Harry Potter and Oprah's Book Club aside, you could hardly call publishing a growth industry. Other forms of entertainment have shrunk the universe of avid readers and generally held down book sales. So what makes the Time Warner Book Group think it can double volumes at its sole distribution center in the near future?
The secret isn't another big bestseller. It's the company's realization that a good distribution operation can act as a profit center. Time Warner Book Group wants to expand its practice of supplying distribution services to other publishers out of its facility in Lebanon, Ind. For one of the world's largest media conglomerates, there might be money in books after all.
Headquartered in Boston, Mass., Time Warner Book Group already provides distribution from Lebanon for Microsoft Books and Disney Books, among others. Both are part of huge corporate parents, yet lack the scale to justify their own distribution centers. Up to now, however, the Time Warner warehouse has suffered from certain constraints which prevented the company from pursuing additional outside business.
The problem wasn't an inadequate warehouse management system or lack of staffing, says Ronald Olsen, director of distribution systems for Time Warner Book Group. It was an antiquated transportation management system - one that could handle neither the volumes nor complexity of the growing Lebanon operation.
It wasn't supposed to be this way. When Time Warner opted to move its distribution center from the Boston area to Indiana, it did so fully expecting that the new facility would be equipped with state-of-the-art information systems. After all, the DC was a greenfield project, carefully chosen for its access to the bulk of Time Warner's customer base throughout the U.S. And the old Waltham, Mass., facility ran off of a mainframe system that the company had no intention of replicating at the new site. Dating back to the late 1980s, the software had no networking capabilities or access to outside users, Olsen says.
The new WMS went in as planned, supplied by Quality Software Systems Inc. (QSSI) of Piscataway, N.J. At the same time, Time Warner had planned a major rewrite of its old TMS software, from Kitimat Systems Inc. of Mississauga, Ont. But the challenges of getting the DC up and running, coupled with the sudden purchase of Kitimat by Milwaukee, Wis.-based HK Systems, another WMS vendor seeking TMS functionality, delayed those plans. Switching on new WMS and TMS systems simultaneously was "too much to chew on," says Olsen. "So we went live with a state-of-the-art WMS, and a TMS at the end of its lifecycle."
The Lebanon DC came on line in 1997, after two years of preparation. The entire complex covers 900,000 square feet, 500,000 for outbound distribution and 400,000 for returns processing. On the outbound side, the center moves between 80 million to 90 million books annually, says Olsen. Volumes fluctuate widely depending on the time of year, with the fall releases of September and October, followed by the Christmas season, generating up to 8,000 small-package shipments and 15,000 case cartons (via less-than-truckload carriers) a day.
Those numbers represent only a portion of Time Warner's total book business. Roughly half of all shipments move through Lebanon; the other half goes direct from binderies to big retailers such as Barnes & Noble, Borders and Wal-Mart. For new releases, the DC mostly supplies smaller booksellers and distributors. It also acts as a source of continuing supply for reorders, sometimes years after a book's publication date.
The mix of business at Lebanon creates a complex, multi-modal fulfillment challenge. Looking for the best supplier of a modern TMS, Time Warner needed a vendor that could support both small-package and LTL shipments. Most did one or the other, says Olsen. Bigger systems tended to be oriented toward rail, which Time Warner Books doesn't use, and ocean, for which it depends mostly on freight forwarders to book and control. Yet small-package options "were pretty much glorified mailing systems," he says.
Kitimat to Irista
As it happens, the old Kitimat TMS, which had also been installed at Simon & Schuster and Random House, was evolving into the ideal system for Time Warner Books at Lebanon. The vendor was now known as Irista, the wholly owned software arm of HK Systems. The Irista product started out as a small-package system, but had acquired truckload and LTL functionality. And when it came to routing and rating instructions, Time Warner needed something that could straddle the often-blurry line between LTL and the UPS Hundredweight Program, Olsen says.
Time Warner was no stranger to the people at Irista. Derek Hilson, now project manager in the vendor's office in Mississauga, was a former Kitimat employee who implemented that company's TMS for Time Warner back in 1997. And Irista vice president Peter Hallsworth was formerly president of Kitimat.
Beyond the fact that Irista was populated by familiar faces, Time Warner liked the vendor's attitude. Specifically, says Olsen, Hilson and his team were willing to integrate Irista's TMS, known as iristaTransport, with the customer's existing WMS. Few software vendors today are content with selling stand-alone TMS packages. But Time Warner wasn't shopping for a new warehouse system; it had purchased the code behind the QSSI software and subsequently customized it to the publisher's precise distribution needs. (It was QSSI that recommended Irista to Time Warner, says Hilson.) So Irista undertook the arduous task of writing custom interfaces for its various TMS functions, including rating, routing, loading, shipment planning and label printing.
The new Irista TMS, rewritten atop an Oracle database and reconfigured in a client/server mode, went live at Lebanon in June 2003. The road to implementation wasn't without speed bumps; Olsen says both sides underestimated the time and effort needed to customize the software and integrate it into the WMS. In the early weeks, Irista had to do some recoding. "All the interfacing with the WMS was completely new," recalls Hilson. "We had to build it from scratch."
Within a couple of months, the whole thing was up and running smoothly. For three months after going live, Olsen conducted weekly conference calls with Hilson and his support team. Each Monday morning they would review the system's progress, enhancements, fixes and user-training issues. Irista has since reverted to a normal support mode, although the vendor remains available in the event of a system slowdown or glitch.
