For whom the belt rolls
Conveyors originally built for defunct online grocer Webvan now serve a new master: a large pharmaceutical company.
More than two years after the dot-com crash, equipment worth millions sits abandoned in closed warehouses. That may be a nightmare for creditors, but it's proving to be a bonanza for bargain hunters. Among those beneficiaries of the dot-com boom—or more precisely, the dot-com bust—is Henry Schein Inc., a $3 billion distributor of dental, medical and veterinary products. When the company built its new distribution center in Jacksonville, Fla., it was able to scoop up used conveyor equipment from a defunct online grocer for pennies on the dollar.
The conveyors and components came from a facility in Atlanta formerly operated by the grocery dot-com Webvan. And although the equipment is technically second-hand, it's barely used. In 1999,Webvan signed a $1 billion deal with Bechtel to build at least 25 highly automated warehouses around the country, including the Atlanta facility. But shortly after the construction was finished, Webvan shuttered that warehouse, and by July 2001, the company had declared bankruptcy.
Webvan's loss was Henry Schein's gain: "Buying used equipment allowed us to put in better systems for less money," says Dave Kagey, the company's vice president of distribution. In fact, Kagey estimates he paid about 50 cents on the dollar for 15,000 feet of conveyor equipment and related components for the 210,000-square-foot DC—including integration and installation.
"Our budget was built on the assumption that we would use all new equipment," says Kagey. "And though the racking and our high-speed shoe sorter are new, we got very good used mechanized conveyor at a reasonable price. We consumed that budget, but ended up with excess conveyor, which is now being put to use in our other distribution centers." (The leftover conveyor equipment has already been installed in a facility in Reno, Nev., and in an expansion project in Jacksonville.)
Something old, something new
Though installing used equipment may have been cheaper than buying new, it most certainly wasn't easier. To accommodate its client's request to incorporate used material handling equipment into its order fulfillment system, systems integrator Peach State Integrated Technologies first had to locate pre-owned conveyors, sorters, controls, storage racks and shelving, and miscellaneous components. Then it had to evaluate each lot to determine its condition and valuation as well as its suitability for this particular application. And once the two companies had agreed on the Webvan equipment, Peach State had to mobilize a team of project managers, engineers and technicians at the Webvan facility to identify, tag, inventory and stage the equipment for packing and shipping to its new home in Jacksonville.
Time was very definitely of the essence with this job. "We were under the gun to remove all the used equipment from its warehouse location in roughly three days," reports Peach State director of operations Joe Phillips, who spearheaded the project. "This was a monumental task considering that Peach State was not involved in the tear-down of the system, which created an additional challenge in locating, organizing and categorizing all the components." In the end approximately 72 full trailer loads of equipment and materials were removed from the site and placed in temporary storage for its future shipment to the Jacksonville facility.
Included in those 72 trailer loads were critical parts (electronics, scanners, field electrical devices and 15 conveyor control panels) that required special handling. Field devices were placed into totes by type, along with mounting hardware and brackets. Bar-code scanners, cabling and mounting brackets were catalogued and placed in containers for shipment. Control panels were packed for transit, with special packing materials to protect delicate electronics and sensors. Specialty conveyor equipment like sorters and large-radius flat-belt curves were also specially crated for shipment. The remaining conveyor equipment had to be palletized, banded, stretch-wrapped and inventoried prior to shipment.
During the packing and shipping process, a project engineer carefully tagged all of the conveyor units-drive sections, inclines/declines and sorters, for example-with information indicating exactly where they fit into the new DC design. Concurrent with the move, the Peach State team began the detailed engineering work required for integrating the used equipment into the DC's layout. Once that task was out of the way, the project team then had to identify, stage and ship specific pieces of used equipment to the job site for implementation.
Back at the job site, assembly was getting under way. And true to predictions, reconfiguring used equipment for a new application was proving to be very different from installing new machinery. "In a typical project, each bed section is shipped from the conveyor manufacturer pre-assembled with new components,"explains Pat Minnucci, a project manager with Peach State. "In this project, every piece of equipment needed to be fully inspected and retrofitted as required on site."
