Supply Chain Optimization Positions Michaels For Growth

In 2003, Michaels Stores, Inc., the world's largest retailer of arts and crafts, was close to surpassing its limits in warehouse capacity and inventory control systems. Michaels had sustained a 20% growth rate in North America for three years, with additional growth expected in the coming years. Les Gardner, Michaels vice president of logistics and distribution, had to find a long-term solution while planning an expansion into the Midwest and Canada. "We had four distribution centers that were completely out of capacity. We had to go back and re-engineer the entire supply chain process," says Gardner.

Michaels upgraded some processes in 1998 when it created a plan for opening new stores, installed new POS systems in existing stores, and put store planograms into effect. To further increase efficiency, Gardner's goal was to shorten order fulfillment times in the distribution network and streamline product flows to the stores. Due to time constraints and seeking minimal disruption in servicing its stores, Michaels called upon KEOGH Consulting and FKI Logistex, a provider of automated material handling solutions, for assistance.

Integrated Warehouse Solution Increases Productivity By 50%
KEOGH recommended replacing an obsolete warehouse in Kentucky with a 690,000-square-foot automated DC in New Lenox, IL, in preparation for the Midwest and Canada expansion. This site was chosen to service existing and future stores within a 10-hour trucking radius. After evaluating product flows and collecting logistics data, Michaels implemented a warehouse management system (WMS) from RedPrairie in the New Lenox DC. The WMS manages inventory and organizes order fulfillment and truck loading in a sequence that reduces restocking times.

In combination with the WMS, Michaels added several solutions from FKI Logistex, including its EASYpick system, BOSS sorter control module, Accupass, UniSort XV, and Wireless Information Module (WIM). The EASYpick system, which interacts with the BOSS module, minimizes the number of touches per case, automatically logs an out-of-stock item, and picks in departmental order. With the EASYpick system, Michaels increased its picking accuracy to 99.5%.

New Lenox is the first site in the country to implement Accupass, which works with the DC's conveyor technology to scan labels and transfer items to conveyors supplying product pick zones. Products are then placed into zone-routed cartons and passed along to their destinations. The BOSS module also manages the UniSort XV, which directs a merge and scanning process ensuring that outbound cartons reach their designated doors for truck loading. Finally, the WIM enabled Michaels to implement warehouse monitoring controls. The WIM allows operators to review system performance by capturing statistics and transmitting information to PDAs anywhere within the facility.

The transfer to the new technology and physical location occurred in a phased manner, which was viewed as seamless by all Michaels retail stores. "As soon as we went online, there was an immediate 35% increase in productivity. At the end of the first six months, we have seen this figure grow to 50%, and we haven't come close to peaking yet as we bring on more stores," Gardner says. Cartons picked and received per hour are processed at an efficiency rate 500% higher than expected. After seven months of operation, in terms of production dollars per hour, the new DC ranks third out of the company's nine DCs.