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Saks masters DC flow-through

Manufacturers, distributors and retailers talk a lot about flow-through, but few practice it. Flow-through, also known as cross docking, involves the flowing of 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 located in Steele, AL. It has literally built this DC operation around flow-through, with material-handling system integration by Siemens Logistics and Assembly Systems, Inc. (www.usa.siemens.com/logisticsassembly). Since the facility was completed a few years ago, Saks has not only mastered this advanced logistics capability, but the facility has also become a showpiece of flow-through performance and efficiency and a blueprint for how to do DC flow-through properly, with the statistics to back it up.

Saks is one of the country's premier retailers, operating 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 more than $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 assortments of unique designers and brand names.

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 they were left with different systems at their DCs. They wanted to have common applications across their distribution network, rationalize the network to reduce transportation costs and slowly move to state-of-the-art facilities. Saks hired IBM Global Services (www-ibm.com/services) to help with the selection process. By the end of 1999, they had chosen Siemens L&A as the systems 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 Siemens L&A was selected was to allow them 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 criss-cross 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 the building to be much narrower and saved a significant amount of money in the construction of the building.

"The logistics solutions Siemens developed for Saks' DC worked well, because we tailored them to Saks' 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 its 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 upfront engineering to arrive at a flawless integration of mechatronics, which is a holistic approach embracing mechanical, electronic and information technology components. Siemens' state-of-the-art control systems, high-speed sortation equipment and conveyor systems all had to integrate perfectly with the postulated and existing warehouse-management system information technology 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 in cases. Ninety-six percent of cases move through the facility to shipping without being put away. This percentage could be even higher, but Saks has learned that 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.

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 suppliers and 214 electronic manifests from Saks'carriers. More than 90 percent of shipments are preceded by ASNs. Saks, like other leading retailers, does levy chargebacks if suppliers do not send UCC 128 ASNs, do not properly label cartons or 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 that allows even the smallest suppliers to generate ASNs, UCC labels and the necessary packing slips. ASNs 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 DC in Steele would see mainly 55-ft trailers being unloaded across 16 receiving docks. Based on the bar-code label and its pre-existing association with an ASN, most cases flow from inside the trailer via conveyors to the appropriate receiving line. A single inbound trailer might contain goods destined for 100 different stores, so the cases 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 cases from different inbound trucks.

In some cases, when a trailer is filled, but delivery is not scheduled until later in the week, a trailer 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 in 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 cases for one store on one side of the truck, for example, and goods for another store on the opposite side. Or, if goods were 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 cases.

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, 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/min. The cases 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 that shows the conveyor layout. If a particular module is not performing correctly, that module's icon turns red on the computer screen. It is an internet-enabled system, so corporate headquarters in Jackson, MS, can also view the system status simultaneously.

Cases headed for the shipping docks are printed with the store number and department by ink-jet printers. This information is used by truck loaders to correctly load trailers that will contain goods moving to more than one store. Cases 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 cases on the shipping side if workers are not able to keep up with the amount of cases 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 cases. This allows a manager to reposition workers and eliminate the bottleneck.

The speed with which cases move through the facility is impressive. If the cases are not diverted to value-added processing, they move through the facility in seven minutes.

Not all cases flow through the facility in the manner described above. Saks has a sophisticated inbound auditing process. Audited cases are diverted to an audit area. For some suppliers, 40 percent of inbound cases 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 DC, diverted product is processed and then reintroduced onto the conveyor system.

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 cases/shift to be processed. In the past, a facility with the same square footage could process 15,000 cases/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 cases shipped without ASNs. The initial projection was that the payback period would be three years. Subsequent analysis showed that 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 by scheduling the unloading process to maintain a steady beat of activity. If the VAS area is busy, for example, a trailer that has a high percentage of ASNs can be unloaded, 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 min. The YMS solution reduced it to seven minutes or less.

Flow-through took two days out of the Saks' supply chain, while increasing its ability to flex deliveries to the stores. It can ship as often as warranted, based on volume. For its 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 increase the percentage of goods moving via flow-through, replenishment accuracy is 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 an 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.

This case study is an adaptation of an ARC Advisory Group brief titled Mastering Flow-Through.


More information is available:
Siemens Logistics and Assembly Systems Inc., 616/913-7287. www.usa.siemens.com/logisticsassembly.
IBM Global Services, 888/839-9289. www-1.ibm.com/services/us/ index.wss.
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