Pharmaceutical Giant’s Warehouse Goes Vertical

By Consulting Specifying Engineer Staff January 12, 2005

Fred Grafe likes to think outside the box. In his role as director of logistics for Toronto, Ontario-based Apotex Inc.-Canada’s largest Canadian-owned pharmaceutical manufacturer-he has had plenty of opportunity to do so. Grafe has kept his team of logistics experts just ahead of the explosive growth their company has experienced in the past few years.

The Apotex Group, a collection of companies that includes Apotex, Novex Pharma, and TorPharm, among others, produces pharmaceutical products that are used to fill more than 55 million prescriptions a year in Canada. And its TorPharm division, which concentrates on supplying the U.S., is quickly becoming a player in the U.S. generic drug market.

In fact, it is TorPharm’s recent growth-and future plans-that gave Grafe and his team their most recent test. With a mandate from senior management to increase annual production at its Etobicoke (pronounced Ett-toe-beh-coke), Ontario plant by 500% in five years-from one billion dosages to five billion dosages-Grafe’s team had to enable the plant’s logistics process to support the extra production. Management’s plan called for a 400,000-sq.-ft. expansion to the plant’s existing 300,000 sq. ft., with part of the space to become a new raw material warehouse that would replace the existing 2,000-pallet raw material warehouse. The company also has a 2,000-pallet work-in-progress warehouse.

“The business case was the opportunity that the U.S. market provides,” says Grafe. Because of how quickly health-care costs are rising in the U.S. and how important generic drugs are in reducing them, being first-to-market is very important for foreign generic drug companies such as TorPharm. TorPharm sells 85% of its product to the U.S., with 12% going to Canada and 3% to other international markets.

Movement to another site would have been cost-prohibitive because of the existing investment in the Etobicoke facility. Also, company owners wanted to keep manufacturing operations there. Located on expensive property just west of Toronto and limited in expansion by a major highway and roads on all four sides, Grafe knew that the project would demand an outside-the-box approach.

An axiom for such a project of this type is that since the company is continuing to grow rapidly, manufacturing or production space is always at a premium to warehouse space. In other words, less space dedicated to warehousing is more space for manufacturing and production, which already operate on four floors in Etobicoke.

“This facility has two primary functions,” says John Sebben, TorPharm vice president of operations. “One is research and development, the second being production, which is manufacturing and packaging commercial products.”

The solution
To maximize available space for R&D and production, while minimizing floor space dedicated to the new warehouse, the logistics team decided on a 50,000-sq.-ft., dense-storage facility, a small footprint relative to the eventual size of the expanded plant. But the small footprint had a catch-the warehouse had to be able to hold all TorPharm’s inventory as well as inventory held for the Novex division (consisting predominantly of raw materials, including packaging, active pharmaceutical ingredients and excipients). This, while still fitting what could be up to 10,500 pallets in 50,000 sq. ft. of floor space. The team had to also deal with the design constraint requiring the new warehouse to maintain temperature and humidity control without affecting storage space plans.

The solution? Go vertical and build the warehouse high instead of wide. That would give TorPharm the ability to conserve floor space for production and at the same time provide enough cubic space for warehousing. While typical warehouses are built 30 ft. high, using forklifts or narrow aisle trucks, Grafe and his team decided to go 65 ft. high with a high-bay design.

“The concept of trying to store 10,000 pallets could be done in a couple of different ways,” says Grafe. “It could have been done conventionally, which would have meant narrow aisle trucks. But the footprint, which is very expensive to the organization, would have been double what a high-bay warehouse would provide us. To us, the most cost-effective floor space is the space we can provide to manufacturing. We knew that the warehouse would have a great benefit if we could use the footprint to go high, and we’ve done that by using a high-bay storage facility.”

A unique approach
The space issue decided, Grafe’s team had to solve the new warehouse’s material handling issues-how to put and pick inventory in a high-bay facility that could not be served by conventional warehouse equipment. With seven two-sided aisle racks (14 sides total) going 13 levels high and 300 ft. long to create the 10,500 pallet “cube” locations (cube-shaped areas where pallets are stored in the racking system), Grafe knew a unique material handling solution would have to be devised.

