Category: News

Mike Vargo, VARGO® President and CEO, was part of the 2016 Smart 50 Top Executives awarded by Smart Business. Read the full article.

VARGO® sponsored the RIS News Technology Solutions Guide on Omnichannel Supply Chain for the August-September issue. In the guide, Eric Ford, VARGO®’s director of software, discusses the latest developments in omnichannel fulfillment technology as well as what to look for in the future. Read the post and download the pdf.

VARGO® is interviewed by Modern Materials Handling for a September 2016 story on the rising in the third-party logistics (3PL) market. Read the full article:

3PLs Bid on a New Proposal

Consumer demands are transforming supply chains, and a successful 3PL must be a partner in its customers’ transformations. The result: A substantial increase in services and capabilities.

By Josh Bond, Contributing Editor · September 1, 2016

In recent years, the third-party logistics (3PL) market has enjoyed a period of rapid growth driven in part by the economic recovery and in part by the growth of e-commerce order fulfillment. But until recently, the fundamental services they provided were standard fare.

Within the four walls of public warehouses, the solution mix was largely predictable and conventional: 3PLs prized the flexibility of manual processes enabled by automatic identification and warehouse management systems over capital investment in materials handling automation. Now, all bets are off. Traditional key performance indicators (KPIs) like cost per pallet are almost irrelevant when compared to the goal of increased customer satisfaction. Traditional rules of thumb like short contract terms and minimal automation are fading as partnerships deepen and technology investments broaden.

Marvin Logan, director of consulting for Bastian Solutions, describes the changes in his company’s relationship with 3PLs as the market has evolved. “In the first part of my career, 3PLs showed little interest in what we had to offer,” he says. “In the last two or three years, we’re seeing longer contracts and shared performance goals that let 3PLs look at more technology and software.” He adds that 3PL clients are even bringing in Bastian ahead of contract negotiations or bidding to do consulting work, as the 3PL or its client looks for ways to improve the landscape before the bid comes out. “This puts the 3PL in front of the client as a thought
leader or change agent,” he says.
Dennis Walton, vice president of operations for Legacy Supply Chain Services, says client demands have required 3PLs to bring much more to the table. “They hire us to help tackle supply chain challenges, not just run a warehouse and get good KPIs,” Walton says. “The most successful outsourcers are not the ones who say: ‘Here’s some information, design a solution to hit the KPIs, and see how you do.’ That’s a recipe for disaster. It’s the ones who assign relationship managers as points of contact to work with the 3PL. The best outcomes are when the customer is very involved, participates and gives direction, and acts on our recommendations, whether they adopt, decline or modify them.”

A proposal for transformation
When it comes to large investments, companies running their own warehouses and DCs might take a “set it and forget it” approach, rolling out a massive project designed to carry them through the next several years. Because of the uncertainty introduced by e-commerce and omni-channel trends, this is a bold approach that produces as many success stories as painful lessons. Alternatively, companies grappling with swift change might approach a 3PL with an eye toward a much shorter-term fix, and then bounce from one provider to another every six months while chasing incremental savings. The new state of the 3PL market resembles the best of both worlds.

“The market has moved away from just being a public warehouse or contract logistics,” says Jeff Lammert, client executive of system sales for Vargo. Lammert offers his perspective as a former employee of 3PL giant Exel (now DHL) for 18 years. “Many companies don’t have the in-house expertise or resources to evolve to something new, whether e-commerce or returns processing or crossdocking, so 3PLs have gone into a very consultative approach as subject matter experts. This can minimize the risk for those engaging 3PLs since they don’t have to go to other consultants and try to pull all the pieces together themselves. And after a five-year term, it’s harder to walk away to something new.”

Logan notes a similar trend for 3PLs to proactively offer transformation as opposed to merely answering a request for proposal (RFP). That, in turn, is driving a harder look at materials handling automation and technologies than in the past. “Ten years ago, they were just trying to find a conveyor layout that might help them win the business,” he says. “There are different conversations now that are more strategic. A consulting engagement can last three or four months, during which the 3PL gets deep into the client’s business. In a lot of ways, this eliminates competition, since even if an RFP comes out of that process, the consulting 3PL will be so much better positioned to win it.”

