Think inside a bigger box

at a glance
This article examines the rationale behind centralized distribution at a fast-growing retailer.

The Container Store's storage concerns are considerably larger than the personal organization problems it solves for its customers. The retailer of storage and organization products recently moved to a new 1.1 million-square-foot distribution center outside Dallas, and used some of its own techniques to make the move a success.

Amy Carobillano, vice president of logistics and distribution, admits, “If we couldn't move ourselves, we'd be in big trouble. We're the organization organization.”

So, how did The Container Store expand and organize its “closet” without missing any steps with customers and retail store replenishment? The answer, according to Carobillano and Kevin Marlow, the retailer's distribution center systems operations analyst, is attention to detail.

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One of the first decisions for the company was location. From its founding in 1978, The Container Store has always been in the Dallas area. Its growth created a network of 31 retail stores spread across the U.S., but there isn't sufficient density to warrant a regional distribution strategy. That may be a few years out, and the first regional focus may come in the Northeast.

For now, says Carobillano, Dallas is pretty centrally located for The Container Store's logistics purposes. Goods come from Asia through the West Coast and from Europe through the Port of Houston.

Sales growth at a rate of 20%-25% per year outstripped the company's 305,000-square-foot facility and led it to add a satellite facility of 155,000 square feet about a mile down the road and another small facility with about 5,000 pallet locations under a third-party contract.

“We looked into our whole network,” says Carobillano, “asking whether it was time to do store replenishment out of our warehouse and direct customer fulfillment out of a different site.”

The Container Store team decided a single site had many benefits. All of the inventory is in one place. The quality control is there. And the corporate headquarters is attached to the distribution center (DC). “We did learn that the needs of the corporate headquarters are not the same as a DC,” admits Carabillano.

Looking at the DC needs was somewhat like the approach The Container Store takes with its customers, says Carabillano. “If you come into our store and say you'd like to design your closet, and this is the situation and here are your needs, we do what we call a master plan. Many people look at that master plan and say, that's great, but right now I don't want to do that whole thing. Once you know what the vision is, you can buy part of it now and develop the solution in phases.”

The Container Store took the same approach with the DC, Carabillano continues. “If we're where we want to be in 2010, we'll need a conveyor in 2007 because that's when we'll have enough of our products conveyable to justify it.” Meanwhile, The Container Store stepped the layout back to what it is using now.

“If you walk through the DC, there are some spaces that we have not racked,” Carabillano explains. “That's where some of the sortation will be happening.” The retailer also laid out the dock so that the sortation will integrate easily and work correctly when it's time to install. “We actually master planned the entire 1.1 million square feet on that kind of high level because things will change before we take over the whole million square feet.”

“We put in racks [in some spaces] because it wouldn't make sense to walk by a big empty space for three years,” adds Marlow. “The spaces that we do have are in reserve areas where we have very little traffic at the moment.”

Consultants tried to sell the retailer on installing the sortation system and conveyor when it built the DC. “They said do it now because you'll have to shut down your business to install it,” Carabillano recalls. “We said no, we won't do it now and we won't have to shut the business down.”

Consultants are very important to the process, she notes. Their expertise is invaluable, along with their knowledge of the industry and the possibilities. On the other hand, “Nobody knows your business or cares about your business like you do,” she points out. And true to its basic principles, The Container Store handled the move as a team effort.

Many companies will create a transition team to handle the move and tell the rest of the group to keep running the business, but The Container Store involved everyone. Benefits included receiving input and suggestions from the people who had been doing the work for years. “Yes, you get buy-in,” says Carobillano, “but more than that, you get great ideas.” The payoff came during the implementation and move to the new facility.

“We shut down for four days and moved like heck during those four days,” explains Carobillano. They moved over a four-day weekend and then went back to the old building and started bringing over the rest of the merchandise. It took eight weeks from the time they started receiving to move all of the merchandise.

“We hired more people and put them into our day-to-day operations which we had mastered,” she continues. “We said, who better to receive merchandise at our new facility than our inbound receiving group?” So she put the most experienced Container Store DC employees in the new operations.

A warehouse management system from Catalyst International directs operations, and DC transactions are relayed over Symbol radio frequency terminals, so the combination of talent and technology kept them on track.

With one centralized DC, change can be disruptive to traffic flows and customer service. Carobillano and Marlow worked to ensure the transition went smoothly and no store replenishment or direct customer orders were disrupted.

Stores are replenished in full truckloads. The Container Store ships high-cube freight — for example, large sweater storage boxes, trash cans and laundry hampers. A high-volume store will get three to five truckloads a week. During the Christmas buying season, that can go up to five, seven, or even ten 53-foot trailers a week.

Private fleet operations and third-party relationships handle outbound shipments. About 35% of the deliveries are handled by The Container Store's private fleet and those vehicles are used to do an occasional sweep of stores for return product, which is backhauled to the DC in Dallas.

While the new DC may have room to grow, square footage at retail stores is at a premium. You pay the same rate for retail space as back-room space, says Carobillano, so the goal of optimizing selling space in its 20,000-to-30,000 square-foot stores creates a corresponding challenge for backroom storage.

Trucks arrive at the retail stores at 5 a.m., and there's a crew of 20 people waiting to unload the truck and stock the showroom floor with the new product. The off-peak deliveries are not only off-peak for truck traffic — the goal is to complete the unload and restocking before the store is open to customers. If a truck isn't there at 5 a.m., it causes ripples, says Carobillano.

“We have a 98% on-time performance with both our contracts and our drivers,” she says. “Our drivers haven't had a late delivery in five years.”

Late, from the store's perspective, is literally five minutes. The stores are on preset schedules, and it's the same drivers delivering each time.

“Our analysis shows we need 15 to 20 stores clustered to make a regional DC,” Carobillano says. So, with a total of 31 stores, long-haul transportation will continue to be a factor for the retailer. The East Coast, specifically New England, is a likely candidate when The Container Store does open a regional DC. Currently, it has stores in Manhattan and White Plains, in New Jersey, and four in the Washington, D.C., area, and the retailer is opening two in the Boston area.

One strength for the company is its proprietary replenishment system that is used to forecast demand. The product base is stable, so sales volumes are predictable.

“We run about a 1% to 2% out-of-stock ratio in the stores, which is low for retail,” says Carobillano. Some of that business is moved to direct-to-customer delivery when, for instance, a customer says the items are either too large to fit in their car or they are on vacation and would like the items delivered to their home. The company's web site and call center also handle direct customer orders. That's about 5% of the business at present, and it moves out via parcel delivery.

Looking back over the whole transition, is there something The Container Store would have wanted to do differently? “I'd spend more time with vendors up front before they start their piece,” says Marlow, referring to equipment and systems vendors involved in the new DC. Go through the details and avoid a lot of miscommunication or misunderstanding that leads to pain later, he advises. “We're a detail-oriented company, and the vendors don't quite get that until they're here installing something and we're asking lots of questions,” Marlow notes.

It's a cultural thing, agrees Carobillano, “We like to stand right next to the vendors when they're installing things.” The concept team and transition team that handled the implementation were the same team, she continues. “We knew every detail of what the DC should look like.”

When the team saw something that didn't look right, they would approach the vendor. Notes Carobillano, “The vendors would say, ‘We're going by the blueprint,' but we'd say, ‘No, you're not.' We avoided a lot of major problems by staying on top of the situation.” LT

resources

Catalyst International

The Container Store

Symbol Technologies Inc.

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