OPTI MI ZI NG ORDER CONSOLI DATI ON How to Plan and Design the Most Beneficial Order Consolidation Methods and Equipment for Your Order Fulfillment Operation
Order Consolidation � What Webster says consolidation is “the joining or two or more into one”. For fulfillment ~ the gathering of items from multiple, independent areas of a fulfillment operation into a single, shippable, contained unit. Do you have a need?
Order Consolidation � Why Complex and “Big Box” operations must select items from areas which are either 1. independent in nature (refrigerated, flammable, valuables, etc.) 2. geographically remote Customers prefer one package delivered on time for each order Do you have a choice?
Case Study Overview • Neiman Marcus Direct operates the Neiman Marcus, Horchow, Burberry, and formerly Chef’s catalogs in addition to NeimanMarcus.com. • Orders are selected or picked from multiple areas - Flat Apparel, Hanging Apparel, Full Case Goods, Security, and Home Textiles – and must be consolidated into one carton for delivery to the customer. • The areas are not connected in any way within the facility. • Neiman Marcus customers have very high expectations. • NMD has no choice!
Order Consolidation � When… � Where… � How… These are the questions we must answer to optimize our order consolidation process!
Case Study Problem Statement • NMD had outgrown the capacity of the existing Consolidation area. • The method was to place orders on shelving – pre- assigned staging locations – until all items were present. • Orders were then pulled daily and conveyed to Packing. • 2,500 orders per day required 12 people to consolidate orders. • Occupied 6,000 square feet of mezzanine space in the path of needed Hanging Apparel expansion space.
Where to begin… 1. Understand your operation 2. Know the expectations 3. Plan for the future 4. Research the possibilities
1. Understand your operation � Volume � Order Profile � Product Characteristics � SKU Depth � Product Movement � Process Flow
Case Study Statistics • Volume = 2,800 orders per day • 3.8 units per order • Nearly unlimited product size assortment – apparel, accessories, home décor, rugs, etc. • Depth of sku limited due to sizes and assortment • Items picked to totes and conveyed to Consolidation • Security Picking and all Packing followed Consolidation
2. Know the expectations � Service Standards � Cycle Time � Accuracy and Quality � Safety � Loss Prevention and Security
3. Plan for the future • Business Growth • Profile Changes • Product Mix Evolution • Marketing Initiatives • Competitive Advantages
Case Study Planning Criteria • Plan for 4,000 orders per day • Same day shipping of completed orders • 75% of orders complete Consolidation in one day • 25% of orders may be in location for 36 hours • Security Merchandise must be adjacent to Consolidation • Larger full case items moving to another facility
4. Research the possibilities • Separate solutions from sales • Match the technology to the application • Stretch beyond your gut feel…in both directions • Consult objective counsel • Be creative
Case Study Options • Existing Methods – Shelving – Expand building to add needed space – Expand mezzanine within facility • Put to Light • Unit Sortation • Vertical Lift Modules • Horizontal Carousels
What next??? 5. Develop each concept 6. Calculate the investment required 7. Determine the ROI 8. Evaluate the risks
5. Develop each concept • Work stations • Space • Labor Hours • Support Functions • Existing Potential • Systems Requirements
6. Calculate the investment • Capital Investment • Execution Expense • Depreciation Write Off • Disruption Costs
Case Study Comparisons Process / Space Labor Support Information Equipment Capital Utilization Required Functions Technology (square feet) (Average/Peak) Option Investment Impacted Support Expand Existing 12,000 Operation $300,000 (mezzanine) 5 / 12 None None 9,000 Minimal $450,000 (mezzanine) 3 / 8 None interface Put to Light Requires 8,000 separate Major interface, Unit Sortation $900,000 (open floor) 2 / 4 packing real time 2,500 Vertical Lift Relocates Interface with Modules $650,000 (reclaimed) 2 / 4 Security also host polling 3,000 Relocates Interface with Horizontal Carousels $400,000 (reclaimed) 2 / 4 Security also host polling
7. Determine the ROI • Return / Investment • Payback • Net Present Value (cash flow analysis) • Internal Rate of Return (after tax or pre-tax)
Case Study Financial Analysis CONSOLI DATI ON MHE TECHNOLOGY COMPARI SON - I RR/ SAVI NGS ANALYSI S Horizontal Carousels vs. Bin Shelving with Carts Method Carousel, Bin Method vs. Cart Method Project Year "0" 2005 2010 Capital Investment Variance ($92,154) Annual Depreciation Expense Variance - ($18,431) - Annual Maintenance Expense Variance + - ($1,704) ($1,704) Annual System Expense Variance + - ($1,000) ($1,000) Annual Labor Expense Variance + - $68,033 $98,058 Gross Annual Savings (Pre-Tax) - $46,899 $95,355 Memo: Cumulative Savings - $46,899 $391,739 Tax (41% ) ($19,229) ($39,095) After Tax Gain/ Savings $27,670 $56,259 Depreciation Add-Back $18,431 - Net Gain/ Savings $46,101 $56,259 After Tax I nternal Rate of Return = 50.5%
8. Evaluate the risks • Qualitative factors • Chance of failure • Impact on sales • Effect on service • Capability of internal resources • Critical path of schedule from “The Far Side”
Case Study Solution • Horizontal Carousels were selected due to: – Space Utilization – available unused space in old fur vault, opened existing space for GOH expansion – Labor Savings – 7 to 9 FTE’s at peak, 4 FTE’s average – Service I mprovements – immediate shipping of completed orders – Return on I nvestment - IRR was indisputable as best choice – Risks – minimal for systems, training, and culture
Optimize Order Consolidation • Consider all of the factors, then… • Select the solution that most benefits your application.
For assistance achieving your excellence potential contact… 3200 Highlands Parkway, S uite 214 ~ S myrna, GA 30082 ~ 678.842.9114 ~ www.j ohnsonstephens.com Our professional staff is presently supporting the continuing success of… FINLAY FINE JEWELRY
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