Hamilton Beach Distribution Center Blends Great Location with High-tech Inventory Control

With its primary distribution center bulging at the seams, Hamilton Beach/Proctor Silex Inc. decided a new facility was in order. But company supply-chain managers wanted not only an impressive-looking DC but one with built-in efficiencies. During the design phase, they turned to a consultant's sophisticated modeling systems to implement an objective cost-justification procedure and balance incremental investments in technology with the anticipated benefits.

	"On a cost basis, having a single DC in Memphis came out on top of all the other schemes." - Clark Leslie of Hamilton Beach/Proctor Silex

Hamilton Beach merged with Proctor Silex in November 1990, thereby combining two well-known household brands - HB's blenders, mixers and other motor-driven appliances, and PS's heat-driven product line of irons, toasters and automatic coffee makers.

The products had similar handling characteristics and markets, but combining two logistics and distribution networks still was a challenge. By the mid-1990s, the company operated several warehouse facilities. Primary distribution activity occurred at a 125,000-square-foot facility in Collierville, Tenn., about 20 miles east of Memphis. Collierville served the bulk of the company's customers, mostly located throughout the Midwest. A leased 97,000-square-foot warehouse next to a manufacturing plant in Washington, N.C., served East Coast customers from Maine to Florida, and an 80,000-square-foot warehouse in El Paso, Texas, helped service customers on the West Coast. It also was a coordinating point for products manufactured in Mexico and shipped northbound.

HBPS knew that changes would eventually need to be made, according to Clark Leslie, senior vice president of operations for the Richmond, Va.-based corporation.

"At that time we were using a secondary distribution center in Washington, N.C., just because we had a Hamilton Beach plant there," he said. "We used it as a full-service warehouse for our East Coast customers, but it was far from an ideal location except for the facts that we had a plant next door and it was very cheap space. However, we had been moving production out of our North Carolina plants to Mexico, so a Washington, N.C., distribution center was becoming a less and less viable part of our system."

Growing Pains
Meanwhile, as rising sales and expanding product lines fueled growth, the Collierville facility, managed by Ted Schuler, grew so crowded with people and products that the company was forced to lease warehouse space from third-party providers in the Memphis area.

In 1995, the company decided to seek advice from an outside consultant and asked the Atlanta office of Kurt Salmon Associates to assess their situation. KSA eventually concluded that the Collierville-Memphis area was the right place for HBPS, but indicated that the company's then-current distribution scheme was not sufficient for the long term.

HBPS did not immediately act on this recommendation, but it was strongly reinforced by events that occurred during the hectic 1997 peak shipping season. By then, HBPS was operating three maquiladora plants in Juarez, Saltillo and Zaragoza. From Juarez and Zaragoza, manufactured products generally were trucked across the border to the El Paso warehouse. Some full truckload orders were shipped directly to customers' distribution centers from there, but the majority of the freight moved on to Collierville, along with freight shipped directly from Saltillo. Containerized goods sourced from Asia were railed to Memphis after arriving at West Coast ports.

With a steady flow of trucks arriving at the main DC, Schuler constantly had to balance priorities in assigning time at the facility's 12 dock doors. Often that balancing act resulted in inbound truckloads of product being parked in auxiliary storage facilities for the short-term.

"It got to a point just in the Memphis-Collierville area where we ended up leasing additional space in five buildings because our distribution center was so full," said Schuler. "It was a logistical nightmare to bring that product back into Collierville from the outside warehouses in order to avoid marking product out of stock because we didn't have it in the building. Orders were dropped against our entire inventory, including what we had in the other buildings, but those other buildings were not shipping warehouses per se; they were extensions of Collierville."

The crisis came to a head after the frenetic fourth quarter of 1997, during which HBPS had to pay commercial haulers to shift truckloads of palletized product between five temporary sites and the Collierville facility, a costly process that became increasingly nerve-wracking as peak season descended. "It was a huge job to manage all that, to bring the inventory back into Collierville in time to make shipments without sacrificing delivery times or inconveniencing customers with incomplete orders," said Schuler. "At Collierville, we were constantly fighting those 12 dock doors."

