Partnership between university and industry solves real-world problems
A project to reduce storage and product movement costs improves supply chain performance for Goodwill Industries while building skills for the next generation of supply chain professionals.
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Mark Kosfeld, associate director, Supply Chain Management Institute at University of Wisconsin-Milwaukee
Ronald Tatum, director, supply chain, Goodwill Industries of Southeastern Wisconsin
Anthony Ross, director, Supply Chain Management Institute at University of Wisconsin-Milwaukee
The Supply Chain Management Institute (SCMI) at the University of Wisconsin-Milwaukee (UWM) recently completed an extensive analysis of the storage methods used at Goodwill Industries of Southeastern Wisconsin (GISW), one of its member companies.
Students working for the SCMI at UWM are confronted with real-world challenges not found in textbooks. This industry-university partnership results in immediate benefits for the companies involved and produces graduates who are better prepared for supply chain careers.
Goodwill Industries is an example of a company that benefited from this collaboration. The analysis of its operations by the students included not only the differences in storage cost, but also the differences in replacement costs and transportation costs of the storage methods. The partnership resulted in measurable and actionable initiatives that GISW is implementing.
GISW is one of the largest Goodwill agencies within Goodwill Industries International, and it extends from Sheboygan, Wisc., in the north through Milwaukee to Chicago and surrounding suburbs in the south. A centrally located distribution center in Racine, Wisc., supports 68 Goodwill stores in the region. All stores accept donations, and for the stores where donations exceed sales, excess donations are sent to the distribution center. The distribution center holds these donations and delivers them to the stores that need them.
Product is stored and transported to the stores in Gaylords, which consist of a pallet with a 3.5-foot high cardboard sleeve. Replacement costs for Gaylords are high due to their short life. The average Gaylord lasts only three trips to the stores before the cardboard sleeve is worn and needs to be replaced.
As DC managers sought a more durable storage method, they considered plastic containers the management team calls “45s.” These single-piece containers have an open top with roughly the same footprint as a pallet. They can easily be moved around the facility with a pallet jack or forklift and, like the Gaylords, collapse for storage when not in use. Although these 45 containers weren’t as tall as the Gaylords, they could be stacked seven high in the distribution center compared with only four high for the Gaylords. The drawback was the cost. A 45 container costs more than 10 times what a Gaylord costs, so the investment would not be insignificant.
The management team at Goodwill needed a comprehensive analysis of the two storage methods. There were three main areas where the two storage methods differed that needed to be included in the analysis: replacement cost, storage cost and transportation cost. A senior supply chain student employed by SCMI built an Excel-based tool to perform this analysis.
Replacement cost was the most obvious difference between the two storage methods. A 45 container is expected to last more than a decade compared with three trips to the stores for a Gaylord. Goodwill also expected to achieve some efficiencies in purchasing the 45s since they could be sole-sourced compared with the Gaylord pallet and sleeve that are purchased separately. The student’s Excel tool allows you to input the replacement cost and useful life for both a Gaylord and 45. To use this information, the tool includes a forecast of donation volume (in pounds) and the capacity of each storage method.
Goodwill’s storage costs are not consistent throughout the year. Donations hit peaks in the spring during “spring cleaning” and the end-of-the-year, tax-deduction rush prior to the December 31 deadline. These excess donations are stored in Gaylords and moved to the stores during the rest of the year when donations fall short of sales. To meet its space needs, Goodwill leases space to store excess donations. Empty Gaylords are stored during off-peak times of the year and, although they are collapsible, they take up valuable square footage.
The Excel tool calculated the storage needs during each month of the year and considered the dimensions and stacking height of each container as well as the square footage and cost per square foot at each leased storage facility. The result for each storage method was an estimate of the square footage required at each facility during each month of the year and the total annual cost incurred.
The third source of cost differences between Gaylords and 45s is the number of trailers required to move them between the distribution center and stores. The shorter 45s have an advantage of better use of trailer capacity because they can be stacked three high in a trailer, compared with only two high for the Gaylords. But this method was not as straightforward as simply assuming 33% fewer trailers would be used.
If a store only required one trailer load of Gaylords per week, converting to 45s would still require one trailer per week as before. Trips would only be reduced for stores that required more than one trailer of Gaylords per week and the contents of the additional trailer would fit into the first trailer if the product had been packed in 45s. Resolving this required some in-depth analysis of the historical store deliveries. Fortunately, GISW tracks the contents of every trailer so the product assortment information was available to be included in the cost analysis.
The final analysis showed cost savings could be achieved by using 45s, and GISW is implementing the change. The supply chain student who conducted this analysis said he found himself using a number of the concepts he had learned over the past four years.
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