Distribution centers: It’s all about the business

Distribution centers have transformed from places to store inventory to enablers of a go-to-market strategy. Here are five facilities leading the way.

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“Our DC gives us a competitive advantage in the marketplace and is considered a strategic asset,” says Chris Halkyard, former chief supply chain officer for the Gilt Groupe.

If you’ve spent any time in distribution centers lately, you know a fundamental shift is underway in how DCs are designed and the purposes they serve. In the not-so-distant past, a DC was a cost of doing business and a necessary evil. For the most part, they were places to store inventory until it was shipped on to the next stop along the way. Success for DC managers was measured by how much they could reduce the cost of handling a pallet or carton.

Cost still matters, let’s not kid ourselves. Increasingly, however, distribution centers are all about the business. Processes are designed to make good on a company’s go-to-business strategy. The best DCs are strategic assets that give their companies a competitive advantage in the marketplace, as Gilt Groupe’s former chief supply chain officer told Modern when we featured Gilt’s Shepherdsville, Ky., facility in January 2013.

Making that possible are new automation technologies, such as mobile robots, shuttle systems and other goods-to-person technologies; the broader deployment of mobile data collection technologies such as sensors, pick-to-light, voice and ring scanners; and software that enables more complex order fulfillment strategies than ever. Last, and possibly overlooked, distribution is increasingly part of a broader supply chain strategy.

For this month’s cover story, we’ll take a look a look back at five distribution centers that were designed to enable a business strategy along with the broader trend illustrated by their design.

Read more about these systems
Gilt Groupe: mmh.com/GiltGroupe
Papa John’s: mmh.com/PapaJohns
BRG Sports: mmh.com/BRGSports
lululemon: mmh.com/lululemon
Home Depot: mmh.com/HomeDepot

Gilt: Filling the perfect order
When does a fast-growing e-tailer cut the strings with its 3PL partner and bring its distribution processes in-house?

How does a distribution center operate when its inventory is gone in a flash?

What’s more, how do processes differ if the most important metric is the perfect order rather than the lowest cost per unit handled?

Those were three important questions that went into the design of Gilt’s 303,000-square-foot distribution center in Shepherdsville, Ky. Although Gilt did not create the flash sale concept, it is the basis for the e-tailer’s business. Its members are given the opportunity to buy luxury and designer goods at insider prices. New merchandise, in limited quantities, goes on sale every day at noon.  As much of 70% of that inventory will be ordered and shipped within 24 hours. The remainder typically sells through in about three days. Among the attributes most valued by customers is getting the perfect order.

Like many e-tail startups, Gilt initially outsourced its distribution to a 3PL. However, as the business grew, the company made the decision to bring distribution operations in-house, where it would have more control. The design of the building was driven by the business model rather than any given technology. For instance, Gilt implemented the mobile robotic order fulfillment system being used by its 3PL for the first wave of orders that are picked and shipped within 24 hours. Significant time was spent profiling SKUs by velocity to ensure that only the fastest-moving items were stored in the mobile robotic pick area.

A multi-level pick mezzanine was erected to manage slower moving items, such as those that didn’t sell in the first day of the sale. Since most items sell through within a few days, there is no reserve storage in the facility, but there is a pallet rack area for non-conveyables, along with a separate area designated to process shoes.

While speed was important, the facility strikes a balance between speed and accuracy. In fact, Gilt says that it built cost into its processes with a two-step packing process. In the first step, order totes are sorted to a packing station. There, a packer builds a shipping box, prints the packing slip, confirms the items for the order and adds any literature, transport packaging or dunnage. In most facilities, an order would get sorted to shipping. At Gilt, the ready-to-ship package is conveyed to a quality assurance area. There, the contents of the package are reconfirmed before the package is weighed, taped, labeled and sorted to shipping.

While the process includes extra handling, it leads to a better customer experience, which is what e-commerce is all about. (System Integration: ABCO Automation)

Papa John’s: Demand driven for freshness
Prior to our November 2014 article on Papa John’s, we wouldn’t have thought of a pizza delivery chain as an e-commerce leader or a demand-driven supply chain. But nearly half of the company’s sales are now generated online, with mobile as a fast-growing segment. Moreover, over the last few years, the company has transformed and developed a lean, demand-driven distribution network that replenishes stores with just the right amount of perishable inventory to meet demand. The goal is to make good on its tagline: Fresh ingredients make better pizza.

