By Ian Hobkirk
Managing Director of Commonwealth Supply Chain Advisors
December 16, 2013
I was afforded one of those unique opportunities that comes to consultants last week. I made a trip to the West Coast going all the way from Los Angeles to Seattle, visiting with some old clients and some potential new ones. In the span of about three days, I was able to visit four different retail apparel distribution centers. All four companies were shipping to three channels: their own retail stores, wholesale (other retailers), and e-commerce. Three of the four companies were about the same size, with hundreds of stores and very recognizable brands. These companies had single distribution center networks meaning the west coast distribution center was the only distribution center in each of their supply chains. Only one of the four companies had multiple facilities. Amazingly, all of these distribution centers had a similar set of challenges but each company had taken a different approach to solving them.
It really struck me that all of the companies I visited had made varying levels of investment in their operations and they were operating differently, yet they were all highly effective. For instance, one of the distribution centers used a basic cart-based picking system for retail and wholesale orders and they entirely outsourced e-commerce distribution. The second distribution center also used cart-based picking but they were fulfilling their own e-commerce orders. The third distribution center used a zone-routed conveyor-based picking system to pick retail and wholesale orders. Wholesale and retail orders were cluster picked and e-commerce orders were batch-picked with a secondary put-to-order station. The fourth distribution center took an approach opposite to the third where they did a batch pick for retail and wholesale orders and performed a cluster pick-to-order for e-commerce orders. In this scenario the retail and wholesale orders were batch-picked and then sorted to store using a very elaborate tilt tray sorter system. All of the companies were also taking very different strategies with respect to Warehouse Management Software (WMS). The first company had a variety of different WMS platforms in the distribution center, one for each channel. They were using bar-code scanning with mobile computers for the pick process. The second company was doing paper-based picking but was in the process of implementing WMS for bar-code picking. The third company took a very sophisticated multi-modal approach using a combination of voice-directed picking and bar-code scanning. Finally, the fourth company was a pure bar-code scanning operation. None of the companies were using the same WMS. While each of the distribution centers certainly had particular unique challenges that they were working though, by and large, they all were doing a very effective job of distribution to three different channels using three very different strategies in the distribution center.
So what does all this mean? It seemed to me that there were a few reasons why these companies were taking different strategies. On the technology front to begin with, some of the companies had grown through acquisition and had inherited a variety of different WMS platforms. They were reluctant to deal with them and sort them out because, in some cases, it was easier to keep a potpourri of technology platforms than to do a massive IT project to standardize around one WMS. The companies that hadn’t grown through acquisition were more likely to have a single WMS serving all of their channels. I think another factor that dictated each company’s approach was ownership structure. Some were owned by private equity and some by private investors. Each had a different propensity towards investing capital, a different timeline horizon for ROI, and so on. I think it is also safe to say that companies have different levels of inclination towards automation. Some of the more automated operations such as the one featuring a tilt-tray sorter were run by companies very willing and trusting of automation. They were open to making a large capital investment early on with a slightly longer ROI with the promise of saving significant labor dollars down the road.
Seeing these vastly different operations really highlighted to me that there is rarely just one correct answer. This statement is not limited to retail or apparel, it can be said for almost any industry. It underscores the importance of doing a thorough analysis of a variety of options when designing a distribution center. There are multiple options that can make sense and it is very important to go into the project understanding what the cost of technology is going to be, the expected savings, what the ROI looks like, and with a thorough understanding of the risk. It is important to understand that while it may cost more to put something like a tilt tray sorter or a voice system in place, companies that invest in these types of systems (when it makes sense) can likely expect to save money down the road once that technology is paid for. Some forms of technology are more flexible than others and it is important to understand their limitations. Additionally more reliance on automation does create some risks both during implementation and ongoing if there is not a solid support system in place to maintain these systems and avoid bottlenecks and single points of failure. It all comes down to a good planning process. When all of the options are laid out for all the stakeholders of a company then a solid decision can be made and the company can move forward.
There were also some interesting common threads that I saw in all of these distribution centers. For instance, all of these companies took a fairly common approach to handling their overstock area. They all had a forward pick area that was replenished from overstock. Overstock, in all four cases, used completely random locations. Loose cases were put away on wire deck rack. There were no pallets, and there was no attempt to group cases of SKUs together with other cases of the same SKU that already existed in the distribution center. Part of this is due to the dynamic nature of apparel distribution with a heavy amount of seasonality. It just simply doesn’t make sense to put so much effort into directed put-away. The focus is really on getting product into a pick-able or replenish-able location as soon as possible and to maximize the density of each location.
Another common theme which each of these companies shared with me is how e-commerce is really transforming the distribution center operations. All of the companies had seen massive growth in e-commerce just in the last three-to-four years, in most cases, double digit growth. The companies that had not chosen to outsource e-commerce either had or, were in the process of, making significant technology investments to support an e-commerce solution. A couple of the companies had stories of having to really scramble either this year or in the previous two years in the days following the thanksgiving holiday to get orders out the door. Even despite their planning for aggressive levels of e-commerce, they were still surprised and caught off guard by just how much e-commerce had grown from one year to the next. In fact, I read a statistic that Cyber Monday sales for this year were up 17% across the board over 2012.
So, in closing, this trip was an interesting reinforcement of the fact that despite commonalities across different businesses, there is rarely a one-size-fits-all approach. The best way for companies to determine a path forward is through a thorough analysis and understanding of the tradeoffs associated with the many available options to make confident decisions to support a multi-channel or omni-channel strategy for the future.
Related Reading
E-Commerce in the Distribution Center – Making a Graceful Transition