Climate Control

Robert Angstadt remembers the old days. The faxes containing orders would stack up at the West Coast warehouse, waiting for a clerk to come in at 9 a.m. to enter them, one by one, into the manufacturer’s computer system. By the time the clerk finished, it would be near closing time on the East Coast, and an entire day would have been lost in filling the order.

“That’s why I think that a paperless system, even though it’s more complex, actually puts less pressure on the manufacturer and the fulfillment process,” says Angstadt, the vice president of operations for CaseStack, a Los Angeles-based company that provides outsourced warehousing, transportation, and fulfillment for small and medium-sized businesses. “What used to take 24 hours and several employees can now be captured easily by one click of a button in minutes, and be done in real time.”

That’s the great promise of the paperless warehouse, and increasingly, it seems to be a promise that is being kept. There are still exceptions and specific circumstances in which paper is not only used, but necessary. In general, however, the days of paper pick tickets, purchase orders, and shipping notifications seem to be ending — and not just for the largest multinationals, companies like National Semiconductor, Office Depot, and Dell that have been doing it for years. The technology is now available and can be cost effective for companies with as little as $20 million in sales, say consultants.

The key, says Gene Roman, whose Chicago company, System Designs, provides software to help smaller companies move to a paperless environment, is to understand that the paperless warehouse is not a goal in itself, but the means to end.

“The number one goal,” he says, “is improving inventory accuracy, improving the picking error rate, and eliminating several steps in the process. When you look at it that way, it’s not a huge investment to go paperless.”

Hot to trot

Any paperless system must start with the order, even if it’s on paper. So far, a single standard does not seem to have emerged. Although EDI systems are in use, telephone and fax orders still play important roles for many businesses, says Adam Fein of Philadelphia’s Pembroke Consulting and author of Facing the Forces of Change: Future Scenarios for Wholesale Distribution, written for the National Association of Wholesale Distributors. Industrial customers, for example, today send only 10% of their orders electronically. By contrast, hospitals and schools are expected to send more than one-half of their orders electronically by 2006.

After the order is placed, though, paper usually doesn’t show up until the end of the cycle, when third parties require address labels, packing slips, and bills of lading. An order moves through the warehouse powered by bar codes, scanners, radio frequency antennas, and view screens, whether handheld or mounted on employee body parts and forklifts. Employees use scanners to tell the warehouse system that they have picked an item, and the warehouse system directs the employees, through their handheld monitors, or forklift screens, where to put the item once it has been picked. Then, inventory can be scanned when it leaves the warehouse, leaving a digital record of where it has been and where it is going.

At Dell, says spokesman Venancio Figueroa, not only do orders come in electronically, but orders to suppliers are sent digitally, and the factory is replenished on a two-hour basis. The paperless system at global computer chip manufacturer National Semiconductor’s 94,000-sq.-ft. Singapore facility, built and operated by UPS Logistics Group, routes pickers through the warehouse, selecting the most efficient path as they handle 4 billion chips a year.

“We believe it’s an extremely effective and efficient way to run the warehouse,” says Larry Stroud, director of global logistics and trade compliance for National Semiconductor. “All of the information is in the warehouse management system, and it helps the key people to do the right things.”

Several components are crucial to a successful paperless operation:

  • The warehouse management software must be tied to the company’s back-office or accounting system. This enables the system to track shipments, bill customers, monitor suppliers, and offer real-time inventory information to sales staff.
  • The system must be able to send electronic information, such as automated shipping notices, to customers. The largest customers are demanding that sort of thing, because it fits into their paperless systems.
  • A paperless system requires a paperless-friendly environment. Literally. Scanners and Palm Pilots don’t function as well in conditions that are too hot or too cold.

Partly cloudy

Deciding to spend the money to make an all-electronic system work is always a difficult equation to master, even for the largest companies with the deepest pockets. Technology is not just expensive, but breeds increased expense because of its very nature. That’s why any financial equation must take into account not only return on investment, but the goals of a paperless system. The two go hand-in-hand.

“That’s because there are several ways to look at that,” says Stroud, who points to a variety of measurements based on increased performance. National Semiconductor’s Singapore warehouse has an extremely high accuracy rate — less than 100 dppm — as well as pick rates that have improved by as much as 50%. Overall costs at the facility have decreased by 10%, even with substantially higher volumes.

“It’s not so much the ROI as the payback we get in the other measures,” says Stroud. “But if we were looking for payback in strictly ROI terms, it would be about two years.”

