HANDLING ROI

PATRICK SCIACCA

The days of justifying a materials-handling investment simply because the technology is "crucial" to supply-chain operations are waning, according to distribution executives. Retailers and wholesalers now need to be able to document where and how materials-handling technology is cutting costs and boosting efficiency, as part of the new emphasis on shortening the time required to achieve a return on investment.

The ROI can come in the form of increased invoice accuracy, putaway and replenishment efficiency and an increased ability to use labor standards, to name a few.

Many distributors have discovered that their use of warehouse management systems, especially those operating in real time and/or using radio frequency technology to communicate with materials handling equipment throughout the warehouse, are proving to be the keys to speed, accuracy and the ability to measure results.

This technology also requires a measurable return-on-investment period, however. "A WMS or any information-technology investment is difficult to cost justify," said Ken Walker, a consultant for Kurt Salmon Associates, Princeton, N.J.

Many distributors are cautious about adding expensive technology to their warehouse operations. "We do not have voice picking technology installed but we are looking at it," said Joe Fagan, vice president of distribution for Associated Wholesale Grocers, Kansas City, Kan. "We are also looking at a warehouse management system but have not installed that either," he added.

However, a WMS with the appropriate level of technology can result in more efficient use of manpower, said Kurt Salmon's Walker. "Moving the groceries is the easy part, moving the information is the challenging part of the process," Walker added.

Roundy's, Pewaukee, Wis., is in the process of completing installation of a new WMS at nine of its distribution centers, said John Paterson, vice president of distribution for the wholesaler. He added that establishing a relatively rapid ROI was an important part of justifying the large technology investment.

The warehouse-management systems at the nine facilities have a projected payback of two years, Paterson told SN. Three years is the maximum, he added. Paterson noted that the payback would come, in part, from more consistent labor standards, which could include standards for both pick speed and accuracy.

"Inside the WMS there is a labor-management system, which provides a more accurate measurement for labor standards," Paterson said. Prior to the installation, Roundy's used in-house labor standards to measure materials-handling efficiency.

As far as productivity efficiency, Paterson said there are separate expectations for each facility. The first of the new warehouse management systems was installed in March 1998. All nine DCs should be fully operational by August, Paterson told SN.

The wholesaler, which services 900 stores, is also looking to test voice picking technology, which could reduce mispicks, overage, shorts and damage to products. Roundy's will begin testing the voice picking technology at one of its distribution centers some time in the next two months, Paterson said.

"We are very thoroughly looking at voice [picking technology] to replace labels and paper pick lists," Paterson said, adding that it's too early in the game to provide an ROI on the paperless selection technology.

Other measures can contribute to a technology investment ROI. For one Northeast retailer, a warehouse management system upgrade allowing for the use of radio frequency technology increased invoice accuracy by 10% and overall cube use by 8%.

In addition, the upgraded WMS tells the retailer in real time when a product leaves a slot. The system it replaced had a six-hour delay, so products moved more slowly through the distribution center and space was not used to its maximum capacity.

The increased cube use could reduce the retailer's need to purchase or build a new facility to house inventory. "Capacity is very expensive," the retailer said, adding that the real-time slot information has had its greatest effect at its grocery distribution center.

The new system has also reduced human error in the materials handling process with a significant reduction in the scratch-out rate, defined as the percentage of cases that cannot be located in time to be placed on an outbound truck. Before the retailer used any WMS, its scratch-out rate was 2% to 3%. With the first WMS, that rate was reduced to 0.35% to 0.40%.

The new, real-time WMS has reduced the scratch-out rate to 0.15% and it could get even lower, the retailer told SN.