What does it take to exceed the expectations of a demanding retail network? For this motorcycle parts and merchandise distributor, it’s taken sound strategy, good tools and a shift to a more collaborative operating structure. Deborah Aarts explains.
Harley-Davidson® aficionados are fiercely loyal, but in exchange for that loyalty they maintain high expectations of the brand. They want their motorcycles in tip-top shape at all times. They want the latest gear as soon as it’s available.
To satiate their needs, Canadian Harley-Davidson enthusiasts rely on a network of 77 authorized retail stores across the country. And those retailers in turn rely on Deeley Harley-Davidson Canada, the exclusive Canadian distributor for all things Harley-Davidson and Buell™, to keep them stocked with the latest gear.
The company manages the distribution of Genuine Motor Parts and Accessories and Motorclothes® apparel out of a 40,000sqf distribution centre in Concord, Ontario. (Motorcycles move through a separate supply chain, also
managed by Deeley.) Supplied by the Milwaukee, Wisconsin US headquarters of Harley-Davidson, it houses everything from motor oil to tires to leather jackets. “If you can put it on a motorcycle or its rider, we’ve got it,” explains Stacey Arthur, Deeley’s information technology director.
Some of the SKUs are always in stock; many others are seasonal items, released in batches several times a year. At any given time, the DC must have enough on hand to manage retailers’ standard stock orders, plus regular requests for rush deliveries and seasonal items.
Deeley has always been able to ship out enough to keep stores stocked—it just hasn’t always done it very efficiently. A visit to the facility a few years ago would reveal a building full of skids crowding the floor and inventory cramming the shelves.
That’s not the case today, thanks to a decision to rethink the way it managed its distribution processes.
Get your motor runnin’…
“It all started with the realization that we were running out of room,” Arthur says. “We knew we’d either have to move or change our processes.”
Since the DC is situated close to major highways and the homes of most of Deeley’s employees, the company was not keen on the idea of moving. That left one option: improving the inner workings of the operation. Product simply had to move through the DC more quickly and efficiently. “The idea was to maximize the building,” she adds.
Recognizing the need for change is one thing; designing that change is quite another. Early on, the company determined an outside perspective would be beneficial. It enlisted the help of Markham, Ontario-based consultancy Supply Chain Alliance Partners (SCAP).
For those involved in the day-to-day management of the DC, it was initially tough to hear the impressions and advice of an external party. But once the ideas were on the table, Deeley associates dropped their defences and started working collaboratively with SCAP. Together, the team came up with a new strategy of managing the DC’s activity. At its core was an order segregation methodology designed to manage each type of shipment—stock, rush and seasonal—differently.
“That really was the key. Once we had the orders broken out so we had some visibility…it really started to click,” reflects Arthur.
SCAP worked with Deeley until the project picked up steam and a cross-functional team—comprised of managers from the distribution, purchasing, IT and sales teams—was in place to handle it. This was a big change for the company; traditionally, most DC decisions were made by DC staff alone. But collaborative representation helped guarantee that the effects of changes on different areas would be well understood.
Together, the team came up with a plan for the DC designed to benefit everyone in the business. That was three years ago; since then, the company has implemented several phases of change.
First on the agenda was dealing with orders for seasonal items. During peak periods (like the start of the riding season, when, according to Jeff Draves, senior manager, product services, “everyone wants everything”) the company is slammed with orders of both stock and seasonal items.
In the past, filling this need created major bottlenecks in the DC. At times, the backlog of skids from the factory climbed to 200. This created chaos as associates struggled to put product away and pick enough to meet demand.
“We wouldn’t really know what was in each box until we’d opened it,” recalls Arthur. “We’d realize we didn’t really need what was in the box right away, but since we’d opened it, we’d have to keep going through the process of putting it all away.”
The solution was to start cross-docking seasonal items. Deeley adopted a new approach to ordering seasonal items from the US. It started ordering such products separately and requested that each order come with a unique purchase order. This makes a shipment of seasonal items immediately identifiable to receivers, who can then direct it to the cross-dock area.
Racks line the receiving area, and each of Deeley’s retailers is assigned a slot. When a load of seasonal merchandise enters the facility, operators unpack it and dispense the contents into the appropriate retailer’s slot.
