Start Up of a World Class Distribution Center: Hersheys MWDC

Kenneth D. Miesemer CPIM, CIRM

Sr. Consultant, St. Onge Company Formerly Director, Distribution & International Logistics Hershey Foods Corporation

Agenda
Why Change the US Network? Network Modelling Throughput Volume & Storage Capacity Analysis Project Management - Steering Committee Site Selection / Facility Design Material Handling Design Operator Selection

Selecting & Implementing the WMS

Labour Management System Metrics

Who is The Hershey Company?

Why Change the US Network?

Key Objectives
Consolidate Storage

22 Facilities in 1998/1999
Increase Shipment Capacity Improve Service Improve Accuracy Reduce Costs

Network Modelling

Develop Baseline Network Model As-Is Network

Sourcing Locations and Capabilities

Existing Distribution Centres Functions, Capabilities & Cost

Customer Demand Profile by Distribution Centre / Growth

Inventory By Location, Optimization Model

Transportation Cost Inbound, Outbound & Returns

Network Modelling Process Steps

Identify Logistics Modelling Scenarios

Vision Workshop

Slow Movers Consolidated In One Distribution Centre

Store Replenishment Crossdocked

Crossdock Operations @ 30-50-70%

Distribution Centre to Store Cycle Time Including Order Preparation

Network Modelling Process Steps

Model Scenarios and Evaluate Detailed Cost by Scenario Identify Best Solution for Proposal Workshop

China Network Optimization Case Study

Global Company already operating in China Supply Chain issues to be resolved:

Transport costs high

Service inconsistent (lead time) Excessive number of distributors

Lack of distributor control

Extreme complexity

China Network Optimization Case Study

Optimization Project Overview

Plant analysis

Distributor analysis
DC location & optimized sourcing Network costs and service Inventory Analysis

Plant and Distributor Analysis

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Plant and Distributor Analysis

All plants deliver to all RDCs. Missing plant buffer and inability to properly replenish DCs creates product re-allocation between RDCs

DSD and Direct Ship

North Wal*Mart

Beijing Plants

Beijing DC

470 Distributors

Tianmei Plants

Chengdu DC

West

Guantong Plants

Guangzhou DC

South Tesco

Suzhou Plants

Suzhou DC

East Wal*Mart Huanlian

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Network Costs & Optimization

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Optimized Solution 4 DCs in Mainland China

Plants MYU '06 Beijing Old Suzhou Tianjin Guantong Total Category A B C D Capacity (mt) 12,000 49,000 42,000 21,000** 124,000 Utilization (mt) 65% 67% 62% 55%** 75%

Import 2006 (mt) 161

Export 2006 (mt) 18,000

Spare Capacity (mt) 39,000**

RDC's Beijing Suzhou Suzhou B Guangzhou Chengdu Total

Capacity (mt) 12,744 14,818 2,580 6,013 2,835 39,990

Capacity (Pal) 18,000 17,250 3,000 7,000 3,300 46,550

Utilization (Pal) 58% 78% 79% 35% 87% 86%

Optimized Network Service Regions

Costs and service expectations for each proposed design

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Inventory Analysis
After the network has been defined, it is necessary to revisit the inventory strategy and policy
optimize safety stock optimize stock mix cycle stock

buffer strategy
DPS opportunity

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Throughput Volume & Storage Capacity Analysis

Key Issue Was Storage Constraint

Plotted Inventory
85% Oper Capacity

Balances - 36 Months
Growth Factors - SKU

600,000
Capacity

500,000

90% Oper 85% Oper Capacity

400,000

& Sales
Production Capacity

300,000

200,000

Constraints
Optimal Throughput

100,000

20 05 1/ 15 /2 00 5 1/ 29 /2 00 5 2/ 12 /2 00 5 2/ 26 /2 00 5 3/ 12 /2 00 5 3/ 26 /2 00 5 4/ 9/ 20 05 4/ 23 /2 00 5 5/ 7/ 20 05 5/ 21 /2 00 5 6/ 4/ 20 05 6/ 18 /2 00 5 7/ 2/ 20 05 7/ 16 /2 00 5 7/ 30 /2 00 5 8/ 13 /2 00 5 8/ 27 /2 00 5 9/ 10 /2 00 9/ 5 24 /2 00 5 10 /8 /2 00 10 5 /2 2/ 20 05 11 /5 /2 00 11 5 /1 9/ 20 05 12 /3 /2 00 12 5 /1 7/ 20 05

Capacity

1/ 1/

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2005 Steady State Network Map

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Project Management

Critical to Success Developed High-Level Plan Assignment of Team Leaders & Members Development of Teams Detail Plans 1000 + Task Master Plan Steering Committee
Program Manager PMO Supervisor

