Manufacturers, distributors, and retailers talk a lot about flow-through, but few practice it. Also known as crossdocking, flow-through involves flowing goods directly from receiving to shipping without the labor-wasting steps of putting the goods away and later picking them. Saks Inc is one company that has aggressively adopted flow-through as the operating system for one of its key distribution centers (DC), located in Steele, AL. The company has literally built this DC operation around flow-through, with material handling system integration by Siemens Logistics & Assembly Systems Inc. Since the facility was completed a few years ago, Saks has not only mastered this advanced logistics capability, but the facility has become a showpiece of flow-through performance and efficiency, and a blueprint for how to do DC flow-through right, with the statistics to back it up.
One of the country's premier retailers, Saks operates 386 luxury, specialty, and traditional department stores -- including Saks Fifth Avenue, Bergner's, Boston Store, Parisian, McRae's, Herberger's and several other chains -- in 40 states, with annual revenues of over $6 billion and nearly 55,000 associates. The company's stores offer a wide selection of fashion apparel, accessories, cosmetics, and decorative home items, and feature unique designers and brand names.
Looking to the Future
The company started its journey to flow-through in 1997, when it began creating an idea of where it wanted to go. At that time, Saks had doubled in size through various mergers over a 10-year period, and was left with different systems at its DCs. The company wanted to have common applications across its distribution network, rationalize the network to reduce transportation costs, and slowly move to state-of-the-art facilities. Saks hired IBM Global Services to help with the selection process. By the end of 1999, Catalyst Int'l had been chosen as the WMS provider. Siemens L & A was selected as the system integrator for material handling, as well as the supplier of conveyor systems, high-speed sortation equipment, and the material handling control system.
One of the most interesting decisions Saks made after selecting Siemens L & A was to allow it to design the material handling system first and then to design the building as a shell that wrapped around the automation. No other company has approached an automation project in quite the same way. On the outbound side, Siemens came up with a unique design where conveyors heading to dock doors crisscross back and forth, instead of having a central conveyor line from which packages are diverted to shipping doors. While this design led to longer conveyor systems, it allowed for a much narrower building, saving a significant amount of money in building construction.
"The logistics solutions Siemens developed for Saks' DC worked well because we tailored them to their individual needs," says Ken Ruehrdanz, with Siemens. "Complex design tasks, like this project, require thorough preparation, so we started the support process right from the earliest stages -- helping Saks to define their project objectives. We employed proven procedural models for proposed-system data analysis, and then prepared performance specifications to compare potential solutions, both in terms of investment and operational costs. For Saks, it made more logistics and financial sense to construct the building around the material handling solutions that we were arriving at through our analysis process.
"Optimum flow-through performance, such as exists with the Steele DC, required significant up-front engineering to arrive at a flawless integration of mechatronics -- a holistic approach embracing mechanical, electronic, and information technology components," continues Ruehrdanz. "Siemens state-of-the-art control systems, high-speed sortation equipment, and conveyor systems all had to integrate perfectly with the postulated and existing WMS IT capabilities. Designing the optimum system requires detailed knowledge in all core and peripheral disciplines including plant engineering, material and information flows, system engineering and control technology. The success of the flow-through system within the Steele DC was positively impacted by Siemens' ability to deliver a turnkey capability throughout these disciplines."
At Saks, merchandise is delivered not on pallets, but as cartons; 96% of cartons flow through the facility to shipping without being put away. This percentage could be even higher, but Saks has learned it makes sense to retain a small amount of inventory at a central DC in order to replenish stores quickly with hot-selling items, instead of managing cross-store shipments or having to use a reverse logistics process.
How the Process Works
The key to flow-through is that information must flow in advance of merchandise. That information takes the form of Electronic Data Interchange (EDI) and portal-based Advanced Ship Notices (ASNs) from the company's suppliers and 214 electronic manifests from its carriers. Over 90% of shipments are preceded by ASNs. Saks, like other leading retailers, does levy charge-backs if suppliers do not send UCC 128 ASNs, do not properly label cartons, short Saks, or if trucks do not arrive on time. To practice flow-through, supplier reliability is critical. Saks' success in this area is based on years of working with suppliers to improve their performance. For suppliers that cannot afford EDI, Saks provides an Internet-based application, developed by Catalyst Int'l, that allows even the smallest suppliers to generate ASNs, UCC labels, and the necessary packing slips. ASNs are used far too rarely. They offer strong advantages in preplanning DC operations. These advantages are magnified when combined with flow-through processes.
A visitor to Saks' highly-automated, 180,000 sq ft distribution center in Steele, AL would see mainly 55 ft trailers being unloaded across 16 receiving docks. Based on the bar code label and its preexisting association with an ASN, most cartons flow from inside the trailer via conveyors to the appropriate receiving line. A single inbound trailer might contain goods destined for 100 different stores, and so the cartons are typically routed to about 80 outbound trailers (some trucks deliver to more than one store). While it is critical that inbound trailers be moved as quickly as possible from the dock, trailers on the outbound docks may take as long as a day to be fully loaded as they incrementally receive cartons from different inbound trucks.
In some cases, when a trailer is filled but delivery is not scheduled until later in the week, it will be pulled away from the dock and placed in the yard for a brief period of time. The trailer, in effect, becomes a miniature warehouse. The constraint is the store; if the store lacks the labor to get the merchandise to the floor, there is no sense delivering the goods. Saks requires vendors to send shipments in a "floor ready" format (on hangers, and then boxed) to help reduce labor at the store level.
