Logistics in the food-retailing business would be a lot easier if every item sold as briskly as milk, bread and bananas. Just load up the truck and ship the goods.
When it comes to slow-moving items, however, the task is a lot more complex. Grocers grapple with how much to order, when to ship, and how to fill a truck. Yet slow-moving items are often a store's way of distinguishing itself from the competition and serving the needs of special ethnic groups who may be critical customers.
Because conventional warehouses are proving too inefficient in the managing of slow-movers, some U.S. retailers and a number of European merchants are beginning to adopt different warehouse scenarios and systems to do the job.
Last year, slow-movers and how to handle them were the topics of presentations at two major conferences: Grocery Manufacturers of America's IS/LD Conference in April, and the Food Marketing Institute's Productivity Convention in October. At the latter, Kenneth Allen, senior vice president of supply chain and logistics, H.E. Butt Grocery Co., San Antonio, said the chain has more than doubled the number of slow-movers it sells to 13,000, and expects the number to grow to 20,000 in the next several years.
Recognizing that it couldn't handle slow-movers "through the traditional DC and make it work," H-E-B opened a specialty warehouse three years ago in San Marcos, Texas, where it handles 6,000 of the items, said Allen. The chain more recently began using another, contiguous warehouse to ship slow-moving general merchandise/health and beauty care products.
In San Marcos, to handle "incredibly slow-moving items" that sell less than 10 cases per week, H-E-B installed a variety of systems, including batch-picking, conveyors and scanning/sorting at shipping docks.
At GMA's IS/LD conference, Ronald Wright, president of ES3, Keane, N.H., a third-party logistics company spun off from C&S Wholesaler Grocers, said large gains in efficiency could be made by "unbundling slow- and fast-movers, and handling each in the most efficient manner." Often today, he added, "slow-movers are not stocked until fast-movers are needed," leading to out-of-stocks for slow-movers.
To address that, C&S conducted a test in which one of its retail customers agreed to take fast-movers from a test "warehouse of the future" and slow-movers from another C&S warehouse. The test warehouse doubled throughput and cut costs more than 30% compared to a conventional DC, Wright said. In ES3's facilities, it is planning to adopt a similar strategy, creating store-ready pallets of slow-moving items that would be cross docked to a warehouse or to a store, he said, so that slow- and fast-movers would not need to be shipped together.
This year, two other major U.S. retailers -- Kroger and CVS -- are taking another approach to the warehousing and shipment of slow-movers. Both plan to open DCs later this year that will feature an automated material handling system -- called the Dynamic Picking System -- from Witron, a German company with U.S. headquarters in Arlington Heights, Ill. In both cases, the DPS will be used to handle "piece picking" of slow-moving items in what will be the first installation of the technology in the United States. (See story, this page.)
Witron's DPS is also gaining some awareness at two divisions of Delhaize USA, Hannaford Bros. and Food Lion. That's because Delhaize's parent company in Brussels, Belgium, is engaged in a major rollout of the system at a special facility for slow-movers near Brussels. "We are aware of it and are leveraging our [parent] company to understand the value," said Gerry Greenleaf, vice president of distribution, Hannaford Bros., Scarborough, Maine.
Indeed, most U.S. food distributors have not adopted automation or systems aimed at improving the delivery of slow-movers. Some facilities are using pick-to-light technology, which guides pickers to the right slot using flashing lights, but even that is "not growing like wildfire," said logistics consultant Kenneth Ackerman, president, K.B. Ackerman Co., Columbus, Ohio.
However, in Europe, where efficiency in shipping of slow-movers is perhaps even more crucial than in the United States, DPS -- Witron's version and that of other vendors -- is starting to catch on. Besides Delhaize in Brussels, Witron's system is being used by Sainsbury's, Woolworth's, Spar and Migros, among others.
Delhaize began its DPS project in April 2000, building a 97,000-square-foot, slow-movers facility outside Belgium that went live in March 2003 with 100 items, according to Stephan de Naeyer, director of logistics for Delhaize's Belgium operation. Today, the DC, which cost $23.8 million to build including the DPS, is handling 9,100 items, with an average of 65,000 picks per day. Of the 9,100 items, 1,500 can be ordered as single pieces.
