Setting the E-Commerce Gold Standard

Tags: Inventory Management, Warehousing, Retail, Site Selection, Supply Chain Management, Materials Handling, E-commerce, Customer Service

Chris Halkyard

As chief supply chain officer for flash sales superstar Gilt, Chris Halkyard's bright idea to optimize the company's DC network helped spark supply chain efficiency gains.

Most supply chain executives work to avoid surprises. But for Chris Halkyard, chief supply chain officer and general manager of distribution services for flash sales site Gilt, supplying customers with a steady stream of pleasant surprises is the whole point.

Each day, Gilt emails its eight million members discounted deals on more than 40 new sales of designer brands, typically available for only 36 hours, beginning at noon Eastern Standard Time (EST). The innovative approach to e-commerce has been a success—the company posted $550 million in top-line sales for 2012.

To serve this business model, Halkyard's job requires managing a regular influx of diverse goods and rapid fulfillment of customer orders. He is responsible for global supply chain management, including international and domestic logistics, product distribution, international shipping, and packaging supplies, as well as third-party distribution for select Gilt brand partners. He also steers vendor compliance, inventory control, and Gilt's purchasing program.

Before joining Gilt in April 2010 as vice president of operations, Halkyard was senior vice president of supply chain for clothing brand Ecko Unlimited, where he closed several facilities and opened others in order to better align the company's supply chain with a new business plan. Prior to that, he worked at beauty and home products retailer L'Occitane en Provence as vice president of supply chain and logistics, automating the company's New Jersey distribution center and modifying the domestic distribution network.

Halkyard has also held senior operations and distribution positions during periods of rapid growth at FAO Schwarz, TJ Maxx/Marshalls, and May Department Stores Company. He attended the University of Maryland-College Park, and is a veteran of the U.S. Armed Forces.

Q: The flash sale business model is relatively new. How does Gilt work?

A: Gilt is an innovative online shopping destination offering members special access to merchandise and experiences at insider prices. Our buyers continually search the world for coveted brands and products, including fashion for women, men, and children; home decor; and unique activities in select cities and destinations.

We photograph and style most products we feature on the site. We then email an announcement to our member base right before the daily sale starts. Brand-specific sales start at noon EST, and most are only available for 36 hours.

Members score bargains on popular brands—but they have to act fast. They have 10 minutes to check out once they place items in the cart, and quantity within each sale is limited. We don't display a stock count on a given item, although we may announce when only one item is left. This approach creates a competitive shopping model, which has been very successful.

Q: What is the timeframe between Gilt receiving products and offering them for sale?

A: It varies between several weeks and several months. For goods purchased overseas, for example, the process takes a lot longer. But Gilt buyers may be purchasing for the next quarter, or even the next season. Our forecast covers several months.

Q: How is the flash sales model different from other retail and e-commerce businesses?

A: I've been in retail supply chain distribution for more than 25 years. I've moved just about every kind of product, and I've managed direct-to-consumer e-commerce operations for the past 10 years in the last three companies I've worked for.

But none of those experiences compare to flash sales, because Gilt doesn't carry staple items. We don't sell standard replenishable items—the kind where you receive a purchase order every month, then bring in whatever you sold last month, plus or minus 10 percent based on seasonality. That's easy. Inventory comes in, you handle it, then you replenish it.

With flash sales, however, we're never sure what products we might be getting over the next few months. We develop partnerships with brands, but we know that when the goods come in, they will be in limited quantities, and represent a significant number of stockkeeping units (SKUs).

We define SKUs as a single size, style, and color. When shoes come in, for example, we may receive one style in seven different sizes. Managing items that way creates a lot of different SKUs.

At any given time, however, we're only selling about 15 percent of all the items in our inventory. From a supply chain perspective, we're changing our store every day. Any items that don't sell out during the 36-hour window remain in the system—but those SKUs aren't available to sell, and they aren't moving.

Q: What happens to the goods you don't sell?

A: We have a high sell-through rate, but for goods that don't sell in the 36 hours, we hold the inventory and offer it to our member base again at a later date.

Q: How does Gilt manage all those SKUs—goods that are currently on sale, those that haven't gone on sale yet, and items that will be offered again in the future—within the DC infrastructure?

A: We operate three different types of picking infrastructure. When items go on sale that we project will have high throughput, we use robotic picking, which produces the highest-volume output on the market today. The robotics system maximizes our overall cost structure, and is extremely accurate.

For slower-moving items that don't require a high-speed, high-throughput system, we use picking mezzanines, with radio frequency hand scanners. For some big, bulky products, we pick off racks, from the floor, or via crossdock.

