System Report: Oriental Trading Company gets its warehouse under control

“We work hard to make the world a better place to live, work and play.”

So goes the motto at the Oriental Trading Company (OTC). As the nation’s largest direct-to-consumer retailer of value-priced party supplies, toys and novelties, OTC is best known for products associated with fun and games. Perennial bestsellers like whoopee cushions reflect the play. The company’s 750,000-square-foot distribution center in LaVista, Neb., reflects the hard work.

When the facility went live in 2007, OTC transitioned from a conventional, paper-driven DC to a highly automated facility that manages more than 30,000 stock keeping units (SKUs). In 2010, the facility picked and packed 78 million units a year. On its best day, the LaVista facility handled 404,000 items.

To hit those numbers, OTC implemented:
• a 250,000-square-foot fulfillment area featuring a three-level mezzanine,
• voice recognition technology to automate picking,
• a sophisticated double-density tilt tray sorter and conveyor system that feeds 600 packout stations, and
• a secondary sortation system to deliver packages to carrier trailers.

The engine behind those improvements is a warehouse control system (W&H Systems, whsystems.com) that has taken on many of the functions more typically associated with a warehouse management system (WMS).

In addition to controlling conveyor and sortation systems, the warehouse control system (WCS) optimizes picking and packing waves, sends pick information to voice picking, and directs the packout operations. The WMS, meanwhile, is primarily in charge of inventory management and communication with the host system.

The result has been an impressive 45% increase in productivity and a 60% reduction in pick errors. Accuracy has improved from 99.25% to 99.9%.

What’s more, the system as designed can manage up to 50,000 SKUs. “Our strategy is to grow our business by increasing the number of products and product categories we offer our customers,” Wagner says. “This facility will let us continue that strategy.”

Party on
Founded in Omaha in 1932, Oriental Trading was one of the nation’s first wholesalers of value-priced novelties and gifts. It became a major supplier to the U.S. carnival trade in the 1950s before expanding in the 1970s by using catalogs and direct marketing to target consumers, retailers and businesses.

In the 1980s, OTC launched its first toll-free telephone number and seasonal catalogs brought continued growth. As the Internet grew in popularity in the late 1990s, OTC began to reach out to customers on the Web.

Today, the company employs 3,000 associates and mails nearly 300 million catalogs a year. OTC has been recognized as a Top 50 Internet Retailer, a Top 50 Catalog Company, and has also won awards for corporate citizenship and social responsibility.

OTC continues to grow by adding new items to existing categories and by adding new products. That growth strategy led to the need for a new facility. When planning began for LaVista, the existing 600,000-square-foot facility in Omaha was maxed out.

“In our old facility, we had a capacity for about 24,000 SKUs,” says Wagner. “We simply didn’t have the room to add the new SKUs that our merchandising team wanted to bring in to continue to grow our business.”

There were other challenges as well. OTC’s growing Web presence resulted in more customer orders for out of season products offered all year long on the Web compared to catalog customers who typically ordered from whatever items were offered in the book.

This led to a decrease in productivity. A typical order consists of six to seven line items and 14 units that were being picked across 24,000 possible SKUs. With those order profiles, the paper-driven, pick-to-cart fulfillment processes in the old facility were manual and physically taxing. “Our WMS was able to optimize pick paths,” says Wagner. “But given the breadth of SKUs, our pickers were walking 7 to 10 miles a day.” And, turnover was high.

The combination of physical constraints and the physicality of the job led to the design of the new facility. “We wanted to support SKU proliferation with a pick zone that could hold up to 50,000 SKUs,” Wagner says. “And we wanted to drive pick density in our picking processes to minimize travel distances and pick times.”

Explode and assemble
The solution was a highly integrated and flexible picking methodology that OTC refers to explode and assemble. The system brings together an order management system, WMS, WCS, conveyor and sortation system, and voice recognition technology to find the optimal way to pick and assemble a wave of 8,000 to 10,000 orders.

To understand the new system, it helps to look at how orders used to be processed. In the old system, the WMS created batches of 9 to 20 orders around a system-optimized path. Associates picked complete orders from a master pick ticket directly to shipping containers on a cart. Since pickers were completing an order, several associates might visit the same location to complete their batches.

When the batch was complete, the picker scanned a bar code on the master pick list. At that time, the inventory was updated. Given that a batch could take 40 minutes, any given location might be out of stock for a significant period of time before the system knew to replenish that location. “The system was very inefficient given our order characteristics,” Wagner says.

The explode and assemble methodology takes a different approach. Orders still begin at the WMS. The system creates a wave that consists of 8,000 to 10,000 orders and 100,000 units to be picked. That wave is then passed to the WCS. Since the WCS has a more granular view of the workload in the facility, including what’s happening on the sortation system and at the packout stations, it determines the best way to execute the wave based on the profile of the orders, the location of items and the workload on the sorter.

It works like this: To explode the orders, the WCS creates four picking and packing subwaves from the original wave; picking assignments are assigned to an induction location on the double- density tilt tray sorter, and orders are assigned to a chute leading to one of 600 packout locations.

The WCS plans the work based on several criteria. First, it looks at which items will consume the entire contents of a case. Those tasks are sent to a case break area. The idea is that associates will pick by location rather than fill all the items of an individual order. That way, a location is only visited once for each wave, cutting down travel time. By condensing items in a three-floor mezzanine, travel time is further optimized.

Filled totes are held in a pick module until the sorter is ready for a subwave. At that point, the associate releases a tote to the takeaway conveyor, which sends it to an induction point.

That’s the explosion piece of the equation. For the assemble part of the orders, the tilt tray sorter identifies all of the items for a single order and sends them to a packout chute. After an order is packed into a shipping container, it is conveyed to an automatic tape and sealing sorter. There it is scanned again and the WCS determines whether the carton is 100% complete; if so, it is sorted to an automated tape-sealing machine and continues to the shipping sorter. If there are exceptions, it is conveyed back to a packout station to be completed. The WCS remains in control right up until the packages are sorted into the carrier trailers.

Smooth transition
Wagner says the transition from manual processes to automation was relatively seamless. “Our associates have gone from walking 7 to 10 miles a day to less than a mile, which has been a huge win for our pickers,” Wagner says. “We’ve had a significant reduction in turnover.”

What’s more, associates are cross trained on a variety of jobs to ensure that the facility can execute to the wave plan. The implementation of a labor management system along with a pay for performance program has also led to worker acceptance.

But the most important benefit may be the ability to support 50,000 SKUs in the future. “We now have a facility that will support our future growth,” says Wagner.

Read more of Modern’s exclusive System Reports.

How it works: Oriental Trading’s explosive order fulfillment
Oriental Trading’s unique picking solution handles up to 400,000 items per day.