In today’s world, Lammert adds, e-commerce calls for huge investments in capital and time, and 3PLs have found that investment can lead to longer relationships. ROIs might now be calculated over five years, and, Lammert says, 3PLs are no longer shy to invest capital if it adds value. Because labor costs are among the largest expense in a distribution center, the strain of transitioning from full pallets to cases and eaches often demands a closer look at automation.

Jason Minghini, vice president of best practices for Kenco, says 3PLs have to be a lot more dynamic in considering solutions for the short and long term. Multimillion-dollar automated storage and retrieval systems (AS/RS) will continue to be the rarity, but the warehouse automation market now includes more affordable and scalable options, including collaborative robotics, goods-to-person solutions and automatic guided vehicles (AGVs).

“I think we will see a lot of AGVs in warehousing in the next three to five years for two reasons: The ROI and price point are becoming more attractive, and business models are driving those solutions, where in the past they didn’t,” Minghini says. “These technologies will not be a substitute for labor, but AGVs and robots will be used to complement labor. On the information technology side, we already see labor management systems (LMS) put into play upfront, along with a lot more applications of Tier 1 WMS (warehouse management system) solutions.”

Bastian’s Logan also anticipates a shift in the technologies used to optimize labor, citing the old rule of thumb that workers spend 50% of their time picking and 50% walking to the pick. A goods-to-person solution that can cut 25% of total labor costs will raise some eyebrows, he says.

“Some of the robotic solutions are very scalable and it’s possible to right-size the technology and know you will not be stuck with it forever,” Logan says. “Various new automated storage and robotic shuttle technologies allow you to add or subtract robots, not whole aisles. Some companies are talking about having a pool of robots that can be leased or rented as needed. I’m not aware of anyone doing that, but there’s talk. The only problem is that everyone has the same peak season.”

Software is also helping with the simulation and forecasting of system performance. Based on the order profile, SKU mix and anticipated peaks, it’s possible to model how a system and its materials handling equipment will accommodate a spike of 10 times the volume.

“3PLs are doing a lot more simulation than in the past,” Minghini says. “If you can know you will need a certain amount of equipment and labor, you can build strategic partnerships with an automation company, for example, to have those assets rented and ready when needed. The key is to be proactive and ensure that materials handling equipment, whether a forklift or AGV, will be available when peak hits.”

A means to an end-to-end
The concept of network analysis is central to the goal of optimizing each facility as well as the broader supply chain. Lammert says it’s important to carefully consider facility location and capacity to determine if it makes sense to backfill work into an existing building, retrofit that building to accommodate the work, or determine if you have the critical mass for a Greenfield project.

“There are two approaches,” says Lammert. “One is more common among mom-and-pop outfits and has to do with small size and scale and being cost competitive. The other is larger scale with more detailed form, fit and function, with turnkey solutions designed to improve transportation or time to market.”

Walton offers an example of the way network design and equipment selection go hand in hand. He describes a customer with three sites, six or seven years in business, rapid growth of 40% per year and pick/pack operations.

“They had no WMS, no clear path and long-term leases on facilities they had already outgrown,” says Walton. “After the first layer of identifying processes, leadership, accountability, corporate culture and engaging employees, we looked at network design. In this case, we determined the facilities were in the right place, but we also defined the ideal facility size. They are now evaluating automation and capital investments to ratchet down costs. As they go forward, they at least have a good baseline. If they had looked at automation earlier, they would have been skipping several important steps.”

VARGO®’s work with American Eagle Outfitters is featured in the cover story of the September 2016 issue of Modern Materials Handling. Read the full article:

American Eagle Outfitters’ Omni-channel Journey

The fashion retailer has used warehouse execution software and automation to create a true omni-channel distribution center.

By Bob Trebilcock · September 1, 2016

It’s been a little over nine years since Modern visited what was then American Eagle Outfitters’ new 552,000-square-foot distribution center in Ottawa, Kan. The facility was truly ahead of its time: In 2007, no one was using terms like multi-channel, omni-channel, waveless picking or warehouse execution system (WES), but those attributes are exactly what distinguished the facility from any we had visited in the past. It was designed from scratch to handle three distinct retail brands including American Eagle and Aerie; to crossdock cartons and mixed cartons; to replenish stores; and to fill direct-to-consumer (DTC) orders across the brands for American Eagle Outfitters’ burgeoning e-commerce business.