In a recent phone interview with SN, de Naeyer said the DPS facility is specifically designed to accommodate slow-movers like nonfoods, health and beauty care, cigarettes, spices, perfumes and cell phones. It is facilitating shipments of these items to not only Delhaize's supermarkets and drug stores in Belgium, but also its growing number of smaller outlets like convenience stores. In all, Delhaize has four DCs in Belgium serving 720 stores.
In the past, de Naeyer noted, slow-movers were handled at other warehouses across 974,000 square feet, which in the new facility has been reduced to 97,000 square feet. The number of workers required has been cut to 87 from 107. The smaller footprint of the DPS facility has opened more than 100,000 square feet for development, he said.
The new set-up especially favors smaller stores, which order in small quantities, say 55 items, three to four times a week. "Before it was crazy to prepare 55 orders in different warehouses. It took a lot of time," he said. "Now it's very fast. We put the order into the system and in a couple of minutes it is there."
De Naeyer said the advantages of the DPS include reduced handling of items, increased efficiency, fewer picking errors, better worker ergonomics, lower inventory, faster receiving at the DC and at stores, and more sales as a result of wider assortment. Goods are delivered to stores in plastic totes, by category, and arranged on dollies to match store layout.
Picking errors under the DPS have dropped to six for every 10,000 picks, compared to 15 per 10,000 previously. "It's good, but it can be even better," said de Naeyer.
Though the initial results this year have been good, Delhaize is still seeking more from the DPS, said de Naeyer. So far, productivity in the warehouse has improved 12% compared with previous methods. He said the company wants to see the number grow to 15% by the end of the year, and to 20% in 2005 and 25% in 2006, which he said was "possible and realistic." A project like this "takes time," he noted. "It's not done after a year. It takes three to four years."
How It Works
Slow-moving goods arrive at the Delhaize DC in plastic totes (if they arrived in cases, they would be broken down and put in totes). Totes are moved to the DPS section, which includes the storage area above and picking area. When orders are received from stores, the automated storage and retrieval system brings totes containing very slow-moving items out of storage via stacker cranes and places them at the picking station (dynamic picking). More commonly picked items are already available at specified pick slots (static picking).
With its link to the warehouse management system (WMS), the DPS "knows" how many orders need to be filled, and thus which product needs to be conveyed from the storage to the picking area, explained Victor Hoerst, spokesman for Witron. This reduces the number of pick slots by 80%, he said, and thus the distance pickers need to travel to select products. In a conventional warehouse, Hoerst added, slow-movers picked as eaches "represent 10% of the orders, but consume 30% to 40% of the labor."
Using a pick-to-light system, the DPS guides the picker to the right slots and provides the order quantity. Orders for a given category are put in a tote, which is then sent by conveyor to an order consolidation buffer. There it waits for other totes headed to a given store, which are then all collected and loaded on dollies in proper sequence (matching store layout), then delivered to the store.
The DPS is set up on two levels at the Delhaize facility: six pick areas on each level, and three work stations in each pick area. Generally, one picker is assigned to each pick area.
Dynamic picking generally applies to items for which only one to two pieces are ordered per day, while static picks are for items ordered in at least 25 pieces per day, said de Naeyer. The dynamic picking capability means that Delhaize could store up to 12,000 items in the facility, he added.
While the DPS automates part of the process, picking itself remains manual. So "pickers play a very important role in this story," said de Naeyer. Therefore, Delhaize re-trained its workers used to traditional picking on how to use the DPS.
De Naeyer acknowledged that the biggest problem that Delhaize faced in implementing the DPS was integrating it with its warehouse management system. However, that problem has long been solved.
DPS in the USA
CINCINNATI -- Both Kroger here and CVS, Woonsocket, R.I., are expected to open facilities this fall incorporating a dynamic picking system for slow-moving items, becoming the first retailers in North America to use the technology.
The DPS, from Witron, Arlington Heights, Ill., is comparable to one already installed by Delhaize in Belgium (see main story).
Kroger's DPS operation, in the Southeast, will be a "piece-pick operation" within an existing warehouse, according to a statement by Kroger. "Key drivers for the decision to go with [the system] were a significant increase in efficiency and quality," the statement added.
CVS is building a new, 350,000-square-foot facility for its DPS in Ennis, Texas. According to a statement, the facility will be about half the size of a conventional distribution center, yet it will service a comparable amount of volume. CVS expects savings to include lower labor and real-estate costs, as well as improved picking accuracy and damage reduction.
Kevin Smith, senior vice president for supply chain and logistics, CVS, said the new DC will likely be "our model for future DC expansion."