Warehouse improvements boost Spartan's capacity

December 5, 2008
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With the busy holiday season in full swing for retail food stores, Spartan Stores Inc.’s Derek Jones and his staff of 1,050 are keeping all those sugarplums dancing onto store shelves.

Spartan Stores’ continuing retail expansion in Michigan and growth of its distribution business, particularly in metro Detroit and in Indiana, has put the spotlight on improving warehouse operations for Jones, executive vice president, supply chain. The distribution side made up 52 percent of the Byron Center-based company’s $2.5 billion in revenues for fiscal 2008, according to Spartan’s October presentation for investors.

Jones, who joined Spartan in 2006, is leading the drumbeat for bolstering the bottom line with improvements to warehouse and distribution operations.

The company has 1.8 million square feet of warehouse space in two locations: Byron Center and Plymouth. The suburban Detroit facility is limited to dry groceries, while the suburban Grand Rapids warehouse accommodates all types of groceries and goods. The Plymouth location serves 250 distribution customers, but change is coming with Spartan’s pending purchase of the VG’s Food and Pharmacy chain based near Flint.

“We’ve never serviced our own corporate stores out of Plymouth, and now with the VG’s acquisition that will be finalized by the end of the year, we’ll now have a corporate store base out of that Plymouth distribution center, which people are very excited about,” Jones said.

One major warehousing initiative since Jones’ arrival has been to reduce travel time inside the facilities.

“In a warehouse, labor is your highest expense, and the highest portion of labor is travel time within a warehouse,” Jones explained. “You don’t want your people traveling without picking product and selecting. You want the majority of labor associated with shipping freight out, because shipping pays the bills.  

“Probably our largest strategic initiative would be around reducing travel time, and we do that through something called ‘slot optimization.’”

The firm uses a software package from Atlanta software-maker Manhattan Associates to decide where to place items to maximize the pick path. It’s a solution Jones used in a previous job with Office Depot. It can be especially important during holiday seasons, when big customer demand rises for certain items like pumpkin pie filling.

“We deal with over 30,000 items. We can’t manage it on an item basis on a manual basis,” Jones said. “We can only do that through the help of software solutions. It allows us to be very proactive about placing those items in the most beneficial place.”

Voice-selection software, introduced two years ago, is another solution that’s made a big impact, Jones said. He said the technology is in use at about half of the nation’s grocery distributors.

“All of our associates who are selecting orders have a headset on them and it directs them to the location and tells them what to pick, and they have to confirm the actual pick of the item. It really helps with the quality. Productivity it doesn’t necessarily impact, but it cut our errors down by two-thirds when we implemented this a couple years ago,” Jones said.

“We’ve had a lot of different grocery companies visit us from other parts of the U.S. to look at the impact that we’ve had in reducing errors, it’s been remarkable. Voice selection has been a big deal for us from a service perspective.”

In Byron Center, Spartan is re-racking, again to enhance speed in getting products out of the warehouse rather than focusing efficiencies on storage after receiving.

“In our warehousing environment in the past, we built ourselves for speed on the inbound side,” said Jones, who studied supply chain management at the Sam M. Walton School of Business at the University of Arkansas and spent part of his career at Walmart, one of Spartan’s competitors that is ramping up its presence in Michigan.

“It allowed us to receive very quickly and put away products from the receiving dock. But it expanded our building and put us in a position where space was a little bit more challenging than the position we thought it should be in, relative to the volume that was going though,” Jones said. “We changed to have more of a universal distribution methodology where we build for speed on the outbound side.”

The idea is to reduce the space taken up by a product by breaking down pallets based on how quickly it gets used up. Reducing space utilization also reduces travel time, with the effect of a quicker outbound process.

“It’s a common supply chain principal. It just hasn’t been adhered to as much in the grocery industry as in other distribution industries,” Jones said. “Everything should be built around the shipping side, for speed on shipping, and not necessarily on the inbound side. About half of our labor is spent on the order fulfillment process, so we obviously want to be as fast as we can there.”

Resetting the warehouses, which were designed back in the 1980s for maximum storage, to concentrate on inventory turnover and shipping is expected to reduce travel by 4,250 feet for every store order — reducing travel by 500 miles per week and creating the capacity to service at least another 100 stores with existing facilities.

Expanding its relationship with South Bend-based, 20-store Martin’s Super Markets and adding 13 former Farmer Jack’s stores as distribution customers in Southeast Michigan combined added $120 million incremental sales during fiscal 2008.

Jones said the Martin’s stores are close enough that transportation costs have not been an issue, and the volume has been more than expected.

“They’re very, very happy with our private label offerings, which they thought could be challenging but has been nothing but fantastic for them,” Jones said. “It’s given us also other potential footholds down there with other independent retailers, and we’re looking at trying to grow our business more and more.”

He said Spartan is working with vendors to create more of a “just-in-time type of environment” to turn over inventory quicker. “We’re collaborating with them more than ever on our services levels, with action plans for those that we struggle with,” Jones said. “We went on an aggressive approach to understanding and adjusting those lead times. Once the lead times were established, that allowed us to pare down the orders so the turnover is much quicker.”

He said software now allows Spartan to check on vendor deliveries, including accuracy and timeliness, on a daily basis. That information will be used in the future to inform Spartan’s decisions on vendors, he added. Spartan also has introduced awards for vendors to encourage progress toward the company’s inventory goals.

“It would be ridiculous for us just to work on warehousing without working on inventory management,” he added.

Spartan also is considering upgrades for billing, purchasing and invoicing systems.

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