At the time, the facility used a mixed storage method: In its primary reserve storage area, a pallet load of American Eagle merchandise might be stored next to a pallet of Aerie merchandise if that was the most optimal way to put inventory away. It used voice- and light-directed picking along with ring scanners, all based on the velocity of the SKUs. A large unit sorter made certain that pieces went to the right packing station.

But what really set the facility apart was a unique software system Vargo that was referred by American Eagle Outfitters and the solution provider as an optimization engine. Today, we’d call it a WES. Instead of creating pick waves and directing the work on the floor, the warehouse management system (WMS) was relegated to the management of receiving, inventory and shipping and communicated with the order management system. The optimization engine managed order fulfillment without traditional pick waves. Instead, it allocated work across the facility based on the workloads at the various picking and packing stations.

“We believe we have the first waveless, dynamic picking solution in direct-to-consumer order fulfillment for a specialty retailer,” an American Eagle Outfitters executive told us at the time.

Fast forward nine years later, and today we see one retailer after another trying to solve the problems that American Eagle Outfitters confronted in Ottawa nearly a decade ago. Meanwhile, the company has not stood still. It’s applying the lessons it learned over the years from its Ottawa DC to a 1-million-square-foot, omni-channel distribution center in Hazle Township, Pa., that serves the American Eagle and Aerie brands.

The lifeblood of the facility is an inbound conveyor and sortation system that routes incoming merchandise to where it is needed most, whether that’s in a retail replenishment area or a direct-to-consumer fulfillment area. It also features six four-level pick modules serviced by motor-driven roller conveyor (MDR), a large unit sorter that sends pieces to a putwall area for multi-line orders and multiple picking methodologies, including ring scanners and put-to-light.

Once again, it’s the latest iteration of the warehouse execution software developed by the original vendor that makes it all happen. While the WMS talks to upstream systems, the WES makes real-time decisions about how product should be routed through the facility and manages operations on the floor.

The result, says Christine Miller, director of operations, is a new facility that serves several functions.

• It reduces the risk in American Eagle Outfitters’ supply chain. “We were reaching full capacity during the peak DTC season in Ottawa, and we didn’t have a backup facility for business continuity,” she says.
• It positions e-fulfillment closer to the majority of American Eagle Outfitters’ customers, who live on the East Coast. “With Amazon leading the way on customer service, turn times are more important than ever,” Miller says.
• Flexibility was built into the design, which allows order selectors to move seamlessly from the retail picking operations to direct-to-consumer as needed. “We would need a larger workforce to support both channels if we were housing inventory in separate buildings,” Miller says.
• Last, and most important, it paved the way for American Eagle Outfitters to become a true omni-channel retailer that can fill an order from multiple distribution centers or the retailer’s stores. “The facility and systems we now have in place allow us to share inventory, so that when customers order from us online, they can have access to inventory both in the DC’s and in the stores,” Miller says.

Room to grow
Publicly traded, American Eagle Outfitters is a leading global specialty retailer offering high-quality, on-trend clothing, accessories and personal care products at affordable prices under its American Eagle and Aerie brands. Today, the company operates more than 1,000 stores in the United States, Canada, Mexico, China, Hong Kong and the United Kingdom and ships to 81 countries worldwide through its Websites. Merchandise is also available at 146 international stores operated by licensees in 22 countries.

As with other retailers, e-commerce has been an increasingly important segment of American Eagle Outfitters’ business. By 2011, the retailer realized that it needed a new strategy to keep up with growth. “At the time, we only had the one facility in Ottawa to service our e-commerce customer, and we could see that it was going to soon reach full capacity,” Miller says. “And, we didn’t have a backup facility in terms of business continuity.” What’s more, the retailer wanted to redesign its network to be closer to its East Coast customers.

At the time, American Eagle Outfitters operated a facility for retail replenishment outside of Pittsburgh. The decision was made to close that DC and build a Greenfield facility in eastern Pennsylvania.

From the outset, Miller says, American Eagle Outfitters wanted to take what worked best in its other facilities. For example, the retailer worked with the same WES software provider as in Ottawa, since it understood the retailer’s business. Similarly, a decision was made to use the same put-to-light system in the new facility as is used in Ottawa and was in place in the western Pennsylvania location. “It was a business continuity decision,” says Paige Marvin, senior manager of distribution systems for American Eagle Outfitters. “We knew how to install it, and we knew how to manage it.”

