‘You have ten minutes to talk on bath towels’. No, it’s not a new game show idea, but a typical task set a presenter on televisionshopping channel, QVC. However challenging this may sound to you and I, it’s the front end of a vast and sophisticated mail order business which uses the dynamics of live, unscripted television to tremendous effect.
How does it differ from a conventional mail order business? Well, as Wolfgang Appelhans, QVC’s director logistics and operations in Germany neatly puts it, ‘Where mail order businesses use a catalogue for a set period, we have a new catalogue on a daily basis’. And that presents a whole raft of challenges for Appelhans and his team – one of which is that in some instances he is only given 48 hrs notice of a product going on air.
Although there are 18,000 different product lines spanning a number of areas from home products, jewellery, health and beauty, to fashion there are only a select number of their own branded products. Variety and innovation seem to be the prerequisites, as the way QVC works is to search out novel products, bring them into their distribution centre in bulk and if it sells out, then that’s it. What’s more, there is always a special value item each day, which creates its own demands on the system.
But the QVC business model goes beyond the mere flexibility of the catalogue by bringing a whole new meaning to ‘responsiveness to consumer demand’ and ‘interaction with the customer’. This is live TV as you’ve never seen it before.
From his production suite in the television studios the programme director is able to monitor actual sales as the show is being broadcast, receive input on the most frequently asked questions from the call centre and instruct the presenter, via a quiet word in his or her ear-set, to say: push the sale of blue towels if stocks of white are dwindling, or perhaps, talk more on the towels ‘high quality stitching’ if that’s one of the main questions being asked of the telephone sales staff.
This is all happening in real time, broadcasting 24 hrs a day, and the fulfilment operation supporting this slick sales approach has to be just as innovative, responsive and dynamic. It has to have scale too. Since the US parent company set up QVC Germany in 1996 the business has boomed, reaping a turnover of e289 million in 2002 with over 1.1 million active customers to support. Some 25,000 packages are presently despatched each day and growth of the business is gathering pace. Last year it was up 30 per cent on the year before and so far this year, it’s already 31 per cent up on last.
QVC is convinced growth will continue apace and it’s clear to see why they hold this conviction so strongly. The parent company, QVC Inc., was founded in 1986 and almost immediately found itself in the record books. The company established a new record in American business history for first full-fiscal year sales by a new public company, with revenues of over e112 million. By 1993, QVC had become the number one televised shopping service in sales, profits, and reputation in the US, reaching over 80 per cent of all American cable homes and three million satellite dishes. In 2002, more than 107 million units were shipped to customers around the world, which brought in nearly e4.4 billion in sales.
e103 Million Investment
The company has also established successful operations in the UK and Japan.
So it’s easy to explain QVC’s confidence in committing to an e103 million investment into a highly automated distribution centre in Hückelhoven, 50 km from the company’s German studios and headquarters in Düsseldorf. This is a 60,000 sq m facility designed to a capacity of handling and dispatching 130,000 packages a day. At present, the daily average is about 25,000 packages but during peak periods, from October through to February, 50-60,000 packages can be dispatched in a 24 hour period. Plenty of spare capacity then. And indeed, so much so that one wonders whether its been built with the needs of Europe as a whole in mind. The UK market is also doing well, but the distribution facilities in the UK are manual.
The former warehouse in Neuss was overstretched, and staff were finding it difficult to meet the demands of the increasing number of orders. Every single order line had to be picked and packaged manually according to printed order forms, and there were approximately 5.7 million packages that were sent to QVC’s customers last year. That’s an awful lot of order forms.
In March 2000 the decision was taken to build a new facility capable of coping with the demands of the expanding business. Appelhans worked with consultants, Miebach Logistics (who also did the transition management), to come up with a scheme for the new site. Automation was soon seen as the way forward and a number of integrators of automated materials handling systems were invited to tender. Appelhans went for Knapp Logistik Automation, known for its specialist capabilities in automated picking systems for the pharmaceutical sector, the reason being that the characteristics of the picking operations at QVC held strong parallels with the picking performance required of the pharmaceutical sector.
Surprisingly, Appelhans decided against going for a simulation of the project prior to committing. ‘Simulation – no forget it!’ he tartly replied when asked the question. He went on to explain, ‘It’s too expensive and too time consuming, and at the end of it the responsibility is still on my shoulders.’ He believes for a successful project, ‘You need a small but tough project team and importantly, you need the trust of your senior management.’
Building work started in March 2001 and at the end of September 2002 the first parcel was dispatched from the new site.
The scheme adopted divides the operation up into three distinct areas. Firstly, there is jewellery, which is dealt with under high security in an operation using RF handheld devices for put-away and picking. This works on a ‘man-to-item’ basis and results in goods being packed into jiffy bags for direct despatch or for combining with other orders. Secondly, hanging goods have their own dedicated storage area that consists of a circular conveyor which transports the garments to the store racks and, after picking, collects them again.
