October 31, 2007, 12:00 AM

Space Launch

Reworking their warehouses with web technology, retailers make more room for multi-channel orders.

At its reworked and web-enabled distribution facility in Ottawa, Kan., things are looking up for American Eagle Outfitters-literally as well as figuratively. Workers climb up four levels of product-picking modules to fulfill direct-to-consumer as well as store orders in a facility designed to process more orders in less time on a contained warehouse footprint.

The vertical warehouse design, by building up rather than out on one level, has saved the retailer the approximately $12 million cost of constructing another 200,000 square feet of floor space to meet the demand of its online channel, says Rick Stukus, senior general manager distribution at the Ottawa complex.

Faster, cheaper

But just as important, Stukus adds, the redesigned warehouse has increased the retailer’s control over and reduced the cost of fulfilling direct-to-consumer orders and meeting the challenge of processing the onesies and twosies orders formerly handled by a third-party logistics provider, or 3PL. “We figured we could do it faster, better and cheaper without running the risk with a 3PL that it may not stay in business,” Stukus says. American Eagle sold about $200 million online last year, up about 50% from the prior year, according to the Internet Retailer Top 500 Guide.

The same Ottawa facility is distributing products under American Eagle’s aerie apparel brand to online customers as well as to stores. The retailer plans an aggressive expansion of aerie stores to 44 from 17 this year as part of a 5-year growth plan.

In taking control of its own warehouse management for a combined store and direct-to-consumer distribution center, American Eagle is an early example of a trend in retail fulfillment to use web-enabled systems to maximize efficient use of warehouse and distribution facilities to serve a fast-growing e-commerce channel while meeting the inventory requirements of stores.

Many warehouse management systems have been developed over the past few years in web-enabled infrastructures that supported automated updates of inventory levels as new products are received and others are sold and shipped. As these web technology environments have evolved under service oriented architecture-which uses web services technology to integrate disparate applications with automated data flow- they’ve become even more capable of providing the flexibility that multi-channel retailers need to run the increasingly complex demands on warehouse operations, says Greg Aimi, research director and supply chain analyst at research and advisory firm AMR Research Inc. “Service-oriented architecture makes it easier to deploy more effective warehouse management systems,” he says. “It can help make warehouse management systems work more easily in more complex environments, especially where processes from multiple business systems need to be integrated in real time.”

Early warehouse management systems were designed to handle relatively simple order fulfillment, processing orders one at a time. But thanks largely to the Internet as a selling channel, things are more complex now, says Tom Kozenski, vice president of product strategy for RedPrairie Corp., a provider of web-enabled warehouse management systems and other supply chain technology. “With the web channel, we have a live set of orders coming in all the time, and many orders get routed for special treatment like adding personalized logos and gift boxing,” he says. “Service oriented architecture makes that possible. With SOA, our warehouse management system can talk to and share data with multiple systems.”

Indeed, there are several things that the most modern web-enabled warehouse management systems bring to the retailer’s table:

l Because the warehouse systems are able to automatically and simultaneously pull data from multiple order management systems, handling both web and store channels, they can fulfill orders from the same stock of inventory, saving on warehouse space otherwise dedicated to separate stockpiles of the same product SKUs;

l They provide for faster and more efficient picking of SKUs, as workers receive pick instructions based on near-real-time updates of incoming orders and available inventory;

l They let managers pull reports through web browsers, also in near-real-time. Those reports can combine data on customer orders, inventory and pick-and-pack operations so managers can view critical performance measures like orders processed per hour, inventory turns and worker productivity. Rather than wait a day or more for such reports as they did under older systems, retailers can instantly act on problems or opportunities. They can add workers if productivity slips, for example, or arrange for additional supplies of hot-selling items.

Long way to go

Many retailers, however, have a long way to go to realize such benefits. A study in July and August by Aberdeen Group Inc., “High Octane Warehouses-How Top Companies Use Capabilities Like Labor Management, Slotting and Speech-Based Warehousing,” found that most retailers and others involved in warehousing, including manufacturers, distributors and transportation providers, recognize the importance of more efficient warehouses as a way to cut costs and improve profits. Yet only about 25% of companies in the study use one or more high-performance warehousing techniques, such as advanced picking methods and labor management.

Retailers often prefer to spend resources on other things, such as sprucing up stores and web sites as well as on marketing and merchandising plans, leaving logistics to lower priority, some experts say.

But retailers have an opportunity to improve the accuracy of their inventory data by deploying web-enabled warehouse management systems that integrate with online order management and store replenishment systems and that update inventory records as goods are received as well as when products are sold.

Some of the most cutting-edge deployments of warehouse management technology push things a big step further, taking incoming orders, matching them with current inventory data, and automatically assigning order and SKU picking to warehouse workers. As a result, experts say, retailers wind up with better organized and more efficiently used warehouse space, and they get more orders out the door in less time. Providing such capability outside of a web-enabled infrastructure would take extensive and expensive software coding work, making it hardly worthwhile, Aimi says.

The benefits of modern web-based warehouse management can materialize in surprising ways for retailers long accustomed to processes that had relied on extra warehouse space and labor forces to make it through their busiest seasons.

Consolidating space

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