There were also shortcomings to address in the design. “The first thing was to reduce the amount of time it took to get inventory from inbound receiving into an active pick location,” Miller says. In the old facility, newly received merchandise went to a pallet-build area before it was put away into “back stock,” or reserve storage. That meant a case might be touched two or three times before it went into a pick location.

In the new facility, there is no pallet-build area and no pallet rack for reserve storage. Essentially, it is a flow-through facility, where new merchandise becomes available for fulfillment soon after it is received. “Merchandise is put away in the cartons we receive from our vendors, and we run MDR conveyor right into the pick modules,” says Miller. “That way, cases flow from the inbound sorter directly into a pick module or to the retail fulfillment area to replenish a store directly from receiving.”

Since most merchandise is handled at the case level and almost all merchandise is moved by the inbound conveyor and sortation system, there are only three lift trucks in the facility, which also cuts down on lift truck traffic. Instead, the inbound sorter, which runs the length of the building, is the key to flow. “Not only are we receiving on the sorter and moving cases into the pick modules, it also manages empty totes that are reused in packing,” says Miller. “If the inbound system goes down, we not only can’t receive, but we can’t direct totes to other places for packing and shipping.”

Another change is that only one case, one SKU, is stored in a location in Pennsylvania. “In Ottawa, we use pallet and flow locations for multiple units and SKUs,” Miller says. “If we run into an issue at a location, we freeze that location, which can impact the entire location. In Pennsylvania, the WES will simply direct an associate to another location with the same SKU.” At the same time, there is no separation of inventory by brand: Merchandise for Aerie or American Eagle, or retail or DTC can be stored in any of the six pick modules.

As noted earlier, the Hazle Township DC is a very flexible facility. Not only is inventory shared across multiple channels, so is the workforce, which can move easily between retail and direct-to-consumer processes, reducing the size of the workforce needed to operate the facility.

Last, but not least, it is a Silver LEED-certified facility. That was achieved in part through the extensive use of MDR conveyor, which American Eagle Outfitters estimates saves up to 40% on energy costs compared to conventional conveyor and LED lighting in the pick modules.

Software driven
The Hazle Township DC is highly automated, with extensive conveyor and sortation systems, including a high-capacity unit sorter to handle individual items. But the key to making it work is the way American Eagle Outfitters uses its WMS and WES system.

The WMS is truly a management system, rather than an execution system, according to Marvin. For one, it handles the messaging associated with a retail network, such as EDI messages, advanced ship notices (ASNs) and shipping manifests. It also serves as the interface between the facility and the enterprise resource planning (ERP) system, including the distributed order management and inventory management systems. As an example, when an order is allocated to a facility, the WMS confirms that the inventory is available for fulfillment.

Within the facility, the WMS is responsible for receiving inventory when it arrives at receiving, cycle counting and packing, and manifesting direct-to-consumer orders for shipment. Last but not least, it creates order waves that are then passed on to the WES.

The WES directs the order fulfillment and replenishment activities on the floor. When newly received merchandise is scanned before the inbound sorter, the WES makes a real-time decision about where that inventory is most needed and where there is available space for storage. Orders are handed off from the WMS into a pending pick pool in the WES every eight to 10 minutes. Available orders, such as whether it’s an overnight order or a two-day order, are then allocated to pickers based on criteria such as the shipping method or the customer service agreements.

Going live
The DC went live in June 2014 as a direct-to-consumer facility. Miller says that while the facility had the usual hiccups associated with a go-live, it experienced a smooth start. The real test occurred during the holiday season. “Up until that Thanksgiving week in 2014, we could control how much work came into the DC,” she says. That all changed with the holidays. “The spike came about three weeks faster than we’d planned.”

The system, however, was up to the task. “We processed the same number of orders in the last six days of the month as in the prior three months, and it went remarkably well,” Miller says. In all, the DC shipped seven million units in that first six months.

In 2015, American Eagle Outfitters transitioned from a direct-to-consumer to an omni-channel DC, adding retail fulfillment to the facility. Miller says it was a challenging time: Her team added 180 retail packers to operations in one day, added an evening shift and doubled the management staff, including supervisors on the floor. Volume for the year peaked at 45 million units shipped. “What got us through all of this was the support of our systems team, our partnership with our WES vendor, and a very strong operations team,” Miller says. Today, the facility is shipping two million units per week.

