In the age of the Internet, where price comparisons are a mouse click away, customer service offerings have become a competitive weapon for many direct-to-consumer businesses. Just look at how Amazon changed the game by offering free shipping.
While it may not receive as much attention, the ability to deliver on customer service is a competitive weapon in the business-to-business space as well. In fact, same-day shipping has been a cornerstone of MSC Industrial Supply Company’s approach to beating the competition for years.
Based in Melville, N.Y., the distributor of industrial supplies to durable goods manufacturers built its market-leading position with a simple promise, explains Doug Jones, executive vice president of global supply chain operations: “We’ll ship your order the same day you place it or send you a cash-back guarantee.”
Jones, who has to sign those cash-back checks, says the service guarantee is a reflection of the company’s commitment to meeting the needs of its customers. A few years ago, however, the combination of rapid growth and changes in the way customers place their orders threatened MSC’s model.
“Nothing was broken,” Jones says. “But as we looked ahead, we could see that we needed to revamp our processes to ensure that MSC’s distribution capabilities would remain a competitive weapon for years to come.”
Working with a systems integrator (Fortna), MSC transitioned from a paper-based, pick-and-pass order fulfillment process to an RF-driven process that picks all of the lines for an order simultaneously and then consolidates them before sending them through an automated packing station.
The new solution included:
- A wave-planning software application developed by MSC to prioritize orders according to variables such as ship time;
- High-speed belt conveyor and narrow-belt sortation to route cartons through the facility;
- Put-to-light technology to consolidate and pack large or over-sized orders; and
- Mobile computing and bar code scanning.
MSC rolled out the solution in phases, starting with its 640,000-square-foot distribution center in Jonestown, Pa. Once a process proved itself in Jonestown, similar changes were made in facilities in Georgia, Indiana and Nevada.
As a result, MSC was able to make two important changes to its operations.
First, the new system reduced the order cycle time, what MSC refers to as its print-to-ship time, from more than 3 hours to about 45 minutes. Print-to-ship measures the time from when an order is released from the warehouse management system (WMS) until it’s ready to go out the door.
Second, that reduced cycle time allowed MSC to offer one order cut-off time for same-day shipping to its customers, no matter where they are located in the country. It also now offers next-day delivery for orders placed before 8 p.m. ET—at no additional cost.
“We were able to lower our cost to serve and exceed our customer service objectives,” says Jones.
Growth and diminishing returns
Today with $2.3 billion in annual sales, the company serves more than 300,000 industrial customers from distribution centers in Jonestown, Atlanta, Elkhart and Reno. Each distribution center is in the 600,000- to 700,000-square-foot size with the ability to scale to more than 1 million square feet.
Customer service has been the cornerstone of MSC’s value proposition since the company was founded in 1941. It published its first catalog and opened its first distribution center in 1964.
There have been many firsts since then: MSC was one of the first distributors to develop a computerized inventory management and order processing system; one of the first to establish a fully integrated quality assurance department; and one of the first to offer one-and two-day UPS delivery.
MSC launched its hallmark same-day shipping guarantee in 1991. When the program was first launched, Jones explains, different regions of the country had different order cut-off times. Some regions, for instance, could place orders up until 8 p.m. ET while others had 1 p.m. ET cut-off times.
While the varying cut-off times could be confusing, especially to national customers with operations in different parts of the country, MSC was able to make good on its promise before the explosion of e-commerce because orders tended to come in steadily throughout the day.
“When most of our customers phoned or faxed orders in, we would get 45% of our volume for the day before lunch,” Jones says.
MSC’s old pick-and-pass order fulfillment system worked fine in that environment. After a call center representative took an order, it would drop to the WMS. Once a paper pick ticket was printed, the fulfillment process would begin when a merchandise selector, as order selectors are called, would get a tote in a 25-foot-high, narrow-aisle bin storage area reserved for slow moving items.
Working on a man-up lift truck, the selector would pick any items stored in this area. Since the average order is three to five line items, the tote was then passed to an induction area for a tri-level picking mezzanine.
The inductors would then route the tote to the first picking zone in the mezzanine where an item was stored. Following a pick, the tote was passed serially to subsequent zones until all the items were picked. After the last pick, the tote was conveyed to the packing area. In all, the process took about three hours.
“The pick-and-pass method served us well for years,” Jones says. However, as more people began to order electronically, several factors put a strain on operations.
First, MSC’s business was growing rapidly. Between 2005 and 2012, for instance, the business more than doubled, going from $1 billion a year to $2.3 billion a year.
Some of that growth was organic, but some was also the result of acquisitions, which led to what Jones describes as “lumpy growth.” An acquisition resulted in a sudden jump in business that had to be absorbed into the system.
