Best Practices in Logistics Gold Award: CDW goes west

The technology direct-marketer’s operations team wasted no time opening a new West Coast DC that has improved customer service, reduced express transportation costs by 40 percent, and ushered in overall work-life improvements—it even helps keep the lights on in a storm.

By Michael Levans, Chief Editor -- Logistics Management, 6/1/2007

• Going "Greenfield"
• Outbound Upside
• Inbound Order
• Ultimate Benefit

Back in early 2005, it was getting a little too close for comfort for the team at CDW’s 450,000-square-foot distribution center (DC) in Vernon Hills, Ill. They had run out of bin locations, they were stocking on floors, injuries were going up, and overtime was beginning to run in the neighborhood of 20 to 30 percent because staff had to touch boxes multiple times to get shipments out the door to meet tight overnight cut-off times.

“Basically everything you think can happen in a crowded DC was starting to happen,” says Doug Eckrote, senior vice president of operations for the Fortune 500 technology direct marketer. But the fact remained: They were out of space in Vernon Hills with no more room for expansion.

Eckrote and his operations team leapt into action. “We knew that 20 percent of our customer base was in California, so it looked like we needed to go west,” says Eckrote. Plus, CDW had been subsidizing all freight going west out of Vernon Hills to maintain service levels to this huge customer base. “Everything going to California, Washington, and Oregon was being shipped 2-day but delivered for the price of ground—which is not exactly cheap.”

It was settled: Over the the next year, Eckrote, along with his operations team and a group of carrier partners, executed a sophisticated, no-nonsense plan to build a highly automated, 513,000 square-foot DC in North Las Vegas, Nev., that features more than seven miles of conveyors with the capacity to handle 96,000 outbound cases a day—51,000 more cases than Vernon Hills.

The new location enabled Eckrote and his team to usher in its Overnight to California Program that cuts delivery times in half and offers an overnight heavy-weight option at a reduced rate. In turn, CDW was able to cut its express shipping costs by 40 percent over the course of 2006. On the inbound side, the move gave Lisa Tegtmeyer, senior director of distribution operations, the perfect opportunity to roll out a new automated inbound delivery system and routing guide for suppliers and inbound carriers—with which 98 percent of its partners are now compliant.

On top of the increased order processing speed, customer service improvement, and express savings, Eckrote says the operational redundancy the new location offers may also be the biggest benefit. “Before, everything was under one roof. When that shut down, we shut down,” says Eckrote. “Now, if we have bad weather in Chicago and airports are shut, we flip a switch and move all of our overnight orders to ship out of the Las Vegas to stay up and running.”

Eckrote’s infectious, positive attitude and CDW’s team-oriented solution was the hands-down winner of the 2007 Best Practices Gold.

Going “Greenfield”

By positioning an expandable DC out west, CDW knew it could cut freight costs and improve service levels to its biggest customer base. But where?

“We started off by looking at population sets, where distribution and manufacturing partners were located, ports of entry, as well as the lanes best served by our express carrier partners UPS, FedEx, and DHL,” says Eckrote. The team then pulled its core express carriers into the decision-making process.

“We’re very good at collecting data, so we turned our historical data by zip code, weights, and dimensions over to our carries and told them to put a pin on a map,” he says. The goal was simple: From the new location, CDW wanted to have equal if not better service to the West Coast.

With data crunched and labor and tax issues weighed, North Las Vegas was the winner. “North Las Vegas is a fast growing market, has the labor market we needed, has the land we needed, and it’s close to the airport,” says Eckrote.

By the summer of 2005, Eckrote and his team were deep into site visits. They looked at “dirt” as well as existing buildings; but soon realized that there weren’t many 500,000-square-foot buildings standing in Southern Nevada. “If you’re looking to add a facility, you can’t just think about today or tomorrow, you have to think about four or five years from now,” says Ray Nair, director of the western distribution center and one of the 50 employees who relocated from Vernon Hills to launch the facility. Having learned from the space crunch in Vernon Hills, they decided to go “greenfield.”

