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You've probably seen the advertising mini-series on television sponsored by CDW. Greg, an entrepreneurial castaway, sends a message in a bottle to CDW asking for help. Soon a plane drops a wireless laptop and cell phone to get Greg connected, along with a note from Bob, Greg's personal account manager. As the series progresses and Greg's island business grows, he places multiple orders and receives fast, air-dropped shipments of a lot more "computer stuff." In the latest installment, Bob and a team of specialists advise Greg and his chimpanzee sidekick on how to protect their now extensive network during a tropical storm.
The engaging Greg-and-Bob serial drives home CDW's commitment to delivering "the right technology, right away"-the company's slogan-and to providing a highly personalized service that includes a dedicated account manager for every customer. It's a formula that has well served the 25-year-old enterprise, which was founded when a young Michael Krasny sold his used IBM desktop through a classified ad-and saw the potential for selling a lot more. Now under the leadership of John Edwardson, CDW last year took in $6.8bn, was number 342 on the Fortune 500 list and is a market leader in providing technology products and services to business, government and education.
"Our sweet spot is small- to medium-sized businesses with 20 to 500 seats," says Douglas E. Eckrote, senior vice president in charge of operations, logistics and customer services. A division called CDW-G focuses on government sales as well as the education and health care industries. "Direct to consumer is really the only area where we don't have a focus," Eckrote says.
CDWs sells "just about any product that you can think of around the computer, including the computer itself," he continues. In addition, the company sells consumer electronic products typically found in corporate offices, particularly large plasma TVs and DVD players. It has an extensive after-sales service business as well as on-site services to help companies set up their data centers and networks.
Until last year, the company's phenomenal growth was supported by one distribution center at its headquarters in Vernon Hills, Ill., outside of Chicago. Even after two expansions, which brought the warehouse to 450,000 square feet, that facility was operating at 100 percent capacity, Eckrote says. "Anytime you try to run a DC at 100 percent capacity you end up having to touch items multiple times and overall service levels start to decline," he says. There was no more land for further expansion at Vernon Hills, so CDW started researching where to locate a second DC.
The company immediately looked to the West Coast since 20 percent of its orders come from California. Moreover, to meet the company's guarantee of two-day delivery, it was subsidizing the shipping on many West Coast deliveries. "We basically were shipping everything to the West Coast on two-day delivery for the price of ground," Eckrote says. "We were subsidizing all that freight in order to get products into the hands of our customers more quickly."
Those factors and CDW's own internal research pointed it westward. Before making a final decision, however, CDW conferred with its suppliers, both OEMs and distributors, to see what made sense from the standpoint of their supply chains. "We also worked with our primary carriers-FedEx, UPS and DHL," says Eckrote.
After those discussions, everything really narrowed to Nevada, he says, and the final choice was between Reno and Las Vegas. Las Vegas won out for a number of reasons: CDW's major distributors are within a day's transit time as is the port of Long Beach, where most imported products are landed; McCarran International Airport in Las Vegas has a robust cargo operation; and road transport between Las Vegas and California doesn't present the same weather concerns as does the Reno-to-California route. "So we put a flag in the map at Las Vegas, bought the land and began construction," Eckrote says.
Anxious for the new capacity to get online as quickly as possible, the project was put on a fast track. "We were really under the gun on time," says Ray Nair, director of operations for the Las Vegas facility, known within CDW as the Western DC. "We basically had about six months from the time the first concrete poured until we shipped our first box." Given the 513,000-square-foot size of the Las Vegas facility, "that's pretty amazing," Nair says. "The only way we were able to pull it off was by having the right people on board who held to their commitments and came through on time, because if one thing had slipped, everything else would have slipped as well."
CDW's design and integration partner in the project was Matco Distributors of Milwaukee. "Everything was happening at once. As we were pouring concrete and tilting up the outside walls, Matco was simultaneously putting in conveyors and racking systems," says Nair. "They were literally working as the walls were going up around them."
The facility opened in February 2006. With more than 11 acres of interior floor space and seven miles of conveyor belts, it tripled the company's distribution capacity.
One of the advantages for CDW of building a new facility was the ability to incorporate lessons it had learned from its Vernon Hills operation. "When we sat down with Matco, we started with the fact that there were some things we wanted to do differently," says Eckrote. While Vernon Hills also is a highly automated facility and has great productivity and customer satisfaction numbers, the building has some physical limitations. "With a blank piece of paper, we started by asking what we would change in our Vernon Hills operation if we could," he says.
