Food Lion Gets Ready to Roar

Food Lion LLC operates 1,200 stores in 11 southeastern and mid-Atlantic states, carrying more than 28,000 different products. It is one of three grocery chains operated by Delhaize America, the U.S. division of Brussels-based Delhaize Group.

In September 2000, shortly after Delhaize acquired Hannaford Bros., another grocery chain, it began taking steps to optimize Food Lion’s distribution operations.

The first step involved analyzing Delhaize’s distribution network, including seven Food Lion distribution centers, three Hannaford Bros. DCs, and a distribution center operating under the Kash N’ Karry banner. The multi-temperature distribution centers, which ranged from 200,000 to more than one million square feet, were all located on the east coast of the United States, from Maine to Florida.

The company chose to work with a consultant for the strategic network study, says Dennis McCoy, vice president of distribution for Food Lion, Salisbury, N.C. “We have good people on board who understand our business, but it’s always healthy to get an outside perspective as you look to make improvements,” he explains.

The grocery retailer selected Kom International, a supply chain and systems consulting company headquartered in Montreal, after learning of the work Kom had done earlier for Hannaford Bros.

To conduct the network study, the first step was to establish an integrated team made up of Delhaize and Kom personnel who “visited the facilities and interviewed key personnel, including distribution, shipping, returns, maintenance, and IT,” says Mike Mac Rae, Kom International’s project manager.

Taking Measure

The team asked facility personnel what worked well, and what they believed needed improvement. They also measured each facility, and entered the measurements into AutoCAD, an automated drawing tool.

In the spring of 2001, Kom personnel calculated each distribution center’s existing network capacity and available pick faces by department, which included dry, perishable, and frozen.

They also received detailed data that included a year’s worth of store order files, purchase orders, item specifications, transportation detail, profit and loss statements, productivity, and growth rates.

All this data was used to develop what Kom calls the status quo, or benchmark, scenario. This scenario was used to model what would happen at each facility in terms of space and ability to handle the product, identifying which facilities would have issues before or at the design year of 2007.

The next step involved creating network alternatives, analyzing options such as closing various facilities, redistributing stores to different DCs, centralizing perishables and/or slow-moving dry grocery items, and developing greenfield facilities. This part of the study also looked at optimizing the current infrastructure, including making modifications within the four walls of the DC by reracking and reslotting.

The team evaluated the various alternatives and developed the final network recommendations. These included optimizing the existing infrastructure, closing one distribution center, and redistributing the stores it served to other facilities. In May 2001, the project team presented to the Delhaize board of directors the final recommendations. The board approved these, and implementation began in June 2001.

Turning Plans into Reality

The Kom project team created a computer simulation comparing the existing operation to the desired operation, then prepared a detailed plan for optimizing the two largest distribution centers—those located in Dunn and Salisbury, N.C.

Much of the change involved optimizing the growing perishable operations. The team looked at how each product was handled and stored, determining the correct temperature and humidity conditions for each. Then they considered moving walls and creating rooms to provide the appropriate conditions.

Making these changes required virtually gutting the perishable building and rebuilding it inside the four walls of each facility—while continuing to serve the stores. This would be done over time, for example, emptying out two aisles of products, tearing down those racks and sprinklers, moving the lights, installing new racks and fire suppression systems, moving cooling units, labeling racks, and moving the correct product into those two new engineered aisles.

Other work included increasing dock space, standardizing pick patterns and slot sizes to gain throughput productivity.

Once the detailed plan was developed, the project team conducted focus groups at each DC to talk through the specifics. Included were key operators, forklift drivers, and personnel from inventory control and IT. The project team presented their implementation plan during work sessions facilitated by each facility’s manager. In addition to soliciting input from participants, these sessions were designed to gain their buy-in.

“We had to explain to the focus group why we were making these changes, where we were going in the future, and how we were going to get there,” Mac Rae says.

Communication Leads to Success

These focus groups were just part of the ongoing communication from management that helped make the implementation a success, McCoy says. Regular team meetings served as a forum for communicating all the elements of the project, from overall goals and objectives to specific details, such as layout issues, daily movement needs, and which aisles were going to change.

Communicating with warehouse associates was particularly important at the Dunn facility, McCoy says, as the modifications there took place during a particularly busy season. “We had to work through our seasonal influx of business, and there was a larger-than-expected volume increase at that location.”

With all the construction and product moves, it would have been easy for associates to become negative and start grumbling about the change. The project team made sure to explain why things were happening as well as the benefits that the changes would enable.

The Dunn facility was built on a forward buy model which, while very effective at the time, provided a warehouse that was not as productive in today’s operating environment,” McCoy says. The new design would result in a modernized facility, providing associates with better working conditions and the opportunity to be more productive.

The Dunn facility was completed at the end of October 2002, and the Salisbury facility during the first part of December. “We ran right through the Thanksgiving holiday,” McCoy notes, sending the contractors away for a week or two to ensure that the distribution center could operate at maximum effectiveness during this peak period.

The hard work is paying off. “We’re looking at a four- to six-percent increase in productivity in both facilities,” McCoy says. “In addition, because of the improved layout and reslotting of the warehouses, we are able to reduce damage and create pallets, which get shipped to stores in a family grouped arrangement.”

During 2003, Food Lion took the lessons learned from optimizing the Dunn and Salisbury facilities, and applied those to other optimization projects done internally. These are also reaping results for the grocery retailer, supporting its mission to deliver the lowest prices to the consumer.