American Eagle Outfitters on Cutting Labor Expenses

Apr 02, 2008 6:55 PM  By

American Eagle Outfitters operates several distribution centers in North America, including a facility in Warrendale, PA, and a DC in Mississauga, Ontario, to service its Canadian stores. But the multichannel apparel merchant is most excited about its newest DC in Ottawa, KS, which is helping it reduce labor costs.

Opened last May, the streamlined, state-of-the-art automated facility was designed to handle all distribution lines within one operating system, says vice president of distribution Steve Lyman, who oversees all of American Eagle’s back-end operations, including facility layout, MHE design, systems integration and operational execution.

The 552,000 sq. ft. (expandable to 720,000 sq. ft.) multiuse center can move 25,000 SKUs and up to 300,000 items daily. As such, it can meet the distribution needs of multiple business divisions operating under one roof.

At the new facility, AEO has been able to reduce both direct and indirect labor costs through an automated labor management system. It’s cut direct labor costs by “optimizing and prioritizing picker paths and inventory replenishment,” says Lyman, “in our case using a sophisticated and highly customized software application.”

This is no simple task, adds Lyman, who notes that the customization is probably essential: “Developing a formula for maximum efficiency and productivity is complex, and varied for every organization.”

Indirect labor is reduced by automated wave management in its warehouse management system and the COFE optimization system, which “automates the pickers’ activities for maximum efficiency,” Lyman says. COFE stands for continuous order fulfillment executor; the system is from Vargo Adaptive Software.

What’s COFE’s advantage? The system processes orders without waves. It was developed in response to the rapid growth in e-commerce: The resulting requirements and instant demands of consumers ordering online have placed extra burdens on traditional wave-based distribution methodologies.

AEO can systematically direct its workforce, in order to synchronize workflow and balance workload in an unpredictable production volume operation, by using waveless picking. “COFE software is used to assign varying labor, mechanization and capacity metrics to the order demand pool, based on a set of primary rules,” Lyman explains.

By using waveless picking for its direct business, AEO avoids the stopping and starting inherent when picking by waves. With standard waving, people order goods up to a certain cut-off time, at which point the DC will queue up possibly 1,000 orders that need to be picked and shipped by a certain time of day. But with a waveless picking system, orders come in real-time and are jumped into the queue, then prioritized based on how they are to be shipped.

When a new order comes in, if it is designated to have priority over something already in the system, it puts a picking priority tote in front of those with less priority. Rather than have pickers start at the beginning of a row, work their way down, and have to go back to pick another order that comes in with priority and get it down to the packing station, the system allows that to be done smoothly and seamlessly.

Lyman says the system automatically determines the next best task for workers as they complete jobs, all based on a hierarchy of rules in the COFE system. COFE assesses all the variables and recommends the best next step; it synchronizes workflow across all areas while maintaining constant outbound workflow. “It’s all about creating the right capacity in an automated shipping environment, which is synchronized by COFE,” he adds.

Steve Lyman will discuss “How American Eagle Outfitters Manages Fulfillment Labor” at NCOF on Tuesday, April 8.