At the top of that list was to have dock doors on both sides of the building. In Vernon Hills, because of the building's location, all the dock doors, both shipping and receiving, are on one side. "Having doors on both sides of the building in Las Vegas was a must for us," Eckrote says. The new facility has 80 dock doors, 40 on each side, with a flow-through design.
The next focus for change was the configuration area, a specialized section of the warehouse where CDW performs custom configurations of computers, a big part of its business. "In Vernon Hills everything that went into a custom configuration-such as hard drives, memory modems and software-had to be picked by hand and carted over to the configuration area," says Eckrote. "In Las Vegas, we wanted to come up with a way to get those products into the configuration center automatically. This would eliminate time and extra labor. So we made sure we built high-speed conveyors that could do that." Conveyors in the facility were made by Siemens.
The configuration center is Las Vegas is a 25,000-square-foot clean room. "We do a lot of customized work on computers and servers here," says Nair. "For example, a school district might order 500 laptops and want to have a specific school image loaded on each of those. They might also ask us to configure the computers with specific combinations of software and memory, add asset tags for keeping track of them and then deliver the right assortment to each school in the district. In the old days, an IT department would have ordered all the laptops into their central building, configured them there and then shipped to different end-user locations. Our ability to do all of this in a one-stop-shop approach gives us tremendous flexibility and keeps us very competitive."
Another key element that CDW wanted in the Las Vegas facility was the ability to induct empty boxes into the system, which would enable order fulfillment to be paperless all the way to the very last step of the process. "We tried to do that in Vernon Hills, but because of the type of conveyor we have, which uses spirals to save space, empty boxes just would not travel," says Eckrote. The conveyor system installed in the Western DC allows CDW to induct single, empty boxes for its pick-and-pack shipments. The boxes start with an assigned and automatically attached barcode license plate. They are conveyed to picking zones where a picker grabs a box and scans the license plate. This triggers CDW's warehouse management system to capture the order assigned to that box. All items to be picked are barcoded and stored in racked bins. Pickers scan each item for accuracy before putting it in the box. When all items from one zone are picked for an order, the conveyor directs the box to the next zone containing items for that order. Once all items are picked, the box is directed to the packing area. Here a digital photo is made to validate the contents if questions later arise and then packing material is added and the box is taped. It then goes through another scanner tunnel, where the license plate on the box is again read, triggering the automatic printing and application of a shipping label. An automatic sorter diverts each box to the loading area for the appropriate courier. "There are no humans involved in any of this process. It is all done by scanners, which is different from what we do in the VH location," says Eckrote.
Cased items are in a ready-ship area. Once pulled, they also are put on the conveyors which take them through a scan tunnel. Here, the scanner not only captures the product number and marries it to an order; it also captures the serial number. That number is printed on the packing list and also on the customer invoice.
Ready-to-ship packages are directed by an automated sorter to the appropriate dock door. "We typically do an initial sort on our dock," says Eckrote. FedEx, UPS and DHL load and dispatch numerous full trucks during the day, each loaded with orders bound for the same geographic area.
To facilitate a smooth opening of the new DC and to ensure that CDW's strong corporate culture was transferred intact, 50 associates from Vernon Hills volunteered to transfer to Las Vegas. "Culture is a huge part of our corporate philosophy," says Nair. "Because we knew we were going to hire a couple of hundred new co-workers locally, we wanted to make sure we had the right people here leading the team." Each volunteer made a commitment to stay for one year, but so far only two have opted to return.
Of the 210 new employees added, more than 130 now have been with the company for more than a year. "We have more of a veteran crew now and that is reflected in our productivity numbers, which keep getting better every month," says Nair.
The facility operates around the clock, but because of the high level of automation only one shipping shift is required to process an average of 23,000 orders per day. Shipping starts at 1 p.m. and generally wraps up a little before 10 p.m., Nair says. Receiving starts around midnight and the early morning is dedicated to put-away.
In addition to adding capacity, the Western DC also enabled CDW to improve customer service.
"Our competitive advantage is speed of execution," says Eckrote. "Our customers are used to placing an order with us today as late as 7 p.m. and having us be able to pull it from inventory and ship it overnight to get it to them the next day, if that is what they need."
Meeting that commitment for West Coast customers is a lot easier with the new DC. "We analyzed our transit times to see which orders should ship out of Las Vegas and we found that the magic break point for us was right around the Mississippi River," says Eckrote. "That's not an exact break, but it's close. Shipments to points west of the Mississippi generally ship more efficiently out of Las Vegas." CDW has programmed its order management system so that this designation is automatic. "It's not something the account manager has to think about," he says.
If the first-choice DC is out of a particular item, however, the order automatically shifts to the other DC for shipment. "If an item is not in stock in either location, then it will go on back order at the original location and a replenishment order will go out to suppliers so that it will be in stock and able to ship either the same day or the next day."
