as well as trading. The end result is as many as four stock keeping units (SKUs) for a single release.

The character of orders has changed too. "We used to deal only in large volumes for each new release," says Bill Wissing, vice president of distribution. "But now we also have to factor in shipment of fewer than five units of a niche product such as a TV show to each of our stores."

In describing the facility, Wissing hesitates to even call it a DC. "We do fulfillment for stores, warehousing of slow moving deep catalog items, priority distribution of new releases and light manufacturing that replicates and packages releases", he says.

As a result, order handling is complex. At the same time, Wissing has his eye on improving efficiencies and accuracy while reducing costs. That has resulted in some recent changes in the facility.

Already in place is a new consolidation system consisting of pick- and put-to-light horizontal carousels. Its purpose is to marry up all the weekly product orders being shipped to a store and consolidate them utilizing a pool point network. The multi-million dollar system, installed early last year, has already paid for itself twice over.

Slated for completion this fall is an upgrade to the replicating and packaging lines that will speed handling. In addition, Blockbuster is completing installation of an A-frame order fulfillment system for next day standard replenishment. New horizontal carousels are also being added to handle SKUs for trading.

Directing orders through this maze is a new warehouse management system (WMS). "The new WMS makes the new consolidation system work," says Wissing.

Given its order and SKU complexity as well as volumes, Blockbuster needed to create a new handling system that would both expedite orders within the four walls and create substantial transportation cost savings.

"Our problem was simple," says Kyle Brock, industrial engineering manager. "We had five orders coming in from a store and needed to find a way to have one box going out to it. The consolidation system allows us to do that."

While improving efficiencies at the facility, consolidating an order's components also results in considerable transportation savings too.

While the DC fills orders for 4,700 stores, it does not ship directly to any. Instead, orders are loaded on trailers that travel to 42 pool points around the country. At each of those, boxes for each store are broken down for direct store delivery.

As Brock explains, consolidation ensures a minimum number of shipments to pool points, reducing transportation costs.

The idea, he says, came from a printing company. One of its businesses was printing stationery for thousands of Hallmark stores. Using carousels, it consolidated customer orders to maximize shipping efficiencies.

"We had three or four good ideas. But his one had the most bang for the buck," says Brock.

Like the printing company, Blockbuster's consolidation system makes extensive use of horizontal carousels. On one of the mezzanines are 12 pods each with two carousels. Each carousel has 48 bins. There are 1,700 storage locations in each pod.

"With nearly 21,000 dynamic slotting locations, we have the option to control the amount of order compaction based upon cube, weight or the number of store orders," says Dale Pitts, consolidation project manager. The system is designed to trigger an outbound container anytime any one of the three constraints is exceeded.

But what makes this system so effective is the speed of order processing. "When we had our old consolidation system, the average was approximately 45 pick and puts per hour. With this new consolidation system, we can do approximately 720 transactions per hour, per pod," says Pitts. Multiply that 720 per hour times each of the 12 pods and you have a system that can handle a huge amount of volume.

While the WMS manages overall order fulfillment, the WCS directs carousel operation.

At the heart of the consolidation system is the (WCS) warehouse control system. The WCS allows the consolidation system to operate at a constant volume balancing stores across all pods.

Typically, a store is assigned to a specific pod and will stay there until it is completely purged. After that, depending upon store load and carrousel volumes, that store may be re-assigned to another pod until all of its orders have been purged again. (See layout below for full details on the consolidation system).

The fourth quarter is the busiest of the year for Blockbuster, accounting for 35% of annual volume or nearly half a million units shipped. And Wissing expects the upgrades to have a positive impact.

To begin, he's looking for improved efficiencies. The biggest of these is improved management of the flow of inventory between peaks and average throughputs. The range between the two is a factor of four.

Central to success here are three software tools—a constraint-based planning tool, a full-featured WMS and a warehouse control system. Previously, Blockbuster had only a low-end WMS to manage the facility.

The planning software's primary purpose is to optimize inventory against orders for the WMS. In turn, the warehouse software manages warehouse activities to schedules. Meanwhile, the WCS spreads those requirements across the carousel pods, balancing the use of the carousels over time and ensuring smooth flow of cartons to sortation and shipping.

Of the three, the kingpin is the WMS. "We couldn't have been nearly as aggressive in how we run the facility without the WMS," says Wissing.

Performance on the floor is also expected to improve. Picking accuracy for the facility has been at 99.97%. Wissing says that is not high enough. The new target is 99.999%.

Cost reduction is another big benefit of the upgrades. While some of the savings are due to greater handling efficiencies and lower labor costs, the majority come from more efficient transportation of product from McKinney to pool points.

And as the fourth quarter gets underway, Wissing is looking for a level of performance that will set the stage for future gains.