Automated warehouse reduces order errors

Cardinal Health Inc.’s warehouse automation project was big, but then, so is the company.

Dublin, Ohio-based Cardinal employs more than 50,000 people and has revenue of more than US$44 billion, and its catalogues have hundreds of thousands of products. The company supplies medical equipment to hospitals and doctors worldwide through the warehouses operated by its Medical Products and Services group.

Before the automation project began in 1997, customer order accuracy was estimated to be 99 percent — a solid figure. But that level of accuracy still meant that there could be as many as 10,000 errors per million shipments. The company’s paper-based system didn’t allow precise measures. “There weren’t a lot of ways to measure defects, productivity,” says Richard Gius, Cardinal’s senior vice president for IT.

That changed with the Automated Inventory Management System (AIMS) project, part of a $100 million redesign of systems throughout Cardinal. A key goal was flexibility.

“We wanted the architecture to be designed in a way that would allow us to continually upgrade the code,” says Larry Linden, vice president of distribution and research and development at Cardinal. The plan was to create a “living system” that would help the company avoid having to do a massive upgrade in 10 years or so.

The distributed system, which cost $2.4 million in software, used application systems developed with contractor Witron Integrated Logistics Corp. in Arlington Heights, Ill.

The system flexibility is achieved through a design that allows the addition of modules, such as a proof-of-delivery electronic signature system, to be added after installation. The system tracks products at every point, and even manages the “footsteps” of warehouse employees to maximize their effort. With radio-connected handheld units and bar code scanners, managers can know the precise status of orders.

Productivity improved by 10 percent, and errors at some warehouses dropped down to a few hundred (in some cases, to none) for periods of several months. Cardinal uses AIMS in 57 warehouses and will continue to deploy it as new facilities are added.

Matt Bilodeau, an analyst at AMR Research Inc. in Boston, says the error-rate reduction achieved by Cardinal is impressive. Cardinal is using some robotic automation in a few warehouses. But Bilodeau and Steve Banker, an analyst at ARC Advisory Group Inc. in Dedham, Mass., warn that some companies that automate their warehouse systems may not necessarily get good returns on their investments.

Gius, Linden and Ed Michalski, Cardinal’s IT director, are happy with what they’ve achieved, but they say some of the credit should go to the company’s IT leaders of years past. The Medical Products and Services group that oversaw this project was once American Hospital Supply Corp., a forward-looking company that developed the precursors of the company’s current e-commerce systems, says Gius. He credits the work of his predecessors for inspiring Cardinal’s efforts. “In many respects, we are stewards of this legacy,” he says.