That’s Herbalife’s order accuracy rate, pre-inspection. Impressive, but not good enough when you’re intent on shipping the perfect shipment. So, the Los Angeles-based wellness company checks every carton before it’s shipped — and catches every error. Quite an improvement from the days when Herbalife’s order accuracy rate sometimes dipped to 90%.
Herbalife’s success has largely been achieved by replacing manual pick methods with pick-to-light technology at its Los Angeles and Memphis DCs. The pick-to-light systems have also helped boost productivity; set new standards in quality assurance, efficiency, and flexibility; and should help keep pick lines flowing as the company grows.
Posting retail sales of $1.8 billion in 2002, Herbalife sells weight loss products, nutritional supplements, and beauty products through more than one million independent distributors around the world, including 250,000 distributors in the U.S. The company’s core business is in weight management and nutrition programs. Distributors can order vitamins, mineral tablets, protein drinks, and other health products as pre-designed programs and as individual items. Similarly, they can order skin care and hair care products as prepackaged beauty kits and as separate items.
SIMPLE, NOT EASY
“We have a mission in our company to do two things very simply,” says David Kratochvil, Herbalife’s chief logistics officer. “We need to have products available all the time, and they have to be easily accessible.” Herbalife receives about 40% of its orders from distributors during the last week of the month. Automatic reorder programs help ease the crunch. “We take those automatic reorders and release them once a week for the first three weeks of the month,” says Kratochvil. “The last week, we don’t do any replenishment. We use our same personnel to fill the orders that build up at the end of the month.”
Currently, Herbalife’s high-volume programs and kits are pre-assembled, held on pallets, then picked as boxes. Specialty programs and kits are built on the line. To keep pace with growth, new solutions are needed. “We’re in the process of looking at some feeder lines where we can do a kit and have it merge with the carton as it comes down,” says Kratochvil. “Right now, we’re able to do most kits on the line. We just can’t handle a huge increase in volume and keep the accuracy and productivity in place like we have it today.”
Herbalife operates its 59 worldwide DCs on a hub-and-spoke system. In the United States, the Los Angeles DC holds American-made products in master inventories and serves as the re-supply source for the Memphis DC and DCs in Asia. Los Angeles also serves distributors on the West Coast, in Alaska, and Hawaii. The Memphis DC serves distributors across the rest of the U.S. Both facilities are set up with identical technology, equipment, and warehouse process flows.
To meet shipping standards and keep the lines moving, orders are batched and released into the pick-to-light system every 15 minutes. Orders are filled first-come, first-served. The exception is Los Angeles, which has a sales center where distributors can place and pick up orders on a walk-in or will-call basis. Those orders have priority and are pushed to the head of the line. “We handle a distributor every four minutes in that building right now,” says Kratochvil. “From the time people walk in the front door to the time they pick up their shipment, we have a maximum standard process time of 10 minutes.”
Herbalife’s pick-to-light system determines the quantity and sizes of cartons needed for each order, identifies which items go into each carton, and prints out bar code labels that give the contents, weight, and shipping method for each box. As the boxes are conveyed through the pick zones, pickers scan the bar codes, and displays on flow racks tell the pickers what to pick and where to send the box next. Pickers verify that their picks match the system’s directives before sending the box on.
For efficiency, the first pick section contains pre-assembled programs and kits and other heavier items that go into the bottom of a box. The second section contains the majority of Herbalife’s products, which are high-volume items ordered every day. The third and last section is for promotional items and other low-volume movers. Each section is zoned and designed for productivity. “We predetermine from history how much product is ordered in particular areas, so that one person can handle a zone without it getting jammed up,” says Kratochvil.
When the pick-to-light system indicates a shipment is complete, the boxes head to the quality control area. “Every carton has a theoretical weight on it and goes through a weight-checking scale,” says Kratochvil. “We have lists of customers that may have had problems in the past, and we make sure their shipments are all inspected. We do visual inspections, too. We automatically kick a certain percentage off for inspection that haven’t failed just to make sure that the order was picked properly.”
Distributors receive a shipping list that includes a breakdown of the items that are in each box and any products on backorder.
ON THE MONEY
So far, Herbalife has been able to stay in stock with its biggest-selling items through improved forecasting and inventory planning. All products received into the DCs are bar-coded and scanned into an Oracle inventory management system. When items are pulled, they’re scanned again. Every time a product is scanned, the system re-counts the stock. “If there’s any shrinkage in the product, it becomes known very quickly,” says Kratochvil. “That’s helped keep our inventory accuracy at a very, very high level.”
Kratochvil credits the pick-to-light technology with enabling Herbalife to improve its operational efficiency. “Herbalife has seen its volume just about double at both DCs since implementing the pick-to-light systems,” he says. Thanks to all of the new technology, the company has been able to handle the increase in volume with 30% less staff and 40% less overtime, and backorders, which Kratochvil describes as “fairly significant several years ago,” are now rarely an issue.
“A distributor who thought he was missing something called me the other day,” says Kratochvil. “He hadn’t had a backorder item or missing shipment for so long that he assumed he was wrong, not we. He said he had looked in the garbage where he’d dumped out his packaging, and there was the item. So we’ve changed an attitude in our company too. There was an expectation at one time that products might be missing, and now if something is missing the distributors think it’s their fault!”
Dana Dubbs is a freelance writer based in Escondido, CA. She can be contacted at firstname.lastname@example.org.
David Kratochvil, chief logistics officer, describes the system that keeps inventory moving through Herbalife’s distribution centers efficiently as a kind of balancing act: “As you increase a particular part of your business, the implications are how quickly you can move that business within the DCs and stay in stock at the same time. That’s a big challenge for us right now. The other big challenge is that we are going more into [offerings] where distributors can order specific items in a program, have automatic refilling, and build particular types of programs or kits.”
Challenging, indeed, considering the company’s current volume — 39,000 orders per month at the Los Angeles DC and 70,000 orders per month at the Memphis DC — and turnaround time. “Our policy is any order placed today should be shipped tomorrow, but our standards are any orders placed by noon are shipped the same day,” says Kratochvil.
Headquarters: Los Angeles, CA
Revenue: $1.8 billion in 2002
Employees: 2,500 worldwide;1,000 U.S.
Independent Distributors: 1 million worldwide; 250,000 U.S.
Phone: (310) 410-9600
Web site: www.herbalife.com
DCs: 59 worldwide; 2 U.S.
Los Angeles DC: 82,000 sq. ft.
Memphis DC: 70,000 sq. ft.
SKUs: 25,000 worldwide; 1,100 U.S.
Volume: Los Angeles DC — 39,000 orders/month, including 11,400 walk-in orders; Memphis DC — 70,000 orders/month
Pick-to-light system: Kingway Material Handling Co., Acworth, GA
Inventory management software: Oracle, Redwood Shores, CA
Forecasting software: Demand Planning Software, St. Louis, MO
Computers: HP, Palo Alto, CA
Pallet racking, flow racks, shelving: Yale/Chase, City of Industry, CA
Conveyor, rollers: Rapistan, Anaheim, CA
Scanners: Symbol Technologies, Holtsville, NY
Labels: Labeltronix, Orange, CA
Cartons: Key Container, South Gate, CA; Peninsula Packaging
Carton fill/packing material: Storopack, Downey, CA