HK Systems Targets Additional Growth with HK Production Logistics
Mossville, Illinois USA
January 21, 2009
By
Evan Armstrong
Key Personnel:
John Splude – Executive Chairman, HK Systems
John Hines – President, HK Production Logistics
Mike Judis – Vice President, HK Production Logistics
Company Background
HK Systems has roots extending back to the 1960s as the warehousing and distribution automation division of Fortune 300 manufacturer Harnischfeger Industries. In 1993, HK Systems current Executive Chairman John Splude led a management buyout of the division and created a separate private company. HK Systems then began a successful sequence of strategic acquisitions in the material handling industry to develop a portfolio of material handling systems, supply chain management software, and components. Today, HK Systems is a major provider focused on designing, building, and deploying complex, turnkey warehouse management and distribution solutions. Its key markets include Food/Beverage, Consumer Packaged Goods (CPG), Industrial, and Publishing/Printing with customers such as: Anheuser-Busch, FedEx, Ford Motor, Nestle Foods, Procter & Gamble, and The New York Times. HK Systems revenues are an estimated $250 million.
Given its expertise in designing complex warehousing and distribution operations, it may not be such a surprise that in 2007 HK Systems founded a third-party logistics provider (3PL). HK Production Logistics (HKPL) began through its acquisition of a small 3PL–Inventory Technology, Inc. (ITI). ITI was performing inbound manufacturing support services to Caterpillar, Inc. from a warehouse one mile from Caterpillar’s Mossville, IL manufacturing campus. During the due diligence process, HK Systems realized that it could streamline the current operation and improve Caterpillar’s service levels by developing its own technologies and processes. As part of improving operational efficiencies, HK purchased a 570,000 square foot warehouse on Caterpillar’s Mossville campus. HKPL also inked a 10-year contract with Caterpillar and began to automate operations and install new systems.
At the start of 2008, HKPL began full operations for Caterpillar and has since developed core 3PL service capabilities in value-added warehousing and distribution including: manufacturing support, vendor managed inventory (VMI), kitting, light assembly, packaging, labeling, sequencing, and just-in-time distribution. HKPL is ISO certified, has revenues in excess of $30 million, and employs approximately 400 people. Going forward, its strategy is focused on developing new 3PL business from industrial manufacturing and high-tech companies.
HKPL Caterpillar Mossville Engine Center (MEC) Operations Overview
Caterpillar is the world’s largest manufacturer of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. The Mossville Engine Center (MEC) produces engines for boats, ships, trucks, power generators, and construction and mining machines.
To support the manufacturing operation and its just-in-time inventory management requirements, there is succinct operations coordination and communication between HKPL and Caterpillar. HKPL receives engine parts and components from Caterpillar’s global suppliers at its warehouse each day. It provides storage for over 35,000 stock keeping units (SKUs) of parts and components, performs multiple value-added services including assembly and advance kitting, and sequences kits, parts, and components to Caterpillar’s assembly lines in a separate campus building. The HKPL operations run 24 hours, five days per week.
Caterpillar sends HKPL a production schedule three days before its start-on-line (SOL) date. From receipt of the production schedule, it must build the required assemblies, kits, and sequence parts so they are available to Caterpillar five hours before going into the manufacturing assembly line. HKPL is building approximately 185,000 assemblies and kits each month.
The operation is highly automated. HKPL deployed Oracle’s E-Business Suite for its enterprise resource planning (ERP) and warehouse management system (WMS). The warehouse management system is linked to over 200 radio frequency scanners to drive tasks and provide production and inventory visibility at every step in the process. Oracle interfaces with HK Systems own equipment management system (EMS) which drives automated picking and receiving via automated storage and retrieval systems (AS/RS).
HKPL Caterpillar Mossville Engine Center (MEC) Operations Tour
The main “floor” operations part of the HKPL MEC 570,000 square foot facility is split into inbound receiving, one major kitting area, seven assembly work cell areas, one major and two minor outbound shipping docks, and a completely enclosed AS/RS storage area. The layout is shown in the figure below.
HKPL Mossville Operations Layout