ID Innovator of the Year

January, 1997

Dana Tanyeri

A quest for total quality takes Labatt deep into high-tech territory, where information drives all and becomes a pivotal value-added service.

Some companies plod reluctantly into the information age, facing more with fear than charisma an environment in which inability to change, adapt and create meaningful points of difference can spell a corporate death sentence. Not so for Labatt Food Service.

This $230-million San Antonio, Texas-based distributor has embraced technology to bring about dramatic internal improvements and reposition itself as an information-driven competitor. Beginning with the warehouse, both in San Antonio and its Dallas branch, Labatt has applied its in-house MIS expertise to revamp and bring up to state-of-the-art efficiency all operational systems. Information-gathering capabilities gained through radio-frequency (RF) scanning, in particular, are affecting functions ranging from receiving and slotting, to handling of returns, to receiving at the customer level, to warehouse training and compensation strategies.

For the warehouse, Labatt has extended its high-tech reach into accounting, sales, customer service and marketing—indeed, to every nook and cranny in the company—to streamline effort, eliminate waste, improve cash flow, enhance vendor relations, educate employees and customers, and add multimedia sizzle to sales efforts. Technology is creatively applied at every turn. All programs are custom-designed and are constantly tweaked, upgraded and woven together with other in-house systems—and increasingly with customers’ systems—to enable Labatt to provide “mass customization” of data services for its accounts.
Labatt has long taken a strong product-oriented marketing position, billing itself as “the Distributor of National Brands.” That position continues to characterize how it goes to market. But, in the process of embracing technology and continually seeking new and better ways to gather and apply data, Labatt is becoming info centric vs. product centric. It has set itself up to provide what third-generation president Blair Labatt Jr. and general manager Al Silva contend will be the most important value-added service a distributor can provide in the years to come: information.

Labatt’s customer base, traditionally heavy in street business, has taken a sharp turn toward multiunit operations and, a more recent feather in its cap, the military—customers most likely to utilize its sophisticated info-tech capabilities. One of the most successful independents in the industry at selling the prime-vendor concept, Labatt today does more than 80 percent of its sales with prime-vendor accounts services by salaried (plus nominal commission/incentives) multiunit account reps.

WAREHOUSE WIZARDRY
Many of the most impactful changes taking place at Labatt stem from its radio-frequency warehouse management system. In fact, many of the newly created systems were put in place to enable the company to pursue military business, which in just over two years has grown to comprise $50 million in sales. Programs created for military accounts, specifically RF and electronic data interchange (EDI) applications, now bring advantages to other multiunit customers, as well.

Development of the RF software began in 1994. It was relaunched in its current state in September of 1997. At first glance, it’s not radically different from that used by a handful of other distributors. But the level of customization and integration that Labatt has achieved goes will beyond the norm.

“The system objective was two-fold,” notes Bill Neely, one of six in-house MIS experts and primary author of Labatt’s RF system. “First, we wanted to create efficiencies in the ways people work. Second, we wanted to reduce errors and operational expenses by collecting and analyzing data about warehouse activity so that we could develop new systems.” Both objectives have been met. Hand-held scanners and forklift-mounted computers record and continuously update all information on every pallet and direct warehouse management activities using a series of programs that take guesswork and errors out of the equation.

Among the many benefits RF has brought are dramatic reductions in lost pallets and operational credits. “We routinely run less than 1.5 percent and frequently less than 1 percent credits thanks to RF,” Neely says. “That means more satisfied customers, but credits are also expensive to handle in terms of labor and they affect damage rates, inventory turns and forecasting.”

Another benefit is elimination of short-dated product. When pallets are received, either the date received or the use-by date is entered into Labatt’s database. The computer automatically rotates inventory, ensuring that the oldest product is let down and selected first. The system also controls special handling requirements for products that should nev4er be slotted next to or under each other. No judgment calls are required o the part of the forklift driver.

Just-in-time letdown is also made possible. “When a pallet location hits zero, the computer recognizes that and generates a letdown task on the task queue that gets sent to a forklift driver in that zone,” Neely explains. “If it’s a ‘critical letdown,’ meaning product is needed right away, the letdown will happen within 10 minutes. We don’t do a letdown unless we can move a full shrink-wrapped pallet; slots aren’t filled unnecessarily as they used to be. It saves effort and reduces damage.”

All letdowns and critical letdowns are meticulously tracked and that performance is reviewed on a daily basis. “We’re now hitting 90 percent of on-time letdowns,” days Jeff Jubela, operations manager.

The RF system also serves as an invaluable management tool. All realtime activity in the warehouse is visible on the shift manager’s computer screen. It shows every forklift driver available in each area, aisle assignments, and total number of items pending for letdowns. Assignments and reassignments can be made throughout the shift to address problems and keep the work flowing smoothly. The computer also assists by taking average nightly throughput and employee productivity levels and advising the manager how many loaders are needed to select and load the required number of cases each night. Likewise, it tracks every pallet and pallet location in the warehouse by item and by cubic velocity, which aids in maintaining balanced putaways and ensuring even traffic flow during selection.

RX FOR TURNOVER AND PRODUCTIVITY
Employee productivity is also tracked through RF and tied directly into a new compensation system. Weekly productivity rates in key performance categories are posted in the warehouse. Employees reach increasing pay levels by hitting certain goals. Categories measured include shorts, mispulls, damage, total cases pulled and errors per case. Extra income is earned for achieving quality incentives.

“Essentially, the employees control the amount of money they’re able to make,” Jubela says. “Since implementing this system, productivity and quality are up and turnover is way down.”

