Case Study of Tilt Tray Sorter  (PDF - Downloadable version)  Sorting Things Out   - Fine Jewelry Application Click on image to dowload a PDF copy of the following case study

Tilt Tray Sortation Case Study
   Sorting Things Out • Fine Jewelry Application

Profit has always been the driving force of business. How to maximize it changes with the technologies of the day. Price continues to be the primary lure to increase sales with the intent to increase profits by "making it up in volume" through economies of scale. In time, competition eventually leads to stable pricing after over aggressive companies fall away or are absorbed by more efficiently run operations.

On the other side of the profit coin, the cost of manufacture has been steadily decreasing with the honing of the manufacturing process and the opening of trade borders. The creation of favorable trade status countries has enabled manufacturers to redirect processes where labor and material costs can be minimized.

It is important to continue to focus on all aspects of a company's financial statement to achieve increased profits overall. This is where all levels of business can learn from the "big guys." To ignore the lesson will leave only "big guys" in the future. We have all seen what the Wal-Marts and wholesale clubs have done to shape a marketplace.

The old thinking of how business operates (which in today's terms can be measured in months) no longer applies. Customers today are more demanding. The seventies and eighties produced the proliferation of express mail services, fax machines and Electronic Data Interchange (EDI). The nineties produced the Internet. Customers at all levels have come to expect immediate response for information and order requests. Increased market share requires faster and better service. How can a company provide both and still keep costs down? What other benefits are derived in the process?

Automated Distribution

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One answer is the not-so-recent emerging trend of automated and centralized distribution. Large corporations have been taking advantage of this technology for years, and until now, it only made financial sense for those companies with very high volumes. These same systems are now affordable to a wider range of manufacturers and distributors due to the small size of jewelry and related products, in conjunction with lower prices in the technology sector. They incorporate the experience of the past larger systems with the latest software and controls technology providing returns on investment in as little as one year.

This article will outline one company's endeavor to improve its distribution, reduce operations costs, and maximize cash flow. The company is Finlay Fine Jewelry, a publicly held corporation who presently owns and operates approximately 800 leased retail jewelry outlets in the United States with fiscal 1996 annual sales of $635 million. These outlets were previously serviced by 25 separate Group Offices" that represent a central distribution point for regional chain stores such as Lord and Taylor.

Merchandise comes primarily from suppliers in the Greater New York City area where 75% of all merchandise is purchased. In the past it was sorted into groups and shipped to the Group Offices where the product was manually tagged, ticketed and sorted by retail outlet. Once completed, each order was shipped to the corresponding retail outlet.

The Goal

The management at Finlay needed to find a better way. To accomplish this task they first set out to find the appropriate consulting partner to analyze their current methods and determine feasible alternatives. The goal was to arrive at a plan that will provide for the company's growth to 1200 stores over the next four years and pay for itself from savings in the first two years of operation. Ultimately, they chose the consultants employed by the firm of KPMG Peat Marwick LLP.

Study Results

A logistics strategy study performed by these consultants determined that a significant savings in inbound and outbound transportation costs could be realized by locating a central distribution center in the Greater New York City area to service the entire network of retail outlets. It is estimated that by year five these savings will amount to several million dollars annually. Obvious benefits also included reduced handling costs, time savings and better merchandise tracking and control.

Most of all, the consolidation of merchandise processing from 25 Group Offices to one single distribution center presented opportunities to apply automation to several labor intensive operations. The total reduction in staffing levels alone (both clerical and professional) was in excess of 50% and is expected to save over a million dollars the first year with increasing savings each succeeding year.

While the savings presented so far are already quite impressive, it is interesting to note that the Group Offices were provided rent free by the Groups (such as Lord and Taylor). The Group Office location overhead never even entered into the cost savings calculations.

Product Receipts

The design of the distribution center (DC) called for a merchandise flow through approach from the vendor to the store. Advanced Shipping Notices (ASN's) are sent electronically by the vendor (through EDI) to the DC to alert the Warehouse Management System (WMS) of the impending arrival. Having this information allows the warehouse to prepare for efficient product distribution in advance, even if only on short notice. Provisions were also made for small manufacturers to fax in their notices for operator entry.

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Arriving shipments are controlled at the vendor level to minimize extra handling, storage and insurance costs. All orders are prioritized by delivery dates to ensure flow through operation so that product received gets shipped the same day whenever possible. Since the shipping notices arrive electronically and in advance, inventories are quickly and automatically updated. Incoming shipments are immediately identified and the arrival recorded to start the distribution process. The contents are then directed to the required processes according to delivery priority.

Tracking

Once checked in, the WMS directs and tracks the movement of each item through the DC utilizing bar code scanners and hand held radio frequency devices. The WMS will know exactly where every single piece is at any given time providing both security and direction to the process. Any shortage is immediately identified between the processes.

The jewelry product arrives in bulk by style from each vendor. Each piece of jewelry gets an individual price tag and is sealed in a bar code labeled poly bag for identification. This may be done by the vendor according to agreements with each respective vendor, or at the vendors' cost by Finlay at the DC. Price tags also differ according to the store destination since different store chains require different labels. Those items arriving without bar codes and labels are fitted during the inspection process. The Check Mark area where this takes place remains the only labor intensive section in the entire process allowing Finlay to maintain their standards of quality control.

