For all businesses, growth is a good thing. More sales, more customers, more demand, more revenue. But growth has a funny way of exposing inefficiencies by shining a harsh light on wasteful, entrenched business practices, loosely stitched together by siloed IT systems, that lead to high operational costs and act as roadblocks to real change.
At Dorfman Pacific, a mid-market manufacturer and distributor of headwear and handbags, the business had always been about serving the Mom-and-Pop stores that had constituted the company’s customer base since its inception in 1921. But although the company had kept current with fashion, its warehouse processes had scarcely changed during 86 years in the business. Despite technology’s march, its warehouse processes remained paper-based and relied on the workers’ tacit knowledge of the warehouse and each customer’s needs.
But in the late 1980s and on into the ’90s, a new sales and distribution channel created room for growth: Dorfman Pacific began selling to the big-box retailers such as Wal-Mart, which craved more of the 25,000 items that the company sold. Dorfman Pacific still sold to the small and midsize retailers, but the split between the two was now about half and half.
As the company sought to expand during this period, its modus operandi showed cracks: The paper-based order-picking processes that served Dorfman’s 100,000-square-foot warehouse were too inefficient; the warehouse itself was too small; the use of a temporary workforce and loads of overtime to meet demand peaks meant it incurred huge operational costs; and siloed IT systems offered little computing assistance and inventory visibility. In short, the company’s growth had spotlighted the inefficiencies inherent in the way things had always been done.
“In the environment we had, it was a challenge to actually do a good job,” says Mark Dulle, the IT services director for Dorfman Pacific, who came on board in 2003. “It was stressful and very difficult to maintain any level of quality and get it right.”
Executives at Dorfman Pacific could see the future and knew they faced a challenge in expanding operations using the existing warehouse and technologies. So starting in 2001, top management, most notably CEO Douglass Highsmith, began to push for a big technology-driven change to business as usual. “I don’t want to fight technology. I want to embrace it,” Highsmith says. “We’ve got to constantly improve the technology applications of our company.” A total revamp of Dorfman’s operations, including a complete IT overhaul inside the warehouse, was called for. Paper was out. Wireless was in.
What follows is the story of how one company upended every square foot of its warehouse operations — its interior layout, day-to-day shipping and receiving practices, the equipment workers used and the IT systems enabling it all — and reduced its warehouse labour costs by 30 percent, saving more than CDN$294,000 a year and vanquishing many inefficiencies that had plagued its operations.
But the road to success wasn’t without bumps. “There are things we didn’t do right,” Dulle admits. For one, he says, the project team pushed too far, too fast on the wireless implementation. As a result, the company didn’t meet the initial March 2005 go-live date, which negated the first return on its investment.
What’s most notable (and applicable for other CIOs), however, is what Dorfman Pacific did do right: The business side took full responsibility for the project’s success; a cross-functional project team determined the overall plan, chose the appropriate technology and managed workers’ expectations throughout; and a non-IT sponsor shepherded the entire project. IT was there at every turn but “this was not an IT project. No way,” Dulle emphasizes. “This was strictly a business project.” Which is why, he believes, it was such a success. Here’s how the company did it.
Examine existing processes
Dorfman Pacific’s steady growth in the ’80s and ’90s bolstered its status as one of the world’s largest headwear and handbag companies. (You wouldn’t know it but you’ve probably seen their hats, which are worn by celebrities and featured in People and InStyle.)
Then, in the late ’90s, Highsmith pushed his company to grow even more. Dorfman Pacific took aim at the growing women’s headwear market and what Highsmith calls the resort business — straw hats and other protective headgear worn in summer or at tropical vacation destinations. The company also pursued private-label and specialty work for Orvis and others. Dorfman Pacific had contracted out some manufacturing to cheaper countries in Asia; now it accelerated the process. It still serviced its smaller customers, but now it received orders from much bigger companies that wanted thousands of different items and box types.
To accommodate demand, the company expanded over the years to a 275,000-square-foot warehouse. But the bigger warehouse “wasn’t set up for the growth we had had,” says Dulle. And neither were its processes. Warehouse personnel received a paper order or “pick ticket” from a supervisor for, say, a Scala Western hat, drove a forklift to the bin where they thought it was located and manually picked the boxes off the rack. They brought the items to the packing area, put them in a box, stuck a label on the box and put it on a truck. However, merchandise bins were manually labeled and not easy to read. Workers knew the box types and had a sense of what they held but weren’t always right since items were sometimes mixed together. The route that each worker chose to accomplish his pick work was up to him.
“Picking by order just wasn’t going to cut it anymore,” Dulle says, “but the worst part was that the warehouse was not really set up for anything other than picking processes.”
As the company grew, so did its problems with the old system. Inefficiency reigned. Special orders could wreak havoc, and Dulle says the ERP system, installed by his predecessor, wasn’t much help due to integration challenges with the rest of the systems. When the peak seasons hit in spring and fall, Dorfman Pacific had to hire temporary workers to get the goods out the door, which cost it around CDN$294,000 annually. “We used to have people working on Saturdays and Sundays, and tons of overtime,” Dulle recalls. “That’s where a lot of the costs came in.”
Dorfman Pacific’s warehouse problems are not uncommon in the manufacturing and packaged goods industry. According to Steve Mulaik, director of logistics consultancy The Progress Group, warehouses can get “out of control” because of a reliance on seasonal and temporary labour, high employee turnover or too many inexperienced pickers. In his research, he figures that a novice picker who simply follows a paper pick list can end up with a “pick tour” almost 20 percent longer than one who uses a system that employs wireless technologies, intelligent routing software and handheld devices — the kind of system that Dorfman Pacific thought it needed.
Put everything on the table
The impetus for Dorfman Pacific’s warehouse makeover came from the top. Highsmith had seen wirelessly enabled warehouse management systems and knew he needed something similar to cut labour costs and enable his company’s long-term success. “You could see how much more efficient you could be with the technology,” he says. His vision, along with the guidance of the former vice president of operations and Dulle, provided the spark.
An outside consultant who reported in to Dulle and was embedded with the management team a