Dallas Ryan can set his watch by the trucks' arrival. Right at the stroke of midnight, they roll up to UCSF Medical Center's loading docks ready to disgorge cases of everything from sutures and skin graft carriers to abdominal catheters and cardiovascular implants. But it's not the trucks' consistency that makes these deliveries remarkable. It's the supplier's ability to fill staggeringly complex orders faster than the plot threads unravel on "ER." Many times, those incoming medical supplies—typically anywhere from 1,500 to 2,000 separate items—were ordered online only hours earlier. (Orders sent by mid morning are delivered that night.) And in almost every case, the orders arrive complete.
Good thing, because hospital supply is a high-stakes business. Physicians at the University of California at San Francisco Medical Center routinely perform rare and risky surgical procedures, which means that everything from surgical gloves to seldomused sutures must be available at all times. Stumble here and you've done more than just snarl up the orderly flow of medical supplies; an error can be a matter of life and death. "If a patient needed treatment requiring a specific item and we didn't have it in house because our fill rates were low, that would definitely affect patient care," says Ryan, who's the center's assistant director of material services. "Fortunately, we're pretty much able to avoid stockouts on critical items."
That's largely because of the hospital's alliance with Cardinal Health's Medical Products & Services segment, the behind the- scenes partner for UCSF Medical Center and many other healthcare facilities across the country. Ranked 17th in the latest Fortune 500 list, Cardinal Health is one of the industry's powerhouses, with revenues of more than $50 billion. The Medical Products & Services group alone reported sales of about $6.5 billion last year.
Impressive numbers, to be sure, but healthcare distribution is not an easy way to make a buck. Customers can be both demanding and inflexible. "As a medical and surgical supplies distributor, we're not like a Wal-Mart DC that ships to its own stores," says Steve Inacker, vice president of distribution technology at Cardinal Health. "Our customers have a high degree of sensitivity when it comes to on-time, accurate and consistent orders. Our customers can fire us. Wal-Mart doesn't fire its distribution center."
Running on automatic
To stay out of firing range, the Cardinal group has gone high tech. For example, the DC that supplies UCSF Medical Center—a two-year-old 315,000-square-foot automated center in Dixon, Calif.—boasts a gleaming state-of-the-art automated storage and retrieval system (AS/RS). The Dixon site is one of four Cardinal Health DCs using AS/RS technology. Similar systems are in place in Michigan, Texas and New York; a fifth AS/RS-equipped facility will open late this year in Maryland.
The Dixon DC operates 12 AS/RS cranes from Austria based TGW Inc. TGW also provided the conveyor for the site. The facility currently processes 18,000 picks per day— or 2,400 orders a day—running one and a half shifts (which is 77 percent of capacity). The AS/RS system is connected to a warehouse management system (WMS) from Witron Integrated Logistics Corp., which also serves as the systems integrator for Cardinal Health's automated DCs. The WMS interfaces with host systems from J.D. Edwards and SAP (depending on which system the facility had in place when it was acquired by Cardinal).
The operation itself is as carefully choreographed as a Balanchine ballet. Every SKU in the order picking system has a reorder point and a reorder quantity. The reorder point is reached when the inventory in the order picking system, Witron's OPS solution, drops to one week's worth of supply. Once an SKU drops to that level, the WMS automatically generates an order to pick material from reserve or bulk storage to replenish the OPS. This is done manually, usually by a rider on a forklift who picks and delivers the material to a "detrashing" station, where products are taken out of cartons, repackaged and placed in totes.
After detrashing, the totes are automatically put away into the OPS. Items from a given SKU are generally stored in multiple locations across different aisles. This allows for workload balancing across the aisles and allows technicians to carry out preventative maintenance tasks aisle by aisle without interrupting operations. Put-away is semi-random. Faster-moving items like surgical gloves are stored toward the front of the aisle; slower-moving items are stored toward the rear, minimizing the distance the mini-load cranes must travel. Between 5 and 10 percent of pick locations remain empty to optimize the put-away operation.
