Distribution Center Optimization in Mexico

For this global industrial manufacturer of vehicles and engines, production depends on exceptional and reliable service throughout the supply chain. When the manufacturer was looking for a partner to manage its distribution centers, it sought a company familiar with the challenges of automobile supply chain management and decided on Penske Logistics. Penske has managed inventory in two of the manufacturer's facilities in Mexico since 2002.

As part of its work, Penske manages one 150,000-square-foot internal distribution center and one 400,000-square-foot external distribution center. It provides receiving, storage, sequencing, kitting and repacking. Penske handles large parts and modules as well as shipping racks and the trailer yard. Penske also designs and produces the material sequencing racks in-house, saving production space and reducing downtime.

Improved Supply Chain Visibility

The actions inside a distribution center are the catalyst for speeding deliveries, managing inventories and cutting costs. Penske's proprietary technologies track the flow of inventory through and around the distribution center, monitor product velocity, and provide advance notice of arrivals. Since coming on board, Penske has focused on reducing and controlling inventory, improving the receiving area and boosting productivity.

"Inventory visibility is crucial. Warehouse inventory has to be able to interface with the production side of the business and they have to be able to connect within the supply chain to know what is in the warehouse and what is on a truck or stored in a trailer."
—Dave Bushee, senior vice president of logistics technology, Penske Logistics

The large number of SKUs and customization increased the need for visibility. The manufacturer focuses on mass production, but the degree of vehicle customization options drives high SKU counts – more than 60,000, which is as much as six times the part numbers in an automotive manufacturer's warehouse. This manufacturer also has sequencing of 106 commodities and has three sizes of tractors on the production line, which creates more variability that must be managed.

Penske leverages a data repository that provides a single, high-level, comprehensive view of the manufacturer's overall operations, which allows the team to increase efficiency. Information about incoming and outbound products can be transmitted electronically between supply chain partners, and the information is automatically loaded into the core system.

The data gives users the opportunity to track a product from the initial receipt to the final pick down to the individual SKU, ensuring a quick response in the event of a recall or a spike in demand. Visibility also helps optimize door-to-door movement in the warehouse yard, and the system can track where trailers are as they move or are parked for later processing.

Inventory Control

Before Penske, the manufacturer's inventory levels had grown to cover for a lack of visibility, consuming space and hindering efficiency. Through its improved visibility and accurate inventory information, the manufacturer was able to reduce its inventory buffer, freeing up space and capital.

Penske created standardized processes which ensure inventory, and the production line keeps moving. With sequencing of 106 commodities, there is no margin for error. Through its warehouse management system (WMS), Penske tracks inventory levels and can guarantee the quality of the sequencing. The WMS also provides greater visibility of part location and counts, so associates can quickly locate inventory and get it to the line faster. "You're constantly trying to be efficient and maximize the number of picks that an associate can do in a facility while also touching products as little as possible. Data allows that to happen," said Bushee.

Penske's engineers examine data to create slotting algorithms that identify the ideal locations for products to be slotted and stored in the distribution center. SKUs that are "high runners" are slotted to a forward pick location, but because customer demand can shift quickly, information is constantly analyzed.

Increased Inventory Accuracy

Greater visibility into what is happening in the supply chain and when it takes place is essential to operational success. Penske created a series of checks and balances that allows Penske associates and the manufacturer to drive accuracy. The information is presented in a timely manner, which allows the manufacturer to quickly identify a problem and act when something is not correct. What's more, Penske and the manufacturer hold weekly and monthly scorecard reviews.

Labor Management Improvements

Increased visibility also helps operators manage the workforce in the warehouse. Operators can log into the system to see what is headed for the warehouse and when it is expected to arrive so they can schedule the appropriate labor. Labor in the warehouse can be planned by working backward from the shipment dispatch, which ensures employees are available when and where they are needed. In addition, inbound shipment information can be used to understand and balance warehouse labor requirements for handling inbound shipments.

Through the WMS, Penske and the manufacturer can define and document standard performance expectations and then measure, track and report the performance of employees, departments and facilities.

Improvements to inventory control enabled the addition of a second assembly line to the plant. Penske is also able to adjust headcount as production volumes flex, providing added value.

Operations in Mexico

Penske's local presence in Mexico adds to the service level, allowing its team to be more focused on local sourcing, quality and safety. Penske Logistics currently employs more than 2,100 associates in Mexico and has decades of cross-border operations experience. Penske Logistics maintains significant investments in the region, including strategic locations along the border.

If needed, Penske can bring in labor from other operations, tapping into people who speak the language and know the culture.

Continued Growth

Throughout Penske's relationship with the manufacturer, Penske has adapted its people and processes as changes occur at the facilities and on the production line.