January 2013 | Case Studies | I.T. Toolkit

Inventory Replenishment: A Push in the Right Direction

Tags: Retail, Warehouse Management Systems (WMS), Distribution

Tuesday Morning's Dallas distribution center prepares about 100 truckload shipments daily to distribute products to 850 stores across the United States.

Close-out retailer Tuesday Morning uses a WMS to allocate and ship a constant stream of new products to stores, keeping customers happy every day of the week.

Never the same day twice. It could be the title of a James Bond movie, but it's a reality for Tuesday Morning, a Dallas-based close-out retailer. The products that enter its distribution center (DC) today will be completely different from what comes in tomorrow.

Specializing in selling deeply discounted home furnishings, housewares, and gifts, the company's net sales for fiscal 2011 reached $812.8 million. Most of these items are imported and brought into the company's Dallas distribution center for unpacking and re-sorting for shipment to more than 850 stores across the United States.

Since Tuesday Morning's inception in 1974, sorting the items upon receipt was primarily a manually driven process directed in later years by a proprietary warehouse management system (WMS). As the company added retail locations and brought in more product, the rudimentary system couldn't keep pace with growth. So Tuesday Morning sought, and found, a WMS that has become the hub of its entire distribution process.

A Unique Business Model

The chain derives its name from the day on which it holds its 10 major monthly sale events, which coincide with the retail industry's peak selling seasons. It receives new merchandise shipments weekly from Europe, Africa, South America, and Asia, as well as domestic distributors.

"We specialize in goods found in name-brand department stores, and we only provide first-quality products—no seconds or rejected items, only overbuys," says Mike Hester, senior vice president of supply chain at Tuesday Morning. "We buy from companies all over the world that are going out of business."

The facility typically receives about 100 loads daily. All incoming goods arrive at the Dallas DC, where they are split for shipment to retail sites that span 43 states. Corporate headquarters determines what each store will receive based on the store's inventory and demographics. While this "push model" of inventory replenishment could describe the business model for any number of retailers, Tuesday Morning's model is unusual because every stockkeeping unit (SKU) arriving at the DC is new. "Each time we receive an item, it's like receiving it for the first time," says Hester.

Product is shipped via a local private fleet to the Dallas/Fort Worth area, and by contract carriers to the remainder of Tuesday Morning's stores.

On the surface, the process sounds fairly straightforward, but Hester says implementing it was anything but. As the company realized rapid expansion in 1994, growing from 200 to 400 stores, handling the high number of SKUs with an in-house WMS and manual system was creating bottlenecks. Workflow and case splitting was managed on paper spreadsheets.

"Our business was becoming complex because we never received the same item twice," explains Hester. "We didn't have the opportunity to know how we were going to manage inventory, because we handle items for the first time when they arrive and probably won't handle them again. When you manage manually, it's hard to be nimble and flexible. We had outgrown our old system's capabilities."

After the company determined its growth was too rapid to continue with the existing system, Tuesday Morning decided to install automated materials handling systems such as high-speed sortation devices, conveyors, and pick/pack modules, as well as a WMS that could control yard management activities, and inbound and outbound transportation.

Finding a solutions provider proved challenging. Most WMS are slanted toward traditional business models. "We needed a provider that understood our unique business model, and could integrate several systems into a single WMS that would enable us to carry out our model," Hester says.

The search led Tuesday Morning to Perrysburg, Ohio-based Interlink Technologies, a WMS provider since 1986.

Triple-Digit Improvement Rates

Tuesday Morning chose to work with Interlink because it was willing to customize its WHSe-LINK solution to suit the retailer's unique business model. The two companies began working together in 1994 to install WHSe-LINK, focusing primarily on managing inbound materials and splitting processes. From purchase to implementation took about four months.

The WMS incorporates transportation and yard management modules to manage the plethora of incoming product and plan for its outbound shipment. Other tools integrated into the WMS include an allocation system, pick-and-pack-to-light processes, an accounting system that keeps pace with Tuesday Morning's ever-changing items list, and e-commerce capabilities.

When product arrives at the Dallas DC, it is unloaded, then WHSe-LINK and the allocation system communicate to determine the amount of inventory that can be provided to each store. Products are directed to one of three locations: warehouse rack, storage trailer (of which there are 300 at any given time), or outbound trailer.

The storage trailers are grouped by destination or region. The WHSe-LINK yard management module manages the storage trailers and tracks first-in/first-out order, ad codes, item numbers, and the store for which the product is destined. It takes about one week to build up enough volume in the trailer to dispatch the truck.

Outbound trailers (approximately 400 at any given time) are given a route definition, and each trailer typically makes stops at four stores. Once the trucks are loaded, the WMS reports the shipping confirmation to the accounting system, and the stores are billed. Tuesday Morning sends out about 100 trailer loads per day.

"Almost from the outset, we had the ability to keep pace with our growth and be more flexible in how we handled and distributed goods to the stores," says Hester.

Since installing WHSe-LINK, Tuesday Morning has seen a 600-percent improvement in productivity, a 350-percent improvement in product throughput, and an accuracy rate of more than 90 percent.

Supply Chain Hub

Such numbers enticed Tuesday Morning to tackle additional uses for the Interlink WMS. For example, the retailer has spent the past five years focusing on Internet sales. After establishing a DC—located just one mile from the main facility—dedicated to Internet fulfillment, Tuesday Morning installed WHSe-LINK to handle order fulfillment and interface with FedEx for shipping.

Tuesday Morning is also relying on Interlink to put its DC bypass plan into action. Rather than bringing overseas shipments into the DC, product would be received at U.S. ports of entry, then allocated in WHSe-LINK and shipped directly from that port to the retail stores.

In addition, the retailer is working with Interlink to evaluate how non-conveyable items, such as furniture, are being received, processed, and shipped.

"We still handle this product manually. We require a longer lead time for bringing the product in because it takes us longer to process," says Hester. "Our goal is to shrink the lead time for these large, non-conveyable items to a window that is more typical of the lead time on our other products." He hopes to have this evaluation completed by second quarter 2013.

Whether shipping to stores or direct to consumers, WHSe-LINK has become the hub of Tuesday Morning's supply chain.

"It supports our business model completely by giving us a richer supply chain, and allowing us to be more nimble in serving our stores and our customers," says Hester.

And that's a good deal for everyone involved.