March 24, 2014
strategic insight | Facility Planning and Design

Care in planning yields healthy gains

Care in planning yields healthy gains

UTi Pharma knew its web of DCs could not keep up with business. Careful planning and construction of a new facility led to a healthy boost in productivity and left room for growth.

By Peter Bradley

Any time a resident of South Africa calls on a local pharmacy for a prescription medication, chances are the drug in question passed through a new 32,000-square-meter (344,445-square-foot) distribution center near Johannesburg operated by UTi Pharma, the company that distributes 55 percent of the pharmaceuticals in that country.

The story of how that facility came to be, consolidating several other operations, is a lesson in careful planning and execution. The process was not without hiccups—nothing that large could be—but the initiative has proved a remarkable success for the company.

UTi Pharma is the largest distributor of pharmaceuticals in the nation, managing shipments to 10,000 pharmacies, 400 private hospitals, 2,600 laboratories, 6,800 retailers, 400 wholesalers, 1,900 state-operated facilities, and 840 exporters. In other words, a vast customer base. It handles products on behalf of 41 local and multinational manufacturers of both brand name and generic products, including medical devices and products for human and animal health. That large customer base, along with rapid growth and the strict requirements for handling pharmaceuticals, were proving a challenge for UTi Pharma's existing DC network, leading the company to begin considering significant changes in 2009. The end result was the new DC.

The Meadowview facility, as it is called, is located in Gauteng province near Johannesburg, South Africa's largest city. The DC represents a major step forward for UTi Pharma's operations. The new building replaces eight of the nine DCs the company previously operated in the region. But its importance reaches far beyond consolidating operations. It brings together modern material handling and management techniques that allow compliance with the stringent requirements demanded of pharmaceutical distribution. It provides the company with space to grow over the next 10 years or so. It provides substantially faster throughput rates than the facilities it replaced while reducing manual processes and overall staffing. And it provides greater security than the company could guarantee in its formerly scattered operations, thus reducing shrinkage. Morne van Rensburg, general manager of projects and engineering, expects the remaining facility in the region, a cold-room operation, will be brought under the roof of the new DC by 2017.

Back in 2009, the company, an operating unit of UTi Worldwide, was running a dozen distribution centers, nine of them located in and around the Gauteng region. The fact that the company had so many operations to begin with was a result of UTi's growth, both organic and through acquisitions, says van Rensburg, one of the three primary project managers on the development of the new DC. The company has averaged 13 percent growth every year since 2004.

"We ran out of space," van Rensburg says. "We were running at 95 percent. That meant we couldn't take new clients on. Just looking at generic growth, we would have been out of space by [the end of last year]." Changing business requirements also led UTi to look to develop a more modern and agile operation. The company's expectation was that order profiles were likely to shift, with a changing mix of pallet, unit, and case shipping. It needed an operation that could adapt quickly to changes in customers' demands.

All that led the company to begin the process of revamping its distribution, an undertaking that eventually led to its bringing the operations of eight of those nine DCs under one roof in the new highly automated DC.

But UTi was cautious in making changes, considering other options before making a major capital commitment to a new building. Throughout the process, UTi worked closely with Fortna, an international supply chain consulting firm whose services include distribution center planning. Fortna had long been a partner of UTi's, van Rensburg says.

The objective was to develop a distribution solution that would meet the company's requirements at least through 2025 at the projected growth rates of 13 percent a year, he explains. Sensitivity analysis was completed to understand requirements if growth were limited to 5 percent a year. Those analyses showed the company would require between 38,000 and 50,000 pallet locations by 2025. In addition to meeting growth requirements, the solution would need to provide for greater operational efficiency than the existing operating practices. Included in this were faster throughput, fewer manual processes, lower staff costs, improved security, and "greener" operations. It would have to comply with the most stringent requirements for pharmaceutical DCs demanded by UTi's own clients as well as the World Health Organization, the Medicines Control Council of South Africa, and the South African Pharmacy Council.

