March 2006 | Commentary | Supply Chain Technology

Fostering Flexible Fulfillment

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As customers pressure their suppliers to create new products, new variations of products, and new services attached to those products, the supply chain can become severely strained. It may not be enough to handle increased supply chain pressures merely by optimizing existing hardware and software solutions. An increasing need for real-time and synchronized processes exists up and down the supply chain.

Nowhere is this challenge more clearly illustrated than in warehousing and distribution. All the information management in the world will not transform antique materials handling equipment and processes into logistics operations that are win-win for companies and their customers.

Distribution centers and warehouses are not what they used to be. They are now properly perceived to be the core of competitiveness. Wal-Mart did not become the nation's leading retailer by neglecting distribution, sorting, and redistribution. Its efficient inventory turns and focus on supply chain excellence allows it to sell products for lower prices than competitors.

One technology vendor trying to fill this increasing need for flexibility in warehousing and distribution operations is Kiva Systems, Woburn, Mass. The company's solutions focus on reducing the complexity of existing equipment and processes, and the resulting high cost of filling orders.

Putting AGVs to Work

Kiva has introduced a new mobile order fulfillment system that emphasizes flexibility in warehousing and distribution operations. The system combines Kiva's software system with mobile robotic equipment—small-scale automatic guided vehicles (AGVs) designed and manufactured by Kiva—that follow the system's control instructions.

The AGVs, with a pick rack above, move through an assigned space that has 2D bar codes implanted at regular rectilinear distances. These 2D devices are the communicators to the AGVs and control their motion.

The fulfillment system works along this grid. The AGVs do all the walking, moving to human pickers' instructions. Through their synchronized program, the AGVs can fluidly handle fulfillment, and react quickly to any urgent orders. This system has been tested successfully with office supplies retailer Staples.

"We work with many customers on a variety of solutions," says Mick Mountz, CEO and founder of Kiva Systems. "Originally, companies looked to our system merely to reduce direct labor costs. However, we soon found customers were reacting to other supply chain issues."

One of those issues is a need for increased capacity during the holiday season. "August rolls around and a company knows its order volume will triple," Mountz says. "Because the Kiva System is mobile and modular, it can be set up in the distribution center to fill orders for hot inventory during the holidays, then taken down."

Another issue is SKU storage in the warehouse. Suppose a company sells 10,000 different items. Then it decides to add a new line of products consisting of 2,000 additional SKUs. The current warehouse might not have room for the extra SKUs, and they may not fit into current storage and retrieval technology.

Taming of the SKU

The Kiva System, according to Mountz, provides the flexibility to move, store, and sort around a SKU mix. "Companies don't have to spend extra time or energy determining how to slot and manage the new inventory. This gives marketing people the opportunity to take the company where the customers are pulling it," he says.

In addition, notes Mountz, the range of SKUs the Kiva System can handle—from car batteries and glassware to books and videos—is dynamic in a system where the slots are not permanently allocated. "This adds to the system's flexibility," he says.

Normally, when designing a warehouse, companies choose different technology systems to handle fast-moving products and slow-moving products. The same process is not used for both; one is very expensive and one is very slow.

The Kiva System provides the ability to use one process, regardless of the product's popularity or velocity. All products—whether fast, medium, or slow—are put into the system, where they sort themselves naturally.

"This is an example of what is called emergent systems behavior," Mountz says. "The slow movers figure out that they are slow within the Kiva System."

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