And the pressure didn't end with the conclusion of the peak season, he added. "As soon as that is over, the plants start their inventory buildup for the following year and start cranking out production like it's going out of style as they build to the next year's forecast. And since there isn't any warehouse space at the plant sites, all that product has to go someplace."

"We realized at the end of our 1997 shipping season that we needed to move ahead with alternative plans," said Leslie. "We were willing to suffer through one more peak season at our current facilities, but no more."

HBPS again summoned KSA to assist with the search and assessment.

"Our criteria in evaluating sites and facilities was primarily cost, with service a close second," said Leslie. "We really evaluated freight costs, both incoming freight from the Orient on our sourced products and from Mexico on our manufactured products. Our time line was that we wanted to have something in place for the 1999 shipping season, and we wanted to make the move in the first quarter of 1999, which is our low shipping season."

Meanwhile, in 1998, Collierville processed nearly 1,300 inbound containers from the Far East and averaged 80 truckloads a week of sourced or manufactured product inbound to the DC. Outbound volume from the DC topped 7.3 million cartons - either master packs or shipping cartons.

HBPS was not necessarily wedded to Memphis, despite the common wisdom that if a company is only going to have one DC to service the U.S., the place to be is Memphis, said Leslie. "KSA has some very sophisticated simulation techniques and computer modeling programs, and using those systems we looked at a number of alternatives, including multiple DC schemes and West Coast locations to process the containers from the Far East," he said. "But on a cost basis, having a single DC in Memphis came out on top of all the other schemes."

Transportation Infrastructure
Even when the company narrowed it down to the Memphis area, they looked at sites within a 200-mile radius because the economics essentially are the same. "However, the other cities in that region just are not as well set up to be a distribution center as Memphis is," said Leslie. "All the major trucking companies are in Memphis, it's easy to schedule truck service, and you get your best freight rates in and out of Memphis ... there's just a tremendous distribution infrastructure in and around the city."

Once they had a lock on Memphis, HBPS turned to realty consultant CB Richard Ellis for assistance in locating the right situation. "We looked at building sites, buildings under construction and existing buildings in Memphis as well as in some of these other cities," he said. "We needed an expandable 500,000 square feet, and we were able to find exactly what we were looking for already under construction by ProLogis." ProLogis, based in Aurora, Co., is a leading real-estate investment trust and world leader in distribution services and facilities.

Introductions were made, and negotiations began. Terms on rates and improvements and expansion were hammered out between the parties, and a 10-year lease agreement emerged for a 500,000-square-foot flow-through distribution center located in the southeast quadrant of the city at Pro-Logis's 68-acre Memphis Industrial Park, near the Mississippi state line.

The building was being constructed on a speculative basis, according to Tim Moore of ProLogis. "The Memphis market mainly is a speculative market, and there's about two million square feet on a speculative basis going up right now just in this southeast Memphis sub-market," he said. Potential customers who come to town with the idea of operating a DC generally like to have a building they can move into quickly, he added.

The new HBPS DC is a standard flow-through box with a six-inch reinforced floor, a clear interior height of 30 feet, metal halide lighting and ESFR (early suppression-fast response) sprinkler system. The facility faces north and has 34 dock doors on the north side and 34 dock doors on the south side, each with load levelers. A web of 12-inch steel I-beams provide structural support to guard against seismic and high-wind damage. The walls are constructed of concrete tilt panels.

An adjacent 14 acres already has been prepared for a 400,000-square-foot expansion through the west wall. "The land already has been graded and there is a pad ready for the expansion space, so we can act pretty quickly on the development and design and construction of the addition," said Moore.

Now, the first 17 doors on the north side of the building are used for processing outbound shipments, while inbound trailers use the next 17 doors, though the ratio can change depending on the flow balance. Approximately 6,000 square feet is used as office space. There is more than 200,000 square feet of reserve storage and 110,000 square feet for staging. More than 87,000 linear feet of striping designates storage locations. There's also a special area for value-added services, another for non-conforming product, and a designated area for RPS/UPS small-package shipping. Products are stacked two pallets high throughout the facility and are moved by employees riding propane-powered Yale lift trucks.

