Last summer, we heard from supply chain executives from three small to mid-sized companies on the challenges faced by their organizations and how they’re addressing them.
When it comes to managing their order fulfillment and logistics processes, mid-sized companies are, well, caught in the middle. On the one hand, their customers expect the same level of service from them as their larger competitors. And, they have to compete for the same pool of talent as the big guys.
At the same time, while the media, including Modern Materials Handling, is chock full of stories about automation, robotics and next-generation technologies like artificial intelligence and the Internet of Things, mid-sized companies are in many instances upgrading their warehouse management systems (WMS), installing labeling and shipping systems, and putting in voice and light-directed picking or automated packaging.
Instead of AI, they’re implementing Business Intelligence, or using whatever was the generation before Business Intelligence, as one participant put it during a panel discussion I moderated last summer at the Chicago offices of the consulting firm Sikich. The panel participants included:
- Greg McDonald, vice president of technology for the GHP Group, a manufacturer of consumer and light industrial products including gas grills, smokers, patio and industrial heaters, and electric fireplaces.
- Jim Wogan, senior operations manager for Tripp Lite, a manufacturer of power protection devices, such as battery backups and surge protectors.
- Mike Perich, CEO of Bernina International’s sewing supplies division.
We spent the morning talking about the warehousing, logistics and technology challenges their organizations are confronting; how they’re dealing with them; and what they’re watching for the future.
Modern: Let’s start by talking about how your supply chain is changing. We’ll start with Greg.
Greg McDonald: First, we have three primary warehouses and two manufacturing facilities here in the United States. We also do a significant amount of manufacturing overseas, but that’s direct import to our customers. That product doesn’t come to our warehouses.
What’s changing is that all of our customers want to provide shipping experiences like Amazon; their customers want to place an order and have it in two days or less. Now, some of our customers are developing their own ship methods and shipping systems, and they’re pushing a lot of the logistics back onto their vendors, like us.
At GHP Group, basically, I have a system that was designed to ship a single item, with one corresponding branded label for all of our retail customers. Now, we have to create other systems for particular customers, based on particular item classes or item types without affecting the rest of our retail customers’ processes.
We are also performing a lot of drop shipping for big box retailers and the large dot-com companies. So, we’ve gone from primarily shipping to the distribution centers of our retail customers to direct shipments to consumers. We typically have a ship window of 24 to sometimes 36 hours. We were always able to meet that, but we were often right at the edge.
Modern: Jim, the same question to you.
Jim Wogan: Tripp Lite’s model is to sell through distributors, so historically, we avoided drop shipping since we viewed that as competing with our distributor-customers. If Distributor A was out of stock on a product, Distributor A would ask Distributor B to ship it.
Starting in 2016, we began growing through new product introduction, sometimes introducing a dozen new products in a month. Our distributors were reluctant to stock some of the new products because there was no run rate on them.
So, we had a lot of new products, but we were the only guy stocking them. For these new products, we will now do drop ship fulfillment until demand for the product gets to whatever run rate we’ve agreed to with our distributors and they stock it.
This has been a way to grow our business significantly, but it’s also growing the number of touches to fill an order. Now, we have told all of our customers that we want them to stock product because order fulfillment is their core competency. But, at the end of the day, we’re going to have to get better at it because we’re going to have to do more of it.
Modern: Mike, you’re the last of the operators in the group. What’s happening at Bernina International?
Mike Perich: The changing retail environment. As the others mentioned, Amazon has put more pressure on us and on our retail customers. Getting product out the door in two days used to be OK. Now, we have to get orders out the door to a common carrier in one day. We’ve had to invest to get our Websites better because people are used to Amazon.
We’ve curated 80,000 to 90,000 different items, and we’re selling in 23 different countries. We’re trying to get more of a sales push in Europe because the American market has changed, and the independent retailers have been hurt. We’re doing drop shipping for them to help them out.
Modern: Given those changes, let’s talk about an initiative you’ve undertaken in the last year or two to address them. Mike, let’s start with you.
Perich: We’re looking at multiple areas of opportunity. One, we’re looking at reducing the number of SKUs. We’re also looking at automation to deal with the labor issues that many people are experiencing. We did that in one of our warehouses in Rhode Island.
Modern: What did you do?
Perich: We put in an automated packing machine for gift packaging. We’re also looking at our picking operations because we want them to be able to batch pick six or seven items at a time instead of just one order at a time. I don’t think we have the velocity of demand for a conveyor system or a goods-to-person system, so we’re thinking right now of pick to cart.
Modern: Greg, same question to you.
McDonald: I mentioned before that we now have much tighter shipping windows. It used to be that our trucks weren’t leaving until 3 p.m. or 4 p.m., and now orders come in overnight and our first trucks are going out the door at 9 a.m. or 10 a.m. To make that happen, we had to put in a system that allows us to process like that. It’s a WMS, transportation management system (TMS) and custom shipping labeling system.
