Data-driven DCs drive cost-saving efficiencies

Drug Store News, March 21, 2005 by James Frederick

On June 24 of last year, Walgreens marked the grand opening of its newest high-tech distribution center with speeches, music from a local choir and lots of impressive statistics about the miles of conveyor belt and the automated put-away and retrieval systems at work in the huge facility. But the unveiling, in the sprawling desert community of Moreno Valley, Calif., east of Los Angeles, was only a prelude of what's to come.

The Moreno Valley center--a 685,000square-foot, $150 million behemoth that opened two years after groundbreaking-marked the fourth DC Walgreens has opened in the past three years and its 11th major distribution facility overall. Its opening provided the badly needed link in Walgreens' drive to fill in the key Southern California market with new stores.

The facility also represented the fourth and final iteration of the latest generation of Walgreens DCs, which the company claims are more than 20 percent more productive than older models. The company's financial statements bear that out: Given the centers' higher efficiencies, quicker order-response rates and faster inventory turns, Walgreens has shaved inventory levels and safety stock throughout its warehouses and stores by some $1.5 billion over the past few years and has cut product cycle times in its DCs by well over a week.

Integrated with the company's Strategic Inventory Management System and a vast data warehouse fed by more than 4 million customer transactions per day in its 4,700 stores, Walgreens' DCs are the backbone of a supply chain management system that gets "the right quantity of the right merchandise to the right stores at the right time," in the words of David Bernauer, the company's chairman and chief executive officer.

The Moreno Valley DC exemplifies the high-tech trend in warehousing and inventory movement. Among its massive, 90-foothigh storage racks and 14 miles of conveyor belts are automated storage and retrieval; sophisticated storage and rack systems; and robotic unmanned vehicles that move pallets according to computerized, scan-driven instructions along unseen magnetic tracks to the proper location within the warehouse. The center also features unmanned, robot-driven cranes that store and retrieve pallets of inventory based on computer-generated orders; a pick-to-light system for split-case product; A-frame automated pick systems for fast-turning items; and scan-based sortation systems to route pallets to the right shipping bays automatically.

"We're very proud of this place," noted Senior Vice President of Distribution Randy Lewis. "The receiving docks take in about three miles of pallets of mixed merchandise every day. They have to identify where it comes from and which purchase order it was on, sort and segregate it and put it on the robots so it can be put away.

"Then we're going to pick those cases, and we're going to send out 50 miles worth of cases if they were stacked end to end, every day," Lewis added. "And half those cases we pick piece by piece, individually."

Moreno Valley and the other new-generation distribution centers use information technology and radio frequency to handle and track inventory and operate 24 hours a day to process up to a half-million individual orders daily. The policy: to ship all orders within 48 hours of receipt.

Sequencing product 'as needed'

Designed to ship as many as 150,000 cases of product per day and to employ as many as 600 to 700 workers, the newest DCs in California; Perrysburg, Ohio; Jupiter, Fla.; and metro Dallas/Fort Worth are impressive examples of high-tech supply chain efficiency. But even before Bernauer presided over the June grand opening in Southern California, Walgreens was working hard to eclipse its newest DC with the next generation of highly automated centers, in partnership with SSI Schaefer, a leading German supplier of data-driven storage, materials handling and logistics systems. Thus, at about the same time that Moreno Valley was receiving and shipping its first pallets, Walgreens was breaking ground across the country in Anderson, S.C., on an even more advanced facility that will open in 2007.

That center, which will comprise 700,000 square feet of space and cost $180 million to build, will help drive the chain's accelerating expansion in the Carolinas, Georgia, Alabama, Mississippi, parts of Virginia, Louisiana and Tennessee.

"This will be an entirely new prototype," Bernauer explained. "This distribution center will be large enough to hold 11 regulation football fields, as well as enough merchandise to eventually service 800 Walgreen stores. But what's really special about this DC is that we're designing it to be 20 percent more efficient than the current model and to allow us to hire many people with severe disabilities."

Systems designed by SSI Schaefer will provide the next generation of DCs with "state of-the-art automated storage and retrieval technology for both pallets and totes," according to the German firm.

"For the piece-picking operations, a combination of proven flowrack systems, together with a highly automated picking system, will be utilized," noted the company in a statement. "To reduce labor costs in the individual stores, the distribution system delivers the product in an 'as needed' sequence. Due to advanced automation technology utilized, the service volume will be almost doubled."