Distribution redesign at Urban Outfitters

Hello,

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.

Warehouse Vs. Distribution Center

There was a lively PowerPoint slide show today by the good people at Logistics Management, based on research conducted by Reed Business Information and Gross & Associates. It can be found here, and I hope they don't mind all the free publicity I am pushing their way.

In a nutshell, they note the difference between a traditional warehouse (where stuff is stored until it is needed) with the more modern sounding distribution center (where stuff is brought together, repackaged and then sent back out into the world).

The differences between these two types of buildings are stark and almost discomforting. The traditional warehouse represents the old and familiar low ceiling metal building in the bad part of town next to the railroad tracks where strange and bizarre items sit and collect dust. The distribution center is a little more sinister in that it represents the way the world will be, an entire secret network of information and products floating in both directions, stocking shelves and ordering products as if by a giant invisible hand.

The old saw goes that the warehouse is transportation at zero miles per hour and indeed it used to be that warehouses were a necessary evil used as a buffer against those capricious whims of human nature: demand. Since the information chain between consumer and producer is a long and tangled one and since the supply chain between producer and consumer isn't perfectly responsive and isn't perfectly reliable, producers needed a way to store their product locally to weather out these storms of unknowns.

Warehouses were born as a way for firms to jump the hurdle of what economists like myself like to call "market inefficiencies", which is just reality getting in the way of our convenient theories. Two very significant hurdles basically created the need for a warehouse in the supply chain; imperfect/ incomplete information as well as transportation costs.

If demand for a firm's product were known in advance and products could be created as needed and delivered to the point of consumption instantaneously, then there would be no need for a warehouse and the world would ultimately be a better place. Unfortunately we live in the real world and not in the future.

As Just-In-Time practices (warehouse management software, RFID tags, demand forecasting) proliferate and the rest of the world wakes up to the Wal-Mart reality of a nimble global supply chain that can react and adapt to changing demand, then the world will be ready for the modern distribution center.

The distribution center is a behemoth to be feared, of a size and scale that is beyond a rational sense of proportion; from a couple of hundred of thousand square feet to well over a couple of million, and with a height of 20 to 40 feet these buildings serve as the only physical markings of a vast and mysterious supply chain that reaches into the lives of every consumer on the planet.

The days of the warehouse are not over, but their role in modern society has been greatly downgraded, much like the horse at the dawn of the automobile.