Planned for the DC is a shift from pallets to slipsheets for handling materials within the warehouse as well as products from the plants. In addition to the acquisition of slipsheets, this will require employee retraining and modification of the lift trucks.

HBPS shut down their Collierville facility on Friday, April 9. Over the weekend, they moved more than 100 truckloads of merchandise from Collierville to the new Memphis DC and began shipping out of Memphis on Monday, April 12.

Several Carriers Used
HBPS primarily uses Merritt Express, Priority Transportation and Transportation Alliances to move its truckload shipments outbound from Memphis. LTL shipments are tendered to core carriers Overnite Transportation, Consolidated Freightways and Old Dominion Freight Lines. RPS and UPS make daily stops at the facility.

Shipments are routed by zip code destination, and Lee Wright, HBPS's corporate traffic manager in Richmond, negotiates the rates and terms for these services. Transport arrangements, including customs paperwork, for the containerized freight are made by Alliance International of Columbus, Ohio. Raw materials inbound to the maquiladora plants are controlled on the plant level, with outbound products routed to Collierville and El Paso from Mexico by Wright's Richmond office.

Orders flow into the corporate office in Richmond from sales representatives and third parties either via EDI or by mail and are entered into an AS/400 mainframe. The DC is linked to the AS/400 by terminals and PCs. HBPS uses Focus, a distribution and inventory control software system designed in-house, to manage its DC operations.

	"We designed our own distribution software several years ago because we could not find a software package that could meet our needs." - Ted Schuler of Hamilton Beach/Proctor Silex

"We designed our own distribution software several years ago because we could not find a software package that could meet our needs at the distribution center, the needs of our corporate office and the needs of the customers," said Schuler. He and his boss, George Jahn, director of distribution, spent several months working with outside programmers, describing in detail how they wanted the system to run while the programmers wrote the code. The system worked without a hitch when unveiled. There is a interface between Focus and the software used for manufacturing operations that allows Focus to accurately report finished goods inventory.

The mainframe transmits the orders to the new Memphis DC, where they are processed in batches. The Focus system has set parameters for dropping orders to the DC. First priority are orders that have an immediate ship date and can ship right away. Then, Focus searches the order banks and filters all orders with 48-hour-ship-date requests. These are dropped in batches to the DC, arranged by carrier, along with a bulk-pick document for LTL shipments. Outbound truckload shipments are processed independently.

The bulk-pick document enables the DC crew to pull larger volumes and more master cartons on each trip to the storage locations than if they were processing orders individually. Full pallets are pulled from reserve storage and taken to the staging area near the loading docks; less-than-pallet quantities are taken from a floating pick line to the same dock area, and then broken down into individual shipments, labeled, stretch-wrapped and loaded. The Focus system generates the bills of lading, shipping labels, and packing slip. All orders are pre-routed by carrier, so there is no manual routing to be done at the DC level.

Carriers are contacted by the DC for pickup as HBPS emphasizes a live-load policy, as opposed to loading trailers for late-night pickup. "That way, if there's a shortage, they bought it," said Schuler. Two shifts of crews currently work the DC.

Once an order is ship-confirmed, Focus deletes the stock from inventory and shifts it to a billing status.

The vast, shining new DC surprisingly is void of the miles of conveyors and automatic weigh-in-motion scales and automated PANDA (print and apply) stations that frequently appear in new distribution centers.

"We considered a lot of the high-tech systems and evaluated those system capabilities using the KSA modeling programs," explained Leslie. "We found, according to KSA, that we run a very efficient distribution operation and we couldn't cost-justify any of those systems."

More Frequent Shipments
HBPS ships a lot of pallet quantities and doesn't have the need for intricate pick-and-pack technology, he said. Leslie acknowledged, however, that the number of pallet quantities is steadily declining as customers demand smaller but more frequent quantities, store shipments and store segregation.