Automatic Order Assembly

It all comes together at either one of two large sortation machines. After Check Mark (inspection) the WMS directs the product to the appropriate sorter for separation by store order. Carts containing the product to be sorted are brought to each machine while a computer file from the WMS containing the sort requirements for those products is automatically transferred to, and processed by, the sorter computer. At this point the WMS has handed over the task for tracking the product to the sortation equipment.

Product is loaded manually by a total of two to four people onto both sorters at rate of up to 10,000 pieces per hour. The product is automatically identified from the bar code label and sorted to the appropriate store collection chute. The product can be induced on the sorter in any order. The sorter computer determines which store requires each product and directs the product to the appropriate store drop to fill the order.

Each item is tracked by the sorter computer noting time, carrying tray, designated drop location, drop confirmation or other status. Each drop is monitored for maximum quantity, maximum value, and quantity needed to complete the order as configured by the WMS.

Additional Tracking and Control

At certain intervals, such as when a maximum is reached or an order is completed, the sorter will suspend the affected chute, allowing the rest of the sort to continue, and signal the WMS to remove the product. At that time, a file is sent from the sorter computer to the WMS specifying what was sorted to that location and the reason for the transfer. The WMS then directs the floor personnel to remove the product to a tote and continues to track the tote to the vault or to shipping. Once a new tote is placed back at that sorter location the WMS issues a command to un-suspend the drop location and continue sorting to that drop. The tote is sent to shipping where its is married with watches, outgoing mail and product from the vault. It is then automatically weighed and manifested for shipment.

The Players

The WMS was developed by Optum Software out of Costa Mesa, CA, and the sortation equipment and software were developed by GBI Data and Sorting Systems out of Hollywood, FL, all of which was in accordance with the needs of Finlay's specific requirements. Both companies cooperativelydeveloped the sorter communication software. The seamless integration of the two systems allow both Optum and GBI to do what they do best, and also provide a continuous flow of information regarding the disposition of each item and the process overall.

It is imperative that all systems operate as one to ensure the accurate flow of information and control. Logitech Systems, Inc. (LSI) of Roswell, GA was the integrator on the project responsible for acquiring the supporting equipment such as conveyors and seeing that all facets of the center fit well and worked in concert with each other. KPMG was kept on by Finlay to direct the implementation of the project while working closely with Finlay's management and all the vendors to help ensure its success.

Results

The Distribution Center has allowed Finlay to consolidate their operations into one facility giving greater control to the distribution process while saving substantially on overhead costs. Aside from saving on transportation and shipping costs they also reduced the time from vendor product receipt to store delivery. By shortening delivery times and scheduling vendor receipts, they were able to minimize the amount of product held in inventory. This further translated into continuing cash savings resulting from lower inventory levels and reduction of insurance premiums.

The Finlay project depicts a complete revamping of the distribution process and took over three years from conception to implementation. It is projected that Finlay will save over $10 million dollars after only five years of operation at the same time providing faster delivery, better security and order tracking, and improved cash flow overall.

Can smaller companies also benefit from this technology?

While the numbers seem staggering to smaller companies, the same technology is available in a smaller scale. A stand alone 200 drop sorter with simple communication to the host sorting at a rate of up to 6000 trays per hour will usually pay for itself in 2 years of operation. This is accomplished by reducing the man hours required to manually perform the same sort by 10,000 hours annually. If the savings exceed 10,000 hours your payback comes even quicker. (See the side bar regarding the emergence of third party distribution service centers.)

When calculating labor savings it is important to include all aspects of the order assembly process. This includes the time it takes to pick each item for the order, the assembly of the items to complete the orders, and verifying the contents of the package before shipping. Automated sortation requires one visit to stock for each SKU to pull the required quantity for all orders that day. The sorter automatically separates the SKU's to the order requirement. Since the product is tracked throughout the process only a random check is required to verify the order contents. Most sorter manufacturers guarantee 99.9 % accuracy (1 in 1,000) with the standard system and 99.99% accuracy (1 in 10,000) with built in verification.

How could you be sure sortation is for you.

You will find that many sorter manufacturers are happy to visit your facility to assess the benefits of adding automation to your operation. In most cases the sorter will fit into the same space you now use to manually sort your orders. Sorters are easy to maintain and simple to operate. Look for modular construction to allow the sorter to grow with your company's needs. These systems have come a long way and can offer fast reliable and accurate sortation for many years to come providing an annuity of savings after a relatively short period of time.

Third party service providers have long realized that it is not always feasible for small companies to invest in capital equipment to automate a particular manual process. Yet they would benefit greatly if they had that capability. By offering to serve many companies with the same need on a regular basis it becomes economical for third parties to provide the service for a fee benefiting all. As such there is a proliferation of outsourcing providers.

Outbound shipping is no exception. There are companies already established that store and expedite orders on behalf of several manufacturers. There are also companies with large vault space and appropriate security looking to consolidate the shipments of others with the automation. The introduction of a third party that will combine orders from components will allow the smaller manufacturer to take advantage of order fulfillment automation to get their product to the customer faster and save money overall. The sorted product information can also be automatically transferred from the equipment to the supplier via modem as the process is completed thereby updating inventory records.

It is expected that the security and insurance concerns would be overcome by obtaining bonding and special block insurance from acceptable underwriters.

Sorter Case Study - Fine Jewelry
From an article written by Mark Wolkenfeld for American Jeweler Magazine
June 1999

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