Improved Warehouse Operations: Cause to Celebrate
Party goods supplier Oriental Trading Company revamps its warehouse technology to keep pace with online sales.
Over the past 80 years, Omaha, Neb.-based Oriental Trading Company (OTC) has shaped its business to respond to changing market conditions, consumer demand, and technological developments. The party supply and novelty goods company’s current "explode-and-assemble" warehouse system reflects how the business has successfully adapted its operations to maximize efficiency.
Founded in 1932 by Japanese immigrant Harry Watanabe, OTC established a lucrative market niche by selling Kewpie dolls and other novelty items through local stores and carnivals. The company expanded its distribution across the Midwest, retrenched to its Omaha base when World War II erupted, then resumed importing from Japan in the 1950s.
In 1956, OTC launched its first catalog, rapidly establishing itself as a major carnival supplier. The business grew powerfully when it shifted to offering party goods for churches, schools, and retailers. OTC’s direct-to-consumer approach cemented the business as an American marketing success.
The company’s growth—and how it managed orders through its warehouse—again evolved with the advent of the Internet and digital marketing. Oriental Trading used to drive the market by seasons, distributing a monthly catalog that focused on calendar events, such as Christmas, Valentine’s Day, and St. Patrick’s Day. The company knew its hot products at any given time—an invaluable asset for managing orders through the warehouse.
This strategy changed radically, however, as digital communications and consumer use of the Internet increased. OTC launched a Web-based catalog that contained its entire line of goods. The direct-to-consumer market took off with this new technology, but rather than OTC driving the market through a seasonal focus, consumers began creating the market through their own choices.
Sales grew rapidly, and order diversity increased as more customers shopped online. Consequently, people might buy Christmas decorations in August, or shamrocks in December.
As OTC prepared a new, larger warehouse to manage the growth, it needed a new materials handling system to accommodate the latest market dynamics and resulting order profiles.
"We were seeking an integrator to help us pull together the various technologies we anticipated using in our new facility," says Deon Wagner, vice president, fulfillment center operations at OTC. "We had a homegrown warehouse management system (WMS), but to meet the new systems’ targeted implementation date, we couldn’t simply modify our WMS. We decided to use a warehouse control system (WCS) to integrate the equipment with other technologies we needed to automate the facility."
Managing Major Growth
The major transition at OTC was from a paper-based, pick-to-stock system to what Wagner calls an explode-and-assemble one—a change necessitated by the rapid proliferation of stockkeeping units (SKUs).
"OTC maintains about 75,000 SKUs to be picked to fill customer orders," says Chris Castaldi, manager, new business development at Carlstadt, N.J.-based W&H Systems Inc., the materials handling systems integrator OTC selected for the project. "On peak days, OTC may handle more than 400,000 items to fill its orders."
A highly automated facility was essential to handle this volume. "We’re using W&H’s system to tie all the technology pieces together, act as a liaison between them, and send the information to our higher-level systems," says Wagner.
Key automation tools include a pick-to-voice system incorporating voice recognition technology; a high-speed sortation system; additional conveyance and sortation equipment; and scanning technology for final packing and shipping.
The WCS is a large plug-and-play software solution that understands and communicates with the other automated technologies in the facility. "It’s a brain for materials handling," says Castaldi.
OTC selected the WCS for its functionality, but also for the visibility it provided to the entire fulfillment center. "The WCS breaks the large product wave—up to 10,000 orders—we allocate in our WMS into four subwaves, from which we direct orders to specific chutes," says Wagner. "It ‘explodes’ the main wave into an efficient order management system that uses technology to optimize picking and packing, disseminate information to the voice picking system, and direct packout operations."
The WCS has a much more granular view of facility operations than the WMS, including activity levels on the sortation system and at the packout stations. It uses this information to optimize the subwaves based on order profiles, item location, and workloads.
This process is key to the fulfillment center’s operations. "The warehouse control software ties all the planning together," Castaldi says. "For example, online orders come down from the enterprise system and are dropped into the WMS. The WMS acknowledges the orders, which are passed to the WCS to create the optimized subwaves and maximize the technologies used to pick and pack them."
Keep it Simple
The controls on the WCS required simple training processes. OTC workers were schooled in the few steps that involved them; they didn’t need to grasp the larger ideas behind the overall warehouse management.
For example, one job might be loading products on a sorter. Workers place products in trays with the bar code facing up. They don’t need to understand how this makes up an order, or what part of the order it is. That would only add unneeded complexity.
The same principle holds for voice picking. The system directs workers where to go, what to pick, and how many items to put in the tote.
"To fill hundreds of thousands of orders, use the Henry Ford assembly line method," says Castaldi. "Make workers experts on a simple task, then have them repeat it. They will make fewer mistakes, so speed and efficiency will increase."
This approach contrasts with OTC’s previous system, where each worker picked and packed an order for which they bore sole responsibility. Now, multiple workers—each efficient at their task—touch an order.
The WCS batches groups of orders by using various parameters—such as number of units in an order and the type of box needed to ship it—to determine what needs to be married for the picking process. Workers pick items from their assigned areas for a batch of orders. These picks are then brought together—timed closely—and delivered to the sorter, which allocates each part to the appropriate order. Picked and exploded, the orders are then assembled.
"Because we were implementing a lot of technology simultaneously, we tested for a few months to ensure the systems were working as planned," says Wagner. "But training only took a few weeks, because we were simplifying everyone’s tasks."
For Whom the Picking Tolls
An ancillary benefit of the approach was that picking took less of a toll on OTC workers. "In the past, we had high turnover rates simply because of employee fatigue," says Wagner. "The high number of SKUs required a lot of walking, even though orders were batched. With the new systems, our employees have gone from walking up to 10 miles per day to less than one mile. This has improved not only productivity, but also workers’ overall job satisfaction."
Wagner gives kudos to the new system’s performance across a range of business parameters. "We’ve been able to achieve a significant productivity increase," he notes. "Further, we’ve increased picking and packing accuracy throughout our entire facility, which has dramatically reduced customer re-ships. Finally, the number of days it takes for us to ship orders to customers has dropped significantly."
Since implementing the new system, OTC has increased productivity by 58 percent, reduced re-ships by 21 percent, and cut order-processing time by 12 percent.
"The system has enabled us to manage the startling growth in direct-to-consumer business facilitated by digital communications. Additionally, it has helped us prepare for future growth," says Wagner. "It’s hard to imagine our current business without it."