June 1, 2011, 9:20 AM

Welcome to the Machine

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Neither Halkyard nor Von Maur's Westendorf would say how much they paid for their Kiva systems, though Westendorf allowed that the retail chain expects to realize its return on investment within two or three years. Deployment costs can vary from $2.5 million to more than $20 million for each system, says Mitch Rosenberg, Kiva's vice president of marketing. The smallest installations include about 20 mobile robots, and the largest about 1,000. About 80% of a warehouse's square footage is taken up by the Kiva system, which surrounds human operators like a donut to let them pick products from nearby mobile shelves, with tracks on the warehouse floor enabling the machines to reach each storage bay and pick station.

Down on robots

Robotic systems, however, will not appeal to every online retailerÑand not only because of the cost. In some cases, the best way forward for an online retailer involves a heavy dose of manual labor combined with improved warehouse placement.

The Golf Warehouse, for instance, does not use robotic systems because the technology is ill-suited for its products that can range from long, skinny golf clubs to much smaller, round baseballs, says CEO Brad Wolansky. "Our merchandise doesn't lend itself to being automatically picked very well," he says. Eschewing the large investment needed for robots, the sporting goods retailer instead relies on manual labor and conveyor belts, along with consolidated fulfillment operations.

In April, the retailer announced plans to consolidate and expand fulfillment operations in Wichita, Kan.; The Golf Warehouse will stop using a center in Indianapolis, though it will still be used by other businesses owned by the retailer's parent company, Redcats USA. The move, still ongoing, will enable the retailer to cut costs by operating only one center, and also to streamline shipping. For instance, no longer will it have to explain to customers that because products are shipped from two locations, they might arrive at separate times. Nor will the retailer have to pay the higher costs of two shipments to fulfill a single order, at a cost of $6.99 per package shipped, Wolansky says.

Multiple warehouses, combined with outsourced order management and fulfillment, however, has helped Ryactive Corp., an online retailer of iPhone cases, manage its e-commerce growth, says CEO Ryan Pamplin. Ryactive sells thousands of cases per day, he says.

When a customer places an order for a phone case, the order data travel from Ryactive's Magento-provided shopping cart to the SmartFill fulfillment system from Webgistix. Every hour the SmartFill system processes orders that have accumulated. The system then prints shipping labels in a warehouse in Nevada or one in New York, both operated by Webgistix, depending on the location of the customer who placed an order. Workers take the order information and then pick inventory by hand, with three accuracy checks performed before products are shipped, Pamplin says. "We have outsourced what is essentially a division of our company," Pamplin says. "Now we can focus attention on new product lines such as laptop bags and new cases for other cell phones."

Gift wrapping

Sometimes, though, one of the toughest warehouse management challenges for an online retailer is not finding the right system or vendor, but balancing a legacy system that has worked well with emerging needs brought on by growth or increased consumer demands. That is what shoe and accessories retailer Zappos.com is doing.

Zappos, which Amazon.com bought in 2009, not only keeps track of products via UPC bar codes, which identify a type of product, but uses a system developed in-house before the Amazon purchase that assigns a unique number to every individual item, says Craig Adkins, the vice president of services and operations for Zappos. That enables the retailer to record every time a product is handled or touched, letting workers know if an item has fallen off a cart, for instance, or its exact location, along with the exact inventory level at all times.

"We know exactly where everything belongs," he says. That can especially help the retailer during peak shopping times, when it might sort 180,000 items daily.

A robotic system might have made sense for such a large and busy online retailer, but Zappos executives calculated that it could take five or six years to recoup such an investment. "That is prohibitive with our business changing all the time," he says. "If you get overly sophisticated, things are harder to change later on."

But warehouse management changes are likely to come for Zappos, now that the company is part of Amazon. "Where it makes sense to share technology and best practices, we will," he says. One change on the horizon relates to products bought as gifts: The Zappos legacy system has no way to code products for gift wrapping, Adkins says, though Amazon's technology does.

Zappos has the luxury of sharing in Amazon's technology, while other retailers must compete against it. The rising consumer expectations of fast shipping engendered by top e-retailers like Amazon are forcing retailers to look at all the options, from robots to new distribution centers, to keep up in the delivery race.


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