When you test the softness of a cashmere Brunello Cucinelli pullover or try on a pair of knee high boots from Manolo Blahnik, it's easy to forget that luxury retailers face the same distribution issues as mass merchandise merchants. They still have to receive product, replenish their stores efficiently and fill a growing card of e-commerce orders.
Those are among the reasons the Neiman Marcus Group launched a 200,000-square-foot distribution center in Pittston, Pa., last spring. The facility processes 7.6 million newly received units a year. Working with a design consultant (Johnson Stephens Consulting, http://www.johnsonstephens.com), the luxury brand retailer designed the facility to receive and distribute goods from suppliers located on the East Coast or that ship to East Coast ports.
The facility replaced a DC managed by a third-party logistics provider (3PL) in New Jersey, and it complements Neiman Marcus' primary distribution center in Longview, Texas. The new DC services 63 Neiman Marcus, Last Call and Cusp stores. It is also the primary distribution point for the Bergdorf Goodman store in Manhattan.
First and foremost, the facility was designed to move merchandise as quickly as possible. Merchandise will either crossdock same day or move very quickly to processing areas for VAS (value-added services). "About 80% of what we receive here is crossdocked immediately or flows through by next day," says Michael Schlink, director of operations for Neiman Marcus' East Coast distribution center.
To that end, the DC features a conveyor superhighway with 3.5 miles of powered and gravity conveyor, along with a 570-foot-long sliding shoe shipping sorter with 21 store diverts. The superhighway connects the receiving and shipping docks, allowing some cartons to move from inbound to outbound trailers in minutes. It also includes spurs that efficiently deliver goods that require auditing, labeling or hangers to separate areas for processing flat goods in cartons and garments on hangers.
The garment-on-hanger area includes 3,000 linear feet of overhead powered garment rail conveyor and 13,000 linear feet of gravity slickrail conveyor to handle a large selection of hanging garments on trolleys.
However, the DC is also a multi-use facility that features a DC within a DC—an area with very narrow aisle pallet and shelf storage area where pallets are built by floor levels to replenish the Bergdorf Goodman store in Manhattan. The facility also features a packing and wrapping area to fill a portion of online orders from Bergdorf Goodman's Web site, as well as traditional customer orders from Bergdorf Goodman and Neiman Marcus stores in the East. The stores send customer orders to the DC for gift wrapping, packing and other value-added services before they are sent by small package carrier to the customers.
Last, but not least, the DC is temperature and humidity controlled. This keeps associates cool, clean and comfortable while handling garments that can cost thousands of dollars.
The facility went live last spring and is still in ramp-up mode. To that end, the longer-term goals for the facility are yet to be realized. However, with six months of operational data, Schlink says, "we set operational and labor goals for three and six months and we've achieved those goals." More importantly, the DC builds out Neiman Marcus' network to better serve its stores and online business.
Bringing a 3PL in house
Founded more than a century ago, the Neiman Marcus group of stores offers an upscale assortment of apparel, accessories, jewelry, beauty and decorative home products to affluent consumers. In all, the company operates 41 Neiman Marcus stores across the U.S., two Bergdorf Goodman stores in Manhattan, and 36 Last Call clearance centers for more than 6.5 million square feet of retail space. The online retailing operation conducts print catalog and online operations under the Neiman Marcus, Horchow, Bergdorf Goodman and Last Call brand names.
Development of the new facility was driven by a variety of needs, including constraints at the primary distribution center in Texas and a drive for efficiency across the network. "We have been working with 3PLs to handle product that arrives at ports on the East Coast since the 1990s because it didn't make sense to ship product to Texas only to send it back to stores in the East," says Schlink.
While there were advantages to working with 3PLs, Neiman Marcus' long-range plan was to operate its own facility when the time was right. The belief was that the organization would have more control and a much better operating cost per unit in a company-owned facility. With a contract coming up for renewal and favorable business conditions, Neiman Marcus began looking for a new location a few years ago.
According to Schlink, the operations team started with more than 50 prospective sites. Working with an economic incentives consultant, the original list was narrowed down to three finalists in Pennsylvania and West Virginia.
"We used a weighted decision-making process/matrix that considered quantitative and qualitative factors," Schlink says. Those factors included the net present value of rental rates, average wage rates, the available workforce population, the proximity to New York and the Bergdorf Goodman store, required service levels and the location of the facility in relation to inbound/outbound shipping volumes.
Just as important, Neiman Marcus received a significant incentive package from the state of Pennsylvania, the local municipality and the industrial park developer to locate in Pittston. Taking over the shell of a building, Neiman Marcus installed all of the materials handling equipment, the offices and added dock doors to one side of the building to transform it into a crossdock, flow-through facility. The facility went live in April of 2013.
Designing for multi-use
While many retailers talk about omni-channel distribution from facilities that are designed to fill orders from every sales channel, the Pittston DC is at heart a flow-through facility designed to move goods as "efficiently as possible," says Schlink.
The design of the facility, and the equipment making up the system, was influenced by two key factors.
First, it had to handle at least three types of products:
? Flat goods consist of products that aren't put on hangers, such as shoes, handbags, cosmetics and jewelry.
