Not Small Change

Many companies will raise the price of goods at retail to accommodate rising costs. But if you’re a deep-discount retailer such as 99¢ Only Stores, every penny really counts. So, faced with rising operational costs, how does the company manage to keep its prices rock-bottom?

“Whenever possible, we try to avoid passing our costs on to the customer,” says Don Arter, vice president of fresh food dstribution for the City of Commerce, CA-based retailer. “So we needed to work smarter in our warehouse.”

99¢ Only Stores offers name-brand merchandise from companies such as Kraft, Del Monte, Johnson & Johnson, Frito Lay and Kellogg’s, as well as private label products. While the stores offer a broad selection of merchandise—health and beauty care, housewares, hardware and seasonal goods—food and beverages, including produce, dairy, deli and frozen foods, along with organic and gourmet foods, account for 54 percent of sales.

The company was founded in 1982 and operates 208 stores in California, 34 in Texas, 26 in Arizona and 12 in Nevada. The stores, which are serviced by five distribution centers and two refrigerated warehouses, average 21,300 square feet. Sales are impressive—stores generate $289 in sales per square foot and the average store does $4.8 million per year in business, which the retailer claims is the highest in the dollar store industry. Total sales for 2010 were $1.36 billion.

The operations at its Commerce distribution center—a 66,000-square-foot refrigerated facility—are also impressive. The warehouse supplies refrigerated product to more than 250 stores and processes more than 150,000 cases in and out each day from 11 dock doors that service inbound and outbound fulfillment and a 25-foot wide refrigerated dock.

The DC receives and ships a total of 160 inbound and outbound trailers daily through those doors. Despite such tight quarters, the team at the Commerce facility has seen a double-digit increase in productivity in this past year while exceeding goals of 99.7 percent and 99.8 percent in daily fill rates and load ready times respectively.

While technology plays a role in these achievements, most of the results can be attributed to teamwork. Arter, a 20-year industry veteran whose previous stints include operations manager at Wal-Mart and in/outbound manager at Walgreens, joined 99¢ Only Stores in 2003. Since he’s come on board, Arter and his team have figured out ways to maximize the space at the facility and improve productivity.

For these commendable efforts, the Commerce facility for 99¢ Only Stores has been named the winner of Food Logistics’ Golden Pallet Award in the small distribution center category. The Golden Pallet Awards recognize excellence in warehousing.

Handling A Dynamic Product Assortment

While this low price points attract its customers, 99¢ Only Stores says its stores provide a “fun treasure-hunt shopping experience” that keeps shoppers coming back for more. This includes offering excellent values on a wide selection of quality food and basic household items and an exciting assortment of “wow” items.

One of the biggest challenges in the deep-discount business, however, is that you never know what’s coming next. While 99¢ Only Stores does purchase re-orderable merchandise on a number of SKUs, a significant amount of product is purchased through closeouts and manufacturer overruns at substantially below normal wholesale costs, so the product mix is comprised of a frequently-changing selection of brands and items.

Close-out merchandise becomes available for any number of reasons including a line being discontinued, a change in formulation or packaging, the reduction of excess seasonal inventory or an over-production.

Whatever the reason, the warehouse has to be ready to receive and quickly turn that product. “We’re opportunistic buyers, so we need flexibility on item receipt and how to flow that inventory through the warehouse,” says Arter. “For example, we might get a frozen dessert from a top notch vendor like Sara Lee the week before Christmas, because there’s an overstock, and we’ll buy 20 truckloads of it. It was totally unplanned, but it’s on the schedule the next day.”

Arter says produce is the biggest challenge because of the fast turn-around time. The company carries a large—and continually changing—variety of seasonal fruits and vegetables. “We used to hold more inventory in produce but now we’ve gone to just-in-time. Everything that comes in during the day goes out that same night,” he says.

To keep track of this dynamic product mix, 99¢ Only Stores is using a warehouse management system (WMS) from HighJump Software, Eden Prairie, MN. When it comes to technology investments, many dollar stores trail behind most other industries, but 99¢ Only Stores is one of the exceptions—the company has invested in a variety of IT solutions that are giving it a big edge over its competitors.