But the majority of items passing through the warehouse are hard goods and are received in both full pallet loads of a single product type or as cartons. And it is here that automation has been deployed to it’s full potential, bringing together an automated pallet store, an automated carton store, three pick-to-light modules and a fully automated tilt tray sortation system – all under the control of a systems hierarchy which combines Knapp control technology with Exe’s Exceed WMS 4000 warehouse management software. The operation is designed to push product through the facility as fast and efficiently as possible, configuring the picking faces quickly for the latest demand patterns as the day’s TV schedule unfolds and ensuring that replenishment of the pick faces is conducted in accordance to instructions generated by the warehouse management system.
In the hard goods area five receiving stations check delivered items against expected orders. After being entered into the warehouse management system, every full pallet has a bar coded ‘license plate’ applied to it before it is stretch-wrapped and introduced to the automated high bay pallet store. This store is equipped with nine Siemens Dematic cranes, moving goods at speeds of up to 35 km/hr in the 116 m long aisles. Stretching up to 37 m high the racks (supplied by SSI Schaefer) in this bulk warehouse have a capacity to hold up to 32,000 pallets.
Lose cartons and returns, on the other hand, are moved by conveyor from the goods receiving area to a pre-zone for the fully automated carton store. Here, at one of seven stations, cartons are scanned and married to a tray before being taken away by conveyor to one of the ten TGW mini-load cranes. Designed to handle trays holding two or three cartons these cranes serve 66,000 locations on a double cycle basis.
The cranes for both systems were integrated by Knapp and controlled by Knapp systems. Special algorithms used in the programming enabled loads to be spread across the racking so making some considerable savings.
The key to the success of the whole operation is the speed with which the pick faces in the forward picking area can be configured to reflect the predicted demand from the scheduled TV programmes. Over 150 products a day are given air time, in ten minute slots and there are approximately 18,000 different products available. Those products can be anything from keep-fit equipment, electrical appliances and kitchen utensils, to hosiery, jewellery or fashion items. Jewellery and fashion goods are, of course, dealt with in separate sections of the distribution centre, but the onus is on the hard goods picking operation.
This is the heart of the operation at Hückelhoven. Some goods are picked directly from pallets but most fast moving items are picked using Knapp’s specialised picking system, incorporating pick-to-light technology. The picking area consists of three picking lines, facing one another, where the daily changing product assortment can be processed. Each module consists of three sectors, each with eight picking stations, where multi-line orders can be picked with the aid of the pick-to-light system. Operatives take a tote from the empty tote line, scan the bar code and pick into the tote, as directed by the pick-to-light system. At present only one of the three picking lines is in operation.
A thousand totes per hour are processed here, containing an average of 2.5 lines per tote. ‘We’re picking to totes at the moment but we will move to picking into outers’, says Appelhans. The split between multiple and single lines for orders is 60/40. A tote may move on directly to the packing stations or may travel via the slower moving item picking area, located on a mezzanine. Here the operation is very manual with operatives scanning the tote then picking from shelves into the tote.
In the packing area 20 packing stations are set aside for the fastest moving products which are picked directly from the pallet and placed in the dispatch cartons, and 50 stations are dedicated to multi-line orders. The tote is scanned, a carton is selected, impact packaging placed in the carton along with the goods and an invoice is placed on top. The carton is secured, a label is printed and applied, the bar code is then scanned and the package placed on a take away conveyor.
‘In 18 months time we will move to some automated packing stations’, says Appelhans, but, ‘We only invest in automation when it makes sense and that means it has to have a payback within three years.’
All packages are directed to a 200 metre long KFI Crisplant tilt tray sorter – also integrated by Knapp – which sorts to 25 chutes at a maximum capacity rate of 11,000 packages per hour. The sorter is also used to sort jiffy bags and has two input points on opposite sides of the sorter to dramatically increase the throughput capacity of the system. From the chutes the packages are given a final scan before passing by boom conveyor into the lorries for dispatch.
‘Our goal is to satisfy 95 per cent of orders within 48 hrs’, says Appelhans. ‘At present we are working two shifts, six days a week. But, I expect we will be working seven days a week in time.’ In all, 500 staff work to a totally paperless system in Hückelhoven.
QVC’s new distribution centre brings together a sophisticated mix of different technologies to maximise the performance of the facility – automated systems, pick-to-light operations and complex mapping programmes. The result is a machine that is capable of adapting its pick-faces and procedures to the heavy demands made on it by a dynamic and responsive live TV selling environment. All in all, that’s quite a remarkable achievement.
