Shape Up To Ship Out

Leaders have long threatened subordinates with banishment if their behavior did not improve. Typically the issued statement is, "shape up or ship out." If the sluggard is so inspired, the directive is followed by a regimen that usually involves changes in attitude and conduct. He focuses on the shaping up to avoid the consequence of shipping out. In the retail world, "shipping out" is not the consequence; it is the ultimate goal. Therefore, the need to shape up a faltering system is imperative.

American Eagle Outfitters needed to recondition its supply chain to efficiently ship out to its 630 stores across the United States. "We lacked visibility, which made shipping and receiving a slow and manual process," said Michael Fostyk, VP of distribution at American Eagle. The retailer never could anticipate what product was arriving at its doors, causing DC employees to unload cartons, separate merchandise by SKU, and count it based on the purchase order (PO) that was sent to the supplier. This caused cross-dock merchandise, which is scheduled to go directly to the shipping department once it arrives, to take as long as a half a day. Other jobs, such as picking and packing, could take two to three days. This caused the flow of merchandise to lag at the distribution center (DC), costing the retailer time and money.

To whip its company into shape, American Eagle chose to put its supply chain on a strict regimen consisting of a new WMS (warehouse management system) combined with procedure changes. The company launched a new and improved shipping and receiving model that involved ASNs (advanced ship notices) and bar code-compliant carton labeling from its suppliers. This enabled the Warrendale, PA, facility to reach new shipping records and eliminate its third shift even before it opened a second DC. American Eagle also was able to obtain a payback on its technology investment in six months.

Compliant Bar Codes Build Allocation Muscle
American Eagle chose to focus on its suppliers for the first phase of its supply chain basic training. A year before it installed any new software, American Eagle instituted a program with its vendors encouraging them to ship merchandise with bar code-compliant labels. "We suspected there would be some difficulty with getting all the vendors to participate accurately, so we asked them to apply 'dummy' bar codes to their cartons," Fostyk said. "The codes didn't mean anything to our system for the first year, but it got them into the habit of applying them." Each bar code specifically described a carton's contents with respect to advanced ship information inputted into the company's allocation system. "We were surprised to have 75% of our vendors working on the same bar code symbology right away, and it increased to 98% by the time we were ready to use them." The compliance campaign was more of a practice in discipline than it was a technological advancement, but proved to be key in the success of the overall IT project.

Before merchandise reaches American Eagle's DC, it passes through a third-party deconsolidator that loads the merchandise onto the appropriate trailers and sends the retailer an ASN indicating what it will receive. The new bar codes provided American Eagle with a more detailed and immediate understanding of what was coming through its doors. Once the bar codes could match with the preallocated shipping information, American Eagle used this data to better direct product based on current store needs. "Sometimes we write purchase orders (POs) six to nine months in advance. Now we can divert the merchandise based on current allocation needs or the demand of each DC," Fostyk said. American Eagle informs the deconsolidator of the allocation, and the third party directs the merchandise to the appropriate facility. "In the previous system, we had to deal with all the merchandise when it arrived at the DC. Now it is split one step earlier, which saves a lot of time once it arrives," Fostyk said.

Advanced Ship Information Pumps Up WMS
To tone the internal workings of its DCs, American Eagle had to strengthen the muscles that connect the skeletal infrastructure of the facility itself. Once the bar codes were in place, RF (radio frequency) scanning devices fed the information into the company's many integrated software systems. A year after the bar codes were implemented, American Eagle installed PkMS, a warehouse management system (WMS) from Manhattan Associates, Inc. In cooperation with Arthur Allocation from JDA Software Group, Inc. and merchandise management software from SVI Retail, Inc. (formerly Island Pacific), PkMS compares each store's current needs with the original POs and ASNs.

"Previously, we had to assume that the merchandise on a PO was what would be coming off the truck," Fostyk said. "In today's environment, ASNs tell us that although we ordered 10,000 items, only 9,990 are going to arrive." To verify the counts in the past, the facility had to unload a trailer, open the cartons, separate them, and count the merchandise. Then the counts were entered into the allocation system to determine where everything should go; paper pick tickets were printed; and the cartons were moved throughout the facility with forklifts. This is where the lag time occurred.

With the new system, the cartons are scanned, and PkMS tells the facility's ConveyorWorks software how to divert each carton based on allocation information already present in the system. In fact, PkMS plans the path of each carton before the trailer even arrives at the door; the system has to predetermine how many cartons go to the cross-dock, picking and packing, or the reserve replenishment areas at one time. "This allows us to manipulate the facility management and keep the building's activity balanced," Fostyk said.

Training And Technology Pay Off
A year after American Eagle deemed itself in need of some serious supply chain shaping up, the retailer flipped the switch on the entire system. "We went home on Friday, and on Monday it was a whole new system," Fostyk said. Months of training paid off when the new system enabled the Warrendale, PA, facility to ship a record number of goods in its first week. Since then, the company has been able to eliminate the entire third shift at its Warrendale facility, even before the company opened a second DC in Ottawa, KS. American Eagle also decreased its overtime by 90% throughout the next year. "In terms of payback on our investment, we expected it would take a year and half, but it took six months," Fostyk said. The company's increased capacity allowed for some activities that American Eagle outsourced to a third party, like reverse logistics, to be brought back in-house.

Cartons that used to sit in its facility for two or three days now flow through in hours, and cross-docked cartons that used to putter through the system in half a day, now are in a shipping truck in a matter of minutes. But much like athletes who won't stop until they feel their muscles burn, American Eagle is not going to stop its technology investments here. It plans to install additional supply chain software from Rockport that will better link the retailer to its suppliers and will provide American Eagle with ASNs at the carton level even earlier in the supply chain process. With a competent army of workers and technology, this retailer is ready to get out in the retail field and fight for customers.