Another noteworthy advantage of paperless systems, analysts say, is that the back office doesn’t have to be anywhere near the warehouse, further reducing costs. National Semiconductor’s computer operations are in Santa Clara, CA, but the system sends it data as if it were next door. A CaseStack client, says Dina Kinder, the company’s vice president of business development, is Nakajima, the Japanese firm that manufactures Hello Kitty plush toys. CaseStack’s paperless facility allows Nakajima to ship U.S. orders on an almost real-time basis from the U.S., instead of forwarding everything by paper, including the inventory, from Japan as it is ordered. That’s an attractive incentive for a smaller business like Nakajima, which has sales of less than $250 million and probably wouldn’t be able to make the sort of capital investment necessary to set up a warehouse in the U.S.

Kinder estimates a cost in the low six figures to transform a traditional warehouse into a paperless operation, including hardware and software, for a business with $10 million to $20 million in sales. Although they might find the initial investment high, small businesses can record the same sort of performance improvements as large companies do in inventory accuracy and picking error rates.

Cold comfort

Yet there are times when paperless just won’t work, says consultant Jack Schenk of the St. Onge Company of York, PA, a supply chain consulting firm. “There are still lots of environments where automation is used, but paper is still part of that process.”

Some of those environments are actual environments. One reason why a company like National Semiconductor gets such good results from its paperless effort is that its warehouse is kept below 65% humidity and cooler than 35 degrees Celsius. Warehouses with different conditions, whether dust, heat, or cold, would see more equipment breakdowns.

That’s why analysts say they see fewer paperless operations in areas such as food service, grocery distribution, or the floral business. In such environments, a scanner, whether attached to a Palm or other hand-held device, can easily fog up or even freeze.

Schenk also notes that some warehouse situations are not inefficient enough to make the transition to paperless pay for itself. And sometimes, the customers don’t make it worth a company’s while to go paperless. That’s the case at Newark Electronics, a Chicago distributor of everything from computer chips to capacitors to cable. The firm has been evolving away from paper over the past year or so, but its task is complicated by its customers, many of whom are small businesses (less than seven figures in sales) or have unsophisticated shipping systems. Many still insist on paper invoices, packing slips, and the like, says Raymond Kernagis, Newark’s vice president of distribution, because they need paper to track the order.

Barometric pressure

“We are constantly reviewing and tweaking — and that’s probably where most of the changes occur, as opposed to changing the systems,” says National Semiconductor’s Stroud.

At least until the next big technological leap. A scanner- and barcode-less warehouse, anyone?

Jeff Siegel’s articles have appeared in Forbes, American Way, Emerging Business, and a variety of other consumer and trade magazines. He lives in Dallas.

Star Track

As any IT guru knows, throwing money at a solution, even if it’s not very much money, usually isn’t enough to accomplish the task. “As long as you’re marching toward your goals, you need to remain as flexible as possible,” says Dennis Andruskiewicz, senior vice president of distribution for Delray Beach, FL-based Office Depot’s business services group.

His case in point: the office supply chain’s ODStar initiative, the goal of which was to eliminate bills of lading and make it possible to store customer delivery information electronically. The traditional paper system that ODStar replaced, with signatures, carbons, and an almost infinite number of file boxes, cost Office Depot millions of dollars each year in write-offs from customers who said delivery had been missed. Given the volume of paper it had to track to check each delivery, the company had little chance to prove otherwise.

The challenge was to find a digital system that would be effective, coordinate with the company’s current paperless warehouse system, be simple enough for the company’s drivers to operate, sturdy enough to stand up under the physical duress of a delivery route, and work for 24 distribution centers, 2,200 trucks, and 100,000 orders a day. Office Depot met that challenge by focusing on filling those needs, rather than trying to make one specific technology fit the problem. “The goal was to improve customer service, and to a lesser extent be able to track driver performance,” explains Andruskiewicz. “As long as we got near that point, knowing that we might not make 100% but getting as close as we could, that was the key thing.”

ODStar evolved into a wireless system using reinforced Palm 1700s, which load into a docking bay on the truck. The information in the Palm is connected to the warehouse management system through the docking bay’s wireless technology. The driver sends basic route information every time he or she docks the Palm, and complete information is sent at the end of the route — using a dedicated ground station — when the truck enters the lot.

At the start of the route, the warehouse system sends delivery information to the Palm, and the truck is loaded according to route size and the order in which deliveries will be made. The driver checks the Palm to find out where to go next and which boxes to unload.

What this provides for Office Depot is real-time route information (where orders are, how drivers use their day) as well as digital records of who signed for a delivery, when, and where. Plus, the only paper the driver sees is the reconciliation sheet at the end of the day, and even that is printed by a computer.

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