SRJ Logistics Services 1 SRJ Logistics The quality of our performance has improved significantly, but stores continue to complain about our deliveries, said John Smith, general manager of the Springfield Warehousing and Distribution Center (WDC) run by SRJ Logistics Services. Smith looked at the customer satisfaction survey for the fourth quarter of the previous year. At this point, it is becoming increasingly difficult for us to make further improvements. We need a detailed plan of action regarding what to do next. Robin, I would like to see an initial plan from you in the next couple of months. Why dont you begin by looking at the receiving function? Robin Marsh, quality manager at the WDC, nodded her head. Background Founded in 1989, SRJ Logistics Services (SRJLS) was a wholly owned subsidiary of SRJ and Co., a large national retail chain. Prior to 1989, SRJ handled its own logistics functions, including warehousing and transportation. In 1989, SRJLS was spun off as a separate company with the sole objective of providing logistics services. Initially, all of SRJLSs business came from SRJ. At present, only 85 percent of SRJLSs business came from the parent company, and SRJLS was actively seeking business outside of SRJ. Although SRJLS had plans for growth, it wanted to stay in the business of providing logistics services to retail chains. SRJ operated a network of seven warehousing and distribution centers for SRJ and Co. Each WDC was assigned a region in which it served all SRJ stores. Each WDC typically stocked all items needed by stores in the region it served. Company buyers at SRJ placed orders for merchandise with suppliers. These orders were based on forecasted demand at retail stores and were delivered to the WDCs where they were received and held in storage. When stores ran out of a product, store managers placed replenishment orders for merchandise at the WDC. If the product was available, the order was picked at the WDC and delivered to the stores. The stores primarily cared about orders being delivered in the right quantity at the right time. The Springfield WDC The Springfield WDC served a total of 194 stores. The 194 stores were divided into three categories (A, B, and C) by decreasing order of size. There were 57 A stores, 75 B stores, and 62 C stores. A total of 12,539 items were stocked at Springfield. The majority of these items were referred to as breakpack items (9,944 in total), with the rest being full-case items. For breakpack items, such as answering machines or telephones, SRJLS received cases of a certain size from its suppliers. Stores were allowed to place orders for quantities less than a full case because SRJLS broke open the cases and shipped items to the stores in smaller quantities. Thus, it was not unusual to have partial case of breakpack items in storage. For full-case items, stores were required to order at least a case. For these items, SRJLS only needed to handle cases and did not break them into smaller units. The WDC at Springfield had a total area of 1.1 million square feet and was divided into six modules (see Exhibit 1). Breakpack items were stored in Module 1, while full-case items were stored in Module 3. The other modules were used for sorting and the staging area. On average, Springfield had an inventory worth $46 million, which corresponded to about a one-month demand from stores in the region. SRJ Logistics Services 2 Smith was hired as the general manager at the Springfield WDC in January of the previous year. A portion of his bonus was based on a quarterly survey of store managers taken by SRJLS management. The last survey prior to Smiths arrival indicated that store managers were very dissatisfied with the performance of the Springfield WDC. Springfield was a poor