Automation: The best materials handling is no materials handling

Next week, I’ll be in Chicago at ProMat 2013. Like most in our industry, I’m looking forward to seeing what’s new in the world of materials handling.

Our course, the most efficient materials handling is no materials handling at all. After all, the fewer stops in a product’s journey from the factory floor to its final destination, the better. Nirvana, I suppose, is a supply chain with just two touches: one when the product is loaded into a container at the end of the manufacturing line and the other when it’s placed in the hands of the ultimate end user.

A two-touch supply chain may not be within reach just yet. But it’s not far-fetched, says Charlie Kantz, vice president of supply chain for Lighthouse Consulting, a boutique consulting firm with experience in retail distribution.

I learned about Kantz from Steve Christensen, the founder and CEO of BabbleWare, a provider of a supply chain management software application that’s a little hard to describe. However, for one retail client, Kantz used it to manage supply chain processes from manufacturers in China to the retailer’s distribution centers and 250 stores in North America. “We took a week out of the supply chain to get product as far as Miami and we reduced the cost by $4 per carton, or about 25% of the cost of shipping,” Kantz tells me. “We were bypassing DCs. We were zone skipping. We were using intermodal. How many times to you get things there 6 days faster and save $4 a carton.”

Now, the typical way to ship product from Asia is to unload it in Long Beach, send the containers to a cross-dock facility where they are unloaded and reconsolidated for shipment to a distribution center for allocation to the stores. There are a lot of touches involved in that journey.

If that’s typical, you’re probably wondering, what did Kantz do differently? In short, he turned that model on its head and bypassed the cross-dock facility in Long Beach entirely. In many cases, inventory wasn’t touched after leaving China until it hit a FedEx sortation center that did the last mile delivery.

“The key,” he says, “is that we allocated inventory to the stores before it left China. That let us bypass a cross-dock center and in many instances go directly to a FedEx sort center.” While Kantz’s client used this process for all shipments, including store replenishment, Kantz believes that any retailer could adopt the practice for beginning allocations for a new season. “At the beginning of the season, you’re looking at last year’s data to do your allocations,” he says. “Most of the time, you know what sold and where and that doesn’t change.” However, he adds that a retailer could add milestones in the journey for store replenishment. If needs change between China and Long Beach, you would always have the opportunity to redirect it to a cross-dock center and re-allocate on the fly.

Here’s how he did it. To initiate the process, the retailer created a purchase order that was delivered to a factory in China and electronically uploaded into the BabbleWare supply chain management (SCM) application. That application sat on top of the enterprise system and received data from other applications. Overseas agents kept on top of the production schedule with the factories the old fashioned way, through telephone calls, faxes and emails.

Once the factory said it was ready to ship, the SCM application created serialized carton labels that included the purchase order number and content information for each carton. The label might indicate that the carton was for PO 12345, it contained 24 pairs of black shoes, size 12 and that it was box 1 of 50. The labels were sent electronically to the manufacturer, which printed and applied them to the carton.

The order was then delivered to a warehouse in China where it was received by scanning the carton label. That information was forwarded to the retailer’s enterprise system. In turn, the enterprise system would make allocation decisions across its 250 stores or to one of its distribution centers. For instance, the retailer had a DC in St. Louis that fulfilled internet orders. The stores and DCs were aggregated into zones that were served by FedEx. All product going to stores in California might be assigned to Zone 1. Product going to the St. Louis DC or stores in that part of the country might be assigned to Zone 2.

Once the allocation process was complete, the SCM application generated a shipping label that was applied to the cartons. Inventory was then scanned into 53 foot containers based on zones. Once the containers were loaded, the data was transmitted to the enterprise system.

In Long Beach, the containers were put on an intermodal train for delivery to a facility designated for that zone. A Zone 1 container might go to a FedEx facility in California where the contents would be unloaded and sorted into a truck for delivery. A Zone 2 container might go directly to St. Louis where it would be unloaded at the retailer’s DC. Another container might ship to a sort center in Florida. “We based all of our movements off of when we needed the inventory in the stores,” Kantz says. “If something needed to be in the stores in Miami, we used a 38-day ship window. That meant we had 7 days to get it from the factory and into a container for shipment because it took 31 days to get to Miami. Other than legal holidays or port slow downs, it was very consistent.” Shipments to other parts of the country took less time.

The key to making it work was that Kantz had an SCM application that had controlled the process from the time inventory left the factory until it arrived at the store. “Too often today, you have an international and a domestic logistics person. They may report to the same manager, but they do their own thing to make their numbers,” he says. “I was able to create a seamless supply chain solution that eliminated most DC operations.”