April 2001

Previous moves to automate Panasonic's American spare parts operation were abandoned, but a second attempt has proved more robust, and opened new distribution opportunities

Just how much overlap is there between traditional business-to-business logistics and more modern direct-to-consumer operations? It's a debate that will probably run and run, but for an illuminating insight into one possible answer, it's instructive to look at a Panasonic fulfilment operation in Seattle, on the west coast of the United States.

It's not involved in the more glamorous new-product end of the market; it handles the storage and distribution of replacement parts, accessories and service literature. But arguably spare parts have a lot in common with consumer purchases. In both cases, demand can be varied and unpredictable; the work often involves singles picking and despatch in small numbers; and there's an expectation of very fast delivery.

There can also be a very high number of different product lines ­ something Panasonic Service Company certainly knows all about. At Seattle it holds a master file of around 650,000 stock-keeping units, and ships out around 40,000 individual pieces a day. Prodigious numbers by any account.

All the more remarkable, then, that until the late 1990s Panasonic was using a manual picking and handling system to run the operation, driven by a legacy mainframe computer. However, there's slightly more to the story than that. "In the 1980s there was a drive to automate," says Brad Moszkiewicz, who is now manager of operations at the parts centre. With a glint of amusement, he admits frankly: "It was a miserable failure."

It was not his idea, so he can perhaps afford to be sanguine. He was in fact already with the company, where he has worked for 21 years, but moved through purchasing and sales and marketing before fetching up on the distribution side. The earlier attempt at automation dates back to a period when the company's distribution function was divided among five regional bases (at Los Angeles, Dallas, Chicago, Atlanta and Secaucus). Work on the new national parts centre at Kent, just south of Seattle, started in the early 80s, but it was not until ten years later that all the regional warehousing and distribution activities were consolidated there.

Why Seattle? The main attraction lay in the fact that it was well-placed for receiving product from the Far East and Asia. There was also a plentiful supply of labour in the area.

So what went wrong with the previous automated system? "There was massive downtime," Moszkiewicz says simply. "In the end it was just used as storage."

It was therefore scrapped, and instead the company made the new centre into what Moszkiewicz describes as "a really good manual warehouse" based on zoning and traditional pick tickets. "It was as good as you can get without advanced technology," he maintains.

However, he was aware that the market expected ever faster order fulfilment, and came to the conclusion that the only solution was a return to automation ­ linked this time with an advanced and powerful logistics management system.

His team embarked on a detailed fact-finding mission, visiting plants in the US and Europe in markets as diverse as aerospace and drugs, as well as business and consumer electronics. "You always pick up something when you look at how other people do things," Moszkiewicz says. They then invited tenders from a range of systems suppliers including Catalyst, Computer Associates and McHugh International, and in the event McHugh won the tender.

Moszkiewicz says the company offered various attractions. It was seen as a leading-edge supplier, and its client-server product offered the kind of flexibility Panasonic wanted. "It gave us the ability to change the way the system worked internally, without having to refer back to McHugh all the time."

A conveyor system was adopted to transfer product between the storage racks and the shipping area. This was supplied by Ermanco, but is driven by the McHugh software, ensuring full integration of the system from picking to despatch. Picking is controlled by two dozen radio-frequency terminals, which are also supported as standard by McHugh's Logistics Suite.

Under the new McHugh-driven warehouse management system there are 1,400 ft of conveyor, 24 carousels and five hydraulic lifts, along with nine barcode scanners and five high-speed laser printers.

Interestingly, the company has opted for barcoded cardboard totes to its own design to serve as storage locations for the smaller items. Moszkiewicz says these have proved robust enough to give a good service life, and present a negligible fire risk. Plastics totes are also used in the order assembly process.

The new system immediately started to bring benefits in terms of tighter stock control, faster retrieval and a reduction in picking errors. In aggregate, the improvements meant Panasonic was on the way to achieving its goal of reducing turnround time from twenty-four hours to just twelve. It was also able to bring its receipt processing time down from three days to one. Most of the product is sold through a multi-brand distribution network consisting of retailers, wholesalers and other intermediaries. It is despatched by carriers such as UPS (the McHugh software can cater for use of multiple carriers if required). More recently, the company has also been building up a direct-to-consumer capability ­ driven in particular by the growth in demand for consumables for equipment such as printers. So the transferability of concepts from B2B and B2C operations has been put to the test in a real working environment.

The nature of the existing operation seems to have made this transition easier remarkably smooth. As Moszkiewicz puts it: "The shift to the Internet hasn't meant that big a change for us. In many respects we're able to use existing technology." The transition was no doubt also helped by the fact that Panasonic's order processing had been switched from EDI to an Internet basis as early as 1998. Now customers can order product in this way, receive confirmation of order and track the progress of the delivery.

Panasonic Service Company's Seattle warehouse occupied just 7,200 sq m of space when it was opened in 1982, but has since been extended to 22,800 sq m, of which 4,000 sq m is taken up by offices and customer service functions. It provides parts and accessories for the Panasonic, Technics and Quasar brands.

In order to meet its service commitment to customers, the centre undertakes to fill up to 70 per cent of customer orders from stock, and the top-selling 2,000 items are "protected". The consequence of all this is that around 115,000 parts and 3.5 million pieces have to be kept in stock at any one time, and inventory rotation is twice yearly.

The company says that in practice its fill rate from stock is running at 97 per cent, even though the turnround time has been cut from three days to one.

The company's headquarters remain at their original location on the other side of the continent in New Jersey.