CVS CUTS LABOR COSTS VIA SYSTEM IN NEW DC

ROBIN CARROLL

CHICAGO -- Lower labor costs combined with improved picking accuracy and damage reduction are some of the benefits CVS has seen in a distribution center that began operation in September.

The Ennis, Texas, DC and the automated storage and retrieval system (AS/RS) being used there were described earlier this month by Tom McHugh, director of process and technology, CVS, Woonsocket, R.I., in a session at the ProMat 2005 show held here at McCormick Place.

The AS/RS system is being supplied by Witron, Parkstein, Germany, whose chief executive officer, Helmut Prieschenk, also participated in the ProMat session.

Witron's AS/RS system, called the Dynamic Picking System (DPS), is designed for piece-picked items such as health and beauty aids and other slow-moving goods. DPS is also being deployed in the United States by Kroger at its Peyton's Southeast facility in Cleveland, Tenn., which handles slow-turning pharmaceuticals, health and beauty care and other merchandise. DPS is being used in Europe by retailers such as Belgium-based Delhaize, which has built a $23 million DC incorporating DPS.

CVS' Ennis facility, the first of its warehouses to utilize this technology, began making shipments in September to stores in Texas and throughout the Southwest. The facility, at 350,000 square feet, is about half the size of a conventional distribution center, yet will service a comparable volume of product, said CVS. In addition, one-third fewer associates are required than with other similar distribution centers, CVS said.

As part of its overall growth strategy and recent expansions and acquisitions, CVS has reviewed all of its previous processes and practices to determine "what works in terms of productivity, and what doesn't," said McHugh. CVS has found that DPS handles inventory and fulfillment processes for its stores in an extremely efficient fashion, he said.

CVS stores, ranging from 12,000 to 14,000 square feet, carry up to 30,000 stockkeeping units, 20,000 actively serviced out of their distribution centers at any given time. This is a high SKU mix for such a small footprint, McHugh explained, so part of the DPS process is that slow-moving items are stored above the picking area and brought down into picking stations by cranes only as needed (the process called dynamic picking). Linked to the warehouse management system, the DPS knows how many orders should be filled and which product needs to be conveyed from storage to picking area.

Thus, he said, there is no need to slot every item in the 300-foot pick front, but more commonly picked items are immediately available at pick slots. The result is a reduction in the number of pick slots and thus the distance pickers need to travel to select products, according to CVS. Products can be replaced while the picker is picking since replenishments are done at re-pack stations.

Additionally, a smaller version of DPS storage called Order Consolidation Buffers (OCB) provides intermediate storage. Orders for a given category are put in a tote and then sent by conveyor to an OCB, loaded on dollies.

The DPS "goes beyond great distribution productivity as it also allows us to provide customized deliveries to our stores that will speed up product replenishment," said Kevin Smith, senior vice president of supply chain and logistics, CVS, in a statement. "No one else in our industry has this level of capability. This will help to ensure that it will always be easy for our customers to purchase the items they are looking for at their local CVS store."

Prieschenk said the up-front costs of the technology have come down substantially over the past few years, making the initial investment less burdensome and the return on investment much faster.