Interview with President Mike Vargo in Columbus Dispatch

Read the interview with our President Mike Vargo regarding VARGO® and its COFE® software solution, as seen in the Columbus Dispatch business section.

CEO Mike Vargo: Software called key to product delivery

If you get an online order from L.L. Bean or American Eagle Outfitters faster than you expected, you can thank a Hilliard company whose business is making distribution centers operate more efficiently. • Vargo Cos. eliminates backups at warehouse distribution centers for clients around the nation. Clients also include Lockheed Martin, Micro Center, even American Honda Motor Co. • President and CEO Mike Vargo talked with Columbus CEO about the business his parents started 44 years ago. Following are excerpts:

Q: What was the inspiration for starting the company?

A: (My father,) Julius, and my mother, Mary Ann, came back to Columbus to start a family business with a traditional entrepreneurial attitude. They were born and raised in Columbus, left, came back and in ’71, he and my mother started the business.

Q: Why distribution centers and fulfillment systems?

A: That’s what we’ve evolved to. When he came back and started the business in ’71, it was really more general-line material-handling equipment. And then as the customer base grew, they had a greater need and more sophisticated needs, which really prompted our growth in that area.

Q: Is software a more recent development?

A: The acquisition of the software company came in 2006, and that has been a real paradigm shift in how we even go to market.

Q: Expand on that a bit. COFE (Continuous Order Fulfillment Engine) software is Vargo’s key product, right?

A: The COFE software is what has changed the way we look at opportunities today. We’ve really focused on the e-commerce fulfillment and retail fulfillment in what’s now referred to as an omnichannel solutions set. COFE is the differentiator between how fulfillment centers work today and how they’ll work in the future.

Q: Explain the difference between how we do it today and the future.

A: Today, direct-to-consumers and retail fulfillment centers operate in what is called a wave-based system, and they are pushing products in piles that move through the fulfillment process. What COFE does is it reverses that, and our efforts start as soon as an order is generated. So we pull through the facility much like we all came to learn what lean manufacturing is. We simply applied the same principles as lean manufacturing to distribution. We are literally acting and reacting to every current need. We’re not creating piles of work and moving them, slug-style, through the fulfillment process. So we decouple the processes.

Another way to think about it is that in any fulfillment process in today’s world, they work off of a plan. And what we know for certain is that that plan will forever change. Because things will not be in the right slot, (and) people won’t be working at the same pace. Exceptions occur throughout the day. Every moment of our day, we have to deal with an exception.

So what COFE does is it reacts similarly to how we as people react. Think about when you left your house, and you had a predetermined plan on how to get to my office, but there’s an accident. In today’s fulfillment world, that accident creates a stop, and things back up. In the COFE world, we immediately, in milliseconds, react to the exceptions, and we do what’s the next best thing for that operator, that picker, to process.

Q: What do you see as far as growth potential?

A: That’s the exciting part of where we are. The growth potential, I don’t know that we can really quantify it, because of the fact of the unknown and exploding growth of e-commerce and the need for retailers to be leaner, be smarter about (the) process. There is a whole world out there of people who are doing it in a traditional fashion who will one day turn over to a lean approach.

Q: Is it difficult to meet the delivery demands of e-commerce customers?

A: The real challenge is the peak season. All retailers recognize where they make their hay. Where they are judged the most is that critical Black Thursday-to-Christmas (period). And so most of the retailers are forced to build this massive church for Christmas and Easter Sunday. The rest of the season, they’re able to get things processed relatively quickly because there isn’t a lot of push through their facilities.

Ordering something today and getting it in a day or two, while that’s wonderful, their real drive is to provide that same level of service at the peak times of the year; back to school, holiday seasons.

Q: What’s the largest challenge you face?

A: Getting people to let go of tired processes, because in their minds, it’s safe. But it’s grossly inefficient.