The labeling system lets us comply with our customer’s shipping requirements. Working together, these have truly transformed our space. However, one of the things that happens after you put in a WMS is that it shows the inefficiencies elsewhere in your business processes. We found huge inefficiencies in our order entry and order management systems.
We could get things out the door quicker, but it was taking longer than we thought to get orders into the warehouse. It was a very manual system. We had 8 to 10 people year-round processing orders, and during our busy season, we would hire four or five temps just to handle the paperwork. We’ve been able to automate that entire process to the point where about 95% of our orders come down through electronic data interchange (EDI) to our enterprise resource planning (ERP) system and WMS and out to the warehouse floor.
We’ve further automated the processes after an order is picked, packed and shipped so our advance shipping notice process is fully automated. We no longer need the temps, and I’m down to about three people doing order processing year-round, so that’s been a significant savings to us. Now, we’re looking at our receiving processes.
Modern: And, Jim, how is Tripp Lite addressing some of the changes you discussed?
Wogan: We put in a horizontal carousel for goods-to-person picking, which was one of the recommendations from the analysis that Sikich did for us. Our facility is about a million square feet, but it’s an old 12-story facility with nine freight elevators and 11 feet clear ceilings, so it had some unique challenges. The carousels worked for us. We also have shipping software to address the piece pick and drop shipments we’re doing. But, I guess the most recent is that we’re compressing our footprint for broken case picking by putting in different racking and a different configuration to increase the bins per square foot.
Modern: One of topics that comes up over and over again at conferences is the challenge of getting labor to work in supply chain operations. What are you experiencing? And, how are you addressing it?
McDonald: The big issue, of course, is finding people at the associate level. When the wage you’re paying someone to pick heavy boxes in the heat is the same that they can get for working at the Jimmy John’s a mile away, at a certain point, people make the decision that they’ll do the easier thing for the same pay. There’s a lot of talk about robotics and automation, which is fantastic, but then you have to have the talent that can support that as well. Is it an IT function? Is it a mechanical function? Is it somewhere in between?
Modern: Are you doing anything about retention?
McDonald: To some degree, retention always comes back to salary. Beyond that, as the unemployment rate continues to fall, and people have more choices, you have to give them a reason to work for you. So, we’ve done things to make the job easier. For a long time, our warehouse workers picked to paper, and we put in RF scanning. Initially, there was a lot of fear in their eyes because they’d never used any system like that.
However, they used it, and it was not two weeks before they had the biggest grins on their faces because, all of a sudden, they found that their workdays were shorter and the work became a bit easier and more efficient. I’m now looking to see what other companies are doing around automation, because there may be more things that we might be able to deploy in our warehouses. For associates with younger families, we’re trying to be more accommodating. For instance, if they have to call in because one of their kids is sick or has issues at school, we’re embracing that rather than penalizing them.
Modern: Jim, what is turnover like at your company and how are you trying to address it?
Wogan: There are guys that have been at the company for 25 to 30 years doing warehouse work, and there’s another core group of guys who have been working for us for 6 to 12 years. So, that’s stable. At the bottom, however, there’s a lot of turnover of new people. When it comes to retention, to Greg’s point, culture is important.
We have a good bonus program across the whole organization and not just for sales people. When it comes to the warehouse, we bought a big grill for cookouts, and we have sports tournaments, like basketball, kickball and soccer among the warehouse guys to build a culture of camaraderie. We give out an order picker of the month. But, is it enough? I don’t know.
Modern: Finally on labor, Mike, what are you seeing?
Perich: We operate in different regions of the country and have different philosophies by region. But, we try to run a core group of full-time people and temps. In some areas, it’s a real bear to get temps because everyone already has a job, so we try to position people to full time when we can find them. In Rhode Island, where we have mandated minimum pays, we’re still able to get temps. On the other hand, in Oklahoma, when oil is going well, we struggle. And, we’re finding that people are reluctant to work overtime. We have tried some different bonus and benefits programs, but what we’ve found is that the weekly paycheck is what most associates care about.
Modern: Last question: When you look a few years down the road, what excites you most?
Perich: I’m excited about the technology that is flowing down from the early adopters to those of us who are not early adopters. I know that warehouse associates want to do things that are going to make their lives easier, better and quicker, and we should help them get there. There are some great fun things out there.
Wogan: Better decisions and better projects driven by better data. Tools like Power BI, the business intelligence tool we’re working with are accomplishing that. I think the labor and wage pressures that we’re all experiencing are going to lead to more automation in my little corner of the world, and that’s going to make it a better place.
McDonald: As a technologist, what I’m looking forward to is where we’re going with automation, robotics and artificial intelligence. For instance, looking outside the warehouse, automation in transportation is coming. It might be 10 years from now; but I think before we have self-driving cars, we’ll have self-driving trucks because of the shortage of drivers. That will be transformative. On the other side, I’m excited about robotics in the warehouse.
At some point in time, I think you’ll get an order, a robot will go out and pick up the box, take it to the dock, put in on a truck, and then the truck pulls away without a driver. Now, I think that’s a little bit further out, and I’m hoping I’m retired on a beach by that time, but it will be interesting to see.