That solution would have to be a VNA (very narrow aisle) ASRS (automated storage and retrieval system), able to move high and low in his warehouse to put and pick, and to also be an interactive part of the company’s integrated MRP (manufacturing resource planning) system, run using SAP R/3 Enterprise version 4.6C software.

Grafe and Chip Hill, Apotex material handling design specialist, studied the alternatives. Basing their design on site visits with vendors in North America and Europe, Hill got down to the nuts and bolts. Grafe and his team decided on systems from Marietta, Ga.-based FKI Logistex. Together with the vendor, they designed a custom solution using two semi-automatic aisle-changing cranes, which have the option of being upgraded to fully automatic mode. The modified solution minimized the need for more complex aisle-changing equipment and the resulting expense that would have been required.

Using aisle-changing, as opposed to fixed-aisle, cranes also allowed TorPharm to keep its initial crane order to two units and limit aisle downtime, which can be a problem in an aisle where a fixed crane goes down. This custom approach delivered the immediate material handling capacity as well as the flexibility TorPharm needed for the future. Adding in the efficiency of the equipment-both cranes have twin load units that can hold two pallets at one time, enabling them to pick and put more efficiently-TorPharm got an extremely cost-effective solution that saved on initial capital expense and cost-justified the solution in the short and long term.

Safety first
Beyond cost-effectiveness and other hard business analysis that went into choosing the system, the team also looked to health and safety goals. “Because we were introducing a new technology, we really needed to address the health and safety needs of our employees-the ergonomics of the vehicle, the aesthetics of the vehicle, the functionality of the vehicle,” says Grafe.

Equipment features include a safety descent system designed to keep the crane cabin from falling and to lower it in an emergency; twin masts that spread the weight load instead of cantilevering it on one; an escape harness and ladder for emergency access and escape; and a fail-safe end-of-aisle mechanism in the onboard controls that automatically slows down and stops the crane at the end of the aisle to prevent accidents. And there are other controls that protect from extended movement of the crane when its forks are extended.

“We were moving from a very traditional warehouse where an operator could come on and off the truck. Now we have a vehicle that can travel in a 300-ft. aisle, 60 ft. in a captured vehicle. That was a big change, and change is sometimes difficult to go through,” says Grafe.

TorPharm warehouse manager Steve Darnbrough also knows how much his warehouse operation has changed. “Our old warehouse had around 2,000 pallet locations,” says Darnbrough. “We had a low-bay warehouse, with only four levels of racking, all serviced by swing-lift forklift. It was basically pull-down, drop-on-the-floor, and then move to the production area manually or by an electric pump-truck. Now, everything going into the racking goes in on a conveyor that is semi-automated.”

Darnbrough also points out that there are now minimum requirements for human intervention, with basically two means to get pallets to the correct aisle: either key the pallet information in manually through a conveyor interface or have the conveyor bar code reader scan a bar code that tells the conveyor which aisle to send it to.

Poetry in motion
Sound easy? That might be because of the new warehouse’s overall design logic. Upon arrival into the warehouse receiving area, incoming supplies are sorted, separated by batch, weighed and wrapped as needed. The goods are then entered into the MRP system by coding in the purchase order off the delivery manifest, which produces an inspection lot and a label for each container and ensures a closed loop through the MRP system. This careful monitoring of inventory is necessary to maintain compliance with government pharmaceutical standards that mandate the handling of materials by batch.

“We made the warehouse totally integrated,” notes Grafe. “We minimize the amount of human intervention for health and safety purposes. We now have a pull system,” says Grafe. “If you look at the new layout, we try not to double-handle.”

Since these same standards enforce certain clean-facility requirements, TorPharm exclusively uses plastic pallets (everything in the warehouse moves on pallets), which more effectively maintain clean-facility standards and are more cost-effective over the lifetime of the pallets. From receipt in the docking area, pallets are loaded onto a vertical pallet lift, where a scanner reads the first label. A second transaction assigns a cube location for the goods. That transaction produces a destination label, which is affixed to the pallet and tells the down-the-line system where that pallet should be placed.

