June 1, 2011, 9:20 AM

Welcome to the Machine

Robots zip around more distribution centers, part of a building boom in e-retail warehouses.

With more online customers expecting quick deliveries and its Davenport, Iowa, distribution center running out of space, department store chain Von Maur Inc. last fall placed an expensive bet: It deployed a robotic fulfillment system designed to make its warehouse more efficient.

No longer does Von Maur have to take 35 or so employees away from other tasks during the holiday shopping season so they can navigate warehouse aisles and climb ladders in the scramble to pick and pack items customers purchased online. In their place are robots that look like brightly colored boxes on wheels. The robots lift and move pods full of items, and bring them to pick stations, where the products are picked, scanned and controlled by one or two human workers who remain stationary.

The robots enable Van Maur to make a big change in standard warehouse practice. The retailer no longer has to put each item in a certain location so workers can find it; a particular SKU can be stocked in whatever spot is available when it arrives and the robots will find it without fail and move it to a pick station.

"A product can be in 15 different units around the warehouse, but the system knows where it's sitting, so you don't have to worry about moving products around on shelves," says Melody Westendorf, Von Maur's chief operating officer. "That is such a colossal waste of manpower and time."

The robots also enable the retailer to offer customers better service, she adds. No longer do orders take up to four days to fulfill; Von Maur has reduced that time to as little as an hour, a welcome change for any e-commerce operator. After all, she says, "Customers have become increasingly more demanding."

Online shoppers also are being trained to expect fast fulfillment as quick order delivery becomes as much of a point of pride for e-retailers as it is for takeout restaurants in Manhattan. Some 6 million shoppers have signed up to get free two-day shipping from Amazon.com through Amazon's $79-a-year Amazon Prime program. And more than 60 retailers have signed up to offer a similar service for the identical $79 fee through ShopRunner, a program started last year by GSI Commerce Inc., which is being acquired by eBay Inc.

With online rivals raising the bar in fast delivery, and e-commerce growing by nearly 15% last year according to the U.S. Department of Commerce, little wonder that many major retailers are building new distribution centers for their e-retail operations. Among the retail chains preparing to open dedicated e-commerce fulfillment centers are Urban Outfitters Inc., Macy's Inc. and Toys "R' Us Inc. And web-only Amazon.com Inc., the world's leading web retailer, is planning to build nine new distribution centers in 2011, about half of them in North America, adding to its 60 fulfillment centers worldwide. Kohl's, meanwhile, is opening a third e-commerce fulfillment center, this one in Maryland, in time for the holidays as the retailer works toward $1 billion in e-commerce sales this year.

As they build new warehouses, and reconfigure existing ones, many web retailers, like Von Maur, are deciding that rising consumer expectations of fast and accurate delivery require new technology, new software and new warehouse procedures.

Flash sales

Few areas of e-commerce illustrate the cutting edge of warehouse management better than flash-sale retailing. In order to offer shoppers big discounts on small quantities for limited periods, web merchants must be able to buy, receive, inspect, pick, pack and ship orders quickly. The margin for warehouse error is extremely low, especially with companies trying to lure consumers with impulse buys, often of high-end designer and luxury products, and to drum up repeat business and word-of-mouth referrals to the invitation-only sales.

"The supply chain itself has been our Achilles' heel in this company for the last couple of years, as it is for any company scaling like us," says Christopher Halkyard, vice president of operations for Gilt Groupe Inc., which had Internet Retailer-estimated sales of $425 million last year, up 150% from $170 million in 2009.

One of the main challenges for Gilt, he says, is that while only 10% of its inventory is typically on sale on a given day, it's usually a different 10% each day. That's one reason Gilt, like Von Maur, turned to robotic fulfillment technology sold by Kiva Systems Inc. Not only does the system make it easier to store and pick various items without moving too many large loads among warehouse shelves, but it helps Gilt maintain high levels of order accuracy, Halkyard says. The scanners employees use to check in products and monitor their movements flash warnings when the wrong item is scanned.

"It does everything but yell at you," he says. "We put a lot more stock on accuracy than on speed. If a customer calls me and tells me we shorted the order, and we tell them we were at least fast in shipping that order, it's not going to be a good conversation."

The role of automation in e-commerce is highlighted by Halkyard's description of how Gilt processes a typical order. After the sale starts, usually at noon Eastern time, consumers start pressing the purchase button. Each order, along with payment and shipping information, is fed into Gilt's warehouse management system, which is provided by Quiet Logistics. By about 12:30 p.m. there are typically a stack of orders to fill.

At that point, the robots spring into action, picking items from around the warehouse in what can resemble an animalistic feeding frenzy. The management system keeps track of every step in each item's warehouse journey, which might last for two miles or more. Once the item finds its way to shipping, a human employee verifies the packing slip and the box is weighed and sealed in preparation for UPS shipment. "All this can happen in as little as 15 minutes," Halkyard says. "We can do it without robots, but it wouldn't be very productive. Robots make it very, very efficient, but it isn't cheap."

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