It’s the culmination of an effort launched in 2006 to transform a network of 10 distribution centers that serve more than 3,200 stores in the United States through the use of technology. The focus is on managing inventory, especially perishable products, to deliver the freshest ingredients to its stores, twice a week. The DCs are light on materials handling systems, which primarily consist of lift trucks and pallet rack.

Instead, the entire supply chain process, from inventory planning and procurement through the replenishment of stores, is enabled by supply chain management and execution software and voice-directed picking processes. The combination delivers true supply chain visibility from the field to the restaurants.

Centralized inventory management, planning and transportation software systems are the engines behind the network. The system makes DC replenishment suggestions based on inventory levels, orders already in the system, lead times and anticipated demand that may be influenced by seasonal events and promotions.

Once purchase orders are created, the planning system passes purchases orders to the inbound transportation management system to create a delivery plan, tender the loads to carriers and monitor the execution of the plan. Once it arrives at a DC, operators, rather than the warehouse management system (WMS), determine the best putaway location. Inventory turns quickly—some items are replenished daily.

Meanwhile, store managers use their point-of-sale system to create replenishment orders twice a week. Orders are aggregated by DC and entered into the outbound transportation management system that creates a delivery schedule based on parameters such as when stores can receive deliveries and how much product will fit on the truck. When the WMS creates a wave of orders, it allocates inventory by truck and creates picking tasks on a last-out/first-in basis. Order selectors are then directed by the voice system to pick to pallet and load the trucks. 

Today, Papa John’s continues to update the system, adding supply chain intelligence, alerting capabilities and appointment scheduling to its suite of transportation and warehousing software applications. (Voice recognition and warehouse management system: Honeywell—Vocollect Solutions and Manhattan Associates)

BRG Sports: Omni-channel fulfillment
Let’s face it: Distribution has never been more complicated. The best retailers and distributors want to fill orders across multiple channels, multiple brands and a multitude of order profiles, all from one facility.

Meeting that omni-channel challenge drove the design of BRG Sports’ new 813,000-square-foot manufacturing and distribution facility in Rantoul, Ill., featured in the October 2014 issue.

The maker and distributor of Bell, Riddell and Gyro sports helmets and accessories serves a customer base that includes big box retailers that may receive full truckloads with up to 20,000 cartons; smaller specialty retailers and organizations, such as professional sports teams, which may order a handful of mixed cartons; and consumers who may place an order for one item. In addition, the facility can manufacture as many as 25,000 Bell helmets per week.

To manage that complexity, BRG designed a new facility that features very narrow aisle storage to optimize space; hands-free, multi-modal data collections tools to direct picking activities (voice and ring scanning); and automated materials handling systems including conveyors, sortation and automated print-and-apply and packing systems. It also includes four distinct picking areas that are distinguished by the way items are picked—such as full case, split-case and single-line items—as well as the velocity of how the item moves through the facility.

What pulls it all together is a warehouse execution system (WES) that enables parallel pick, pack and ship operations across brands, channels and order profiles. For instance, the WES times the release of work to the floor in order to synchronize activities so that the right cartons for an order arrive at the right packing and shipping area at the right time and with the least amount of travel—and touches—by associates.

While there is still some manual handling in the facility, about 80% of the orders go through the automation. And while an order may consist of multiple brands in split and full cases, to the automation system, an order is an order and a box is a box.

The next step is to integrate orders with manufacturing so that the facility can take a product directly from the assembly line to the packing station and shipping dock in response to real-time demand. (System Integration: Numina Group)

lululemon athletica: Culture is the future of supply chain
“Culture is the future of supply chain,” contends Steven Melnyk, a professor of supply chain management at Michigan State University. His point: Going forward, how a company conducts business, treats its employees and suppliers, and interacts with the world may be as important as technical proficiency and cost cutting. That phrase could just as easily be posted on the walls of lululemon athletica’s distribution center in Columbus, Ohio, the company’s first DC located outside of the Pacific Northwest.

