VARGO® Featured in Columbus CEO Innovation Spotlight

art on August 4, 2015

VARGO President and CEO Mike Vargo

Innovation Spotlight: Vargo’s pioneering distribution centers draw big clients

By Kevin Kidder

VARGO
3709 Parkway Lane,
Hilliard, 43026
vargostaging.wpengine.com

Business: Vargo designs, builds and supports customized distribution center systems, helping companies make fulfillment as lean and efficient as possible. The company’s COFE, or Continuous Order Fulfillment Engine, software uses an automated, demand-driven “waveless” approach, an industry first.

President and CEO: J. Michael Vargo

Number of total employees: 47

Additional Offices: Austin, Texas; Berkeley, Calif.; Grand Rapids, Mich.

2014 revenue: $83 million

Mike Vargo looks on as his colleague draws a funnel on the board. It is the same kind that most people have around the house, the kind that you use to get liquid in jars or gasoline into a tank.

But the president and CEO of Vargo Companies is using it to illustrate what his business does best: Eliminate the backups at warehouse distribution centers. Make everything go smoothly through that small opening of the funnel. Make warehouses efficient and lean.

Vargo, based in Hilliard, designs, develops and builds innovative warehouse fulfillment center systems for clients around the nation. The roster of companies that use Vargo systems has some big names: LL Bean, American Eagle Outfitters, Lockheed Martin, Micro Center and even American Honda Motor Company.

The homegrown company was founded in 1971 by Mike Vargo’s parents, Julius and Mary Ann Vargo, who are central Ohio natives.

Vargo has evolved into three divisions: Vargo Integrated Systems Inc., Vargo Adaptive Software LLC, and Vargo Material Handling Inc.

It has a nationwide reach and four branch offices, including a new one opening this summer in Grand Rapids, Mich. that will house sales, engineering and control staff.

At the center of its business is its proprietary Continuous Order Fulfillment Engine software, a real-time warehouse fulfillment system that the company bills as an automated, waveless approach for distribution centers.

“The difference is we do not work off of a planned event. We work in true—and I emphasize true—real time,” Vargo says.

With COFE, the second an order is placed, it is dynamically assigned to the warehouse picker closest to the item. If the worker passes the item, that order is then reassigned to the next nearest person. The system knows where employees are, and it knows where the stocked items are.

Traditional systems use a wave approach, where piles of orders build, and workers are then assigned a predetermined list of items to retrieve. COFE gets rid of the wave.

“COFE allows that streamlined, continuous, flow. Think of a faucet, continuously running, versus a faucet running and the bucket’s filling up. You don’t really need the water in the bucket, you just need the water to go through the hole in the bottom,” says Bart Cera, Vargo’s COO and CFO.

In the case of American Eagle Outfitters, the system has allowed the company to go “omnichannel” — that is, fulfilling both to-store inventory orders and e-commerce purchases made by consumers from the same warehouse.

Traditionally, companies have two separate warehouses, one for store inventory fulfillment, and one for e-commerce orders. They have two separate inventories, two separate workforces and two separate fulfillment systems.

Vargo’s system makes it possible to do both from one warehouse. Warehouse workers don’t even know which kind of order they are fulfilling.

American Eagle rolled out Vargo’s COFE-based omnichannel system to its new Hazel Township, Pa. warehouse in June. The company says it will lower operating costs by 10 to 15 percent, and will be smaller than its other warehouse in Ottawa, Kan. Most customers will get orders in two days.

“It really allows us to leverage our capital investment. The Hazelton facility is 20 percent smaller from a square-foot standpoint than our Ottawa campus, but can do just as much in terms of servicing our stores and customers,” says David Repp, vice president of North American Logistics for American Eagle. “From an investment perspective, we were able to invest less capital there and get just as much help with capacity.”

With e-commerce becoming more popular, Vargo and Cera see the potential for growth. Companies will want to be lean, efficient—and fast.

“The Gen Xers and Millennials are used to doing everything on their smartphones and online,” says Cera. “You’re going to see a run up on the e-commerce side.”

Food Logistics Writes Spotlight on VARGO®’s Waveless Picking for e-Commerce

art on March 29, 2015

The following article is from Food Logistics.

ProMat Seminar: Why ‘Waveless Picking’ Makes More Sense for e-Commerce

By Elliot Maras
Food Logistics

One of the most prevalent themes at the exhibits on the ProMat trade show floor at Chicago’s McCormick Place South last week was e-commerce. Many exhibits offered tools to help supply chains adapt to the rapid rise of e-commerce. What many attendees may or may not realize, however, is that the traditional method of picking products in the fulfillment center – “wave” picking – is not the most efficient system for companies fulfilling e-commerce orders.

“We’re trying to use an antiquated process to fulfill e-commerce,” observed Art Eldred, client executive for system engineering at VARGO Companies, a material handling solutions provider. Eldred spoke during a seminar, “Autowave transitions – the best fit for e-commerce fulfillment.” The seminar was held on both Tuesday and Thursday during the ProMat show.

Eldred provided an overview of how waveless picking offers a more efficient method of fulfilling e-commerce orders.

A wave is a group of orders that are gathered during a specified time period to create a single entity of work. This single entity of work doesn’t begin until work begins on the first item and doesn’t end until work finishes on the very last item. As the wave works its way through the DC, the WMS plans labor on the amount of work to be completed with no regard for the amount of work in progress or how the work is being completed in the packing process.

The “waveless” method, on the other hand, updates the order management system every time an order is assembled. The goal of the “waveless” method is to get the order to the consumer as fast as possible and only induct new work as work is completed.
Eldred noted that e-commerce continues to grow while traditional brick and mortar retailing is stagnant if not declining. “Our consumers have changed their buying behaviors,” he said.

The wave method spends a lot of time monitoring exceptions in the fulfillment process. “It’s the exception processes that are driving waves crazy,” Eldred said. For the e-commerce environment, this is more of a problem since there are usually more SKUs and individual item picks involved than in traditional retail environments.

The traditional rule that 20 percent of the SKUs account for 80 percent of the volume holds true for both e-commerce and traditional retail, he added. But with e-commerce, that 20 percent changes more frequently.

“We need to react as fast as we possibly can to our e-commerce clients,” he said.

Eldred’s company uses the term “autowaving” to refer to the system of automatically allocating labor to orders. He notes that the warehouse execution system (WES) is a key tool in enabling this capability.

The WES is a software that combines capabilities of both the warehouse management system (WMS) and the warehouse control system (WCS). Traditionally, WMS software assigns work to the WCS, which controls the material handling tools. A WES better synchronizes and sequences work amongst all work resources, resources being both machines and people.

The WES manages real-time information about all the available work resources and every tool interaction with those resources to process the orders and prioritizes the work.

The waveless system is more productive, according to Eldred. He said one of his company’s operations has observed a sorter efficiency increase by as much as 56 percent under a waveless system.

“In no case will waveless picking be less efficient than a wave-based system,” he said. “That exception monitoring can take a whole entity and just kill it. A waveless environment works very well with handing exceptions.”

“What we want to do is execute the work differently,” Eldred said.