Each system is associated with a different cost structure and productivity level, but they all meet our service requirements, which is the ultimate delivery promise to the customer. Our ground-shipping cutoff is three to six days from purchase point to customer receipt.

Q: How has Gilt's supply chain evolved since you joined the company?

A: When I was hired in April 2010, Gilt was outsourcing distribution to third-party logistics (3PL) providers. As a startup, that made sense. As long as the core competencies are in line, 3PLs can fill in the capabilities your company doesn't have in-house.

But when I joined the company, I saw the way Gilt's business was scaling, and I didn't think we would make it through the 2010 holiday season successfully. Our growth was significant, and much higher than we projected—which means it also was higher than what we told the 3PLs to be prepared for.

We were overwhelming the 3PLs with business, so we had to take drastic action. We were operating two facilities—in Brooklyn, N.Y., and in Massachusetts. The Massachusetts DC was handling our home goods and men's products divisions; the women's and children's products were in Brooklyn.

I asked the board of directors for a significant amount of capital to bring in engineers and materials handling integrators so we could determine how a flash sales fulfillment operation should look, from the ground up.

We analyzed projected sales and peak seasons, major sales channels, average monthly inventory plans, and annual inventory turns. We calculated the after-tax return on investment using a 100-percent versus 50-percent robotic fulfillment system.

By conducting that level of research, we determined we didn't need voice-picking technology, a pick-to-light system, or a tilt-tray sorter. While any of those solutions would have worked, the operation would have cost more, and the overall return wouldn't have been as impressive.

We ended up planning a much smaller robotics footprint based on anticipated inventory turn, and included a deplenishment feature. Pairing the robotics with a standard, radio frequency hands-free device gave us exactly the system we need.

Q: Once you defined your requirements and planned the facility, how did you transition your operations?

A: We found a 303,000-square-foot facility available in Louisville, Ky. We moved in June 2010, and the robotics system was running by the end of August. By early fall, we had moved our home goods division from Massachusetts; by November, we had moved our men's business. We were able to shut down most of the Massachusetts facility before the holidays.

We made it through the 2010 holiday season operating the two divisions from Louisville, and the women's and children's divisions from Brooklyn. During that time, we finished construction on an outbound sorter and one mezzanine, so we were able to move the women's division in spring 2011, and children's in early summer.

We still operate the Brooklyn facility for inventory management and crossdocking for sell-first items—products that we post on the site and sell, then submit a purchase order to the supplier. We receive and crossdock the items, and pack the customer orders. We handle about 40 percent of our sell-first products in Brooklyn; a third-party crossdocking facility in Las Vegas handles another 40 percent; and the remaining 20 percent go through Louisville.

Q: What does your outsourced logistics partner network look like?

A: We use several 3PLs and technology providers. For example, Quiet Logistics supplies our warehouse management system, American Cargo Express manages crossdocking operations and international business, FreightCo Logistics handles inbound management, and we work with Newgistics for our reverse logistics program. The list of providers is extensive, and they are all extremely focused on their roles.

Q: Do Gilt's facilities use packaging-on-demand or any specialized packaging solutions?

A: We don't use packaging-on-demand. I don't have anything against it, but we haven't looked into it. We have several different box sizes, but an order may include a clock, a mixing bowl, and a designer suit. The packing process is automated to a point, but packers have to make judgment calls.

Q: How do you handle reverse logistics?

A: If customers want to return an item, they go to the Gilt website within 21 days, and print a return shipping label for U.S. Postal Service pickup. The product ships to our reverse logistics partner, Newgistics, which builds 53-foot loads for milk runs from its facilities into Louisville. We receive forecasted return quantities, so we know what to expect.

We unload the shipments, check goods in, and confirm whether they can go back to stock or are damaged. Then we issue the customer refund.

Q: What are your plans for overseas investment or expansion?

A: We ship to more than 100 countries. We're seeing traction all over the world, including Canada, Russia, Australia, and Korea. These are great markets for us, and business is increasing significantly month over month.

Q: What challenges do you see on the horizon for e-commerce businesses?

A: Consumers can buy the same item on many different websites, so the customer experience is key. Gilt invests in its product division—and the product is the site. We work hard to ensure Gilt doesn't look like any other site.

To be successful, e-commerce companies must pay attention to the entire sales process. Do customers receive the item they expect, on time and undamaged? Is the unboxing experience fun?

We try to make it special. We invest in our boxes and packaging, because it's important to us that customers enjoy their Gilt experience and come back to shop again. That's the most important thing.