With the label scanned by a scanner on the vertical pallet lift or manually entered by an operator, off it goes from the loading dock area. The vertical pallet lift then raises the pallet up one level and into the racking area, where a transfer car takes the pallets to the series of small staging conveyors where the cranes pick up and put down their pallets. The system, primarily reliant on SAP as its inventory management backbone, uses software from Grantek Control Systems to direct the conveyors and a component of FKI Logistex Warehouse Optimizer software to interface between SAP and the cranes.

Movement of pallets through the conveyor system is also controlled by a series of photo-eye sensors throughout the system that read the pallet labels and interface with the conveyor PLCs (programmable logic controllers) to tell the pallets where to go. To prevent log jamming of pallets on the conveyors, the system controls divert pallets through the system on a first-come, first-served basis.

Order in numbers
Divided into set aisles, with the first six for raw materials (two designated for Novex materials) and the seventh for finished goods, the new TorPharm warehouse is also divided geographically into a north region (aisles 1-3) and a south region (aisles 4-7) with one crane taking each. Aisle 7, the southern-most aisle, is located the closest to the pickup and drop-off points on the main floor. This division of the aisles into regions enables the system, through the MRP system’s inventory management, to balance the workflow such that a pallet move (a pallet being put or picked) is made in one of the regions, then the other.

With an estimated 3,000 different items to manage in the warehouse’s inventory, the crane system was designed to reach maximum output at 30 pallet moves per hour per crane and currently operates at about 57% of capacity. That roughly breaks down to around 280 pallet moves a day by the cranes to production and an equal 280 returned (560 total). Approximately 32 pallets go in and out a day for product sampling (needed to ensure quality) and approximately 40 pallets of finished goods go out a day for shipping.

The warehouse receives about 90 pallets a day, sends out 20 pallets a day for production at Novex, and ships 15 a day for Novex to its distribution center. Shipments of finished goods for TorPharm and Novex are consolidated to save freight costs. In total, the cranes make approximately 800 pallet moves a day, equating to 5% of the total in-house inventory everyday.

Picking efficiency
Darnbrough sees a big change in TorPharm’s warehouse operation, especially in its picking operations and its use of an RF (radio frequency) system integrated with the MRP system. “I would say the efficiency of the system has really changed,” he says. “Before we would get in a (production or packaging material or finished goods) order through the MRP system that would just print on a printer. What having the [new equipment] has done is force us to use the RF system within the MRP setup. All the (picking) orders are created in the MRP system, they go straight to the RF system and to the RF handheld units that the drivers have on the [cranes] with them.”

The RF system begins the picking loop in the MRP system for the warehouse. When an order for goods is put into the MRP system by a department that needs them, RF sends this information to the drivers. While the RF system does not presently interface with the system, it gives the drivers the location of the order they need to pick. Once they have the order, the crane drivers direct the crane where to go and print out an RF label using a small printer on the crane. This label is affixed to the pallet, enabling it to be followed through the system as it moves to its destination. Picking orders for the crane drivers, of which roughly 40% are less than a full pallet, require the crane operator to manually drive the machine to the location.

At the picking cube location, the drivers pick the necessary pallets and place them on the staging conveyor system, where they eventually flow via the second transfer car out to one of eight pick-up and drop-off points on the warehouse floor level. Here, the warehouse staff uses pump trucks to unload and take these pallets to production. This is also the area where the dedicated pick-up and drop-off point is located for pallets being returned into the racking area, where warehouse staff, also using pump trucks, load them onto the transfer car.

Near-100% accuracy
“Inventory accuracy is, of course, a huge issue,” says Sebben. “In the old environment, we had inventory accuracies of from 60% to 70% in terms of pallets in the right places and the right quantities and the right lot numbers. A Class A MRP-disciplined environment needs to have perfect data accuracy. So, when I joined TorPharm, certainly one of the first things I focused on was to get that warehouse up to 100%.”

