If you look up, you might glimpse some of the 88 solar tracking mirrors on the roof moving in unison to capture sunlight as it rises over the Nevada desert, reflecting light to the floor below. If you look around, you'll see walls consisting not of gypsum board, but of compressed field straw. If you glance down, you'll find yourself looking at carpets made from 100-percent recycled polyester. And if you visit a restroom, you'll be dazzled by colorful countertops constructed of 100-percent recycled plastic.
What you won't see in this building are plaques on the walls or display cases. This is no eco-construction showcase or Museum of Environmentally Responsible Design. It's outdoor apparel and equipment retailer Patagonia's distribution center in Reno, Nev., and what you're more likely to see are racks, sortation systems and pallets.
Patagonia, you see, practices what it preaches (or in modern parlance,walks the walk). And what it preaches is conservation and environmentalism. The company's mission statement declares, "Patagonia exists to use business to inspire and implement solutions to the environmental crisis." Not that it doesn't want to make a profit; the company pushes hard to hit its annual financial numbers. After all, the more the company makes, the more it can give away. Patagonia donates 10 percent of its pre-tax profits (or 1 percent of sales, whichever is greater) to grassroots environmental groups each year. Over the years,it has given away more than $17 million in cash and another several million in merchandise.
Green and clean
Built in 1996 for $19 million—the company's largest capital expense ever—the 171,000-square-foot Reno facility, which is constructed mostly of recycled materials, embodies Patagonia's serious commitment to the environment.
"We chose to make this facility as environmentally friendly as possible," says Dave Abeloe, Patagonia's director of distribution, who oversaw the DC's design and construction. "The center features uncommon but very energy-efficient heating, cooling and lighting systems. We also paid a premium for recycled materials instead of using standard off-the- shelf materials."
Like the premium-priced recycled materials, the center's energy-efficient heating system represented a relatively high-cost alternative. But Patagonia, which supports the use of renewable energy, was committed to the idea of generating its own solar power.
The initial plans for the distribution center called for running the entire facility by solar power. However, it would have taken acres of solar panels, so the idea was dropped early in the process. As technology improved and costs decreased, Patagonia revisited the idea in 1999, but on a much smaller scale.
The company invested $55,000 to install 16 300-watt panels that provide just under 5 kilowatts of solar energy. The power is piped directly into the building's local power grid, reducing consumption from the power company. The energy, enough to fully power three average-sized homes, runs Patagonia's onsite outlet store. As funds allow, Patagonia plans to install additional panels to produce more energy. Abeloe projects a 12-year return on investment.
Though 12 years may sound like an eternity for companies pressed to keep ROI to 18 months or less, to Patagonia it seemed a reasonable tradeoff for doing the ecologically correct thing. "For us to make a statement like installing a solar system lets the business world know that if you take a long-term view of the return, these systems can make sense," Abeloe says. "Businesses have to understand that you can do the right thing and be profitable if you take the long view."
Patagonia, however, is already hitting its ROI targets on a number of other environmental projects. For example, use of ample insulation, window glazing and sunscreens reduces heat gain inside, leaving the interior comfortably cool all day without air conditioning, despite temperatures outdoors that reach 95 degrees. (During the night and early morning hours, exhaust fans suck the stale air out of the building.)
Patagonia's energy-efficient lighting systems, which rely on motion sensors, help conserve electricity. In winter, a radiant heating system that uses copper tubing and hot water saves natural gas. A bio-filtration system that employs an oil/water separator moves runoff from the roof and parking lot to percolate back into the ground.
"Depending on the design elements, some of these systems provided shortterm payback of three to four years," says Abeloe. "The lighting control system brought energy savings of over 30 percent a year, and that payback was reached several years ago. One of the other design elements was the radiant heat system. That had an eight-year payback period and based on energy savings, we should see that return completed sometime in the next few months."
However, not too much could be done when it came to the material handling equipment used at the facility. "When we sent out requests for proposals, we didn't specifically mandate the environmental elements into the material handling systems," says Abeloe. "The trays on our Crisplant tilttray sorter and the wood dividers that separate the packing stations are made from re-claimed sources, but those are pretty minor elements in the big scheme of things."
