Distribution System Takes Off For American Eagle

• 06/26/2000

American Eagle Outfitters is a chain of retail stores selling casual apparel, shoes and accessories to active, style-conscious, under-30 men and women. The company is growing fast. With 492 stores in the continental U.S., plus catalog and Web-store sales, last year’s sales totaled $800 million, and 90 new stores will open this year.

The stores do not do their own reordering. Based on store size and daily sales information, collected at the point of sale and batched to Warrendale every night, the company’s allocation department determines merchandise needs and stores are automatically replenished weekly.

According to Steve Lyman, director of distribution systems, due to its rapid growth the company began an upgrade to its in-house developed warehouse management system in 1998. The goal was to receive merchandise from suppliers at the distribution center faster and to correct some of the receiving and shipping bottlenecks that had plagued the old system.

One of the chief faults, Lyman says, was that it required after-the-fact paper-based picking. “It was inefficient: first you receive, then you obtain an order and process the goods. We wanted to be ahead of the curve, to pre-allocate stuff coming in the door and process it immediately, instead of having to unload it, stage it, count it, enter it, wait for it to be allocated and then work it.”

Lyman was aware that there were applications for fluid, bar coded receiving and paperless picking. A preliminary exploration of the leading products at trade shows customer sites was followed by a formal search and selection process aided by consultants from PriceWaterhouseCoopers. This information-gathering led Lyman to settle on the PkMS advanced distribution system from Manhattan Associates, Inc. (Atlanta). The implementation process began in April 1999, and was completed in May 2000. The application runs on American Eagle’s AS/400 Model 730.

Currently, American Eagle does not exchange EDI documentation – particularly advance ship notices (ASNs) – with its vendors, although Lyman expects EDI communication with vendors and carriers to be in place within the next year. Nevertheless, vendors now provide American Eagle with a paper ASN in the form of a faxed packing list for each container or trailer, indicating its contents down to case-level detail. This is translated into a formal ASN by American Eagle. The ASN informs the PkMS system of the products and quantities in each shipment.

This information is key to the new system. The vendors are responsible for labeling each case in a format specified by American Eagle.

“When a trailer or container arrives at the distribution center, we identify the trailer number on an appointment schedule which our system recognizes,” Lyman says. “Once we recognize that trailer as available, we let the allocation department know by sending an upload with the contents of every trailer to their system, the Arthur Planning and Allocation system. Their job is to pre-allocate the merchandise, matching up the store allocations to the case quantity levels that we receive.”

Both the PkMS and the allocation systems interface with American Eagle’s Island Pacific core business systems. As the cases are scanned coming off the trucks, the system builds a receipt file that is uploaded to the corporate financial and merchandising applications. Cases are unloaded by conveyer and are sent to one of five areas in the distribution center based on priority of processing.

“First priority is cross-stock,” Lyman said. “If any store needs as much as one full case, we don’t bring it back into the building, we cross-stock it right to the shipping dock, print and apply a shipping label, and it’s on its way.”

Stores normally receive two shipments a week, timed so that the merchandise sold over a weekend is replenished by the following Friday, with a second shipment during the week of new merchandise or other goods. Stores are informed of what to expect by an e-manifest, an e-mailed description of the merchandise being shipped.

When cross-stocking full cases is impossible, picking is now done immediately at picking stations along the conveyer line as the merchandise comes into the building. Workers with wrist-mounted or hand held radio frequency guns pick from incoming cases directly into bins which are then moved to the packing area of the building to be repacked in American Eagle’s corrugated cases. Picking from goods stored in other locations in the center is also now by radio frequency. Workers follow instructions displayed on guns rather than paper.

Overall, the improvements in the receiving and distribution processes, of which PkMS was a part, required an investment of several million dollars, Lyman says, but adds that the result has been a 10 percent improvement in labor costs. There has been an additional savings in corrugated packing material made possible by cross-stocking vendor-supplied cartons to ship to the stores. Combined, Lyman estimates an annual saving to American Eagle of between one quarter and one half million dollars.

There are additional benefits, Lyman says. “From a merchandising standpoint, we also now know in real time what our receipts are. Before, we used to unload into the building and then take the time to count it and key it. Our merchandisers didn’t know in real time what we actually had in the building or in the yard. Now we’re receiving anything that’s delivered much faster, and with the ASNs the merchandisers can make better planning decisions.”

Still, change can be uncomfortable. According to Lyman, one change was to reposition of the shipping label on cartons shipped to the stores. To maximize the speed of the label print-and-apply machine the labels were moved to the sides of cartons rather than on the front where they previously had been. The new method meant that labels could be printed and applied continuously as cartons traveled past on a conveyer without stopping for a separate mechanism to apply them on the front. The change resulted in doubling the speed at which the cartons were labeled from 20 to 40 per minute, but protests from the stores ensued. The new position meant stores had to rework how they stacked and stored the cartons on their own premises so the label could be seen.

“That has all died down now,” Lyman says. “They have discovered that the longer-term impact has been that their shipments are actually a little larger now because we’re flowing things through the building and filling up the trailers so much faster than before. Any store will take over-shipments versus under-shipments just to fill up the sales floor. Now they appreciate it.”

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