Hy-Vee partnership will optimize warehouses
for a soon-to-be Wisconsin business
 hen a store runs low on a product, an employee orders more from the warehouse, and when inventory at the warehouse runs low, an employee places an order with the supplier. The product arrives at the warehouse via truck, is put away on pallets, and later pulled out again to be put onto other trucks for delivery to the store.
This basic supply chain process is how retailers have operated for decades. While it is a simple process, it is not the most efficient, cost-effective strategy to manage inventory, according to Professor Raj Veeramani and Assistant Professor James Luedtke, who are researching new ways to optimize supply chain management for retailers. Their research is part of a new partnership between the UW-Madison School of Human Ecology Center for Retailing Excellence, with which Veeramani and Luedtke are affiliated, and Hy-Vee Inc., an employee-owned retailer with plans to open its first Wisconsin store in Madison in fall 2009.
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Hy-Vee has developed a flow-through ordering system, which has reduced warehouse inventory by more than 50 percent, and in an effort to build on the existing system, the company has awarded a one-year, $84,948 grant to Veeramani and Luedtke. For their project, titled “Warehouse Management for Hy-Vee Flow Through System,” Veeramani and Luedtke will focus on how to transform warehouse practices and leverage information technology to tackle the basic challenge of supply chain management: delivering the right products in the right quantities at the right time and place for minimal cost.
Hy-Vee, which is based in West Des Moines, Iowa, operates 225 supermarkets and drugstores across the Midwest. The company, which emphasizes wellness, freshness and one-stop shopping convenience, is ranked among the top 30 supermarket chains and top 50 private companies in the Unites States.
“Hy-Vee is excited about the partnership with UW-Madison and we believe the results of this project, coupled with our existing processes, will become the most efficient replenishment system in the industry,” says Dan Gubbins, Hy-Vee director of business analysis.
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Veeramani and Luedtke will develop a design for a new warehouse process based on the flow-through philosophy and create a system that can operate the new process efficiently. The research will challenge the assumption that warehouses must put product received from a supplier away before preparing shipments to individual stores. Instead, Veeramani and Luedtke will design a process to allow Hy-Vee to flow most of the product directly from supplier trucks through the warehouse to trucks bound for stores. The eliminated step enables warehouses to carry less inventory overall.
To achieve this, Veeramani and Luedtke will use optimization techniques to improve the Hy-Vee model for estimating the right amount of product to order. “You can’t just order a little extra of everything when you’re dealing with large-scale retailers,” says Luedtke. “The goal is to have less inventory, while still having enough to avoid having empty shelves at the stores.”
Veeramani and Luedtke are focusing on the intellectual challenges of an entire class of retailing issues, which could affect the entire industry. “The collaboration between ISyE and the Center for Retailing Excellence reflects the Wisconsin Idea of community building that fosters cross-campus collaboration and interdisciplinary work,” says Human Ecology Associate Professor Nancy Wong, who is the faculty director
for the center.
Veeramani agrees that the project highlights what multiple departments can achieve together. “UW-Madison has a comprehensive set of faculty expertise across multiple disciplines to address the complex challenges and new opportunities facing the retailing industry, and the Center for Retailing Excellence and ISyE have come together to focus on innovations in supply chain management, which is key for any retailer to be successful,” he says.
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