December 2012 | Case Studies | DC Solutions

An Appetite for Refrigerated Warehousing Improvement

Tags: Temperature Controlled, Distribution

When food company Bob Evans farmed out its warehousing and distribution operations, it engaged more than a provider—it found a true business partner that optimized its processes.

Every company that opts to outsource some portion of its supply chain—be it transportation, warehousing, freight bill payment, or any other critical function—seeks to build a strong relationship with the third-party provider. But it's a rare feat when a partnership reaches a level where the companies involved become truly integral to one another's businesses.

For Bob Evans Foods and its third-party warehouse provider, Millard Refrigerated Services, reaching that vaulted level is not just a goal, but a reality. The two companies share a symbiotic relationship, says Dathel Nimmons, vice president, operational business development for Bob Evans Foods, a wholly owned subsidiary of restaurant, retail, and foodservice company Bob Evans Farms Inc.

Columbus, Ohio-based Bob Evans Foods first partnered with Millard in 2010 to distribute its product lines to retail and foodservice customers throughout the southern and western United States from Millard's facility in Sunnyvale, Texas. The success of that outsourced arrangement led Bob Evans to sell its own Springfield, Ohio, distribution center (DC) to Millard in 2011. Millard took over operating the 127,000-square-foot-facility, and continues to ship Bob Evans brand products to retail and foodservice customers in the eastern and southern United States.

When Millard acquired the Springfield DC, the Bob Evans workers became Millard employees; today the Millard-owned facility houses a suite of offices for Bob Evans executives, including a logistics leader and two master plant schedulers. And Bob Evans recently opened a new $5-million transportation facility directly across the street from the Millard DC. This blurring of the lines is intentional—and indicates the level of cooperation that exists between the two companies.

"With the product volume that moves through this facility, seamless partnering in scheduling, manufacturing, and transportation is essential," Nimmons explains.

Behind the Sale

Selling a distribution center to a third-party provider is an unusual action for a shipper, but one that made perfect sense for Bob Evans. The company had historically used a direct-to-store distribution (DSD) model, but began to realize it needed better economies of scale to support future growth initiatives. It also wanted to trade the reactive nature of the DSD business for the proactive planning that comes with warehouse processes.

"About five years ago, we began scaling back our DSD operations," Nimmons says. "Two-and-a-half years ago, we completely changed from DSD to warehouse."

But running warehouses was not Bob Evans' core competency, and the company knew it would have to continue making significant investments in processes and technologies to retain a cutting-edge distribution facility.

"You have to decide who you are as a company," Nimmons says. "The answer for us is: we are a food company, not a distribution company." The decision to partner with a provider who could give Bob Evans a distribution edge was a no-brainer, she adds.

The sale provided a win-win for both companies. Bob Evans is now better able to focus on its core competency as a food manufacturer, while using Millard's warehouse management expertise to drive its supply chain forward. In turn, by purchasing the Springfield DC, Millard gained the opportunity to increase its footprint in the market with the possibility of expanding the building to offer third-party warehousing services to other companies in the region.

"A key driver in the decision to purchase this facility was the potential for growth at both companies—either in the current footprint via productivity gains or through acquisitions, and/or expanding to serve the end-market needs of customers that don't currently use a public warehouse in that geographic area," says Tim Smith, Millard's senior vice president of sales.

A Fresh Perspective

The Springfield DC is a modern facility that contains two blast freezers and a loading dock large enough to stage entire truckloads, so Bob Evans was not looking for Millard to provide physical or equipment upgrades as much as a burst of intellectual capital to improve processes and efficiency.

"Bob Evans relies on us to identify ongoing and sustainable efficiencies that continue to drive costs out of the supply chain," says Smith. "Then it can leverage the DC we operate as part of its key strategic initiatives."

"Millard has challenged us to think about our business in new and innovative ways because of its historical perspective," Nimmons adds. "It forced us to ask ourselves if the way we operate is the best way."

For example, Millard has helped Bob Evans better utilize full-pallet shipments. While evaluating the DC's processes and procedures early in the transition, Millard assisted Bob Evans in a rigorous analysis of key metrics that resulted in identifying areas for optimization, including full-pallet sales opportunities. Instead of having workers cherry-pick less-than-optimal cases for shipments, Bob Evans implemented Millard's picking philosophy, which allowed for better utilization on full pallets.

"Millard helped us realize we could realign the warehouse in order to improve our full-pallet quantities," Nimmons explains.

"We evaluated the Springfield facility for ways we could implement best practices we have within our network," Smith notes.

Conversely, Millard faced a learning curve on some unique aspects of the food distribution business. Sell-by dates, for instance, rule the roost. Bob Evans cannot ship products with either too many or too few days of shelf life remaining—leaving a very small margin of error. "It has been crucial for us to identify the right inventory turns so we are not shipping out too young or too old a product," Nimmons says.

Another challenge was determining how best to handle receiving during the holiday peak season. Demand for Bob Evans sausage and side dish products hit their peak from October to December, spiking about 40 percent from regular demand. As a result, the DC hires additional seasonal labor to help with the increased number of trucks arriving to unload. And because the Bob Evans manufacturing plants do not have enough room to store the additional goods they are producing during the holiday season, the DC must be prepared to receive shipments throughout the day.

To help optimize labor management at the DC, Millard and Bob Evans moved to a schedule of receiving production loads around the clock and handling outbound loads only on the third shift.

Both companies' willingness to embrace new ideas has been a key factor in the partnership's success. Even the official document created to guide the acquisition and transition processes has been flexible.

"It has always been okay to deviate from our original plan when needed," Nimmons says. "The basic principles, structure, and framework still exist, but the nuances have changed—and that was never a problem."

A phased approach helped ease the ownership transition. While the deal was sealed in October 2011, Millard continued to operate the warehouse using Bob Evans' systems until February 2012. Both companies wanted to use that time for training and testing to ramp up slowly and ensure a smooth transition.

Benefits for Today—and Tomorrow

The approach—and the acquisition overall—has paid off for Bob Evans. Millard's experience and precision in running warehouses has helped bring a more sophisticated and predictable approach to the distribution side of Bob Evans' business.

"We now have a better understanding of our distribution spend; we fully understand what it costs to move a certain number of pounds or cases," Nimmons explains. "This insight allows us to better forecast our budget needs and lock in rates.

"As we continue to grow—and Millard continues to grow in Springfield—we hope to leverage additional cost efficiencies through economies of scale," she adds.

For example, both companies are interested in implementing a consolidation program. As Millard adds customers to the Springfield facility, it will have the opportunity to create more full truckload shipments by consolidating Bob Evans' loads with those from other Millard customers. "That ability will allow us to fully optimize all our trucks, and reduce shippers' costs," Nimmons says.

The new warehouse management system (WMS) Millard is implementing will bring another efficiency boost to Bob Evans. While Millard will maintain the solution, the WMS will feed data directly to Bob Evans' systems, including a new enterprise resource planning solution Bob Evans is currently implementing.

"The Millard WMS will give us visibility into the metrics that drive utilization and performance," says Nimmons. "The data, in turn, will help us determine what areas of the business need to be more fully optimized."

For now, both companies are relishing the more fully optimized distribution center—and the myriad benefits of a relationship that is truly a partnership in every sense.