Silver State Liquor and Wine takes on distribution

Ending a longtime relationship with a third-party distributor, Silver State Liquor and Wine takes on the risks and rewards of running its own DC.

By Corinne Kator, Associate Editor -- Modern Materials Handling, 6/1/2007

Better control
Improved efficiency
Accuracy matters
Flexibility to handle peaks
Tradeoffs worth making

Order a bottle of Merlot at a Lake Tahoe resort.
Drink a vodka tonic at a Reno casino.
Pick up a bottle of Jack Daniels at a Winnemucca convenience store.
Buy a Pinot Grigio at a Carson City grocery.

Chances are good those spirits were distributed by Silver State Liquor and Wine.

Silver State's delivery trucks make up to 400 stops per day in communities throughout western Nevada. And pleasing all those customers is no small feat.

The resort restaurant doesn't open until noon.
The casino wants deliveries after lunch but well before dinner.
The convenience store can't be restocked during the morning coffee rush.
The grocery requires trucks arrive before 8 a.m.

Silver State used to rely on a third party—a liquor distributor that picked orders from paper lists and side-loaded delivery trucks—to fill its orders and coordinate those deliveries.

Last year, the company decided to take over its own distribution operations. With the help of a systems integrator, Silver State built its own distribution center with a warehouse management system (WMS) that manages the inventory and automated equipment that conveys and sorts orders.

Kyle Bohan (left), director of warehouse operations with Patrick Ladd, warehouse manager

Owning and operating your own facility, says director of warehouse operations Kyle Bohan, certainly has its challenges. “But,” he says, “you can control your own destiny.”

Assuming the responsibility of owning a DC, says Bohan, has certainly paid off. Thanks to the automated processes, he says, mispicks are down, trucks are loaded on time, drivers are hitting their delivery windows and Silver State's customers are happier with their service.

Better control

Since opening its DC—a 150,000 square foot facility near Reno in the town of Sparks, Nevada—Silver State has gained a new level of control over its business.

“We're taking care of our own machinery and people so we can maintain service levels and maintain our market share,” says Bohan.

“Now we own the relationship with our customers,” adds warehouse manager Patrick Ladd. “That link is very, very important to us, and we didn't have it before.”

The 130 cameras installed in the DC help Silver State keep tight control of picking and shipping operations. In addition to their security function, the cameras help monitor the conveyor lines and merge lanes that carry product from the DC's pick modules to its automated sorter.

The cameras help employees identify jams in the conveyor as soon as they happen, says Ladd. This minimizes downtime and bottle breakage. The cameras also make it easy to spot a merge lane that's not filling up as fast as it should be—a sure sign that an order picker is falling behind and needs some assistance.

The warehouse management system has greatly increased Silver State's inventory visibility, another important aspect of controlling its business.

“I can tell you where any case in the warehouse is, where it's been and how it got there,” says Ladd.

Improved efficiency

Cameras help Silver State employees monitor conveyor lines that carry product to the DC’s automated sorter.

The DC's tightly managed inventory and automated materials handling processes combine to form an extremely efficient DC.

In the old facility, says Ladd, delivery trucks usually weren't loaded until 6 a.m., and they were occasionally not ready until as late as 11 a.m.

“With the new facility,” he says, “the latest I've ever seen them done loading is 3 a.m. Normally, they're done by 1 a.m.”

In the old days, delivery drivers used to wait for their trucks to be loaded, often causing them to leave late and miss time-sensitive deliveries. Now, there's no more waiting.

“The drivers come in to a fully loaded truck ready for departure,” says Ladd. “We've shaved five to 10 hours off of the loading process compared to our third-party distributor.”

This efficiency has allowed Silver State to practically eliminate overtime. And despite the lack of overtime pay, he says, employees are happy in the new environment.

“It's a well-oiled machine,” he says, “and they like that.”

Accuracy matters

Alcohol is a heavily taxed, tightly controlled product. This means inventory accuracy is paramount at Silver State.

Picking and shipping gets done so efficiently in the new DC, says Bohan, that employees have plenty of time for cycle counting.

Silver State’s new DC includes two pick modules: one for
picking full cases and one for picking individual bottles.

Silver State counts the inventory in its pick faces every day. If employees find the inventory level in a pick face doesn't match inventory records in the WMS, they then count the reserve locations for that item. If the count is still off, says Bohan, they assume the item was picked wrong the night before, and they contact their delivery drivers to try to fix the mistake before delivery.

Catching mispicks before they're delivered is important, says Bohan, because customers may not report mistakes made in their favor. If bartenders order Smirnoff and get Ketel One, they aren't likely to complain.

This emphasis on inventory accuracy removes temptation for those working in the DC as well. “Our employees know we're counting every day,” says Bohan.

Inventory accuracy in the DC that Bohan oversees in Las Vegas is 99.99%. The Sparks DC hasn't been running long enough to generate accuracy figures, but Bohan says he expects the Sparks numbers to be as good as those in Las Vegas.

Flexibility to handle peaks

Another benefit of the automated DC, says Ladd, is the flexibility it offers Silver State to handle fluctuations in order volume.

“If we have 2,000 cases one night and 5,000 cases the next, we won't need to add another warehouse employee. We'll just run a little bit longer at night,” he says.

The DC absorbs extra volume so well that Silver State plans to close a DC in northeast Nevada and move that inventory to Sparks. When that happens later this summer, Ladd plans to hire only one extra delivery driver—and no extra warehouse personnel—to handle the added volume.

Silver State also built flexibility into the layout of the DC. Currently only four of the facility's six shipping docks are in use. If order volumes grow enough, Silver State can add two more sortation lanes and make use of the remaining two docks.

And considering the number of new homes and condominiums under construction in the Reno area, such growth is bound to happen soon.

Tradeoffs worth making

While operating the new DC has not been without challenges, Bohan and Ladd agree the benefits far outweigh the costs.

They used to let a third-party worry about hiring and training employees. Now that's their responsibility. But the opportunity to nurture and retain good people is theirs now, too.

A third party used to shoulder the cost of operating a delivery fleet and maintaining a large facility. Silver State now carries those costs, but the company also controls the quality of its service and all aspects of its customer relationships.

Automated facilities can be a risk: “If our conveyor goes down, we don't have a backup,” says Bohan. This means preventative maintenance is a must. This attention to maintaining the system, however, clearly pays off in the throughput and flexibility the system allows.

Taking on the costs and risks involved in running Silver State's distribution operations has been a plunge worth taking, says Bohan. The company now has better control of its inventory and its customer relationships, more efficient operations, improved accuracy and more confidence in its ability to grow.

“We can see the difference,” says Bohan, “and more importantly, our customers can see and appreciate the difference.”