2004 Best Practices Awards: Silver
By James A. Cooke, Executive Editor -- Logistics Management, 5/1/2004
With companies needing to squeeze out every penny of supply chain savings, logistics departments today have no choice but to run with awesome efficiency. To find out how our readers are meeting that challenge, we launched the "Best Practices in Logistics Management" contest. Our editorial staff evaluated each submission and chose those that stood out for their effectiveness and demonstrable results. This month, we profile the Silver and Bronze Award winners. Look for a profile of the Gold Award winner in our June issue.
Allied Air
New warehouse layout boosts productivity
Restructuring a warehouse layout helped Bronze Award winner Allied Air Enterprises bring order to an inefficient warehouse. In the process, the warehouse doubled its inventory-accuracy rate, slashed the number of back orders, and improved productivity by more than one-third. The big bonus: That newfound efficiency led customers to increase their orders by as much as 20 percent.
Simple but Effective
Allied Air Enterprises makes heating, ventilation, and cooling (HVAC) products such as air conditioners, furnaces, and heat pumps. Allied Air is a division of Armstrong Air Conditioning, which itself is a division of Lennox International. The parent company reported some $3 billion in sales last year.
Allied manufactures HVAC products at its plant in Orangeburg, S.C., which lies midway between the cities of Columbia and Charleston. The company's southern distribution center also is located there. The 76,000 square-foot main warehouse is attached to the back of the plant and holds finished goods. Across the street sits a 64,000 square-foot satellite warehouse that is used primarily for cross docking.
In addition to storing products made in Orangeburg, the distribution center receives items from plants in Ohio, Tennessee, and Mississippi as well as from another facility in South Carolina. The DC ships goods primarily to distributors, generally in full truckloads but occasionally via less-than-truckload carrier.
Prior to last fall, Allied Air stored products "everywhere in the warehouse," says Materials Process Manager Ken Perry. Although a location grid divided the warehouse into 40-foot by 40-foot squares, there was no consistent storage system. "We had no defined storage for product families, and it was next to impossible to find product," Perry recalls. "(Forklift) drivers spent hours looking for parts we knew we had but could not find."
That haphazard approach made it difficult to ship complete orders on time. "If you spend a lot of time running around trying to find stuff, you don't spend a lot of time getting stuff in the trucks," Perry observes.
Late last year, Perry and his colleagues made a simple but highly effective change that solved those problems. In September, Allied established a new storage setup in both of its Orangeburg warehouses, dividing the warehouse floors into 13- by 13-foot squares (or 13- by 20-foot areas for larger items) and assigning each one a unique number.
The location grid is marked off with tape on the floor, and printed labels identify each square's number. Specific product families are assigned to set groups of storage locations. High-volume products are placed near loading docks while low-volume items are located further away. Allied also created end-cap locations at the end of aisles to store some low-volume products as well as some make-to-order and cross-docked items.
Each product in the warehouse has two bar codes: one for product information and one that's generated specifically to denote the appropriate storage-location number. The scanned information is then relayed via radio-frequency (RF) signals from the bar-code terminal to a real-time inventory system.
Dramatic Turnaround
The new location-grid system has allowed Allied Air to introduce an inventory audit program that verifies the storage location of items produced in the adjacent plant. Each day, assembly-line forklift drivers, who take product from the plant to the warehouse, get a copy of the manufacturing shift's production schedule and the warehouse location where those items should be stored. Warehouse workers then conduct an audit to ensure that the computer system has properly recorded those storage locations.
"We did this because we had identified some major time lags between our RF system and our corporate server in Ohio," Perry explains. "If a driver scans too fast, he will get a signal of having scanned the unit, but [the location information] may not actually go through. This ensures we are clean."
Besides verifying the location of product coming off the assembly line, Allied Air has used the location-grid system to start a cycle-counting program for all goods in the warehouse, including those received from other plants. The company periodically physically checks warehouse inventory against the computer system's records for each item's part number, serial number, and location.
Since the adoption of the new layout grid, Orangeburg's inventory-accuracy rate has jumped from 45 percent to 98 percent. The number of orders shipped on-time and complete soared from just 35 percent to 98 percent. Back orders plummeted from an average of 600 units a week last August to just 30 units a week in January of this year. Typical order turnaround time has dropped to two days; in the past, Perry says, it could take as long as three weeks to fill a request.
The new system has created some big benefits on the loading dock, too. "Because the order pickers could now find product in a smaller location grid and the accuracy of what was in those locations was significantly increased, we were able to load trucks significantly faster, which helped to drive down our man-hours per truck," says Perry. That number fell from 30 man-hours in October to 18 today, an improvement of about 40 percent.
Prompt deliveries of accurate customer orders have resulted in sales running 20 percent above forecast this year. In February the DC shipped an average of $1 million of product a day, a number that previously had been achieved only when seasonal demand for air conditioners was at its peak. Just as sweet: Orangeburg has become a model that other company warehouses want to follow. "The turnaround here has been so dramatic," says Perry, "that teams from other Lennox facilities have been coming here to benchmark their distribution operations against ours."
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