Multiple-Site
  Distribution Network

  Boosts Efficiency, Reduces Costs

[ By John W. Seiple, Jr. and Gregory J. Arnold ]

In an increasingly competitive global marketplace, savvy manufacturers and distributors are seeking ways to streamline distribution channels and realize cost and time efficiencies. They are facing increased pressure to enhance supply chain systems and address both customer demands and customer preferences.

For more information: ProLogis — www.prologis.com

In 1997, Unilever Home and Personal Care (HPC), the global consumer products giant formed through the mergers of Lever Brothers Company, Cheseborough-Ponds and Helene Curtis, faced such a problem.

Confronted with a need to rework its real estate network and to serve its vast distribution requirements to retailers across the country, Unilever had to merge the supply chain operations of three different companies while consolidating more than 15 locations in North America. The company’s goal was to simultaneously reduce land ownership and distribution costs and more adeptly deliver its portfolio of products — ideally in a single day and shipment.

In order to fulfill these objectives, Unilever had to overcome two specific challenges. First, it had to develop a distribution network that could accommodate its massive customer and product base. Second, this network had to enhance customer service by improving speed-to-market deliveries in major areas across the country.

Expanding on a Relationship

Unilever had concluded that it needed five buildings around the country. ProLogis, in tandem with INSIGHT, quickly determined that the key to Unilever’s optimization plan would be to establish strategic real estate locations around the country and a flexible distribution network capable of accommodating future growth and/or consolidation. With the help of INSIGHT’s SAIL’s software, ProLogis and INSIGHT proposed an aggressive optimization plan that consolidated Unilever’s logistics operations and established facilities in major transportation hubs. California, Georgia, Illinois, Pennsylvania and Texas were identified as strategic locations for the facilities. From there, ProLogis took its understanding of Unilever’s specific needs and identified six potential locations in each of those states.

ProLogis helped Unilever create a new, five-facility distribution network totaling 4.9 million square feet. Unilever anticipates more than $20 million in savings yearly and close to a one-year payback on its investment.

Using local expertise in each market, ProLogis estimated various costs associated with the locations, including construction, labor and transportation costs. Then the company negotiated with local authorities for various incentives. When all was said and done, ProLogis determined the best single location within each state — Rialto, California; Palmetto, Georgia; Pontoon Beach, Illinois; Carlisle, Pennsylvania and Mesquite, Texas. Unilever presented ProLogis with a daunting challenge, requiring that the five facilities be completely operational within two years. Consequently, ProLogis’ development team outlined a fast-track timetable, consisting of two phases.

Phase One included the design of the interior improvements and the equipment needed for efficient operations. Designing this portion first would allow for more efficient design and development of the facility itself. Phase Two involved the site work and shell construction. Taking into consideration the tight time schedule, ProLogis’ project managers worked closely with local authorities to secure the necessary permits for the shell and tenant improvements.

ProLogis’ senior project manager coordinated the five projects to ensure overall consistency in the design, quality, cost and schedule. It was critical that each building be designed and operated in the same way, in order to increase predictability of deliveries and enhance the efficiency of the overall network.

In addition to managing the fast-track development process, ProLogis also provided Unilever with a traditional, but flexible, real estate lease structure. ProLogis was able to arrange financing for the racks and material-handling equipment within the buildings and coordinated the construction schedule so that Unilever could proceed with the installation of the racks and handling equipment before the building shells were even complete.

Construction was completed on or ahead of schedule for all five facilities. Due to the fast-track timetable, the distribution facilities were accepting goods within two weeks of completion, and shipping goods within another two weeks. To serve as a contrast, it typically takes three to four months for a new distribution center to be set-up and become fully operational.

The Unilever optimization plan resulted in fewer facilities and dramatically reduced real estate and supply-chain costs through a streamlined, reconfigured and consolidated distribution network. Each of the five distribution centers seamlessly integrates with one another, and provides comprehensive distribution coverage from one end of the country to the other.

The New Network

The Carlisle facility includes approximately 10,000 square feet of high-end office areas, including a lunchroom, vending and locker area; and 4,200 square feet of warehouse office/restroom/breakroom improvements for warehouse employees. The construction of the site required a Conditional Use Permit and Land Development Plan submittals. The process started in December 2000 and was approved in August 2001. The site also had underlying rocks, which required specialized equipment to complete excavation and trenching.