The ability to get replenishment from suppliers within 24 hours was a key part of the site-selection process. "We already had that in Vernon Hills and it was important for us to maintain that capability at the Las Vegas facility," Eckrote says. "Having distributors close to our DCs means that we often can get stock in the same day, or worst case, we can have it tomorrow."
CDW also buys directly from OEMs, usually for larger quantity items. "Because of our size and purchasing power, we can sometimes get special prices or rebates that help our customers with their competitive pricing," he says. "When people look at our size, they often ask why we don't buy 100 percent direct. We could, but the reason is because our distributors can provide us that quick service. Plus, there are a lot of things that we don't sell enough of for it to make sense for us to physically stock the product, and we depend on our distributors for those."
In either case, CDW keeps a close watch on inventory levels. "We operate at about 24 to 25 turns annually, so we are very good at managing our inventory from a turn standpoint," Eckrote says.
The redundancy of a second DC also protects the company against disruptions. "When Chicago has a bad snow day or the airport is shut down, our systems are flexible enough to flip orders from Chicago to Vegas or vice versa," says Eckrote. "We used that capability several times last winter when Chicago was hit with inclement weather. We never had that option before and it's a really a big win for our customers."
CDW uses a proprietary warehouse management system developed by its in-house IT staff. "We think our system is a competitive advantage because it gives us a lot of flexibility and response speed," Eckrote says. "Plus, if we need to change something to improve productivity, we are able to do that much quicker since it is our own homegrown system."
To maximize its new ability to ship from a Western location, CDW worked with FedEx, UPS and DHL to come up with new shipping options for its customers. "We wanted to get as much bang out of this new warehouse as we could," Eckrote says. "As a result of working with our carriers, we now have an overnight ground shipping option to California, so the 20 percent of our customers in California can now get their products faster at an even lower rate-and the service is guaranteed."
The company also responded to customers who were asking for a less costly deferred ground option. "Shipments to parts of the Southeast normally would be handled by Vernon Hills, but we had a lot of customers who were saying they could wait a day or so for delivery if that meant lower rates. So again we worked with our carriers and picked up a deferred ground option. With this option, shipments for the Southeast ship out of the Western DC. It takes one or two days longer to get to the customer, but in some cases the freight savings are as much as 20 percent. So that is a win/win for everybody. We are able to increase volume in the WDC and our customers are able to get their products in a less expensive manner."
When customers order they select which carrier they want to deliver. "We list all the different carriers on the screen from the least expensive to the most expensive, so it definitely is to the carrier's advantage to offer lower pricing because that places them higher up on the list," Eckrote says. Of course, some customers already have existing accounts with one of the carriers and decide on that basis. For customers within a 50-mile radius of either of the DCs, CDW uses local messenger services to make the delivery. "Just as we like to give our customers a range of choices when it comes to our products, we also like to give them shipping choices," Eckrote says.
The addition of a second DC also has enabled CDW to pay more attention to ensuring compliance with its receiving requirements. With the added capacity, "we are doing a much better job on holding our suppliers and carriers to standards on things like the carriers we want to use, dock appointment times and the way we want our skids to look," says Eckrote. "This has greatly increased the level of compliance, which really helps on the efficiency of our receiving process." It also has cut down on the number of trucks that deliver to CDW on a daily basis. "The trucks are fuller and meeting the standards we have set up for them, which is a real positive," he says.
On the outbound side, the company also is working more closely with carriers and holding reviews with them on expectations, he says. "This has cut down on the amount of damages and improved our on-time delivery. Before we had two DCs, I don't think we did as good a job as we might have on looking after the goods after they left our building. We have really improved in that area. Now we look at our supply chain as everything from the time the order is entered until the time the customer signs for it. We really see it now as end-to-end and we are looking for how we can take time out and improve the overall customer experience."
With the ability to handle up to 96,000 outbound cases every day, the Las Vegas DC still has a lot of capacity to tap. "Based on our current growth projections for the company, we think we have enough space to hold us until 2011," says Eckrote.
CDW At a Glance
The company: CDW is a leading provider of technology products and services for business, government and education.
Headquarters: Vernon Hills, Ill.
Top Executive: John Edwardson, chairman and CEO
Net Sales: $6.8bn in 2006
Trading Symbol: CDWC (Nasdaq)
Awards: No. 342 on Fortune 500 (April 2007); No. 2-Specialty Retailers category-America's Most Admired Companies (Fortune, March 2007); No. 19-20 Great Employers for New Grads (Fortune, May 2007).
Matco Distributors, www.matcodist.com
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