Another key to reducing warehouse turnover is a sustained, forma5tlized training program. Four top night selectors now function as full-time trainers, assigned to work with the new hires and veterans who may need retraining. If a worker’s productivity or error rates track poorly, he’s assigned a trainer to help get him back up to speed.

Transportation routing systems have been revised as well. “We increased the productivity per driver suing a compensation system similar to that in the warehouse,” Jubela says. “Truck utilization has increased form an average of 500 cases per truck to 900 and the drivers are happy.”

Crossing into sales, data garnered through RF is utilized regularly in formalized customer reviews. Using sophisticated Power Point presentation, Labatt shares detailed purchasing history and service-level data with every multiunit customer on at least a twice-a-year, and often quarterly, basis.

EDI ADVANCES
Indeed, while must of its high-tech innovation started in the warehouse, Labatt has extended it far into other areas. In particular, efforts to provide “mass customization” of service and data for key accounts are taking off.

Central to the concept is EDI via flexible and variable formats, utilizing a combination of Labatt’s traditional “fat,” or fully loaded, on-line order entry package, a “thin,” boiled-down version of the package, customers’ own proprietary software systems and Internet interfaces.

Again, much of the impetus for these efforts started when Labatt went after military accounts. “We are fully automated with the military,” says Tory Rasmussen, manager of military sales.”
We were the first to do the accounting with them. They have a receiving module that routes to the Defense Personnel Support Center in Philadelphia. We send all invoices tot hem electronically. Those that match what their people submitted are paid automatically through electronic funds transfer.”

Programmer Steve Meadows wrote the military interface programs, which include complex, customized order-entry and inventory-control functions that enable Labatt to manage $50 million in sales from five military contracts through a single point. “Their systems are networked to a single mailbox in our system,” Meadows says. “Throughout the day we take information from the mailbox and put it through a series of ‘scrubbings’ to ensure that it meets EDI standards and Labatt program standards. Once it’s into our system, exceptions of flags are noted to that customer service personnel can follow up and make substitutions or reallocations.”

Using similar capabilities, Labatt recently created an efficient, cost-free Internet-based EDI communications method for a commercial chain account. “A lot of development has taken place to interface from our A400 to our FTP server and then to the client’s system,” notes Tony Canty, director of MIS. “Standard EDI transactions require a wide-area network, which costs both the sender and the receiver of the information a fee based on the size of the transaction. Utilizing the Internet, however, is a cost-effective solution for transmitting data.”

Canty explains that customers who have their own internal PO and inventory managements systems often don’t want to use a third-party system for placing orders. “There’s benefit to creating POs within their own system because it can back-feed into their inventory management and accounting programs,” he says. “So we wrote a program by which we ‘front-end’ into their system. All data on pricing and products originates in our system and we pass it into their system. We’re also writing a web screen for their smaller suppliers who don’t have e-commerce capabilities. They enter in their pricing weekly and that data feeds in with all of the other weekly pricing updates form us and any other vendors the account uses. Orders to other distributors get channeled through to them. Everything is centralized and very secure.”

Because this customer’s software is PC-based, it is not EDI-capable. “They needed a way to get the order to us easily and seamlessly by their managers with very little manual intervention,” adds Gary Beadle, a systems an analyst who helped write the program. “They wanted to upload their POs to our FTP server (a.k.a. web server, the standard protocol for Internet file transfers) so now the manager simply creates the order and clicks to pick up a script file that’s used within the application on their PC to send the order to our FPT server. They receive a “file transfer successful” message. From that point, it hits our web server. Every 15 minutes, all orders sent to our web server are forwarded to our A400. During that process, confirmation goes back to the manager. We’ve also built flags into the program to help managers and our sales people catch order-entry mistakes.”

Through its Internet interface, information for specific accounts can be customized. Managers can select reports by store or by vendor, for specific date ranges. “We ask customers what information they want, how often they want it, when they want it and how they want it formatted. Then they’re able to go in and pull it out. And it can be totally different for every customer,” Canty says. Labatt also provides a CD-ROM disk containing all relevant information on a weekly basis. Included on the CD are copies of original invoices which Labatt scans in so the customer has a copy on file for immediate reference should questions arise.

A “thin,” boiled down order-entry application package was also written for customers who use the Internet to create their own orders vs. a separate proprietary software program. “It shows only the items they buy, the current price and last week’s price, and their purchase history,” Canty says. “They just key in quantities, submit the order and receive confirmation.”

PICTURE-PERFECT ACCOUNTING
The document-imaging technology (DIT) used to scan invoices for order-history CD-ROM disks has found broad application at Labatt. Over the past two years, in conjunction with complete reengineering of accounting systems, DIT has helped the company become virtually paperless. Several clerical positions have been eliminated, as has the need for an executive-level finance staff, according to Labatt. The benefits of having DIT include live on-line information. At the touch of a button, with plenty of built-in checks and balances, receivables and payables can be verified and processed almost immediately.

“If there’s a question about an invoice, all we have to do is pop up a window on the screen and we can see the actual original invoice that was scanned in,” Beadle says. “We can highlight on the signature, tell the customer who signed for it, and we can fax a copy directly through the network to the operator. There’s no getting up from the desk and rummaging through file cabinets and getting back to the customer days later. It’s all data that’s available on-line the very next day.” Faster response time has gained Labatt an average of two days on accounts receiveables. Faster processing up-front has gained a day on bank deposits. “We're not able to get each day's checks to the bank by 9 a.m., which gains us a full day on our cash flow," Beadle says. "We estimate annual savings of $50,000 to $60,000 a year from that alone."