performer and ranked last within the SRJLS network. Customers (retail store managers) complained that orders were late and not delivered in the right quantity. Upon arriving, Smith focused his attention on service quality at the WDC. Smith quickly realized that no performance data was available within the Springfield WDC. In fact, none of the process were well defined. He had to put an entire quality program in place and appointed Robin Marsh as Quality Manager. Marsh had spent considerable time at Springfield and was knowledgeable about the processes and problems. As a first step, Marsh and Smith identified receiving, inventory, storage, order filling, and shipping as the four key processes at Springfield. Receiving referred to the process of receiving deliveries from supplier and putting them into storage at the WDC. Inventory storage referred to the process of storing products at the WDC. Order filling referred to the process of receiving a store order and, picking required items from storage, and loading the delivery truck. Shipping referred to the process of transporting the store order from the WBC and delivering it to the store. These four processes were identified as key because any error in these processes impacted Springfields ability to supply a store order on time and in the right quantity. An error in receiving or inventory storage could result in an improper quantity of a particular product showing up in the inventory system. As a result, the WDC could promise delivery to a store from stock, even though the item was out of stock. This error would be detected when the WDC tried to fill the order and found they could not. This would cause the delivery to the store to be late. Smiths objective was to manage the four processes in the warehouse in such a way that store orders could be delivered in the right quantity at the right time. By June, detailed process flow maps were constructed for each of the four processes (See Exhibit 2 for receiving) and key objectives were identified for each process. To identify the objectives, Marsh and Smith took into account store requirements in terms of delivery accuracy. The process mapping and objective identification was done in coordination with the personnel involved with each process. The operators were expected to follow procedures as describe in the process flow maps. The hope was that with more clearly defined processes, performance would improve. To further motivate personnel, custom survey results for all WDCs were posted all over the warehouse. Smith hoped that employees would be motivated to avoid being at the bottom of the list and encouraged to follow the process more carefully, resulting in better performance. These actions bore fruit, and Springfield moved up to third place by the fourth quarter. Unfortunately, on an absolute scale, performance was still quite bad with several dissatisfied store managers. Smith needed an approach to take quality to the next level. He had heard of Statistical Process Control (SPC) and wanted to use the methodology to improve process performance at Springfield. SPC had traditionally been used in manufacturing settings for measurable variables such as the thickness of a plate. In a warehouse setting, it was hard to define how wrong a process had been but easy to classify the outcome as being defective or not. Therefore, Smith and SRJ Logistics Services 3 Marsh decided to measure whether the different stages of a process had been defective or not. The initial focus was on the receiving process. The Receiving Process The receiving flowchart (see Exhibit 2) is an overview of all the tasks necessary to receive a vendor shipment into the WDC. The members were: A guard who began the receiving process by checking trailer loads into the