The Hazle Township DC has laid the foundation for American Eagle Outfitters to transform into a true omni-channel retailer. “Over the past two years, in addition to our distribution capabilities, we’ve updated our mobile app and created better customer interfaces,” she says. “We’re now able to share visibility into our inventory across the network of facilities and stores, so that you can buy online and ship from the stores. We’re also improving our distributed order management, with better logic to split the fulfillment of orders if necessary.”

The results have been impressive. American Eagle Outfitters has increased the capacity of its supply chain, while turning orders more quickly and at a lower cost. “Eighty percent of our direct-to-consumer orders are delivered within one to three business days, which is a two- to four-day improvement over when we had just the one facility in Ottawa, Kansas,” Miller says. What’s more, there is room in the facility to add more picking modules and capacity as needed. “That two million units we’re shipping per week is not our full capacity,” Miller says.

“I couldn’t be prouder of the team we’ve put together here,” she adds. “We’ve accomplished a lot, and we’re supporting the business and driving it forward.”

Retail Info Systems News (RIS) published and article featuring American Eagle Outfitters Distrbution Center, which features VARGO®’s Omnichannel solutions. Read the full article:

American Eagle Outfitters Tackles Omnichannel Distribution Demands

By Jamie Grill-Goodman — August 23, 2016
To support its growing e-commerce business, American Eagle Outfitters, Inc.’s (AEO) distribution center in Hazleton, PA, went live last year as an all-waveless omnichannel fulfillment center. While the facility has the capability of servicing all the stores in the chain, the distribution center primarily services 416 stores. The center also continues to fill all direct-to-customer (DTC) e-commerce orders for the eastern half of the United States, serving as a model for synchronized omnichannel fulfillment for AEO.

The fulfillment center is designed to provide a parallel workflow so that workers can simultaneously pull customer and store-replenishment orders (put-to-store). Employees aren’t even aware if they’re picking for a DTC order or for store replenishment.

“Eighty percent of our DTC customers receive their order in 1-3 business days,” noted Christine Miller, director of operations, AEO, who leads the distribution center. “The Hazleton distribution center not only provides a need for increased capacity for our DTC business, but it also gives us an opportunity to get closer to the majority of our DTC customers.”

The power behind the omnichannel fulfillment center is VARGO’s continuous order fulfillment engine (COFE) warehouse execution system. As soon as the inventory is inside of the distribution center, COFE knows where that inventory is located. It knows where the workers are within the building and makes real-time decisions to move people and drive processes.
“The system extends functionality beyond traditional warehouse execution systems,” explained Miller. “COFE is also our warehouse control system and provides us with a demand based distribution model. Our put away process allows us to eliminate forklifts, while our single case location model allows COFE to move a pick to another location with the same SKU to keep the order fulfillment moving. We also have eliminated all reserve pallet locations and the need to slow down the picking process by waiting for the pallet to be moved to a pick location.”

COFE’s flexibility allows the distribution system to easily handle consumer requests, which typically involve a large number of orders with smaller quantities, alongside the put-to-store orders, which typically involve fewer orders, but larger quantities.

“We have been able to turn orders faster by changing the physical design and software,” commented Miller. “We were already using the software in our current DTC facility, so it was a natural fit for us to continue to work with Vargo to develop our capability needs over time.”

Before American Eagle opened the facility in Hazleton, all of its store replenishment orders from the eastern half of the country were filled from a distribution center in Warrendale, PA, while a separate facility in Kansas handled all store orders from the west.

“The [Hazleton] building was designed to be an omnichannel facility from the beginning,” said Miller. “We have worked with VARGO consistently in our other facilities and implemented design and process improvements based on the need to improve turn time for DTC orders. We also wanted to realize the benefits of consolidating our workforce under one roof with a smaller footprint that would have the capacity that we needed for a planned increase in our DTC business.

“My advice to others would be to think of your business model now and growth opportunities in the future and don’t be afraid to invest in the technology that will get you there. Build a team that is focused on collaboration and results.” RIS

Multichennel Merchant recently published a story which featured VARGO®. Read the full article:

American Eagle Seeing Benefits with Omnichannel DC