Seasonal orders were the logical first choice for the company to cross-dock because of the strict deadlines they must meet. These items are released on set dates, and retailers don’t like to receive them even one day late.
Today, a seasonal item is in the DC for a very short period of time—often only a few days, and never more than two weeks. For the staff, the increased speed of such shipments carries ancillary benefits as well, Draves says. “Our performance is measured on fill rates and inventory turns, so we have a vested interest in the velocity at which product moves through the DC.”
After it started cross-docking seasonal orders, Deeley started the second phase of its improvement plan: getting retailers to place orders in batches. “Originally, retailers put in orders every day, and we shipped them every day,” Arthur says. “Because of the way many operated, we’d end up with a huge peak on Mondays and Tuesdays, and then virtually nothing on Thursdays and Fridays. When you overlap that with the huge seasonal peaks we had from May to September, it could be a bit of a nightmare.”
Deeley started assigning retailers regular deadlines to place orders: weekly throughout most of the year, twice-weekly during the busy summer season. If the deadlines are met, the stores are guaranteed delivery by a set day. This change has removed much of the variability in the DC.
“We’ve balanced a lot of the volume so that it takes away a lot of the peaks and valleys,” says Arthur. “Retailers have started taking advantage of the stocking day, so our rush orders have cut in half.”
The enthusiasm among retailers toward the change has been strong. In fact, many have taken the opportunity to become more strategic in managing their stock, reports Draves. “There are a lot of retailers who will now take the time to build an order and do proper inventory management.”
A key driver of the successful transition to batch ordering was collaborative inventory management
(CIM) software. Deeley’s CIM program—which ties into its warehouse management system (WMS)—is not new, but it was an effective tool in helping the retailers adjust to the change.
Smarter use of CIM has also helped Deeley improve its sourcing. It started using the technology to collaborate much more actively with Harley-Davidson US. The manufacturer now gives Deeley more notice about product obsolescence and substitutions, which allows the distributor to make sure everything in stock will be sellable. “We’ve reduced our obsolete inventory by about a million dollars since we’ve started,” Draves says. “It’s of almost no consequence to us now.”
Today, with its cross-docking and order-batching initiatives well-established, the DC is running much more smoothly.
Every day, orders are seeded according to type and issued for picking at assigned times over three shifts. Stocking orders are mainly picked on the midnight shift. The pool of rush orders—which has greatly diminished—is typically picked in late morning, giving the company plenty of room to meet its next-day delivery promise.
For larger stock items, the picking is done with a forklift carrying cages, each of which carries a retail store-specific bins. Veteran staff members can pick for as many as six retailers at once. Every pick is validated with an RF gun, which transmits the information back into the WMS.
The DC is also outfitted with a horizontal carousel for small, fast-moving items. The carousel runs on a legacy software system tied in to the WMS. Once the operator chooses an order to pick, the carousels spin to pull the appropriate items to the pick face, with a pick-to-light system indicating the appropriate quantities. A hydraulic platform moves up or down so that the operator can pick items comfortably.
Once the orders are picked, they move to the shipping area to be prepared for delivery. To avoid damage, items are packaged with like items.
“We almost over-pack,” acknowledges Arthur. “But if it’s riding season and a customer needs a part and it arrives damaged, it’s not worth it.”
Once packed, the orders move into the outbound shipping area. In the past year, it is here that the biggest transformation has taken place.
Before, staff working in the shipping area had to log on to each carrier’s proprietary electronic system in order to prepare orders to leave the building. Carriers were generally selected using a mix of precedence (the carrier that’s been used on a route in the past) and convenience (the carrier that the worker happens to have used that afternoon). There was little attention paid tofinding the best cost or to factoring in how things like size and destination can affect it.
Recognizing the opportunity for improvements, the company implemented shipping software from Scancode Systems Inc, which was purchased shortly thereafter by Descartes Systems Group.
The program is linked to Deeley’s in-line cubing unit. Once a package’s barcode is scanned, its weight and dimensions are recorded and the information—as well as data on destination and urgency—is processed and run through a database of rates to determine the best shipping option. Once a carrier is selected, the software generates a shipping label. “It factors in all those components to make a logical decision on the best carrier to meet the service requirement,” explains Bill Curry of Descartes. “With two scans, it’s probably replaced 20 steps.”