WDC yard A receiving officer who prepared the receiving packet and keyed received quantities into the inventory system A yard driver who positioned drop trailers in the proper dock door and removed released trailers to the carrier pickup area An unloader who removed the trailer and palletized the product A slotter who performed detailed receiving duties (to ensure proper PO, quantity count, etc.), assigned inbound pallets to stocking locations, and also performed vendor compliance audits. A putaway driver who moved received palletized product from the receiving area to the assigned stocking location. Detailed Data Collection The Springfield warehouse performed about 8,000 transactions in receiving on a daily basis. To prepare SPC charts, Marsh decided to analyze 800 transactions daily for the next 45 days. A sample size of 800 transactions was selected to ensure that most days had at least three or more transactions that were defective. It would be impossible to construct SPC charts if most samples had no defective transaction. After talking to experienced people involved in the receiving process, Marsh used fishbone diagrams to identify the following five sources of error that were likely to occur: Slotter: Errors in any of the slotter functions Keying: Errors in receiving officer keying quantities into the inventory system Letdown: Errors in any of the unloader functions ITR ADJ: Errors in receiving packet prepared by receiving officer Putaway: Errors in putting the pallet/stack in the wrong location All errors that could not be assigned one of these five categories were group as other. Marsh also decided to separate the performance data for Modules 1 (breakpack) and 3 (full case). After 45 days, Marsh had plenty of data to look at (See Exhibits 3, 4, and 5). She still was not sure how to best organize it and prepare a plan for action. SRJ Logistics Services 5 Exhibit 1: Layout of Springfield WDC (1728 x 576) Office Area Module 3 Module 1 Exhibit 2: Process Flowchart: SJR Logistics Services, Receiving Guard Receiving Office Yard Driver Unloader Slotter Putaway Truck arrives at gate Check in trailer Assign trailer to receiving location Deliver papers to office Prepare receiving packet Enter completed receipt to system Enter slotting reassignments to system File receiving packet Position trailer to dock door Unload trailer Sort cartons by item Build Pallets by item Stage pallets in receiving apron Match items received to PO Count quantity received Compare quantity to delivery manifest Assign pallet to stocking location Put pallet/stack in assigned location Return unslotted pallets to manager Shipping Area Receiving Area Return empty pallets to unloading area Live Load? Floor Stack? Y Y N N Complete receiving packet SRJ Logistics Services 6 Exhibit 3: Overall Performance of Receiving process Date Slotter Errors Keying Errors Letdown Errors ITR ADJ Errors Putaway Errors Other Errors Total Errors Total Slots Checked 6/1 4 1 1 1 0 3 10 800 6/2 11 2 1 2 2 7 25 800 6/3 11 2 0 2 4 4 23 800 6/4 6 6 0 0 2 11 25 800 6/5 6 0 0 1 3 4 14 800 6/6 19 0 0 0 1 5 25 800 6/7 11 0 0 0 2 2 15 800 6/8 3 1 2 0 1 16 23 800 6/9 3 0 3 0 1 3 10 800 6/10 3 0 3 0 0 5 11 800 6/11 5 0 3 0 0 7 15 800 6/12 0 1 1 0 1 22 25 800 6/13 4 1 3 0 4 5 17 800 6/14 2 0 2 0 0 19 23 800 6/15 0 2 2 0 0 1 5 800 6/16 2 2 0 0 1 0 5 800 6/17 4 0 1 0 2 0 7 800 6/18 3 1 4 2 0 0 10 800 6/19 4 0 3 0 2 1 10 800 6/20 7 2 2 0 3 3 17 800 6/21 13 0 2 0 1 9 25 800 6/22 7 0 2 0 2 5 16 800 6/23 4 0 4 0 1 6 15 800 6/24 7 0 0 0 2 7 16 800 6/25 2 0 1 0 4 2 9 800 6/26 2 0 1 0 4 1 8 800 6/27 2 0 2 0 0 8 12 800 6/28 8 1 1 0 0 6 16 800 6/29 7 1 1 0 0 7 16 800 6/30 1 1 1 0 1 4 8 800 7/1 10 0 2 0 1 8 21 800 7/2 7 0 2 0 2 4 15 800 7/3 4 0 1 0 6 1 12 800 7/4 6 0 2 0 1 1 10 800 7/5 3 0 1 0 0 