The company first considered whether revamping or expanding existing operations would meet its requirements, but it soon determined that would not be feasible. At best, its analysis showed, by taking on an adjacent site at one of the facilities and installing a bulk automated storage and retrieval system (AS/RS), the existing operations could provide just under 30,000 pallet positions—far short of expected requirements. Further, adapting the existing facilities would not provide the flexible order picking systems needed. That led to the decision to explore construction of a greenfield facility—and building the business case to persuade UTi's board that the investment made sense.

As for how big the new facility would be, the initial design concept indicated that a 50,000-square-meter (538,195-square-foot) building would meet UTi's needs. In late 2009, the company began soliciting proposals from construction firms for the building and proposals from three major material handling equipment manufacturers it had worked with in the past for the equipment.

Van Rensburg emphasizes that UTi left it up to the equipment manufacturers to suggest what specific technology would work best. The initial design proposals came back in April 2010. Those proposals provided UTi with options that varied from a very-narrow-aisle operation to a wide-aisle concept to an AS/RS-centric operation. The AS/RS proposal had the lowest staff requirements of the three, would limit access to stock (important for security reasons), could be operated with the lights out in much of the building, and was overall, the lowest-cost solution, and that's what the company selected. The final design included a large bulk AS/RS, a cross-belt sorter, and other technologies.

The property developer broke ground in May 2011, and the facility began operations in October 2012. The old facilities were completely closed by February 2013. One key requirement in the process of shifting operations was to minimize disruption to daily activities. "That was quite interesting and quite stressful," van Rensburg says. "We distribute around 55 percent of all pharmaceuticals in South Africa. We could not disrupt the market." But in the end, the process worked. While there were some disruptions, he says, they were not significant.

Construction delays, though, did lead to one problem that in retrospect, the managers would have handled differently. Adrienne Youell, one of the UTi managers who led the project, explains that the original plan provided for three months of testing before opening the facility. But the construction delays cut into that time. And failure to vacate the facilities the company was leaving would have been costly. That forced UTi into running double shifts to complete the testing, a highly stressful period. "One big lesson we learned is to not make up time from construction delays in your testing phase," she says. Van Rensburg adds that if he had to do it again, he would have absorbed the costs for staying in the existing facilities a while longer.

But those problems are behind the company now. Today, the facility receives and puts away an average of 400 pallets a day. It is central to UTi Pharma's operations around the country, as all products bound either for customers or for other UTi Pharma DCs pass through the Meadowview distribution center. It is at Meadowview where imported goods reside during government-mandated quarantine periods.

The building, which is temperature- and humidity-controlled throughout, is divided into receiving, bulk storage, unit pick, and shipping areas. The 4,220-square-meter (45,424-square-foot) receiving area has a pallet conveyor that flows into the bulk storage AS/RS. Euro pallets, which measure 800 by 1,200 by 120 millimeters (31 by 47 by 5 inches), can go directly into the system. Non-Euro pallets must be repalletized first. The 10-aisle AS/RS has 38,400 pallet locations but is designed to be expanded to as many as 58,000. The unit-picking area adjacent to the AS/RS consists of 11 double-layer carousels feeding seven pick-to-tote stations.

The system uses weight validation in both the receiving and picking processes. In the unit-pick area, workers are offered a single product at a time, further reducing the opportunity for errors, according to Fortna. Compared with the previous operations, manual processes have been cut in half, with the automated processes sharply accelerating throughput. In fact, the pick-to-tote technology increased unit-picking productivity by 342 percent.

The planning and execution of the project may have been arduous, but the results indicate it was a worthwhile endeavor for UTi Pharma, providing the company with an efficient, productive, and secure facility with room to accommodate its continued rapid growth.

About the Author

Peter Bradley
Editor Emeritus
Peter Bradley is an award-winning career journalist with more than three decades of experience in both newspapers and national business magazines. His credentials include seven years as the transportation and supply chain editor at Purchasing Magazine and six years as the chief editor of Logistics Management.

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