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MWDC Project Management Team

MWDC Steering Committee MWDC Program Manager
Project Management Supervisor

Business Assignments Team

DC Operations Ramp Up & Integration

Cost Plus & Budget Development

MWDC Construction

MWDC Distribution Operations

Plant Changes To Support New Network

Customer Direct Contact Plant Construction Coordinator Production Planning & Deployment Direct Ship Contact

Real Estate Incentives

Hershey Internal Audit

WMS System Integration & Implementation

Customer Service

3PL/Admin Office

System & Testing Resources

WMS Configuration & IT Infrastructure

Demand Planning

Distribution Ops Process & BDP's

MHE

Day in the Life Testing Infrastructure & Disaster Recovery Testing Integration Testing

Distribution Ops

QA Requirements

SAP Systems Training

Information Services Production Planning & Deployment Transportation Ops

SOP's & System Processes

Transportation Capacity Planning

On-Site Contacts

WMS System User & Training

System Testing

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Project Governance
Team Leaders Weekly Meetings
Monitor Tasks Resolve Issues or Raise to Project Management Office

Program Manager Weekly One on Ones

With PMO Supervisor & Project Leads Review Task Plans Discuss Unresolved Issues

Team Leaders Weekly Meetings

Discuss Unresolved Issues With Project Impact Go / No-Go Decisions

Steering Committee
Milestone Review / Issues WMS Project
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MWDC Major Projects

Facility Related Projects
Site Selection/Incentives Approvals & Permits Building Design Construction Material Handling Systems WMS configuration Infrastructure & EDI Integration testing Day in the Life

WMS Selection & Implementation

Operator Selection Transportation Operations Business Assignment / Ramp-Up Process Design / Documentation

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MWDC Site Selection

Criteria
Fast Track Permitting 90 Acres 1.1 Million Square Feet Plus Expansion Transportation Infrastructure & Costs Labour Utilities Taxes / Incentives Total Cost, Not Just Land Edwardsville, IL Selected & Approved May 22, 2003

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Facility Design
Engineering Study Initiated

EDC III became the model Facility Recommendations (Size, Shape) Capital Requirements Operating Cost Estimates Material Handling Systems

Key Deliverables

3PL Operator Input use your operations team

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MWDC Facility Design

Customization Area

Pick Tunnels

Product Recovery Area

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Facility Spec Sheet

1,080,166 Square Feet

120,000 sq meter

600 Drop Trailer Spots 4 Automatic Stretch Wrappers Training / Meeting Room 200 person

165,000 Pallet Positions 7 High Double Deep Rack 6 Pick Tunnel Lanes 163 Dock Doors 80 Staging Lanes (26 meter) 650 Static Case Pick Locations

Capacity
1,000 Square Meter Maintenance Shop 1,550 Square Meter Recoup Space

Customization Centre

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Material Handling Design Study

Detailed Racking Design Automatic & Semi-

Automatic Wrappers Pallet Inverters Mobile Lifts

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Material Handling - Equipment

Recommendations - Operator Involvement

Matrix:
Features vs. Requirements Vendor Reputation Local Maintenance Warranty Price Phased Delivery

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Operator Selection
Operator Selection Team
Distribution Transportation Engineering Customer Service Finance

Information Systems

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WMS Selection
WMS Selection Team
Project Manager Process Manager EDI Specialist Consultant Client Departments

Complete System Requirement Used WMS Consultants

Selection Configuration Implementation

Identify Functionality Created Grading Spreadsheet

Other Evaluations

Site Visits User Group Conferences Mini-Conference Room Pilot

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WMS Selection

WMS Selected
Network Strategy

Hershey (EDC III, SoCal, MWDC )

Enabler for Productivity

Interleaving Work Manager Large Building Support Best Door and Cross Dock Receipts Labour Management & Engineered Standards Yard Management

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MWDC Implementation & Ramp Up

MWDC Ramp Up Team
Cross Functional Representation

Production Planning & Deployment Demand Planning Distribution Transportation Customer Service Information Services
5 year Planning Horizon Forecast Realignment Strategies Contingency Planning for Building Closures Customer Communication Integrated With Overall Project Plan Direct Plant Shipping Initiative
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Entire US sourcing Project

MWDC Implementation & Ramp Up

Training & Development Hershey College Supervisor Immersion Training End User Training Training Animations

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MWDC Implementation & Ramp Up

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Australia Case Study

Kinchrome case study parallels Hershey Strategic location - Melbourne Warehouse design for world class operations Goals: improve accuracy, throughput, productivity, reduce costs, consolidate inventory

Kincrome Case Study

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Questions

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