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Automating Fulfillment

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R etailers always seem to be fighting through notoriously tight operating margins, so any competitive advantage that accrues to the bottom line is welcome.

Saks Direct, the high-flying e-commerce division of Saks and companion of the high-end Saks Fifth Avenue retail stores, is certain it has found a nice fulfillment advantage over some of its rivals for consumers’ online shopping dollars.

The humdrum world of order fulfillment and product distribution hardly matches the luxurious and legendary Saks brand. But an ambitious decision two years ago to revamp the company’s fulfillment processes allowed Saks Direct to meet equally ambitious 2011 holiday shopping season delivery opportunities.

Casting aside its fixed warehouse automation systems for moving product, Saks took a capital-intensive leap of faith and began implementing a mobile-robotic approach to picking and packing for Saks Direct at its 500,000-sq.-ft. distribution center in Aberdeen, Md. Michael Rodgers, executive vice president and CIO for Saks, says the new fulfillment system allowed Saks Direct to promise Christmas Eve delivery for customers ordering as late as the day before.

It seemed to make a difference: Saks Direct reported a 21 percent increase in fourth quarter sales from the same period in 2010.

“That’s a competitive advantage,” Rodgers says. “I don’t know how many of our competitors were able to do that and how many weren’t. I just know that we were, and we didn’t break a sweat doing it.”

Efficiencies created

Breaking a sweat in the Aberdeen DC isn’t for humans anymore. With the Kiva Mobile-robotic Fulfillment System, hundreds of “robots” do the grunt work, automatically moving products of different shapes and sizes on mobile, modular shelving units across the DC floor. The robotic-drive shelving units are guided to workstations where associates await — a process Kiva markets as “Goods-to-Man Order Picking.”

Peter Blair, Kiva senior director of marketing, says the system reduces cycle time through efficiencies of scale as associates can pick, pack and ship orders more quickly without having to move around the warehouse floor to locate products.

“Say Mrs. Smith orders a pair of shoes, a dress and some earrings,” Blair says. “In most cases, you have two options. Either one person goes out with the cart and walks miles around the warehouse … [or you] take three people and send one over to get the dress, one over to get the shoes and one over to get the earrings.”

Blair explains that efficiencies are created because all the robotic drives do is ferry products to workstations. Associates use hand-held barcode scanners to point to the shelf to verify the product. A light on the shelf activates indicating the location of the item, accommodating product elements like size and color. Once done, the robotic drive moves to the next workstation, leaving another pod ready in the queue to deliver product.

The scanning system leaves little to chance, while enabling associates to pick multiple orders simultaneously and completely. “It’s very nice for the worker because it is very accurate,” Blair says. “They don’t have to think too much about what they are doing. It’s very clear.”

Increased space & flexibility

The Kiva system covers inventory control, forward replenishment, picking, packing, shipping sortation, finishing and quality assurance. With shipping sortation, for instance, orders can be picked depending on their destination. If the delivery is going from the East Coast to the West Coast, the order might get picked and packaged earlier in the workday to accommodate air travel schedules.

Rodgers says going to robotic fulfillment from a manual operation was a strategic decision to create leverage from expanding consumer interest in online shopping. Online spending during the 2011 holiday season (November 1 through December 31) reached $35.3 billion, according to digital research firm comScore – a 15 percent increase from 2010.

“This was a big bet Saks made ... during the throes of the recession,” Rodgers says. “We asked, ‘What are some of the big bets we can make that are going to make a difference when we come out of this recession?’”

Rodgers says mobile-robotic fulfillment worked so well for Saks that the company implemented the system at Aberdeen much sooner than anticipated. Saks Direct initially converted four departments to Kiva, completing that phase by September 2010. The company waited to complete the remainder of the conversion so as to not interfere with the impending 2010 holiday shopping season, though executives already were convinced of its benefits, Rodgers says. Saks completed the makeover by June 2011, well ahead of the 30 months planned.

“It is a relatively new technology,” Rodgers says, but “from the day it started to today we haven’t had problem one. The biggest thing was how fast we could get the rest of it converted.”

Rodgers says two other benefits of the robotic system are space and flexibility. As online shopping is expanding rapidly among consumers, so is the need for retailers to keep more inventory in warehouses to satisfy service requirements for shipping and delivery. With dynamic shelving, Saks could create 30 percent more space at Aberdeen.

“It maximizes the issue of shelving [because] it’s a non-human environment,” he says. “People don’t have to walk up and down aisles, and you can pack items in more closely.”

Rapid product delivery
As it expands its omni-channel marketing efforts, Saks is seeking to grow its distribution footprint – possibly to new facilities. Since the Kiva system is based on a mobile principle, “I can pick it up and move it” to other locations, Rodgers says.

Blair says that in today’s e-commerce consumer environment, superior customer service demands super-fast product delivery.

“It used to be that [retailers] could take a week to get you something,” he says. “That has changed. Everyone now expects that shipping is going to be quick and that it may even be free. Consumers also expect to have value-added services like gift wrapping and all those other things. Expectations have gone way up.”

Rodgers says the benefits from robotic fulfillment have been like a rallying cry for Saks.

“We’ve done things our competition hasn’t done,” he says. “Everybody feels really happy about it. It is one of the things we hold up as a strategic investment that is paying big dividends for the company, not only from a return on investment standpoint but also from a service standpoint. That’s probably the most important thing in the dot-com arena.”

At press time STORES learned that has agreed to acquire Kiva Systems for about $775 million in cash.

It is considered the latest bid by the online retailer to streamline its growing distribution network.