The two sides worked closely together to develop and implement the new TMS. "It went pretty much like a normal installation," says Olsen, adding that the parties went through a four-week period of performance "tuning." And Time Warner continues to keep close tabs on the system. It monitors how long Irista takes to rate and route small-package shipments, as well as the overall run time for processing all orders.
How It Works
IristaTransport manages fulfillment from order entry all the way to ship confirmation. Its shipment rating tool draws on multiple rating engines in making calculations. On the routing side, the system incorporates some 2,000 separate routing rules built into the Time Warner database on behalf of its largest customers. Says Hilson: "Time Warner goes to the nth degree to satisfy customer requirements."
Thanks to the vendor's integration efforts, information can move freely through the system. At the beginning of a day, orders are sent to the TMS, mostly in the early hours of the morning, for routing and carrier selection. Irista routes the orders, selects the carrier and passes the information back into the system, which then creates carrier-compliant labels on a high-speed printer. An empty box now becomes available for picking. Hilson says the process takes place within an extremely limited time, often between 60 and 90 minutes.
Carrier selection is a complex process that takes into account multiple criteria. It begins with the "must-arrive-by" date, the crucial element in an industry that depends on the tightly coordinated arrival of new books at multiple sales outlets. The system first filters out all carriers that can't make the designated delivery date. After that, it looks for the most cost-efficient carrier and the shortest route.
Other criteria that go into the routing decision include weight, number of cartons and whether there are specified routing rules for a given order. If not, the shipment goes into an "open freight shop," available to all carriers with whom Time Warner Books has contracts. Prepaid shipments also end up in the open freight shop, with the system identifying the lowest-cost carrier and highest possible service level.
Sometimes the customer's routing rules will allow the system to choose from more than one carrier without making the shipment available to all comers. Each is then individually rated, Hilson says. And there's often room for human discretion. If several carriers fall within a specified price range of the least-cost carrier, then all are considered equally cheap and the shipment goes to the fastest.
Shipment tracing and tracking aren't part of the TMS, but Irista plays a part in the process. It generates a tracking number, according to the chosen carrier's requirements. For a small-package shipment, it creates a manifest file that is transmitted to the carrier's back-end system. The information is also stored within the WMS, so that customer-service reps can draw on it in the event of status inquiries.
It doesn't take a sophisticated TMS to automate the process of routing and carrier selection. The decision may be made within a warehouse or order-entry system. But Time Warner believes such crucial calculations should be done closer to the point where product is shipped, says Hilson. The chances for customer input and ultimate satisfaction are that much greater.
The new TMS has yielded benefits in a number of areas, according to Irista. By automating the choice of service level in line with customer requirements, Time Warner has experienced a steep decline in the use of expedited services. Through the use of radio-frequency scanning technology, data accuracy has improved. The system compares scanned shipping data in the TMS with packing data in the WMS, eliminating the need for data entry at the point of load confirmation. In addition, the flow of information across systems allows for more efficient wave planning. And workloads can be more easily balanced, eliminating the need for redundant capital equipment.
The technology contains built-in flexibility to handle sudden changes in the fulfillment process, Irista says. Carrier labels can be instantly reprinted at the shipping station or elsewhere in the event of an exception or re-routing.
Olsen says the system has held up well. One special publicity mailing generated an additional 12,000 UPS packages in a single day, on top of the regular volume of 3,000 packages. "It didn't collapse under that," he notes.
Time Warner plans additional improvements at the DC. By 2007, Olsen predicts, RFID technology will play a major role in inventory management and order fulfillment. The company will have to reconfigure its conveyors and other equipment to allow for it.
Time Warner will likely expand its use of technology to handle returns. Shipments coming back to the DC are mostly prepaid, with the publisher playing a minimal role in routing. But Olsen sees the possibility of improving truck utilization by scheduling the same vehicle for inbound and outbound moves. And he must cope with the need to re-ship erroneous returns, intended for other publishers. "We have no good way of tracking that," he says. "It's one of the things we want to get into."
Other issues to be addressed by Time Warner in the warehouse include the sequencing of inbound trailers, as well as better processes for order picking and shipment staging in order to balance workloads.
As for Irista, it would like to become more involved on the planning side of Time Warner's operations. It already does some planning, receiving batches of orders for a given period of time, and placing them into the routing guide for carrier selection. The information is then used to decide when orders will be released to the warehouse. Irista's pre-planning module also informs Time Warner of when it needs to release product, so as to meet a specified arrive-by date.
In the future, says Hilson, Irista could take a list of orders and generate various scenarios for handling them, such as truckload or pooling services. Beyond that, it could become involved in broader network optimization, using the system's order-visibility feature to devise alternative routings.
The Lebanon operation put Time Warner ahead of the curve in terms of distribution efficiency. Publishing companies visiting the site were impressed by the technology, Olsen says. Today, some 80 percent of publishers have similar warehousing and transportation applications in place. But in 1997, most book distribution systems were still operating on mainframes and manual order picking, he says.
While others have caught up, Olsen believes Time Warner still has a significant competitive advantage on the distribution end. With the TMS fully in place and old system constraints removed, the company is now actively soliciting new distribution business for the Lebanon facility. The target continues to be smaller publishing houses, with the intention of doubling throughput at the DC.
Whether it succeeds in that ambitious goal remains to be seen. But the limiting factor is no longer technology, or the lack of it. "The question is the success of our sales campaign," says Olsen. "It's not about the capacity of the system."
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