? Garment-on-hanger, also known as ready to wear (RTW), includes men's, women's and children's clothing and sleepwear that will be merchandised on hangers in the store.
? High-value products, such as jewelry, require security measures.
The second factor was the different velocities at which goods move through the facility:
? Flat goods that don't need to be audited and don't require value-added services, such as ticketing, are crossdocked directly from receiving to shipping in a matter of minutes.
? Flat goods that require some level of auditing or that require ticketing are conveyed to a flat goods processing area. There, processes may take up to two days to complete and ship, depending on the extent of the auditing required.
? Garment-on-hanger merchandise is conveyed to a separate processing area for auditing and to be placed on the hangers preferred by the stores and then loaded onto trolleys for shipping. Like flat goods, those processes may take one or two days.
? High-value items may be handled like flat goods but are processed in a secure area that integrates directly with the main conveyor system to prevent theft.
At the center of the design is the conveyor superhighway that was installed in the overhead space between receiving and shipping. It includes separate accumulation conveyor from each of the main processing areas that converge into a high-speed merge that releases product to a high-speed sliding shoe shipping sorter. The sorter can divert up to 160 cartons per minute and is so quiet that associates can hear the Sirius XM music system while working.
Separate conveyor lines from the superhighway connect receiving directly to the flat/cosmetic and crossdock processing areas for products that require auditing or value-added services.
"As part of the design, we eliminated a staging area for flat merchandise that requires auditing or value-added services," says Schlink. "With this design, merchandise can flow directly from one of the receiving docks to shipping or flow right into the flat processing area. That saved a considerable amount of time." A powered spiral belt conveyor sends items from flat processing along with high-value items up and onto the superhighway system once they have been audited, processed and are ready to ship.
A separate conveyor system delivers RTW apparel to the garment-on-hanger processing area. There, the garments are placed on hangers and put on trolleys for shipment. In turn, the trolleys are moved by an overhead rail to an outbound trolley sorter on the shipping dock. The outbound trolley sorter uses a laser scanner to read the trolley bar code label and divert it to a sort lane for an outbound trailer.
The result of this system has been a significant improvement in the time required to crossdock or flow through the system. "We could crossdock in our old facility, but there were a number of pinch points, and we weren't nearly as fast," says Schlick. "Once a carton is ready to ship, we can get it to the dock in minutes rather than hours. If we can't load it onto a truck that goes out that night, we'll palletize it and load it onto a truck for shipment tomorrow."
A DC within a DC
In addition to the crossdock processes, the Pittston facility features an over-stock storage area. That area features a very narrow aisle pallet and shelf storage system and is primarily dedicated to store replenishment and e-fulfillment support for Bergdorf Goodman. "At Bergdorf Goodman, we dedicate as much space as possible to the selling floor," Schlink says. "We have minimal stock areas, so we serve as an off-site stock room."
Think of it as a conventional DC within a crossdocking DC, one where replenishment is demand-driven: The sale of an item in the store generates a replenishment order for that item. In addition, Bergdorf Goodman store personnel have the ability to look into the available inventory in the warehouse management system (WMS) and key in orders up until 2 p.m. for next day delivery.
Order picking is paper driven: Associates are given pick tickets for specific zones and orders are picked manually to totes, either by an associate on foot or on an orderpicker. Totes can be conveyed directly into a truck or palletized by the floor where they will be merchandised inside the Bergdorf Goodman store.
Inventory in the overstock area is also used to process e-commerce orders for merchandise that isn't stocked in Texas at the NMG e-commerce fulfillment center (Neiman Marcus Direct). In addition, associates at Bergdorf Goodman and Neiman Marcus stores in the Northeast will send customer orders to the facility for packing and delivery. Both types of orders—e-commerce and traditional customer orders—are conveyed to workstations in a packing area, where they are prepared for parcel delivery, conveyed to a manifesting station for parcel delivery and then inducted onto the shipping sorter.
"Bergdorf Goodman e-commerce is a relatively small but growing piece of our business in Pittston," says Schlink. "In the future, we plan to have all of our facilities and brands on one common merchandise system so that we can more easily cross sell from all sales channels."
Going live
The transition from 3PL to a corporately owned facility was an all-hands-on-deck affair, with significant support from the distribution team in Texas. Newly hired managers were first sent to Longview to learn the ropes; similarly, managers and supervisors from Texas spent up to a month in Pennsylvania as Schlink's team was flipping the go-live switch.
As part of the start-up process, Pittston adopted the labor management standards that had been successful in the Texas facility. Now that the facility has some experience under its belt, that is beginning to change. "This was the best way to start, but we know that our processes and layout have some differences," says Schlink. "Our consultant is currently re-measuring and redefining our labor management tasks. When that's complete, we'll make sure our associates are being held to the right metrics."
Five years down the road, Schlink expects the facility to process merchandise to the stores even more quickly and productively than it does now. And, as the e-commerce channel grows, the facility is expected to evolve from a multi-use to an omni-channel facility.
"Our goal is that all of our merchandise is cross-sellable, which means a lot of potential growth for the overstock area," he says. "We definitely want to be as lean, efficient and profitable as we can be to get there."