On the shipping dock, workers "tunnel load" the trucks. They group cartons for one store on one side of the truck, for example, and goods for another store on the opposite side. Or if goods are destined for delivery to the same store, products from one selling zone (like men's apparel) would be grouped separately from women's apparel. While building the load, a tunnel down the center of the truck is created by not filling that area with cartons.
This base process flow is automated through the use of a conveyor system integrated with a high-rate sorting system. Telescopic conveyors that extend into the trucks are used at receiving. Different types of receiving equipment are used. This is because the trucks that are arriving have a variety of factors attached to the shipment that affect how fast they can be unloaded.
Goods move up a conveyor to a mezzanine level where they are merged onto a sliding-shoe sorter operating at 540 ft per minute. The cartons then move onto an inbound sorter station that routes packages to value-added processing stations located directly below this station, or on to shipping. A vision system captures an image of every bar code, reads the bar code, measures the length of the package, and determines how many packages should go on a particular value-added processing divert lane.
Next to this station is a PC loaded with system-monitoring software. The software shows the conveyor system layout. If a particular module is not performing correctly, that module's icon turns red on the computer screen. Since it is an Internet-enabled system, corporate headquarters in Jackson, MS can also view the system status simultaneously.
Cartons headed for the shipping docks are sprayed with the store number and department by inkjet sprayers. This information is used by truck loaders to correctly load trailers that will contain goods moving to more than one store. Cartons are then sent to the shipping sorter, which diverts them to the appropriate shipping lines. Packages move down from the mezzanine level to the shipping docks on gravity-controlled conveyors designed to extend into trucks to speed truck loading. The conveyor system is engineered to recirculate cartons on the shipping side if workers are not able to keep up with the amount of cartons flowing to them, and thus prevent the overhead conveyor from becoming blocked. An indicator light adjacent to a particular gravity-fed conveyor comes on if the conveyor is fully loaded with cartons. This allows a manager to reposition workers and eliminate the bottleneck.
The speed with which cartons move through the facility is impressive. If cartons are not diverted to value-added processing, they move through the facility in 7 minutes.
Not all cartons flow through the facility in the manner described above. Saks has a sophisticated inbound auditing process. Audited cartons are diverted to an audit area. For some suppliers, 40% of inbound cartons are audited. If there is no ASN associated with a shipment, Saks will scan each piece of merchandise. For suppliers with excellent reliability, few, if any, inbound goods need to be audited. The audit logic is contained in an add-on module to the WMS solution that was built with detailed input from Saks.
Certain products require Value Added Services (VAS) and they are also diverted to a special area. VAS tasks include price ticketing, putting security devices on expensive goods, and shipping some apparel on hangers. At the Steele distribution center, diverted product is processed and then reintroduced onto the conveyor system.
Advantages of Flow-Through
Flow-through's greatest advantage is labor savings. At the Steele facility, the combination of common systems, material handling equipment, and flow-through processes allows 45,000 cartons per shift to be processed. In the past, a facility with the same square footage could process 15,000 cartons per shift, at best. The labor cost per carton has since dropped dramatically for Saks. The cost of handling a carton is $0.14 when it arrives as part of an ASN shipment, but $1.40 for cartons shipped without ASNs. The initial projection was that the payback period would be three years. Subsequent analysis showed the project actually had a payback of 18 months.
Labor savings are partially the result of better capacity planning and smoother labor utilization. Flow-through, as practiced by Saks, resembles Theory of Constraint (TOC) processes used in manufacturing operations. A human planner can enable a steady flow of work by visually monitoring activity and scheduling the unloading process to maintain a steady beat of activity. If the VAS area is busy, for example, a trailer can be unloaded that has a high percentage of ASNs, which means less work for the VAS processors.
The planner indicates which trailer moves to which inbound dock by making a selection in the Yard Management System (YMS). The YMS's alerting capabilities aid labor productivity. If an inbound dock is open for more than five minutes, a manager is alerted on a pager. Similarly, if a truck will arrive late to a yard, managers are alerted. Prior to the implementation of the YMS, turn time was 10 to 12 minutes. The YMS solution reduced it to 7 minutes or less.
Flow-through took two days out of the Saks' supply chain, while increasing their ability to flex deliveries to the stores. They can ship as often as warranted based on volume. For their larger stores, in peak season, this means twice daily. The service standard, even for VAS merchandise, is to receive goods and ship them out within a four-hour window. Saks' flow-through system has also increased store replenishment accuracy. Each time they have increased the percentage of goods moving via flow-through, replenishment accuracy has also increased. The value of flow-through is greatly increased by procurement programs that emphasize more frequent, smaller buys that better reflect consumer demand. If retailers do not have "open-to-buy" programs in place, they will not gain the full advantages of flow-through.
Saks' new flow-through DC operation at Steele represents a landmark example of what can be done to solve distribution challenges when innovative planning and engineering, state-of-the-art material handling systems, IT interfacing, and overall turnkey system integration are brought together and flawlessly orchestrated.
Adapted from Mastering Flow-Through, by Steve Banker. ARC Advisory Group, 3 Allied Drive, Dedham, MA 02026.
