Reworking their warehouses with web technology, retailers make more room for multi-channel orders
By Paul Demery
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
Indeed, at Papyrus, a multi-channel retailer of paper gifts and greeting cards—which launched its retail e-commerce channel a year ago—a web-enabled warehouse management system has let it combine two warehouses into one, cancel the use of extra off-site warehouse space during peak holiday seasons, and discontinue a policy of squeezing safety stock into its small-footprint stores, says Del Duquette, manager of the retailer’s warehouse management system. “With small stores of about 600 square feet, it was always a challenge to store extra inventory,” Duquette says.
The RedPrairie system’s ability to leverage its web-enabled service oriented architecture to combine real-time information on incoming orders and inventory levels, for example, lets Papyrus more closely manage its warehouse space. “With better visibility and analysis, we pay more attention to managing capacity,” Duquette says. “If we see stock levels trending up or down, we may realize we need to move products to stores or get rid of slow-moving stock.” As a result, he adds, Papyrus has been able to consolidate warehouse space with leaner stocks of inventory.
The new warehouse management system also lets the retailer know in near real-time the available inventory for each of its selling channels—retail stores, wholesale and e-commerce. Because of its ability to update inventory based on orders received online through Papyrus’s MarketLive e-commerce platform and recorded in the retailer’s J.D. Edwards enterprise resource planning system, the RedPrairie application can maintain updated records down to individual product SKUs in the designated direct-to-consumer section of the Papyrus warehouse.
Keeping stock
“We flat out could not have done this e-commerce business without a new warehouse management system,” Duquette says. Before Papyrus installed its web-based RedPrairie system four years ago, its warehouse management system produced information on total units available in a warehouse after factoring incoming shipments and outgoing orders. But without the integrated data flow of the new web-enabled system, it wasn’t able to break out inventory records by separate retail and wholesale selling channels. Keeping up to date on inventory required manual inspection and maintenance of spreadsheet records.
Maintaining accurate and updated inventory records was difficult as manual inventory checks and spreadsheet records suffered from miscounts and unorganized or lost spreadsheets. “We couldn’t rely on that data,” Duquette says. Since deploying the warehouse management system—where inventory is scanned as it’s received from suppliers and as it’s picked and packed for customer orders, then automatically shared in a web-enabled interface with enterprise accounting applications—accuracy in inventory records has increased from 85% to 99.5%, he adds.
Papyrus had had an average fulfillment processing rate of about 15,000 products per day, or about 300-400 orders. It now can easily handle 30,000 products per day. “We can do up to 50,000 products per day if we have to,” Duquette says.
At the same time, thanks to its ability to keep leaner inventory levels and better organize warehouse space, Papyrus is no longer forced to move seasonal products like Christmas cards to a forward staging area of its warehouse, a move that used to displace stocks of regular items like birthday cards to less accessible back storage, to expedite order picking and packing of the hottest in-season items.
At American Eagle, Stukus says the retailer is pushing the envelope of efficient warehouse management even further thanks to an integrated, multi-part system that provides extreme flexibility in arranging how SKUs are picked, packed and shipped.
The next wave
It’s also pushing ahead with a new version of the popular “wave-less picking” technique in warehouse management, which picks products for multiple orders simultaneously rather than for one separate order at a time. “Wave-less picking is the latest and greatest in warehouse management,” says Ian Hobkirk, senior analyst in warehousing and transportation at Aberdeen Group. “The idea is to smooth out the productivity peaks and valleys in order fulfillment.”
Indeed, Stukus figures American Eagle is the only retailer operating a distribution system with the flexibility to quickly process direct-to-consumer as well as store distribution in a facility designed to maximize vertical storage on a contained footprint. “We’re the only ones using a real-time order-management-to-picking-and-packing system,” he says.
Getting to that point has taken years of research and planning, culminating in finding a technology partner with an intranet-based software system that injects a new level of pick-and-pack fulfillment capability to its warehouse management system.
In May, American Eagle deployed a web-enabled Manhattan Associates Warehouse Management system integrated with a Continuous Order Fulfillment Execution application, commonly called COFE, from Vargo Companies.
The COFE application, which sits on the retailer’s corporate intranet, receives online orders every five minutes through American Eagle’s ATG e-commerce platform and uses algorithms and business rules to automatically route picking instructions by individual SKUs to each warehouse picker on duty. An algorithm, for instance, factors in the current location of pickers and their distances from the ordered SKUs. A business rule can then trigger pick-orders to be sent to the warehouse worker closest to the ordered SKUs to minimize picking time and labor costs.
As pickers go about their work and scan products, the COFE system updates their location as well as the inventory records. And as new orders come into the system from ae.com and the Manhattan Associates application, the business rules and algorithms automatically send the pick orders to the available picker nearest the ordered SKU. Checking the data screens on their wrist-mounted radio-frequency-driven devices, warehouse pickers see the next SKU or SKUs they’ve been assigned to pick and place them in a tote.
To the chutes
The totes then proceed on conveyor belts to a packing chute, where they get scanned and redirected to a packing and shipping station. The COFE system is designed with middleware that enables it to share scanned product and pick data with sorters and other material handling equipment, which is also provided by Vargo.
Although workers may not stretch their legs as much under the COFE system as they work in a more confined area, the system has made their jobs easier as well as more productive by spreading labor out more evenly, says Steve Lyman, vice president of distribution for the retailer’s eastern U.S. operations. Under more traditional wave or batch order processing, workers are more likely to face initial surges of orders followed by slow periods while waiting for the next batch. “It really levels the work load for pickers, and they’re not going up and down stairs as much,” Lyman says.
With orders constantly entering the warehouse management system from ae.com, American Eagle has designed business rules that automatically push ahead rush orders. “Our system is not based on orders pulled yesterday and stuck in a queue; it’s based on orders we got yesterday or five minutes ago. We pick the most important of that,” Lyman says.
Since launching the combined COFE and Manhattan Associates Warehouse Management system in May, American Eagle has found that it has held up well in high-volume periods of up to 8,000 orders per day.
Indeed, the system works best in peak periods, when pick staff levels as well as orders are high, because it thrives on having a large number of pickers and SKUs to be able to choose the most efficient combinations.
Experts warn, however, that such advanced picking systems can require a learning curve as well as the right technology to back them up. “The worse thing a company could do is to read about advanced picking and just go out and do it without a thorough quantitative analysis of which methodologies make the most sense for them,” Aberdeen’s Hobkirk says. The cost to install the COFE system starts out at about $500,000, but varies greatly based on the size of a retailer’s warehouse operations, according to Vargo president Mike Vargo.
Management’s learning curve
Pick and pack employees at American Eagle took to the COFE system quickly, and management’s ability to access it from web browsers allows them to easily check reports such as the number of SKUs picked per hour or the productivity of individual workers or shifts of workers, Stukus says.
But learning to set the business rules proved to be more of a challenge for Stukus and other managers, he says. “It was a learning curve for me and upper management because COFE has so many parameters,” he says. “It took two months to learn how to set rules, and we’re still sitting in weekly meetings to see if we want to change rules based on optimized labor costs and picker-to-SKU travel times.”
But with what they’ve learned so far, he adds, American Eagle can’t wait for the holiday shopping season, when peak order volume should keep its new warehouse management system humming, Stukus says. “When the holiday order volume gets high, up to 25,000 orders a day, we expect to see some great efficiencies,” he says.
paul@verticalwebmedia.com
