MM&D MAGAZINE, SEPTEMBER-OCTOBER 2010: Suppose your company deals in a product that’s heavy, awkwardly shaped and highly flammable. You import that product from several overseas markets and ship it to clients across Canada—all of whom expect expedient deliveries. It’s your job to co-ordinate all this in a cost-effective way.
Do you set up a network of multiple distribution centres across the country or consolidate all the work into one centralized site? Or do you go with a third option, a hybrid of the two?
If you’re John Godfrey, you try all three—and settle on the latter.
Godfrey is logistics director at Pirelli Tires North America. It’s his job to supervise the import and distribution of thousands of (heavy, awkward, flammable) automobile tires each year.
Finding the most efficient way to do this has taken some time. But now, nearly two years after redrawing the map and adding a British Columbia facility to the mix, the rubber’s really hitting the road.
Pirelli’s tire business serves two different market channels: the replacement business (which supplies wholesalers and dealers) and the original equipment (OE) business (which supplies automakers). In Canada, the company’s OE business is centralized in Oshawa, Ontario, with a distribution facility serving the Ford Oakville and Oshawa GM plants.
For the replacement business, things are less centralized. Years ago, the company maintained several warehouses across Canada to serve this market. But most of those disappeared at the start of the last decade, as Pirelli decided to try serving the country out of a single DC in Dorval, Quebec.
While centralizing activity into one hub had cost-saving advantages, Godfrey says it made it difficult to effectively serve customers in far-off regions—specifically, Alberta and British Columbia. Most orders made the trip west as LTL intermodal shipments, and delays were common.
“That’s a long distance to travel, especially during the long winters. Service was really deteriorating, to the point that it was sometimes taking 14 days to deliver to a customer out west,” he recalls. “We couldn’t provide any kind of guarantee that orders were actually going to be delivered on a certain date.”
The situation became even more impractical in 2007, when Pirelli opened a factory in China. It just didn’t make sense to ship tires from China to Montreal and then back to Western Canada—especially since the company already had a warehouse in California. After determining the extent of these extra costs, Godfrey and his team started to think that a second Canadian warehouse—located in Vancouver—might be logical.
“Our volume didn’t necessarily justify a warehouse, but the shipping cost per tire justified it,” explains Godfrey.
The decision to open a Vancouver DC sparked the choice between outsourcing the management of the site or keeping it in-house. In the past, Pirelli managed its facilities itself, including its previous Canadian sites. But the last decade has seen the company use more and more third-party logistics companies (3PLs), to the point that it now outsources all its facilities in North America—including the Montreal hub—except for its Georgia factory warehouse.
It made sense to keep up the outsourcing trend in Vancouver, for two main reasons. The first was size: Pirelli did not need much space, so a shared third-party facility was preferable to finding a suitable small building to lease on its own. The second was risk. While the company was fairly certain the Vancouver facility would pay off, it didn’t want to invest long-term in bricks and mortar, just in case.
So the company started looking for a 3PL partner. “We had to start talking with providers to see if someone could meet us on the target cost that we had in mind,” says Godfrey.
That’s when DB Schenker came onto the radar. Globally, Schenker and Pirelli had some history together, having worked together in Taiwan and on some Customs brokerage in North America. Godfrey met Paula Coward, senior business development manager, key accounts at Schenker of Canada Limited, at an industry event, and started discussing the possibilities. Not long after, one of Godfrey’s colleagues met with one of Coward’s at a similar event.
There was plenty of talk, but not much action until late 2008. With the recession entering its darkest days, Pirelli found itself in a hurry to make a change.
“The economy was in crisis,” Godfrey says. “We had several cost-saving projects that had to be kicked off as soon as possible at the start of 2009. We couldn’t wait to have them ramp up. The Vancouver DC was one of those projects. And we needed to have it up and running by January 1, 2009.”
This sense of urgency explains why, in the week before Christmas 2008, John Ellis, who works in business development at Schenker Pacific Logistics Ltd, found himself rushing to locate a facility for Pirelli, staff it, stock it and get it up and running—all in a timeline of a few weeks. All the while, the worst snowstorm in recent memory hit the Vancouver area.
“We hardly ever get snow here, so we didn’t know what to do with it,” Ellis recalls. “We had crews standing by, but none of the deliveries was getting there because of the snow. But we managed to tie it together quickly.”
“Once we made the decision to go with Schenker, we had to get racks in there quickly and start putting stock in there right away,” adds Godfrey.
Schenker/Pirelli’s initial Vancouver warehouse was a shared facility also used for beer cross-docking. The tight timelines made finding a suitable location difficult, especially considering the list of needs. Tires are subject to ultra-stringent storage rules, including a requirement for high-pressure fire suppression systems. As well, because they carry a particularly strong odour, they can’t be stored in the same facility as anything porous that might absorb the smell. The contract was also short-term so Pirelli could test out the model.
Since the benefits quickly became apparent, that first site proved to be a temporary home. Pirelli signed a longer-term contract and Schenker moved the tires into the current facility, a 25,000sqf portion of a 70,000sqf-facility.