With board approval and an air-tight plan, the company broke ground on a 513,000-square-foot project—now the single largest distribution center in Southern Nevada. “Traditionally we’re given a building, four walls, and we have to make the warehouse system work inside those four walls,” says Eckrote. “This time, we decided to build the internal system first and put the walls around.” Inside, everything is built for speed and expandability: It has more than 11 acres of interior floor space and a 25,000- square-foot cleanroom to improve product configuration flowthrough. Outside it has enough dock doors to handle years of growth, and plenty of parking for truck traffic.

“All of our systems are home grown since we have a very large IT department,” says Eckrote. “We use our own WMS, our own inventory system, and our own transportation routing system which gives us the flexibility to make quick changes. Most of all, it really helped us get the DC automation up and running.”

Outbound Upside

Soon after the launch, the operations team went to work to take advantage of the new location. On the outbound side, they quickly instituted the Overnight to California Program with the help of their express carriers.

“The west coast shipping special we had from Vernon Hills gave customers 2-day for the price of ground, and we paid the difference,” says Tegtmeyer. “Now with Las Vegas, we can give them a ground rate for overnight service and that cuts the delivery time in half.” The new location is currently shipping more than 66,000 cases every quarter through this program—and has cut CDW’s express bill by 40 percent.

Tegtmeyer says the operations team worked closely with its express carriers before the new DC opened to make sure all parties were clear on the expectations. “We stayed with our core express carriers, but now we give customers a choice of FedEx, UPS, or DHL,” she says. “We wanted to make sure it was seamless to the customer so there wouldn’t be any service delays as we tested things and made sure that all our carriers had their lanes and groups at the hub working with our Las Vegas group.”

Inbound Order

The launch of the new facility was a perfect time for Tegtmeyer to complete the roll out of two initiatives designed to better organize CDW’s inbound schedule and set hard-and-fast transportation standards for supplier partners.

Tegtmeyer and the team first implemented its home-grown inbound delivery system (IDS) to help manage the increased inbound traffic. “A purchaser creates an order with one of our partners, the partner gets the order and routing instruction along with the information on our receiving hours, and they get all the contact information so they can e-mail or call us if there’s an issue,” she says.

Through IDS, CDW now knows details on the P.O., how many pieces are coming, and when. “Partners tell us the amount and we schedule them to a specific door at a specific time, and we know the previous night what’s coming in the next day,” adds Tegtmeyer. The operations team even put “feet on the street” to direct traffic and make sure trucks can get in and out.

Along with IDS, the team issued its new routing guide, a second set of instructions that’s sent to all partners once the order is created. “It tells partners all of our preferred methods in terms of which carriers to use, what goes on the bill of lading, and what the expectations are if a delivery is late,” says Tegtmeyer.

When the team launched IDS and the guide in Las Vegas, they had about a 10 percent compliance rate with all of their carriers—already an improvement. “Now we’re up to 98 percent and we follow up when partners and carriers don’t follow the rules,” says Tegtmeyer. “They do get hit with a fee,” she adds, “and they don’t like that. So we worked with vendors who were having issues with their carriers following the guidelines and most of them have switched to our contract carriers, which helped us get to 98 percent.”

Ultimate Benefit

Listing all of the internal benefits CDW has realized through this project would probably take another three pages; however, Eckrote says some of the most satisfying feedback is coming from the company’s account managers.

“They’re telling us that customers are getting products faster, and that’s great to hear,” says Eckrote. “But on top of that, they’re realizing benefit out of a customer tours. When they bring customers into the new facility to see the automation their eyes open wide—and we’ve seen sales increase because of it.”

However, none of this success would have been possible without the operations team making this a cross-departmental project. “To me, the key was getting as many people involved in the process from the very beginning,” he says. “That means, get purchasing involved, get your carriers, get your suppliers involved early to help you make the decision. If you try to do it yourself, you’ll miss a component.”

And once that team was on the same page, they didn’t complicate matters—which, according to Eckrote, is the single biggest takeaway. “This isn’t something where you need to sit in meetings for six months and analyze it to death with a spreadsheet,” he says. “Get out there, ask questions, and find out what it will take to get it done.”