The new program gives other departments in the company—including customer service—a real-time window into how orders are being shipped. It also helps staff drill down into data on a particular SKU or customer.
It’s still relatively early, but so far the system has been a major driver of efficiency, Arthur reports. “We were able to redeploy one associate to other work, because we only have one shipping station now. Everything moves through one portal instead of several.
“It’s given us some pretty good data on what we’re actually shipping that we weren’t capturing—things like the cube and weight. We were relying on our partners to tell us what we were shipping. Now we know.”
Shifting into reverse
Returns are a big part of Deeley’s business. Each retailer is given an allowance for how much they can return, based on quarterly purchases. For many reasons—usually a desire to liquidate—some take full advantage.
In the past, the stores would submit returns information using an array of media, including spreadsheets and fax. Deeley would often find itself in the dark about what was coming back until the item re-entered the DC. And since the process tended to be managed on an ad-hoc basis, it created a good deal of disorganization.
Today, retailers submit their lists of returned items as an inbound shipment document via the web. This has created a second receiving stream at the DC. “The intention is that the product is returned to us to resell,” explains Draves. “We can now see what’s coming back…and we can consider our purchasing decisions against that.”
Perhaps the biggest beneficiaries of this change are the stores. The new returns system lessens the time and bureaucracy involved in sending back stock. “It used to take three months from the time the retailers submitted their claims until we actually paid them. We’ve reduced that down to a month, at the most, which creates huge savings for them,” Arthur says.
“We don’t want them spending their time on administrative tasks. We want to make their backroom easy.”
The open road ahead
It’s been three years since Deeley started its DC overhaul, and the company’s improvement efforts are far from over.
Currently, it is working to change the way it slots its SKUs to improve order-picking. “We’re re-profiling,” explains Christine Davey, senior manager, DC operations. “Right now, the slotting is random. We see a bit of a lag in the putaway process, so we’re changing that to increase productivity…We’re going to have high-velocity zones within each aisle.” Items will be grouped by size and type, with fast movers placed at easy-to-access locations.
More cross-docking is on the docket, too. Deeley plans to use the approach for rush orders in the near future.
It also intends to increase the amount of full pallets of consumables—like motor oil, batteries or air filters—it sends to its retail stores. That said, it is unlikely that this will become a major part of the DC’s business; most of the retailers simply don’t need orders that large. “Retailers do have limited storage space, so we have to keep that in mind,” Arthur explains.
These changes will continue to make the DC more efficient and better equipped to handle increased volumes. But there are limits to what the facility is capable of. Deeley’s business continues to grow, and there will come a time—possibly in the not-too-distant future—when expansion will be the only option.
“Eventually, we are going to run out of space here, so we’ve looked at adding another DC in Calgary as a next step. We’ve determined the cost of shipping to the west outweighs the cost of running a DC there,” Arthur says.
She estimates Deeley will likely make the move within the next five years.
By nearly every measurement, the company’s three-year improvement drive is paying off. Productivity is up and costs are down.
“All of the metrics have gone in our favour in the past three years. We’ve reduced inventory, we’ve increased turns, we’ve reduced SKU count on the shelf, all of it,” says Draves.
Moreover, the retailers are happy, which is quite possibly the most important area in which Deeley must succeed. Every year,
the company sends a survey to its retailers, asking them to evaluate all aspects of its business. Since implementing the changes, the score for the DC has increased 22 percent to 83 percent.
When asked what has been key to the success of the transformation, Arthur, Draves and Davey are unanimous. In the past three years, Deeley has evolved from a company made up of departmental silos to a cohesive team capable of implementing mutually beneficial changes to the company’s supply chain.
“It was a cross-functional team that did this,” Arthur says. “In the beginning, it was difficult for everyone to step away from their own interests, but I think that increase in the [retailer satisfaction] score for the DC belongs to everyone, not just the DC staff. It touched everybody.”
Draves corroborates her statement. In his view, the company’s success at the DC has hinged on the successful pairing of the right technology and real teamwork.
“Everyone’s vested interest is in improvement and in working towards solutions that work for everyone,” Draves says. “We all got together and modified and rewrote processes and trained with our departments at the same time. That’s our greatest accomplishment. Continual change is easy, because we’re all going through it together." MM&D