Tag: fulfillment centers

OM in the News: Best Buy’s E-Commerce Fulfillment Drive

The box-making machines at Best Buy’s facilities can cut about 15 cardboard boxes every minute

Tucked away in a fulfillment center near NYC, Best Buy is using dozens of robots to sort through boxes of iPads, HP laptops, DVDs, video games and more to ship to shoppers’ homes. The thousands of bins overflowing with goods have traditionally been picked by hand, requiring the tedious work of warehouse employees. An average worker could track more than 7 miles by foot in a single day just searching for items. But new technology at three facilities in L.A., Chicago and Piscataway, N.J., does the heavy lifting now, reports CNBC.com (Aug. 28, 2019).

There’s much talk about the shipping wars between big-box retailers Walmart and Target and e-commerce giant Amazon. But Best Buy has likewise been chipping away at its delivery strategy for the past few years. It started shipping online orders from stores in 2014. Now its 3 metro e-commerce centers help with the process. These centers differ from the company’s 6 regional distribution centers for store fulfillment as they’re much closer to customers’ homes and are able to service next-day orders. They also help with delivering bulky appliances to shoppers’ houses — something Best Buy is doing on a daily basis with its massive appliance business.

Best Buy’s latest logistics push incorporates ways to get online orders to customers more quickly, reduce out-of-stocks in stores and even cut back on excess cardboard — an issue that’s proliferated in the industry with e-commerce’s ascent. A metro e-commerce center is about 50,000 square feet, compared with 750,000 for regional distribution centers. It keeps about 3,000 of Best Buy’s current best-selling items stocked there. The 3 metro facilities set Best Buy up to reach 50 million people with free next-day delivery, giving customers the ability to make purchases as late as 8 p.m. and have the order shipped out that same day.

Classroom discussion questions:

  1. What is the difference between a “metro e-commerce center” and a regional distribution center?
  2. How does Best Buy’s fulfillment system differ from that of Amazon?

OM in the News: Home Depot’s $1.2 Billion Supply-Chain Overhaul

Home Depot plans to spend $1.2 billion over the next five years to speed up delivery of goods to homes and job sites as the rise of online shopping resets consumer expectations, reports The Wall Street Journal (June 12, 2018). The home improvement retailer will add 170 distribution facilities across the U.S. so that it can reach 90% of the U.S. population in one day or less. The new sites will include dozens of direct fulfillment centers for next-day or same-day delivery of commonly ordered products, as well as 100 local hubs where bulky items like patio furniture and appliances will be consolidated for direct shipment to customers.

The retailer is realigning its supply chain to a changing retail landscape. Customers “expect delivery to be free, they expect it to be timely,” said a company exec. “Sometimes they want it fast, and are willing to pay for that. Sometimes they want it free, and they’re willing to wait for it. We need to have the right options there.”

The push comes as Home Depot is trying to tamp down transportation costs and improve inventory management as it tries to more closely integrate its growing online business with its network of about 2,280 brick-and-mortar stores. Online orders accounted for 6.7% of the retailer’s $100 billion in sales last year, but the digital revenues expanded 21% from the year before. About 45% of online orders are picked up inside stores, and the company is rolling out self-service lockers at the front of some stores to speed up order retrieval.

Shoppers accustomed to 2-day delivery from online retailers like Amazon are increasingly making buying decisions based on convenience factors. That’s pushing retailers to reshape distribution networks that were originally designed to ship pallet-loads of goods from warehouses to stores. They are turning to tactics such as drop-shipping, where suppliers ship online orders directly to customers, and opening warehouses closer to customers. The company is also testing the use of cars and vans for lower-cost delivery of smaller orders, and expanding its network of flatbed trucks that can deliver loads of concrete and other building materials to professional customers..

Classroom discussion questions:
1. What are the key OM issues Home Depot is facing in this article?

2. How does Home Depot’s approach to customer delivery and pickup compare to that of Amazon?

OM in the News: Amazon Adds That Robotic Touch

“In the battle between man and machine, the robots  just scored a victory in the world of e-commerce,” writes The Wall Street Journal (March 20, 2012). Why? Because Amazon this week bought Kiva Systems, which makes squat orange robots used in shipping centers,  for $775 million. Although Amazon has used some automation in its fulfillment centers in the past, it depended heavily on people, hiring thousands during the peak holiday seasons to cruise through gigantic warehouses to pick items from shelves.

With Kiva, Amazon is looking for a more automated approach. The robots, which we have blogged about earlier, are already used at Zappos.com and Diapers.com, two websites that Amazon acquired. Rather than a worker walking to the shelves, Kiva’s robots bring the product shelves to a stationary warehouse worker. The robots  locate the items in a customer’s order, move the products around the warehouse, and help get packed boxes to the shipping dock. This improves productivity by bringing the products directly to employees to pick, pack, and stow.

Kiva claims that a packer working with its robots can fulfill 3-4 times as many orders per hour, but Amazon, with over 56,000 employees, says it won’t eliminate jobs. The firm now has a total of 69 fulfillment centers (with 19 new ones added last year alone).

The Journal article is accompanied by a short video of the robots in action.

Discussion questions:

1.Compare the old and new Amazon picking  systems. What are the advantages and disadvantages of each?

2.Why did Amazon buy Kiva?