January 2013 | Case Studies | Casebook

Cloud-Based WMS Fires Up Supermercados Supply Chain

Tags: Logistics I.T., Latin America, Retail, Warehouse Management Systems (WMS)

Grocery retail

An improved distribution network helps grocery chain Supermercados deliver fresh products to its 80 locations.

Peruvian supermarket chain Supermercados feeds its need for DC network realignment with a SaaS WMS solution.

Warehouse management systems (WMS) possess a unique capacity to transform the way distribution facilities operate, mobilizing inventory and expediting flows efficiently and economically. WMS also enable users to more easily measure improvements in order visibility, picking productivity, shipment accuracy, labor and asset utilization, and inventory turnover.

But sometimes soft ROI reinforces the value proposition. Under the right circumstances, a WMS can drive extraordinary change beyond the four walls. Peruvian supermarket chain Supermercados Peruanos S.A. found just such an opportunity in 2010 when it embarked on a two-year project to revamp its distribution network.

Owned by Interbank, a Lima-based financial services company, the grocery chain is the largest business within the group, which also includes pharmacy, home improvement, and department stores. Supermercados operates 80 locations in three distinct formats—hypermarkets (combination grocery and department stores), supermarkets, and discount stores.

The South American market is primed for growth. With a Pacific Coast presence, strong commodity markets, and a growing consumer class, countries such as Chile, Colombia, and Peru are capitalizing on import and export trade with the United States and Asia, and increasing investment in transportation and logistics.

"Credit is easier to come by, which generates greater buying power," says Diego Pantoja-Navajas, CEO and founder of Atlanta-based WMS provider LogFire, which maintains a strong South American presence. "Retail chains and supermarkets are growing fast, which is fueling the supply chain industry."

Supermercados' growth trajectory is a perfect example of this changing landscape. The grocery store chain is re-tooling and reconfiguring its existing distribution footprint, which includes four warehouses. The distribution centers (DCs), which account for approximately 550,000 square feet of space within a 35-mile radius of Lima, are segmented by product categories: non-food; dry goods; fruits and vegetables; and cold storage perishables.

The project features a major investment in new facilities, warehouse technology, and materials handling equipment with a focus on automation.

In fall 2011, Supermercados went live with LogFire's cloud-based Software-as-a-Service (SaaS) WMS at a new distribution center in southern Lima. The facility—one of two new consolidated DCs that feature in the company's plans moving forward—is the centerpiece of a hub-and-spoke distribution footprint powered by LogFire's WMS solution suite.

Visibility Through the Cloud

As it began its project, Supermercados faced a planning challenge: determining how to phase in the new WMS solution within the framework of its changing DC network. The company decided to upgrade the four existing facilities with LogFire's WMS first, rather than wait for the new DCs to come online.

"We wanted to ease the transition by having all our staff familiar with the system," says Gabriel Ortiz, vice president of supply chain for Supermercados. "And the WMS system we were using did not have the functionality we needed."

The initial implementation phase of LogFire's WMS at the Lima DC took four months—a considerable feat given the circumstances. LogFire was tasked with redesigning certain logistics processes and integrating the solution with Supermercados' existing SAP enterprise resource planning system. It also had to train and certify warehouse employees.

While the grocery store chain knew what WMS capabilities it wanted, LogFire helped push the SaaS deployment. What caught the CIO's attention, says Pantoja-Navajas, was the fact that the technology vendor would be 100-percent responsible for upgrades, maintenance, and 24-hour support—an approach that dovetails with Supermercados' strategy for partnering with third-party providers.

"We aim to outsource functions that are not core to our business," says Ortiz. "When we find service providers that can support that goal, we partner with them."

LogFire provides the necessary infrastructure to support a SaaS model—which is critical when installing a cloud-based solution versus an on-premise system. To build the necessary redundancy and security into the system, the solutions provider created a multi-protocol label switching line—technology that regulates data traffic in a complex network—direct to the warehouse. It also established a back-up microwave connection as a contingency for possible communication disruptions.

The cloud-hosting option enables Supermercados DC workers to access the WMS from any computer or Internet-connected mobile device, providing all the benefits of a full-scale solution with less hardware and lower costs. Supermercados pays for the WMS based on usage.

"This approach frees us from investing hundreds of thousands of dollars in hardware, maintenance, and upgrades," says Ortiz. "And we can adjust our usage expenses for peak periods."

