As product flows, so grows Ace

WILTON, N.Y. —When a visitor walks around the 800,000-square-foot distribution center here, just north of Albany, he is struck by three things: the mind-numbing geometry of hundreds of parallel racks; the spic-and-span cleanliness of the floor; and the whirring, beeping action of battery-powered fork lifts.

To Frank Nesbitt, it’s just another day at the office.

“We’ll receive freight all day through door one through door 40,” said Nesbitt, warehouse manager for the Wilton Retail Support Center. “The idea is to touch the product in the fewest number of times possible and send it out the back.”

In the back there are 40 additional doors. And in between, at any given moment, is about $45 million to $47 million in inventory. But that inventory is just visiting. To help outsiders understand the facility, one of 14 Retail Service Centers around the country, Nesbitt makes a clear distinction: “It’s not a warehouse; it’s a distribution center.”

There are more than 60,000 skus under one roof. From the floor of the RSC, one has a clear view of product trends throughout Ace’s Northeast empire from Maine to New Jersey. For instance, paper towels blow through the doors. (“It’s as if they’re being given away for free,” Nesbitt said.) Weber grills, according to the Wilton team, seem to move at a very high rate. A more recent trend noticeable this year: pellet stoves and the pellets to fuel them, as Northeast Retailers react to customer demand for alternative home heating sources. And the biggest sellers in the RSC are five-gallon containers of USG joint compound. The product has its own custom racking system to expedite the flow out the doors.

Nesbitt and his colleagues in the Wilton RSC describe their business in basic terms—moving product, loading trucks, packing efficiently. “It’s not rocket science,” said Nesbitt. However, managing the massive facility in the most efficient manner possible brings increasingly complicated challenges that are being met by increasingly powerful technology.

At the helm of the co-op’s supply chain transformation project is Dan Prochaska, vp-supply chain for Ace Hardware. The 13-year Ace veteran describes the project as a multi-year $50 million investment in order management, purchasing data management, replenishment, forecasting and warehouse management systems.

The transformation of the co-op’s supply chain is based on the simple need to keep up with the times and build for the future. For instance, When Ace Retailers in recent years began purchasing more bulky patio furniture and outdoor living products, Ace saw a dramatic increase in the cubic requirements to move the product efficiently. “Our systems were challenged,” he said. “We wanted to minimize the disruption of seasonal surge happening in our DCs, and we really couldn’t do that with our home-grown systems.”

In the beginning of 2008, the company rolled out its SAP supply chain infrastructure, and has since shipped more than 60 million lines on SAP “with virtually no disruption to our retailers.” Later this year or the beginning of 2009, the company will implement demand forecasting through JDA and its recently purchased tech firms Manugistics and i2, one of the niche leaders in supply chain management.

The entire corporate process has been a long time in the works, beginning with strategy meetings in 2005.

In 2007, the company revealed a $150 million accounting error, described as a discrepancy in the company’s general ledger inventory balances compared to those of its perpetual inventory records. Prochaska said the initiative and the SAP rollout were in the works long before the error was discovered, but the tools will help prevent future discrepancies.

“Processes and tools are only one part of it, people are what makes the difference,” he said. “I think we’ve learned a lot of things organizationally with in the company about that, but certainly the tools will help us now.”

The transformation is expected to help handle the disruptions caused by damaging weather events, such as Fay. Another goal: to improve the flow of products around the world.

Distribution, historically, is the name of the game for Ace Hardware, and Prochaska describes that as a core mission: “To supply quality product to them on time, at the right price—and that’s never changed.”

He said the retail members are in support with the investment on the wholesale side of the business. “I have not had a negative comment, not even on a bulletin board, about the supply chain initiative,” he said.

The timing of the supply chain transformation coincides with a rise in fuel costs that is changing the game for logistics professionals. “The fact of the matter is higher fuel prices are here to stay, and it’s just really a matter of degree. We really had to retool our supply chain, and not just Ace. Everyone in the American side of retail in distribution and manufacturing is affected,” Prochaska said.

In addition to installing governors on trucks to limit speeds to 67 miles per hour or lower—a move that has saved about $1 million this year, according to Prochaska—the co-op is reaching out to members to determine optimum delivery schedule s. It’s also trying to optimize freight, by packing efficiently and delivering efficiently.

This last strategy brings the story back to Wilton, N.Y., where warehouse manager Nesbitt describes the process of loading outbound trucks as “a giant puzzle” where the size of product and its final destination are taken in to consideration through the automated loading process. To help fit the puzzle into place, the RSC makes wide use of Optipacs—large totes about the size of a baby’s crib—that stack on top of one another in a way that maximizes the area in the back of a truck and allow for ease of unloading at the store.

For Nesbitt, the metrics that matter are efficiency, including accuracy of delivery, payroll, safety and maintenance. All of those disciplines affect the cost.

“What’s it cost you to run the building as a percent age of sales,” said Nesbitt. “That’s what we look at.”

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