Supply Chain Overhaul

Loblaw Cos. Ltd. revamped its supply chain in under two years, replacing old, home-grown systems, while centralizing and standardizing its entire network.

After spending years expanding its network of stores to reach the current count of 1,200 national franchised and company-operated locations — and devoting most of its capital to building new stores and acquisitions — Loblaw Cos. Ltd., based in Brampton, Ontario, realized it needed to invest in technology to accommodate this growth.

In 2008, management created a plan and invested $1 billion to create a solid infrastructure, and the program known internally as its “Supply Chain Transformation” began.

“Costs were going up, and our ability to raise prices and maintain margin was impacted,” says David Markwell, VP of IT at Loblaw. “With Walmart and so many competitors moving to a promotional model and cutting prices effectively, we knew the old model of raising prices wasn't working anymore. We had to start looking at the bottom line vs. the top line.”

In addition to its retail stores, Loblaw owns and operates more than 25 distribution centers that not only service company-owned and franchised locations, but also 400 affiliates and 1,500 wholesale clients, according to Markwell. The goal of the Supply Chain Transformation program was to lower the cost of operating, offer fresher product on store shelves and improve inventory position — as well as move to a centralized network.

“We had old, home-grown systems in place and multiple systems across the distribution centers,” Markwell explains. “Previously, both the transportation and warehouse systems were located in each distribution center's computer room, and that meant a lot of cost associated with maintenance and having people travel to them.”

The first part of the Transformation — which is nearly complete — involved converting these disparate systems to a central data center in Toronto. Additionally, it includes the deployment of a new warehouse management system (WMS); transportation, forecasting and replenishment systems; and a complete rewrite of its order management systems, according to Markwell.

Inside the Implementation

As part of the Transformation, Loblaw wanted to create a seamless supply chain across the board, and so selected a variety of new software to implement, including a national rollout of JDA's transportation, forecasting and replenishment systems, and Manhattan Associates' WMS.

“We wanted to get all of our warehouses operating off one system and standardize the processes,” says Markwell. “Manhattan Associates was the most capable from a functionality perspective for us, and had a much larger consulting and professional service base then others we viewed. Also, from a cost perspective, they offered better package deals and licensing. We wanted someone who would be there from a business process perspective and also support our time frame.”

An early success was Atlanta-based Manhattan Associates' ability to roll out the software systems so quickly — getting 14 distribution centers up and running on the new WMS in 20 months — including three within a three-month timeframe, Markwell notes.

“When we made the decision to go with Manhattan in fall 2008, we were live in our first site by June of 2009, our second site by August, and the third went live in October,” Markwell explains. “We wanted to accommodate large retail seasons like Easter, Christmas and back-to-school, so we tried to avoid those key selling seasons. We are on a timeframe of every six weeks for new sites.”

There are still a couple of distribution centers left to implement, but the real success has been “the speed in which we were able to transform each one and never miss a deadline,” says Markwell. He credits an integrated IT team and its relationships with the distribution centers and transportation partners as one of the key factors in this success.

When the supply chain implementation started, the IT group worked as one unit on the first three sites, but last year, it was able to do nine sites by breaking up into four teams — an essential management or oversight team and three deployment teams that did three sites each over a three-month time period.

By developing a “cookie-cutter methodology,” an IT team first met with management at a new site to explain what would be done, how it would work, what it would be doing from an IT perspective and what was needed from the distribution center employees. It also went through the configuration timeline and explained testing and implementation time, as well as post-implementation support.

“In some of the smaller sites, it was four weeks on-site, and the larger was six to eight weeks just to make sure there was no impact after the fact,” says Markwell. The company also relied on its close relationship with Manhattan Associates and solid partnership with Pittsburgh-based Vocollect for the voice services piece already implemented.

Realizing Results

With the upgraded systems, Loblaw moved from a central stock model to a flow model where the inventory comes in on one side of the distribution center in the morning and ships out from the other side the same day. So far, this model is live at three sites, and larger ones were chosen based on the size of the building and labor needed to push high volume through quickly, according to Markwell.

“Now, the orders are known ahead of time so deliveries can be unloaded and then reassembled in store-ready pallets for each location.” — David Markwell, Loblaw Cos. Ltd.

“Our traditional process was to unload the truck at the distribution center, put in racking, and then as the orders came in we would pick them,” he says. “Now, the orders are known ahead of time so deliveries can be unloaded and then reassembled in store-ready pallets for each location. It's on a 24-hour operation clock.”

Furthermore, after the WMS rollout, the company saw a 5 percent improvement in labor efficiency and achieved configuration and SOP standardization across the entire distribution network. It also gained the ability to use advanced ship notifications (ASN), so when a vendor closes a shipment, it notifies the warehouse of what's coming.

“This was new for us,” says Markwell. “Previously, when trucks showed up, we didn't know what was in them. We would have to unload it and reconcile it with the order, but now that it comes electronically, we can match it back to the order sent, which makes it more efficient at the dock.”

He says this enabled the company to reduce receiving time by 23 percent, and there was a reduction in shorts of 50 percent. Also, the flow implementation and cross-dock integration improved time efficiency, increased volume throughput and generated a savings of up to $5 million annually.

What's Next?

Currently, Loblaw has replenishment capabilities installed in 80 percent of its locations, and is continuing the rollout of the WMS. And while the company has rewritten its proprietary order management system internally twice to keep up with the changes being made, rolling out a a system from SAP is the next step.

“Phase one started with replacing the transportation and warehouse management systems, and now the order management systems, and phase two is to make it all work together,” Markwell explains. “This couldn't be done with our old systems.”

By 2012 and 2013, the company plans to upgrade its WMS to Manhattan Associates SCOPE solution, which will give it even more capabilities. Additionally, as well as the changes with the supply chain, store-level merchandising was also being transformed, and in March of next year, the company will roll out the forecasting and replenishment piece at the store level, tying it into to real-time point-of-sale transactions.

“We are taking the crawl, walk, run approach,” says Markwell.