Retrofitting equipment intended for one operation for use in another meant some new components and accessories would be needed. Team members drew up lengthy lists of pieces to order-gear reducers, motors, support legs, odd-length intermediate sections, sorters and guardrails - all of which had to arrive on time to meet the project schedule. Then there were the controls, which also needed reworking to meet the new application's requirements. Peach State worked with Pyramid Controls Inc. of Cincinnati, Ohio, to integrate the used controls and programmable logic control (PLC) panels into the final system, rebuilding them where necessary.
Meanwhile, back in Jacksonville, the installation team coordinated the delivery of equipment from the remote storage facility. New drives, chains, sprockets and other miscellaneous parts were installed. Special support legs and ceiling support systems were fabricated onsite and integrated into the system. Not long afterwards, the facility was up and running.
All that was left was the cleanup. Team members sorted through the leftover pieces of equipment,putting some aside for use as spare parts. After that,Henry Schein and Peach State performed a complete audit and repack of the extra equipment on site at the Jacksonville DC and shipped the product back to a remote storage facility for future use or disposition.
"It's just a beautiful installation," says Kagey. "If you looked at it, you'd never know the equipment was used. And if you consider the economics of it, we bought the entire batch of conveyor for what we would have paid for new conveyor just to equip Jacksonville. We've still got some left over for later use.
Already expanded once (the 210,000-square-foot operation started out as a 135,000-square- foot operation), the Jacksonville DC has been designed with scalability in mind, capable of handling Henry Schein's distribution needs well into the future. According to the company's projections, volume will increase from the current 10,000 cartons a day (at peak demand) to 12,000 cartons in 2005. The DC handles approximately 18,000 lines, a number that will increase to 22,000 in two years. And picking rates are expected to climb to 121 lines per hour in 2005, up 20 percent from current levels.
How are those conveyors working out? As the pharmaceutical company sees it, they've been put to a better use than just gathering dust. "The successful implementation of the conveyor system has helped us provide next-day service to over 99 percent of our customers in the Southeast," says Jay Fisher, the site's DC manager. "It's been a real victory for everyone involved, including our customers."
For Henry Schein Inc., the gamble paid off. Dismantling Webvan's Atlanta distribution center gave the company access to yards of conveyor equipment and components in excellent condition at bargain basement prices. But not every company prowling the dot-com graveyard is so lucky. There are plenty of horror stories out there about buyers of cheap used equipment who found that it wasn't such a bargain after all. Here's some advice from the team that made it work.
- Check the fit. No matter how cheap it is, a conveyor that's not the right size is no bargain. The conveyor Henry Schein purchased was actually built to move grocery items, not medical products. However, the conveyor width was the same, making it usable.
- That's used, not abused. Bob Frye, solution development manager at Peach State Integrated Technologies, recommends supervising the equipment takedown process if at all possible. "It would behoove [the buyer] to control actual demolition of product if it's still installed," says Frye. "With Webvan, we came in on the tail end of the de-installation. It was taken down by a group that didn't care what it was used for in the future, and there was a considerable amount of unnecessary damage during the takedown process. That results in more costs on the back end when you go to re-install the conveyor."
- Look at total costs. Dave Kagey, vice president of distribution for Henry Schein, warns that it's easy to overpay for used equipment if you can't see the big picture. Integration and installation costs for second-hand equipment can mount up quickly, he says, potentially offsetting the savings. In this regard, his company was lucky. Henry Schein got such a good price on its conveyors, Kagey says, "that we knew that even if we had to throw the leftover stuff into a Dumpster, we'd still be way ahead of the game." But with a less favorable deal, he warns, a company could easily end up taking a big financial hit.
- Get the history. Frye says it's critical to inspect the used equipment thoroughly to make sure it's in good working condition. That requires more than a visual examination. "Be sure that it's been applied properly and maintained properly so it will work when put into your facility," he says. The former Webvan equipment installed in Henry Schein's DC was so new that its condition was not an issue, but there's always the danger of being taken in by machinery that looks better than it run.
About the Author
John Johnson joined the DC Velocity team in March 2004. A veteran business journalist, John has over a dozen years of experience covering the supply chain field, including time as chief editor of Warehousing Management. In addition, he has covered the venture capital community and previously was a sports reporter covering professional and collegiate sports in the Boston area. John served as senior editor and chief editor of DC Velocity until April 2008.
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