More importantly, customer order patterns evolved with the Internet. “Instead of getting 45% of our volume before lunch, we now get 60% to 70% of our volume between 3 p.m. and 6 p.m.,” Jones says. “If you take an order at 4:45 p.m. in a region with a 6 p.m. ship time, that three-hour cycle time is a problem.”
To cope, Jones says, MSC operated with more brawn than brain, adding people to pick zones to keep up with demand. That approach got the orders out the door, but at a cost to productivity.
In 2005, Jones realized his processes needed to change. That year, MSC launched a process improvement program with three goals:
- Increase operational capacity: MSC needed to increase its throughput capacity during peak hours so it could stop throwing more labor at the problem.
- Reduce cycle times: To meet the company’s ship guarantee, it had to reduce cycle times. In turn, that would improve productivity and protect MSC’s service model.
- Maintain quality: Since MSC primarily serves manufacturers who rely on the distributor to keep their lines running, orders not only have to be timely, they have to be accurate. Jones insisted that changes be made with no negative impact on quality or customers.
“We have no tolerance for errors,” Jones says.
From the outset, MSC rejected a Big Bang in favor of a phased-in approach to improvements. Changes were made in four phases over the next few years, starting with Jonestown. The team likened it to waves hitting the beach, one at a time.
The first phase was to replace the paper-based picking system with an RF-driven system. In addition, MSC developed a wave management software application in-house that allowed managers to select and prioritize the orders that were going to be filled. “In our old system, a pick ticket was printed as soon as a new order was received in the warehouse, regardless of when it shipped,” Jones says.
With the wave management system, orders dropped into an electronic queue. A wave planner acts as the quarterback for the system, building a wave of orders based on criteria such as when the orders will ship, which pick zones are over-worked and which are under-worked depending on the time of day.
Instead of printing pick tickets, those orders are now distributed electronically to handheld mobile computers, creating a paperless, eco-friendly environment. Picks are verified by scanning bar code labels.
In phase two, MSC brought in a systems integrator to replace the pick-and-pass picking method with a discrete order picking system. The idea was to not only further reduce cycle times, but streamline the use of labor.
“We used to have 15 people working in the order induction center just to determine how to route totes through the mezzanine,” says Jones. “That was labor with no value-add.”
The system integrator implemented a discrete picking and consolidation system. Instead of picking and passing totes from one pick zone to the next to fill a multi-line order in a series of sequential picks, each line of an order is now picked independently and simultaneously to a tote in whatever zone the item has been stored.
Once a merchandise selector picks an item, affixes a pick label and scans the item into a tote, it is routed by a warehouse control system to a centralized order consolidation area with 256 accumulation lanes.
Once all of the lines for an order have collected in one of the lanes, a light signals an associate to aggregate the items into one tote and convey it to a packing station.
With the new picking process, MSC was able to replace an inefficient roller conveyor system and push diverts with a high-speed belt conveyor. A saw tooth merge combines the incoming conveyor lines into one line that feeds the totes to the order consolidation area. Narrow belt sorters divert shipping containers to the right shipping lane.
In phase three, MSC launched a lean warehousing initiative to optimize its labor force around the new materials handling system.
To round out the project, MSC implemented an automated packing process earlier this year. Today, when a tote arrives at the packing station, an associate verifies the contents of the order and places them in an open top shipping carton.
From there, the automated packing system drops in a packing slip and any other collateral material, adds transport packaging, right-sizes the shipping container and automatically seals a lid on the carton. From there, it is conveyed to a top applicator for the shipping label and then on to the shipping area.
“We started in Jonestown, and then took the new processes to Atlanta, Elkhart and Reno,” Jones says. “We’ve been going building by building.”
The process improvements have been substantial. In addition to reducing cycle times by 75%, MSC has seen a significant improvement in productivity. The 15 inductors, for instance, are now involved in other jobs besides routing totes.
“We have the same number of distribution center associates today to handle more than $2 billion in business as we had in 2005 to handle $1 billion,” says Jones.
Just as important, the new capabilities have enabled MSC to improve on its customer service promise and drive sustainability benefits.
“As a result of the success of the system, we moved our customer cutoff time to 8 p.m. ET throughout the United States,” says Jones. “We could never have done that with a three-hour cycle time.”
Jones adds the other benefit is that it enabled MSC to have a more environmentally responsible solution to packaging—from printing less paper to moving from styrofoam to air pillows, leveraging reusable pallets and more.
“For more than 70 years MSC has prided itself on exceeding our customer expectations and being a responsible corporate citizen,” he says.