Sneaker Solution

Apr 01, 2003 10:30 PM  By

IN THE FIERCELY COMPETITIVE, uncertain world of Internet liquidation, Overstock.com uses what COO James Hyde calls the “sneaker solution” to keep the warehouse on its toes. Yep. Pickers in sneakers running around with carts, pulling stuff off shelves.

Theirs is a down-and-dirty business, the kind that’s used to receiving large, disorganized shipments, sometimes without a purchase order. Where all the hiking boots don’t have to land in the same place.

Launched by president and CEO Patrick Byrne in 1999, Salt Lake City-based Overstock.com is young, not yet profitable, and determined to become the dominant online clearance center for excess and close-out brand-name goods. The company buys from manufacturers, retailers, catalogers, distributors, and other sources, then sells at deep discounts. It hawks high-quality merchandise, items such as Hewlett-Packard printers, Ralph Lauren shirts, Movado watches, and Krups espresso machines.

Sales channels include Overstock.com, a consumer channel that is the bulk of the company’s business; Overstockb2b.com, a business channel that has operated in earnest since the fall of 2001; and Worldstock.com, opened in the fall of 2001 as a consumer channel selling a variety of goods made by disadvantaged artisans around the world. Except for merchandise sold on Worldstock.com, most everything is offered B2C and B2B. A warehouse store offers the kind of oddball goods that don’t sell well over the Web, along with a small selection of normal inventory.

Overstock.com runs a commission business in addition to buying, reselling, and shipping direct. Approximately two-thirds of the products posted on the e-liquidator’s Web site are sold on commission for about 150 third parties throughout the United States.

Goods often arrive disorganized because they’re coming from companies that may be distressed or sending surplus inventory. “We need to be very flexible in our ability to receive and process those sorts of shipments, and we need to be flexible in our ability to accommodate an ever-varying landscape of SKUs and products,” notes Hyde. Translation: They must take what their buyers find, get it organized, and on shelves quickly.

Warehouse staff generally has at least several days or more to prepare for inbound shipments, and they normally receive against purchase orders. But occasionally, they don’t. “In extreme cases, we get a great deal on a warehouse that someone’s cleaning out, truckloads start showing up, and we just have to be able to deal with that,” says Hyde. “Right now, we do it pretty well. Unless it’s a very large disorganized buy, we can usually have the goods received within 24 hours of when the goods hit the dock.”

When there is no PO, the staff must build a document to receive against after the truck has arrived at the warehouse. “We have a couple of home-built systems with scanners on them that can go through and quickly identify the number of UPCs, the items that are in a shipment and the quantities, build up a list, then create a record that we can receive against to load those goods into inventory,” says Hyde.

Stuff gets stowed wherever there’s room. The warehouse management system provides a list of all open spaces. Workers choose what they need and put the goods there. “We don’t really worry a whole lot about trying to always make sure that the hiking boots are near the other hiking boots,” says Hyde. “Once we receive it, we’ve got our SKU or the UPC on it, we’ve got it into a bar-coded location in the warehouse, and our warehouse management system keeps track of where everything is.”

Because any given location might have hiking boots one day and umbrellas the next, Overstock.com prefers people, not robots, for picking orders. Robots are too cumbersome. “We’ve had much better success with what we call appropriate levels of technology,” says Hyde. “We do use a computer-based warehouse management system that takes orders from the Web site and distributes the order picking out to an army of pickers. These guys run around with pick carts, load the orders onto the pick carts, and then we bring them forward to various staging locations where we pack and ship the goods. So we have sort of a mixture of the sneaker solution with a robust and relatively intricate warehouse management system.”

SPLITTING THE DIFFERENCE

Overstock.com’s direct business accounts for slightly less than half of all its online orders, and those direct orders are fulfilled from the Salt Lake City warehouse. Other orders are for products sold on commission, and those are fulfilled by the various commission partners. When a customer places an order, it gets split into items that will ship from Salt Lake City and those to be shipped from partners’ warehouses. Overstock.com forwards the partners their pieces of the order.

In Salt Lake City, orders are downloaded hourly. They drop into a server at the warehouse, get prioritized according to time of receipt and shipping method, and are transmitted over a local radio-frequency network to hand-held computers. Pickers log onto the hand-helds, allowing the server to keep track of who is where at any given time. The server feeds pickers bits of orders depending on where they are in the warehouse and the type of orders they’re picking.

B2C pickers scan items out of inventory and into the cart, and because carts are bar-coded, the system always knows exactly what’s in each cart. The system also directs pickers on an efficient pick path through the warehouse. A dedicated B2B crew picks large orders using typical bulk handling equipment such as forklifts and pallet jacks, but picks small B2B orders using the standard B2C picking equipment.

ON STAGE

Single-item orders are packed and shipped immediately. Because multiple-item orders might be picked by various pickers, depending on what the technology deems most efficient, items are staged, grouped, then packed and shipped. Hyde says Overstock.com is exploring options to eliminate some staging work and assemble complete orders right in the cart.

Weekly shipping volume swings from about 8,000 to 50,000 orders, depending on the season. Orders received at the warehouse by 1 p.m. generally go out the same day. Nearly everything else, including partners’ shipments, goes out within 48 hours. The Salt Lake City warehouse accomplishes that by running seven days a week, with four overlapping shifts, starting from about 4 a.m. and going past midnight.

But wait. What about products they can’t sell? “Couldn’t happen!” scoffs Hyde.

Dana Dubbs is a freelance writer who can be reached at ddubbs@pacbell.net.

High-speed Shoes

Things happen fast at Overstock.com. Total revenue has mushroomed from $25.5 million in 2000 to $91.8 million in 2002. Of last year’s revenue, 89.4% came from direct sales, 13.5% from commission sales, and 1.6% from the company’s warehouse store. Two years ago, Overstock.com moved into 110,000 sq. ft. of leased space in a 354,255-sq.-ft. facility, and has since expanded into the entire building. Currently, the liquidator ships only within the U.S., but plans to expand overseas. A publicly held company since last spring, Overstock.com filed for a follow-on offering earlier this year to raise $23 million.

Agility characterizes Overstock.com’s operation. “We’re always out there scouring, looking for excess inventory that manufacturers or other retailers might have,” says COO James Hyde. “We have to stay fairly reactive in the warehouse — at least on the receiving side.”
DD

OVERSTOCK.COM

Headquarters: Salt Lake City, UT
Revenue: $91.8 million in 2002
Total employees: 194
Web site: www.overstock.com
Warehouse size: 354,255 sq. ft.
No. of warehouse employees: 50-60 permanent; 100-180 seasonal
No. of SKUs: 5,000-7,000 non-media; 12,000-17,000 media
Shipments: 8,000-50,000 weekly, depending on the season

SUPPLIERS

WMS: HighJump Software Warehouse Advantage Suite
Manifesting software: Kewill Clippership
Radio frequency units: Intermec