“We partner with a lot of people out here,” Ellis recalls. “One of our partners suggested a spot; they’d just built a warehouse and were quite keen to fill it.
“We share the facility. We have a portion that’s firewalled off.”
Over the course of a long weekend, Schenker—aided by two crews—transferred the stock to its new home. Everything was mapped out in the new facility to replicate the layout of the old one, a measure that greatly assisted the transfer process.
Today, most of the DC’s inbound shipments are trucked from Pirelli’s California DC. A small amount is received directly by ocean container.
Because tires don’t fit into traditional corrugated packaging formats, they don’t arrive on pallets. Rather, they are laced together neatly in a fishbone pattern in the back of the trailer. While this is the best way to optimize space, it does make unloading a labour-intensive practice, requiring at least two people. Those same parameters mean there’s no conveyors or other automated equipment in the facility; aside from a few forklifts, it’s a hands-on process.
Once each tire rolls off the truck, it’s separated according to SKU and affixed with a label, which includes a barcode, a description of the tire and its SKU number.
There’s no racking in the warehouse—no conventional racking, that is. Instead, Pirelli provides cage-like modular racks, each of which can hold approximately 20 tires. These nest atop one another to fill the storage space.
“You fill them up on the ground, make sure they’re sorted correctly with like SKUs on like racks, and then you simply take the rack up with a forklift and put it where you want,” Ellis explains.
Schenker manages the SKUs using the web-based SmartTurn WMS.
“We get electronic picking instructions from [Pirelli’s] inventory system,” says Ellis. “We work in tandem with it. We verify our WMS against their system; we’re constantly doing that.”
Once orders come in, workers are instructed what to pick—and how many. Those instructions are printed on to what amounts to a pick slip. Workers pick the tires and stage them for pick-up.
Many of the orders are bundled into shipments from dealers located anywhere from British Columbia to Manitoba. Not all, though.
“We handle a lot of dealer pick-ups,” Ellis explains. “A dealer will come around to the facility and pick up two or four tires for an order.”
The dealer factor does complicate matters a bit in the warehouse. Schenker has to be ready to handle these orders quickly, so it’s built a process—and a drive-up dock door—to accommodate the rush.
“We like to get our orders the day before we ship them, so we can get organized,” Ellis says. “That way we’re not running around picking this and that, and then having to stop everything to go and pick another one.
“We try to have all orders in by 4:00pm, so we can have everything picked and sorted and ready to go the next day. That way we can make sure we can serve the local guys first.”
At any given time, there are about 25,000 tires on site. The inventory turns over about seven to eight times per year.
Normally, the process requires two, maybe three, people on staff. But during busy times—in the pre-winter rush, for example, or when a large delivery arrives—as many as six will be on duty. Schenker meets these needs by maintaining a pool of casual labourers.
While the work inside the DC is all Schenker’s, Pirelli is not shy about dropping in—often, with very little notice—to make sure things are okay.
So far, the addition of a Vancouver DC has been decidedly positive for Pirelli.
“Customers were used to having to put in an order two or three weeks out,” Godfrey recalls. “Now, they’re getting tires within a few days.”
The numbers support him. Before, Pirelli was registering on-time delivery rates of about 70 percent. Now, for the Vancouver market at least, it’s achieving 99 percent on-time deliveries. At the same time, while warehousing costs have gone up, they’ve been more than offset by a six-figure savings in transportation costs.
Being able to serve dealers directly has been beneficial as well, he says.
“They like to be able to go to a warehouse and pick up what they need. [In accommodating that], we’re able to gain a sale we wouldn’t otherwise get.”
While Pirelli’s experience has been overwhelmingly worth it, it wasn’t as easy as it seems. Adding a second DC to the mix can be risky, Coward points out.
“It’s the age-old question a lot of Canadian shippers have: should we be in Vancouver?” she says. “If it’s the right product and it improves customer service, it works.”
For anyone considering making the move, Godfrey has the following advice.
“You have to look at the total costs. You have to take in transportation costs and sum them up against warehousing costs. If you’re doing a lot of small LTL or parcel shipments from Toronto or Quebec to Western Canada, those transportation costs can be extremely expensive.”
All told, he is pleased with the move; in fact, his biggest regret is not doing it sooner.
“We got the approval to go ahead with this late in the game, and that’s why there was a rush to do it over the holiday period. I only wish we’d done it earlier, because we were delivering such poor service and spending more money than we should have been. We could have had lots more sales and market benefits if we’d done this a lot earlier.”
The basics: Inside Pirelli’s Schenker-run DC
Location: Vancouver, British Columbia
Size: 25,000sqf (part of a 70,000sqf facility)
Inventory: Approximately 25,000 automobile tires
Volume: More than 1,000 shipments annually
Employees: Two to three per shift in normal demand; up to six when unloading a trailer
Shifts: Five days a week, 7:00am to 4:00pm
Barcode readers: Symbol
Racking: Tire-specific cages provided by Pirelli
Photography by Owen Ellis