Famous for its technical athletic apparel and signature yoga pants, lululemon athletica is a purpose-driven company. “The company purpose is to elevate the world from mediocrity to greatness,” a company executive told Modern when we wrote about the Columbus distribution center in December 2014. One way the company accomplishes that purpose is “by helping people set goals from a personal, career and health standpoint,” starting with lululemon’s own people.

It comes as no surprise then that the new distribution center was built with two purposes in mind: to facilitate speed to market and to extend the company’s unique culture to a new set of employees. Indeed, lululemon believes that culture is a competitive differentiator that is one of the keys to its success. 

Locating the facility in Columbus was the result of a network analysis performed in 2012 by FedEx. With a network consisting of facilities in Seattle and Vancouver, the average transit time to stores and e-commerce customers was 3.72 days—not good enough in a retail environment that values speedy fulfillment, especially of e-commerce orders. Inside the facility, lululemon opted for flexible automation, relying on warehouse management and warehouse control systems; mobile data collection solutions, including voice and put-to-light; and a conveyor and sortation system to tie together functional areas. The goal was to increase efficiency while maintaining the ability to flex up or down to meet a variable demand. The overall result: The new system not only speeds orders out the door, the average transit time is now under 2 days. 

Just as importantly, lululemon’s culture is ingrained in the new facility. New employees introduce themselves to their teammates by showing off their best dance moves; teammates can play basketball on a court during their breaks; and yoga and exercise classes are offered on a daily basis in a 3,000-square-foot gym and a 1,500-square-foot yoga space.

“Culture is the epicenter of who we are,” the executive told us. “And, one of the ways we build strong teams in our DCs is to sweat together.” (System Integration: SDI Industries)

Home Depot: One size doesn’t fit all
While BRG Sports is an example of one-stop fulfillment in an omni-channel environment, Home Depot has taken a different approach. The home building supply leader, which we featured in the February 2015 issue, has created two differentiated supply chains with two different approaches to warehousing and distribution.

One supply chain consists of a network of 18 rapid deployment centers, or RDCs, that replenish some 1,977 U.S. stores on a just-in-time basis; the other supply chain consists of three new direct fulfillment centers (DFCs) that fill e-commerce orders that are shipped directly to a consumer or to a Home Depot retail location for store pickup.

Like Papa John’s, the initiative began by centralizing inventory management and store replenishment at the corporate level. Next, the company moved away from having suppliers ship directly to stores or to regional DCs that warehouse and ship from safety stock. Instead, suppliers and vendors create 18 aggregate orders that are bound for the 18 North American RDCs. These are essentially flow-through facilities; upon arrival at the RDC, incoming merchandise is allocated to stores based on real-time demand and then crossdocked into outbound trucks headed for stores.

The final phase of the project was the development of the DFCs for e-commerce orders. They are large facilities, topping out at roughly 1 million square feet each. What’s more, they must be flexible to handle the variety of product that a consumer could purchase in a Home Depot store—everything from large bulky items like appliances and snow blowers, to tiny items like screws, nails and fasteners. Items can be picked from pallet flow rack, pallet selective rack, piece pick modules or bulk storage. As with BRG Sports, a warehouse execution system synchronizes the delivery of items to a packing mezzanine that features one area for single line orders and another area for multi-line orders.

The next step is to build out the capability to “buy online, deliver from store.” Once its up and running, that approach will give Home Depot the flexibility to ship an order from a DC to a customer who is willing to wait three to five days for delivery; at the same time, it will be able to ship from the nearest store to the customer who needs same- or next-day delivery.  (System Integration: Intelligrated)

About the Author

Bob Trebilcock
Bob Trebilcock, editorial director, has covered materials handling, technology, logistics and supply chain topics for nearly 30 years. In addition to Supply Chain Management Review, he is also Executive Editor of Modern Materials Handling. A graduate of Bowling Green State University, Trebilcock lives in Keene, NH. He can be reached at 603-357-0484.

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