Logistics Best Practices: NewEgg.com Cooks up A New Model
Rapid growth forced the e-tailer to roll out a new automated order processing system to its East Coast DCs resulting in improved processing time and near flawless quality control and order accuracy—all without adding or subtracting headcount.
By Jeff Berman, Group News Editor -- Logistics Management, 6/1/2009
In late 2003, California-based Internet retailer Newegg.com established its East Coast operations with two locations in New Jersey. One was a 75,000 square-foot bulk-order warehouse in Cranberry and the other was a 50,000 square-foot warehouse in Edison.
While these locations fit the company's needs when they first set up shop, rapid growth forced the e-tailer—with more than 40,000 computer hardware, software, consumer electronics, and communications products—to re-evaluate East Coast operations, because the region had quickly become responsible for nearly 40 percent of total sales.
"As we saw that market grow, we continued to grow," says Newegg.com Vice President of Logistics Bob Zellis. "In terms of operations, we realized we were outgrowing the physical locations of our Edison and Cranberry locations."
In these locations, Zellis notes that Newegg's material movement of product and people was limited and not technologically sophisticated. As an example, he says it was not uncommon to see several employees walking through the facilities picking orders without any real automation leading the way.
Add in the fact that Newegg's annualized orders for its East Coast operations at the time were at 1.1 million (2005), and it was not hard for Zellis and his colleagues to see that even more space and efficiency improvements were now necessary.
In fact, the company's needs were filled with the September 2007 opening of its new 380,100 square-foot Edison-based distribution center that saw the e-tailer take a more automated and streamlined approach to warehouse operations and efficiency—and netted results that earned Zellis our 2009 Bronze Medal.
Roll in the New
Rather than continue working with manual processes and limited technology, Newegg rolled out a pick-to-light system and conveyor platform from materials handling system integrator Dematic in the new Edison location.
"In terms of pick-to-light for small items, there is much less labor involved," he says. "We now have orders that are auto-routed to where the inventory is, as opposed to having staffers walk though a DC to find specific inventory." By using totes with unique bar code identifiers placed on them when an order is assigned to it, workers can leverage the pick-to-light system that now routes totes to the appropriate pick zone. When an order is closed out, a shipping label is printed and the order is packed—with the shipping label applied—and placed in a box and on a conveyor to be routed to a staging area for shipping.
According to Zellis, this system is far more efficient than giving an employee a piece of paper and having them walk through a warehouse to find a specific order. What's more, Zellis estimates that the average processing time for one order is now about 20 minutes, representing a 15 percent to 20 percent improvement over the manual set-up. This is particularly vital considering that annualized East Coast orders at Newegg in 2008 hit 3.3 million, tripling 2005's demand. East Coast orders were responsible for about one-third of Newegg's total of 10.6 million orders in 2008.
Although the size of its workplace and order quantity went up sharply, Zellis notes that headcount did not get pared down, explaining that Newegg saw an overall 20 percent reduction in its costs-per-order coming directly from labor savings. "We were able to process many more orders utilizing the same labor force [of about 100 people]," says Zellis. "We were fortunate to find ourselves not reducing our workforce at all, which allowed us to expand and handle more orders."
Smooth Sailing
So, how does it work? The customer executes an online order that is then routed to the Edison location where it gets assigned to a tote with a unique bar code ID. At that point, the tote is routed to one of three modules in the pick-to-light system, and, is then transported to the module where the inventory exists, and is then diverted to a specific pick zone where the inventory is stored.
A picking associate scans the tote and then sees lights glimmer at the location where the inventory that needs to be picked is stored. The system also identifies how many items need to be picked from a particular location.
When an order—or tote—is completely picked it's then routed to one of 30 packing stations where a staffer scans it and the order's contents will appear onscreen for a quality check. This check involves scanning each order item to ensure there is a "perfect match" of what was picked compared to what needed to be picked. Zellis stresses that orders are not closed out until there is a perfect match.
"With the steps we have taken, any order received by 3 p.m. local time ships same-day about 98 percent of the time," notes Zellis. "And the accuracy and quality of orders received by customers' damage-free runs about 5.3 percent Sigma or 99.99 percent."
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