"Eventually we will have a simple conveyorized order picking system for less-than-pallet quantities, but it will be a basic conveyorized pick-and-pack system, not a multilevel network of conveyors." Leslie said. "One of our competitors has a DC with five automatic lines that collect product and feed to an automatic palletizer, which knows the pallet pattern and can pack these five different assembly line products. But it wasn't running when I was there because they didn't have enough volume that day.

	"It's a matter of time before the mass merchandisers eventually offer direct-to-consumer sales on the internet for products such as small electrical appliances." - HBPS's Schuler

"So yes, I've seen it, and I know what they have done, but I don't understand it all because we are having a hard time justifying a barcode tracking system within the distribution center. Most people can justify RF on the basis of inventory accuracy, but we don't have any problem with inventory accuracy. Barcoding in our case must be justified by eliminating paperwork and people, and that is not easy to do."

However, Schuler already has prepared barcodes for the DC locator system, dock doors and staging areas in anticipation of installing radio frequency technology, which he agreed would increase the value and flexibility of Focus. "It's all in place, all we need now is the equipment." he said. "And that's a matter of justification."

The growing impact of the internet may make future high-tech additions a necessity and justification a much simpler matter, noted both Schuler and Leslie. As retailers continue to push inventory responsibility further up the supply chain and grow increasingly picky about the type of goods occupying floor and storage space at individual stores, there's an expectation that companies like HBPS soon will be shipping more goods directly to consumers.

"It's a matter of time before the mass merchandisers eventually offer direct-to-consumer sales on the internet for products such as small electrical appliances," said Schuler. It's a matter of product suitability, he added. "For example, if you walk into the DCs of some of these retail chains, you see lots of space tied up with motor oil to be shipped out to their stores. Oil may not be conducive to buying over the internet, but an iron or a blender or an automatic coffee maker would be. And that's going to change distribution for a lot of people."

HBPS stands to reap sizeable rewards from the efficiencies of the new DC, said Leslie. For starters, the company saves a bundle by not paying to haul all those pallets back and forth between their old Collierville facility and the five auxiliary storage locations.

And the shift promises to make HBPS a better trading partner, added Schuler. "When we had inventory split between Washington, N.C., El Paso and Collierville, we frequently had to ship from two or three locations to fill one customer order," he noted. "Not only was it a hassle for us, but Target or K-Mart would end up having three shipments against one purchase order, and consequently three invoices to pay. So now, under one roof, we will have all the inventory available, and are able to match one purchase order for one invoice, which will certainly improve relations with some of our accounts."

Individualizing the Display

Customizing pallet loads for high-volume customers - particularly in the Northeast - continues to grow as a value-added business for the Hamilton Beach/Proctor-Silex DC. "More often our marketing people are finding that companies like Lowe's, Wal-Mart and K-Mart as well as some of the grocery stores don't necessarily want master packs going directly to the stores. They prefer a display pallet that has a mix of individually packaged products," explained Ted Schuler, manager of HBPS's new Memphis DC. "They can wheel these customized pallets right onto the selling floor, strip off the shrink-wrap and packaging, and customers have the choice of a blender, an iron, or an automatic coffee maker." The DC also prepares pallets as bin displays that arrive at the store wrapped in solid corrugated shipping cartons. When retailers remove the plain brown wrapper, they find the products set into a stylized cardboard unit accompanied by a four-color litho-printed header card to place above the display. The HBPS marketing group, working with customers, sells the value-added service, works out the desired pallet product mix, then checks with the DC to see if the particular product combination is conducive to storage and shipping. If so, the DC then uses the CAPE software program to create a pallet pattern. HBPS offers two styles for the custom units: a full 40-inch by 48-inch pallet, and a 24-inch by 40-inch half-pallet. The DC uses CAPE for both standard and customized palletization. "The customized units are shipped as a single unit," said Schuler. "Each one of those skids has its own unique model number and is priced as an individual unit." The growing popularity of the concept, which is credited to HBPS salesman Harry Guinn, encouraged HBPS planners to designate a specific area within their new DC for these value-added services.