2 6 800 7/6 0 2 2 0 0 1 5 800 7/7 1 0 5 0 0 19 25 800 7/8 5 0 2 0 0 3 10 800 7/9 5 2 2 0 1 6 16 800 7/10 6 0 0 0 1 2 9 800 7/11 9 0 3 0 0 8 20 800 7/12 9 0 3 0 0 8 20 800 7/13 4 0 2 0 5 0 11 800 7/14 0 0 3 0 8 1 12 800 7/15 0 0 2 0 0 5 7 800 Total 230 28 78 8 69 242 655 36000 SRJ Logistics Services 7 Exhibit 4: Module 1 Performance Date Slotter Errors Keying Errors Letdown Errors ITR ADJ Errors Putaway Errors Other Errors Total Errors Total Slots Checked 6/1 1 0 1 0 0 0 2 400 6/2 10 2 1 2 1 1 17 400 6/3 9 1 0 2 4 2 18 400 6/4 6 6 0 0 2 7 21 400 6/5 3 0 0 1 3 0 7 400 6/6 1 0 0 0 0 1 2 400 6/7 7 0 0 0 1 2 10 400 6/8 1 1 2 0 1 16 21 400 6/9 3 0 3 0 1 1 8 400 6/10 3 0 3 0 0 3 9 400 6/11 5 0 3 0 0 3 11 400 6/12 0 1 1 0 1 21 24 400 6/13 4 1 3 0 3 5 16 400 6/14 2 0 2 0 0 0 4 400 6/15 0 2 2 0 0 1 5 400 6/16 2 2 0 0 0 0 4 400 6/17 1 0 1 0 1 0 3 400 6/18 3 1 4 2 0 0 10 400 6/19 3 0 3 0 2 1 9 400 6/20 7 2 2 0 2 2 15 400 6/21 13 0 2 0 0 8 23 400 6/22 7 0 2 0 2 1 12 400 6/23 4 0 4 0 1 4 13 400 6/24 5 0 0 0 1 5 11 400 6/25 2 0 1 0 4 2 9 400 6/26 1 0 1 0 3 1 6 400 6/27 2 0 2 0 0 5 9 400 6/28 6 0 1 0 0 4 11 400 6/29 5 0 1 0 0 5 11 400 6/30 1 0 1 0 0 4 6 400 7/1 8 0 2 0 1 7 18 400 7/2 7 0 2 0 2 4 15 400 7/3 2 0 1 0 6 1 10 400 7/4 4 0 2 0 1 1 8 400 7/5 2 0 1 0 0 1 4 400 7/6 0 2 2 0 0 0 4 400 7/7 0 0 5 0 0 15 20 400 7/8 2 0 2 0 0 3 7 400 7/9 3 2 1 0 0 2 8 400 7/10 3 0 0 0 1 2 6 400 7/11 7 0 3 0 0 8 18 400 7/12 7 0 3 0 0 8 18 400 7/13 2 0 2 0 5 0 9 400 7/14 0 0 3 0 8 0 11 400 7/15 0 0 2 0 0 1 3 400 Total 164 23 77 7 57 158 486 18000 SRJ Logistics Services 8 Exhibit 5: Module 3 Performance Date Slotter Errors Keying Errors Letdown Errors ITR ADJ Errors Putaway Errors Other Errors Total Errors Total Slots Checked 6/1 3 1 0 1 0 3 8 400 6/2 1 0 0 0 1 6 8 400 6/3 2 1 0 0 0 2 5 400 6/4 0 0 0 0 0 4 4 400 6/5 3 0 0 0 0 4 7 400 6/6 18 0 0 0 1 4 23 400 6/7 4 0 0 0 1 0 5 400 6/8 2 0 0 0 0 0 2 400 6/9 0 0 0 0 0 2 2 400 6/10 0 0 0 0 0 2 2 400 6/11 0 0 0 0 0 4 4 400 6/12 0 0 0 0 0 1 1 400 6/13 0 0 0 0 1 0 1 400 6/14 0 0 0 0 0 19 19 400 6/15 0 0 0 0 0 0 0 400 6/16 0 0 0 0 1 0 1 400 6/17 3 0 0 0 1 0 4 400 6/18 0 0 0 0 0 0 0 400 6/19 1 0 0 0 0 0 1 400 6/20 0 0 0 0 1 1 2 400 6/21 0 0 0 0 1 1 2 400 6/22 0 0 0 0 0 4 4 400 6/23 0 0 0 0 0 2 2 400 6/24 2 0 0 0 1 2 5 400 6/25 0 0 0 0 0 0 0 400 6/26 1 0 0 0 1 0 2 400 6/27 0 0 0 0 0 3 3 400 6/28 2 1 0 0 0 2 5 400 6/29 2 1 0 0 0 2 5 400 6/30 0 1 0 0 1 0 2 400 7/1 2 0 0 0 0 1 3 400 7/2 0 0 0 0 0 0 0 400 7/3 2 0 0 0 0 0 2 400 7/4 2 0 0 0 0 0 2 400 7/5 1 0 0 0 0 1 2 400 7/6 0 0 0 0 0 1 1 400 7/7 1 0 0 0 0 4 5 400 7/8 3 0 0 0 0 0 3 400 7/9 2 0 1 0 1 4 8 400 7/10 3 0 0 0 0 0 3 400 7/11 2 0 0 0 0 0 2 400 7/12 2 0 0 0 0 0 2 400 7/13 2 0 0 0 0 0 2 400 7/14 0 0 0 0 0 1 1 400 7/15 0 0 0 0 0 4 4 400 Total 66 5 1 1 12 84 169 18000 SRJ Logistics Service

SRJ Logistics Services 4 Discussion Questions

1) Help Marsh organize the data by preparing a run chart.

2) Prepare appropriate process control charts to see if the process is in control. Is the receiving process in or out of control?

a. Process control charts should reflect the control limits as well as the spec limits.

b. Question 3 helps you identify the spec limits

3) Customer service requirements determine that receiving process errors should never exceed 2 percent on any given day. What percentage of the days is likely to exceed 2 percent error, given the current performance of receiving? Assume a total of 8,000 transactions per day, 4,000 in each module.

4) Prioritize the set of actions you would take to ensure that more than 99 percent of the days have less than 2 percent receiving process error.

5) Can you think of a continuous improvement framework that Marsh can use as an engine to improve performance in the receiving process and other processes at Springfield?