Though it doesn't face the same ROI pressures that confront most U.S. businesses, Patagonia most definitely has to meet its annual profit numbers. Nobody knows that b etter than Abeloe. "We have to be profitable —there's no question about that," he says.
And Abeloe was never so aware of that mandate as he was during the DC's design and construction process. An avid rock climber who knows all about taking risks, Abeloe likens the building of the Reno DC to a technical climb, where one miscalculation can easily spell disaster. "The risks of climbing outdoors involve changing weather, routefinding problems in unfamiliar territory, and proper use of climbing gear and equipment," he says. "The risks we faced with developing our facility were also quite daunting. We made the decision to completely change how we operated our DC, which meant creating entirely new material handling systems and methodologies."
One of those changes was converting the company's computer system to run on Manhattan Associates' PkMS warehouse management system (WMS) platform. That may not sound risky today, but it's important to note that Patagonia was an early adapter of the system, serving as the test site when Manhattan deployed the system in 1996. "We were the guinea pig for Manhattan's efforts to modify its existing package by adding a tilt-tray sorter," says Abeloe. "We were pretty nervous knowing that they were modifying something that wasn't quite ready to support the way we wanted to operate our DC, but as it turns out, it supports our business very well."
It's easy to understand Abeloe's concern when you consider the company's order volume: Patagonia records about $225 million in annual sales, with the majority coming during two peak seasons—fall/winter and spring/summer. Combining orders from its catalog, Web site and retail outlets, the DC ships an average of 26,000 units per day in the fall/winter cycle, and 21,000 packages daily in the spring/summer season. The DC has run as many as 51,000 orders through its sorter in a nine-hour shift.
Orders received by noon that specify next-day delivery are shipped the same day to the customer. During peak season, up to 75 percent of mail-order and Internet orders are marked for overnight delivery.
Impressively, overall accuracy has improved every year since the Reno facility opened. During the last physical inventory, Abeloe's team counted 1.7 million units, with a variance of only 792 units. Pick rates for skilled workers are 400-plus units per hour, and shipping accuracy remains steady at 99.98 percent.
"We feel we could easily double our business with the existing equipment and setup," says Abeloe. "We'd merely have to add staff and make a few minor adjustments."
One adjustment on tap calls for improving the current labeling and pre-ticketing functions,as more of Patagonia's retail customers start to request those services. "The larger retailers that buy our products are becoming a lot more sophisticated in their operations," says Abeloe, "and they would like some of the work they are currently doing moved upstream into our facility."
By this summer, the DC should have a system in place to label and pre-ticket merchandise for customers. Although still a work in progress, the blueprint calls for a separate ticketing area where units are routed in a batch, or "wave" of work , to be ticketed with the specific information requested by the customer. That inventory will then be routed ba ck onto a conveyor system to the tilt-tray sorter, which will segregate those units to the order level.
Employees climb on board
None of this would be possible without a dedicated labor force. The company takes great pride in reporting that its 45 full-time distribution center employees (that number grows to 80 when you include returns management and quality service) all share the company's commitment to making the world a better place to live.
Abeloe singles out his staff as a major source of efficiencies within the warehouse, a competitive advantage that in part allows Patagonia to meet its financial numbers and make its charitable contributions each year.
"One of the things that we do in the DC is train new associates to be as flexible as possible," says Abeloe. "We do that with our skill-based pay program. When we hire new people to work in the DC, the expectation is that over 24 months they will learn everything they possibly can about all operations, from receiving through shipping. That allows us to be very flexible in meeting day-to-day needs and special customer requests."
Typically, a worker spends several months in receiving, for example,and receives a salary increase once he has mastered that area. Next, the employee spends time in packaging, receiving another merit increase when he has fully grasped duties at that location. As the volume of work changes from season to season, staffing can be quickly adjusted to cover the seasonal peaks and valleys of order volume for each of Patagonia's business divisions. "[The tasks are] broken down into about a half dozen major categories within the warehouse," says Abeloe. "The system allows our staff to be much more efficient in scheduling themselves. How that relates to giving back is that the employees we have are very well trained and our turnover is extremely low—less than 10 percent.
"Our employees also support what we do as a company, because we do some fairly controversial things as far as giving money to [environmental activist] groups," Abeloe adds."Having employees who support our company's position allows us to continue to give away money and have some impact on the business community and on the world environment."