The completed Georgia facility, located 25 miles southwest of Atlanta in Palmetto, is a building custom-designed to meet Unilever’s distribution needs throughout Alabama, Florida, Georgia, Mississippi, North Carolina and South Carolina. In June 2002, Unilever signed a 10-year lease with ProLogis that included 443,520 square feet, adding to an original 600,000-square-foot facility. The Palmetto facility, totaling over one million square feet, is designed to distribute all of Unilever’s Home & Personal Care products to customers in a single shipment and within a short amount of time.

Unilever HPC, ProLogis and GENCO formed an alliance to both plan and develop the site. ProLogis, which acquired the original Unilever Palmetto site in 1999, provided design and engineering expertise. The expanded center can support multiple operations, including consolidated fulfillment and customized pallets. Currently, the site is used to distribute products to retail outlets such as Wal-Mart, Kmart and other major retail chains throughout the Southeast.

The Rialto, California, distribution center totals over a million square feet and services the Western Corridor, including Washington, Oregon, Idaho, California, Nevada, Utah and Arizona. Construction began in July 2002 and the facility was completed in March 2003, as scheduled. Rialto is located 5.7 miles from an intermodal site. As modeled, this site accommodates the third highest volume in the network. Lowe’s, Home Depot, FedEx, Philips Electronics, Pepsi and Ralph’s Grocery all have distribution facilities in this region. Tax increment financing was available as an incentive. Exel is the selected third-party logistics provider operator for this warehouse.

The Mesquite, Texas, facility is almost complete and will total 442,435 square feet of distribution space. The facility’s close proximity to Dallas and Interstate-635 will enable Unilever HPC to deliver nearly all of the company’s products to major retailers in Texas, Oklahoma, New Mexico and Arkansas within one day.

This facility will allow Unilever HPC to work more effectively in the region with Garland, a third party logistics provider, and the nearby Bestfoods facility, both critical to the health of the company’s supply chain.

The Pontoon Beach facility in Illinois is near completion and will total over 1.2 million square feet of distribution space. Located on the outskirts of St. Louis, the facility will enable Unilever HPC to deliver nearly all of the company’s products to major retailers throughout the Midwest within 24 hours. ProLogis decided on this central location because of its close proximity to multiple transportation routes and shipping routes throughout the Midwest.

Results

The state-of-the-art distribution network has met the goals that Unilever set at the beginning of this project. Customer-service levels have improved, with one-day transit service climbing from 72 to 86 percent. Unilever recognized that to be successful in today’s market, companies must be able to meet and exceed their customers’ demanding, and escalating, service requirements. Customer-service levels are expected to surpass 90 percent as operations mature over time.

Unilever also anticipates cost savings exceeding $20 million a year, providing a seven percent reduction in the total cost of its logistics operations and close to a one-year payback on its entire investment in the project. In addition, the total floor space for the five new facilities is 4.9 million square feet, nine percent below what the original 15 facilities had been.

Recently, ProLogis and Unilever expanded their relationship to Europe, signing a build-to-suit agreement for a centralized distribution center in ProLogis Park Piotrkow, located in the heart of Poland. This is the first international agreement between Unilever and ProLogis, building on the relationship that began in the United States that currently consists of more than 5.3 million square feet of logistics space.

ProLogis Park Piotrkow is located in central Poland, approximately 130 kilometers south of Warsaw. The 442,149-square-foot facility will be constructed in two phases. The first phase is expected to be complete in December of 2003 and the second will be fully operational in April 2004. Unilever is consolidating its logistics capabilities in Poland, due to new opportunities for efficiency created by the advent of the European Union.

Outsourcing logistics operations to industry experts allows companies to focus on their core businesses. With the number of stock-keeping units (SKUs) constantly on the rise, businesses are relying more heavily on real estate providers with supply chain expertise to develop systems that can meet particular distribution demands. Companies need end-to-end, turnkey solutions to deal with current and future challenges.

John W. Seiple, Jr. is president and COO, North America, at ProLogis. Gregory J. Arnold is senior vice president of the company’s Global Services Group.