Tuesday, April 8, 2008

Distribution redesign at Urban Outfitters


I happened across this fascinating piece on how logistics can improve a companies bottom line and how one company (Urban Outfitters) re-claimed it's supply chain and triumphed.

This article is from my friends at Modern Materials Handling, which is a trade magazine for the logistics industry.

Here is the article reproduced in it's entirety:

Distribution redesign at Urban Outfitters

This new Reno distribution center relies on high-speed sortation and light-directed picking to speed up the supply chain.

By Bob Trebilcock, Editor at Large -- Modern Materials Handling, 4/1/2008

Just as Urban Outfitters is redesigning its processes to compress its overall supply chain, the new Reno, Nev., facility was designed to accelerate order fulfillment processes. Read related article on Urban Outfitters' distribution process.

Only 10% of the merchandise received at the facility will be stored in the reserve storage area. The rest will be crossdocked directly to the shipping area for delivery to another distribution center, or sorted to a packing area where the merchandise will be allocated to stores served by the DC.

The process begins when inventory arrives at the receiving area. The purchase order on the shipment packing list is entered into Urban's enterprise resource planning (ERP) system.

That alerts brand merchants who wrote the purchase orders as well as allocators who allocate the shipment among the stores in their brand that the product has arrived. This is their opportunity to reallocate inventory or allocate product that hasn't already been assigned to a store.

Once the inventory is entered into the ERP system, cartons are staged on pallets in a pallet staging area. There, order quantities and SKUs are validated and entered into the ERP system. That generates the allocation process.

Cases that can be sent directly to one of the stores or to another DC receive a shipping label and are inducted into the conveyor and sortation system, where they are then sorted to the shipping area.

Inventory that has yet to be allocated is transported by lift truck to the reserve storage area. Cases are put away on wire decking in a narrow-aisle area, pallets are stored in select rack, and bulkier items are stored on cantilever racks.

Product doesn't receive a bar code label for putaway. Instead, an associate scans a bar code on a putaway ticket and a bar code at the putaway location. That ties the product to a location in the inventory management system.

The rest of the inventory is ready for allocation. Product that requires ticketing or other value-added services is sent to a carton buffer and ticketing area. Once it's ready to be processed, cases are placed on the conveyor and delivered to the sliding shoe sortation system, which sorts it to a packing lane. Meanwhile, a carton monorail system delivers shipping cartons to the packing lanes. The monorail is also used to take waste away from the packing area.
To ensure accuracy, associates only pack items for one store brand in a lane. To keep presentation to the stores easy, packers don't mix women's clothing with men's clothing or apparel with housewares in the same carton.

In the packing area, Urban Outfitters uses a pack-to-light solution. Associates place cartons in rack locations. Each carton represents a specific store. Multiple cartons of the same SKU are sorted to a packing area at one time.

When they arrive, the packer scans a bar code label on a ticket in the lead case, which launches the packing operation for that SKU. Lights on the pick racks identify which cartons, or stores, will get that SKU and how many cases or items should be placed in a carton.

Once a shipping carton is full, it's pushed back onto the conveyor system. On its way to the shipping area it is weighed, taped and then sorted to the shipping area.

My Take: Only a small portion of the Distribution Center (DC) is devoted to reserve storage. This reserve storage is what most people think of when they think of a warehouse; stuff sitting on shelves waiting to be moved to someplace else.

Get over it! That was your grand-pa's warehouse. Modern distribution centers are much more efficient at tracking and especially at moving inventory. That is the difference of a Warehouse Vs. Distribution Center. The cliché is that a warehouse stores mistakes and is used to shield suppliers from the shocks in supply and demand. As such, you are going to need lots and lots of space to store your goods in case you produced too much (supply is greater than demand) or if you need a place to store your raw materials in case you want to pick up production (to handle the possibility of demand being greater than supply).

Lean supply chains (just in time delivery, predictive supply chains that respond instantly to changes in supply/demand) reduce the need for warehouse space. Lean supply chains require a distribution center, and Urban Outfitters has pulled this off successfully.

I wouldn't be surprised if the DC infrastructure costs (the inventory control system and the carton monorail) actually cost more than the actual building. These are significant infrastructure investments, which is why most firms opt to have a professional third party logistics (3PL) firm do the heavy lifting in their supply chain.

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