To accomplish that goal, Sebben insisted on a set of warehouse performance objectives and principles that Darnbrough’s staff would need to follow. These included a variety of requirements for equipment uptime, preventative maintenance, audit, space utilization, and delivery that would rapidly move the warehouse into the MRP compliance Sebben sought. Today, less than a year after ground was broken on the facility, the warehouse has achieved virtually all of its goals, including an impressive 99.99% location accuracy and 99% quantity accuracy.

Faster, balanced workflow
“This has certainly made us more efficient in that we can now pick more pallets faster,” says Darnbrough. “Although the output of the manufacturing plant has increased by between 50% and 100% from when we were in the old warehouse, we’re still managing to fill production’s needs with only slightly more operators than we used to have.”

Darnbrough adds that unlike operations in the old warehouse, the new crane system has helped him to balance his shifts and his staff’s workflow so that his warehouse operates in a more effective manner. His goal is to develop his staff to be as cross functional as possible so they can manage any aspect of the warehouse routine. That routine includes receiving on all three shifts (averaging six shipments of between one and 48 pallets) and shipping on all three shifts (once a day, Monday through Thursday; usually 24 or 48 pallets, holding back pallets as necessary to fill a load).

Previously, shipping occurred just on day shifts and was managed by the Apotex traffic department. Finished goods are only shipped after being approved by quality assurance, an inline process performed during manufacturing.

In spite of the new warehouse’s increasing automation, TorPharm has actually had to increase staff instead of reducing it, just to keep up with TorPharm’s growth. Moving from what was a 2,000-pallet-location warehouse to one that can store up to 10,500 pallets located further away from the production area keeps TorPharm running 24/5 with three eight-hour shifts during the week and two 10-hour shifts on the weekend.

Warehouse manager Darnbrough also sees an increase in his staff’s skills. “Now there are conveyors to deal with,” says Darnbrough. “The [cranes], which are much bigger than the average forklift, are actually very easy to drive but were completely new to everyone on the staff. Also, adhering to our MRP system has meant that we have to increase the skill knowledge of our staff.”

Training for the material handling systems started with train-the-trainer sessions for three operators that included safety/emergency procedures. “Then it was basically practice getting on the machine, running down the aisles,” says Darnbrough. “The hardest part about driving the crane is actually changing aisles. You’ve got a crane that’s about 25 ft. in length and weighs 29,000 lbs., is 65 ft. high and has double masts that go all the way up to the ceiling. You’re moving that out of a secured aisle with top and bottom guidance and 480-volt electric-rail guides, and then directing that crane back into an aisle that’s only five ft. wide. That takes some practice.”

TorPharm has 12 trained drivers out of a warehouse staff of 18 (there are also has four warehouse supervisors. Driving the cranes, which turn around at the far side of the warehouse, is split evenly among the shifts, with two drivers and two backup drivers on each eight-hour shift.

“The work is more structured now in that every-thing goes to the driver,” he adds. “The [crane] drivers and the operators on the floor are in constant contact by radio so they know who’s getting what orders, what needs to be processed, whereas in the old warehouse, orders would just print out on the printer and it would be a kind of ‘we’ll get to it when we get to it.”

Moving forward
With growth not appearing to stop for TorPharm anytime soon, the company is also enlisting these same material-handling systems for a new project, to be completed in March or April 2004. This project will employ a fully automated, single-lane, double-deep aisle-changing crane and a series of tote-bin washers. This system will enable the company to automate the cleaning and storage process for pharmaceutical materials stored in large tote bins, which are carried in and out of manufacturing.

Capable of also upgrading the existing equipment to a fully automated mode, TorPharm is looking at additional automation of its facility that will include AGVs (automated guided vehicles) that will shuttle material within the newly built production area, scheduled to be completed by May 2004.

“We’re running the cranes now in semi-automatic mode as a stepping stone to automation,” notes Sebben. “We can scale to a fully automated facility in the future if we wish to convert it.”

Still, with all of the changes happening at TorPharm these days, Sebben says that in many ways the cost-savings and return on investment of the company’s automation efforts have been far overshadowed by how much they are enabling the company to keep pace with its explosive growth.

“That’s been the least of my worries,” says Sebben. “My priority is managing growth.” If TorPharm’s team continues to stay outside the box, that should work just fine.