When it comes time to pick an order, all items for a given order are automatically retrieved and brought to the workstations. The totes are queued up in front of the picker, who systematically picks and packs all of the items for an order from the totes. A computer terminal indicates when an order is complete. Whatever product remains in the totes goes back into the OPS system, and empty totes are directed to an induction station for put-away.
AS/RS has turned out to be just what the doctor ordered, resulting in a variety of benefits to Cardinal's Medical Products & Services division. To begin with, the sites that installed AS/RS have seen productivity soar. In a typical manual picking setup, a DC worker spends up to 70 percent of his time looking for products to be picked. With AS/RS technology, product is delivered directly to the picker, eliminating vast chunks of travel time. Inacker claims the system allows Cardinal Health to realize a 20-percent improvement in picking productivity over traditional warehouses.
Another plus: AS/RS solutions are scalable, making expansions much easier. "You can grow much easier in an AS/RS environment because you have the ability to add aisles, versus punching a wall out to add 100,000 square feet," says Inacker.
Expansions are not only easier, they're cheaper. Generally, a distribution center using AS/RS can be built on a much smaller footprint than a more traditional facility because automation allows you to build up, not out. In areas where land is at a premium, savings pile up quickly. For example, Inacker estimates that using AS/RS for the center in Columbia, Md., which is located midway between Baltimore and Washington,D.C., cut space requirements by four acres—which translates to savings of about $800,000 in a part of the country where land values approach $200,000 an acre. The company also expects to be able to consolidate some smaller DCs, further cutting expenses.
But what really has management buzzing is the improvement in order accuracy, which is critical for both Cardinal Health and its customer base. "We're not into auto parts and we're not general merchandise," says Inacker. "This is healthcare products. When you ship the wrong thing, the customer usually has [to] delay a critical procedure or will need to source that product somewhere else and have it expedited. So having very high fill rates and very accurate orders is … extremely important to our customers."
Accurate order fulfillment also saves money. Incorrect orders typically trigger a complicated remediation process, which can include issuing credits and re-bills, as well as additional shipping costs for expedited freight services.
Though the Dixon DC officially states its accuracy rate at 99 percent, the operation has actually gone several consecutive months without a single error, an achievement that's virtually unheard of in a non-automated environment. To ensure accuracy, the system conducts automatic cycle counting at the same time as the pick function. Once the picker completes his pick, he may be directed by the computer screen to do a cycle count of what's left in the tote, which serves as a kind of triple check.
Surprisingly, automation's beneficial effects on order accuracy caught management unawares. "One thing we didn't recognize at the time we implemented the [AS/RS] system was that our quality would improve so significantly, from the standpoint of having the right item in the right quantity picked, packed and shipped to the customer," says Inacker. "The AS/RS is driven off the operator working at the pack station in a hands-free environment, and it makes for a very accurate and clean quality process."
Tours are available, by appointment only (but forget the free samples). Ever since the $50 billion healthcare conglomerate Cardinal Health touted the wonders of its Medical Products & Services segment's AS/RS systems in its annual report, it seems everybody wants a look at its high-tech DCs.
It's not just other divisions within Cardinal Health that are eyeing the technology, says Steve Inacker, Cardinal's vice president of distribution technology, who's now involved in several engineering projects within the company's pharmaceutical distribution sector. Customers are interested too. The company finds itself hosting tours on a regular basis to both customers and supply chain partners who want to view the heavily automated facility, which is driven by an AS/RS system from Witron Integrated Logistics Corp.
The group is happy to accommodate these requests. Seeing is believing, says Inacker. "When you talk to customers about the investment we're making in their business when it comes to our quality process, it really rings true to them when they see the facility and the automated process." It also gives them insight into the daily operations. "We're able to show them what a picker does in that environment versus what pickers do in a more conventional warehouse."
As word gets out, the tour schedule is filling up, sometimes with repeat visits. "At the four locations where we have AS/RS, not a month goes by without a customer tour," Inacker reports. "We've even had several repeat tours, where people bring senior management and people from different departments to see the technology."