IKEA: Think global, act local for warehouse distribution

IKEA Wholesale, Inc., Port Wentworth, Ga.
Size: 750,000 sq ft
Product line: Home furnishings
Stock Keeping Units: 3,500
Throughput: 600 pallets per hour at full capacity
Shifts: 1 shift, 7 days
Employees: 140

Think globally, act locally.

That’s how IKEA Wholesale approached its new new 750,000 sq ft distribution center in Port Wentworth, Georgia, located near the port of Savannah.

In fact, four principles came into play in the design of the facility, according to Jim Leddy, IKEA’s expansion manager for North America and Ed Morris, manager of the Georgia DC.

First was the recognition that IKEA is a global company. “We incorporated a design based on a model used by other similar DCs around the globe,” explains Morris.

The second was location. While the DC design is global, the facility’s location allows it to quickly deliver fast-moving products to IKEA stores in local markets in the southeastern United States, including North Carolina, Florida and Texas. And while IKEA is a global company, the DC’s location was chosen to position the fastest movers closest to the stores for replenishment. That not only improves service times, it also reduces transportation costs.

A third was automation. While IKEA operates highly-automated facilities in other countries, this is the first automated DC in North America. In this case, the DC was designed around a 13-crane automated storage and retrieval (AS/RS) system (viastore) featuring a 100 foot-tall high-bay inhouse rack system. At full operation, the system can process 600 pallets an hour, or nearly one pallet per minute from each crane.

The combination of factors has reduced the turnaround on orders to the stores from 72 hours to 24 hours while taking nearly 700 miles out of the distance from the DC to the stores and from the port to the DC. “As we increase the number of stores and the volume being handled in that facility, our ROI will improve because of the increased throughput in the system,” says Morris. The location and design will also allow IKEA to double the capacity as the company continues to open stores.

Location, location, location
The world’s largest home furnishing company, IKEA is known for contemporary designs, affordable prices and loyal customers.

Before the new DC was built, IKEA had just two stores along the southeastern seaboard – one in Atlanta and one in Virginia. Those stores were supported by a DC in Perryville, Md. IKEA, however, is in growth mode. “We have to have a distribution strategy that can support our growing retail operations,” says Leddy. “We’re opening stores in Florida and Charlotte, North Carolina, plus we have three existing stores in Texas.”

Port Wentworth was chosen because of its proximity to Savannah, just four miles from the largest deepwater port on the east coast with room to grow. “Since the majority of our product is received via ocean freight, we bought on port property,” says Leddy, who overseas site selection and property development for IKEA in North America.

The new facility allowed IKEA to create a new distribution strategy. The Perryville facility now handles low volume products for the entire eastern half of the US. Meanwhile, regional DCs, like Port Wentworth, can handle the fastest-moving products sold by the stores serviced by those DCs.

“We’re putting the higher volume products that much closer to the market, which reduces our transportation time, and reduces the total distance we need to travel to support the stores,” says Leddy.

A global design
Just as the location was important, so was the design, which is based on successful implementations at other IKEA distribution centers around the globe, right down to the three pallet designs used for storage on racks and in the AS/RS: A standard Euro pallet, a half pallet and an IKEA pallet, which is an over-sized Euro pallet

In part, that allows IKEA to use standardized packaging for shipping. “We control our product pipeline, so we design our products around these three standard pallet sizes,” says Leddy. “The idea is that no matter where our product is manufactured, it can be shipped to any of our facilities anywhere in the world.”

But, adds Morris, there are other operational benefits to using a global design. “With global DC designs in place, we are designing standard operating procedures within those models,” explains Morris. “When that happens, there will only be one way to work when a new DC opens in the future, with local exceptions, of course.”

In addition, standard processes and designs enable to IKEA to apply the results of pilot projects across the organization, creating exponential improvements. “When you try something new, you can determine if it makes sense to adapt that process in other facilities,” says Morris.

Standardization also creates opportunities to benchmark performance across the enterprise. “If one facility is struggling, it’s easier to look at their metrics and pinpoint where a problem might be coming from,” says Morris. “And if one facility is outperforming the others, we can see what they’re doing differently and apply that to other operations.”

Finally, as a global company, standard business processes facilitate movement within the organization. “We have people who move from Europe to America and America to Europe,” says Morris. “Standard DC designs and processes make it much easier to transfer knowledge within the organization.”

Automate for productivity and efficiency
Several factors led to IKEA’s decision to open its first highly-automated facility in North America.

The first was the tightening labor market facing almost every company operating a large-scale DC. “We recognize that driving a lift truck up and down storage aisles is a pretty mundane job,” says Leddy. “Automation will allow us to increase our throughput without the need for additional co-workers in a tough labor market.” 

Likewise, taking advantage of the height of the building enables IKEA to support the growing operations in the Southeastern US.

The fact that more than 90% of the facilities volume is full pallet in/full pallet out also led to the choice of an automated storage and retrieval system. That system, as well as conventional receiving and putaway processes, are further optimized through task interleaving. Each time a crane puts away a pallet in a storage location, it simultaneously retrieves a pallet to fulfill an order. Likewise, the warehouse management system directs operators on the floor to the next available task so that a lift truck is never traveling empty: An operator who has just dropped off a pallet for putaway at the AS/RS, or who has put away a pallet in the pallet rack, is directed to the nearest pallet available to fill an order at the receiving dock.

Using an automated storage solution has also resulted in more accurate inventory. “Because the system is so automated, you have very tight control over your inventory,” says Morris. “It’s the best auditor we could possibly find.”

While the AS/RS is the most visible automated system in the facility, IKEA looked for other opportunities to implement automation. One of those was a fast-charging system to replace the traditional battery changing room. “We knew that each worker was losing 20 to 30 minutes a day for battery changes,” says Morris. “You multiply that by lift truck drivers, and we were losing about 45 hours a day plus the cost of a battery maintenance crew to battery charging time.”

Morris adds that this was the first facility that is a 100% fast-charging facility, but that change is expected to deliver savings of $125,000 a year just from lost time changing batteries.

As the facility begins its second full year in operation, Morris and Leddy say it has met or exceeded all of the goals IKEA set out for the facility. In fact, IKEA is so pleased with the results that it’s implementing the same design in Tacoma, Wa next year with plans to open another at a later date in Joliet, Ill.

“We have reduced our lead time to the stores and reduced our transportation costs,” says Morris. “As we take on more volume this year, we expect this to be our highest-performing DC in North America.”

System Suppliers
WEI West
Automated Storage/Retrieval System: viastore
Conveyors: Binder & Company AG
High bay pallet rack: Frazier Industrial
Conventional pallet rack: UNARCO
Lift trucks: Yale Materials Handling Corp.,
Warehouse management system: Consafe Logistics
Bar code scanning: Motorola Solutions
Fast-charging battery system: PosiCharge, 866-767-4242

This article previously appeared in the February 2008 issue of Modern.