Maximizing Flexibility

The SaaS WMS also provides greater utility in how Supermercados operates its warehouse. In addition to its WMS solution, LogFire features a productivity tracking system (PTS) and supply chain analytics dashboard (SCAD)—plug-and-play modules that users can turn on or off. Supermercados has implemented the WMS and dashboard, and will eventually phase in the PTS part of the solution suite.

LogFire's technology empowers tablet and smartphone devices to interface directly with the WMS. This mobility increases communication and real-time decision-making inside the DC, while improving efficiency and productivity. Supervisors can manage warehouse operations on the floor rather than from the back office.

"They can run reports and perform dock-to-stock analysis to see how fast items are moving," explains Pantoja-Navajas.

Supermercados uses the tablet to facilitate its receiving process. If a vendor submits a purchase order without an advance shipping notice (ASN), workers can create one on the fly to receive the product without leaving the warehouse floor.

WMS as Supply Chain Change Agent

Mobility has enabled Supermercados to perform more tasks in real time. Interfacing with tablets and smartphones allows users to access data more easily, and facilitates training. The visibility and reporting capabilities LogFire's WMS solution provides have also changed the way Supermercados engages vendors and retail stores.

The company maintains a broad network of more than 1,500 suppliers, ranging from large multinationals such as Procter & Gamble, Kimberly-Clark, and Unilever to small mom-and-pop shops located in remote areas of Peru. Large vendors have their own production systems that easily integrate with Supermercados' WMS and business-to-business systems. But many of its smaller partners don't have this bandwidth.

"One reason we chose this accessible, easy to use technology is that eventually we plan to integrate smaller vendors that don't have the ability or budget to invest in this type of solution," says Ortiz. "The integration will enable vendors to use the tool to prepare purchase orders, print carton labels, and create ASNs."

An Invitation to the Cloud

Pantoja-Navajas is particularly excited about how Supermercados plans to dispatch the WMS throughout the network and create opportunities for more collaboration. LogFire is working with the grocery chain to provide a vendor management program where they can invite small suppliers to move into the cloud.

"It doesn't matter how good your WMS is within the four walls if your vendors aren't providing you with good data," says Pantoja-Navajas. "It creates bottlenecks on the receiving end."

For a nominal fee, vendors will be able to use the system and become certified suppliers to Supermercados. The supermarket, in turn, can use the WMS to drive vendor compliance and qualify suppliers based on who is using the system.

"This technology is significantly impacting the market," says Pantoja-Navajas. "Many of Supermercados' vendors are small agricultural growers. They don't know what a WMS is. But if you give them access to the tool, it will change the way the supply chain operates."

Extending LogFire's WMS capabilities to smaller vendors is just the beginning. Supermercados also plans to deploy the solution at its retail store locations.

"After demonstrating success in the warehouse, Supermercados asked whether they can receive product with LogFire at the store level," says Pantoja-Navajas. "So that is now part of the implementation's second phase."

One of the biggest issues supermarket stores and other retailers face is receiving product at stores with systems that cannot completely close the order cycle.

"If a company distributes product with the LogFire WMS, and receives it with the system at the store level, there's no question that what was shipped was received," says Pantoja-Navajas. "Workers scan and receive the product, and update the system. If customers want to make an inventory adjustment because an item was damaged in transit, they can do that."

With further development in its point-of-sale system and other technologies that interact with the WMS, Supermercados expects to extend certain functionalities to the back room of its stores. The company has already started to divine some of the efficiencies that can be gained by aligning DCs and stores through the WMS.

"Now when we produce a carton out of our warehouse, we use GS1-128 shipping labels, which feature pre-defined zone coding to enable carton visibility throughout the supply chain," says Ortiz. "The stores receive at that level, so we are able to track productivity, transit times, and when stores receive cartons from the warehouse, then automatically update the system as to the status of the box. We have visibility across the entire process."

A Model for Innovation

Supermercados saw immediate results after LogFire completed the initial installation of its cloud-based WMS at the Lima distribution facility.

"Shipping order volume doubled within one week of going live," says Pantoja-Navajas. "Supermercados was able to perform more efficient crossdocking and put-to-store processes. The WMS changed the way it managed inventory—and the supply chain."

Supermercados' decision to implement LogFire's WMS was predicated on a well-developed distribution strategy and long-term growth plan. That it is fundamentally changing the way the company engages suppliers and retail stores beyond the warehouse is remarkable. Other companies within the Interbank group are now following suit.

The WMS has had a substantial impact throughout the entire Supermercados organization, and Ortiz is bullish about future prospects. "We haven't even fully rolled it out to our new state-of-the-art distribution facilities yet," he says.