HighJump’s Warehouse Advantage WMS accommodates the company’s unique flexibility requirements in supporting all of the activities that occur from the time the product enters the warehouse until it leaves. The system is integrated with a voice-recognition solution from Voxware that delivers work instructions to the order selectors.

“The WMS allow us to make changes on the fly—something that’s essential in this type of business,” says Arter.

Making It Work

The Commerce facility operates 24 hours a day, seven days a week. It has two shifts, with 30 employees working the first shift (receiving) and about 120 employees on the second shift (selecting, quality control and shipping). It carries an average of 285 refrigerated SKUs and 156 frozen SKUs, and is segregated into three temperature-controlled sections for perishable, refrigerated and frozen products.

The warehouse carries everything from frozen dinners and ice cream to dairy and deli products, as well as produce.

To maximize productivity and increase throughput throughout the operations, Arter and his team incorporated a number of rack and operational changes within the facility.

The first step was to invest in material handling equipment. “Because the building was small and our pick density is so high, our employees used manual jacks. We purchased more than 40 electric walkie pallet jacks which improved our selection productivity,” says Arter. “Plus, the increased productivity helped to reduce the number of selectors.”

Then, the company took a look at the warehouse itself, starting with the racking. “The whole building was racked,” says Arter. “We took out some of the racking in order to increase the staging area for the outbound load, improving congestion and product flow to shipping.”

Next, the company worked on making improvements in its shipping and receiving operations. “We started with receiving because we only have 11 dock doors and we get anywhere from 60 to 70 inbound trucks a day,” says Arter. “We were splitting the day into two 12-hour shifts. We realized that if we closed the window on our inbound schedule, it would enable us to lengthen our outbound window, alleviating congestion on the loading dock.”

99¢ Only Stores was able to shorten its receiving window by two hours, allowing it to get more store delivery waves through the building.

Arter also worked with the company’s industrial engineering team to locate a bottleneck in its operations. “Our industrial engineering staff assimilated all the projected production numbers into a timeline in order to improve the product flow through the building,” says Arter. “Our loading dock is 25 feet wide and there are structural limitations that restrict the flow into it, which forced us to enlarge the aisles to access the back space more efficiently.”

Finally, 99¢ Only Stores’ continuous improvement team reconfigured slotting sequences in the entire warehouse. “The team’s suggestions on moving and expanding our staging area for our product helped us avoid rehandling merchandise—especially the fruits and vegetables, improving our productivity,” says Arter.

99¢ Only Stores operates its own fleet of 60 refrigerated trailers, servicing approximately 115 stores a day in a 200-mile radius and uses third-party providers for the long hauls. It recently installed DRTrack, a transportation management system (TMS) from Appian Logistics, Oklahoma City, OK. The solution provides the center with web reporting, GPS tracking and account information. “We’ve seen huge improvements with this solution,” says Arter. “Not only are we saving money by more efficiently cubing each truck, but now we can maximize the store’s co-loads, reducing the overall delivery expense.”

Safety Is No Accident

Another area in which 99¢ Only Stores shines is in employee safety—the company has worked more than 450 days and counting without a lost time accident at this facility “After a couple of months where we had no accidents, we put up a digital scoreboard to keep score of consecutive safe work days,” says Arter. “Our employees are proud of our safety record—and the enthusiasm has been contagious.”

Arter credits increased training for the company’s safety record. “We tell our employees that when they see somebody doing something that’s not safe to address it right away,” he says. Having a very low turnover and a committed workforce is also a plus.

In recent years, the company has put forth more management and operations training, and established a set of core values that the company’s founder established the company on back in 1982. Arter says these efforts have really paid off. “Everybody, from the CEO and President down, is involved in the operation. Our management team stays close to our employees and make sure they have the tools they need to succeed.”

While the company continues to expand by adding new stores, Arter and his team will be right there to make sure the warehouse will be able to meet new demands.

“That’s the excitement of this business—it can drastically change in one phone call,” says Arter.

 

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