Behind delivering "wow"

Order a pair of shoes from Zappos.com, and the online retailer will have them on the way within hours and at your door the next day. They don't fit or just don't suit you? Send them back, and Zappos will pick up the shipping tab.

Sound appealing? You're not alone. That kind of service—the company calls it "delivering WOW"—has earned Zappos.com a fiercely loyal following. It has also resulted in blistering growth. Founded in 1999 as an Internet shoe retailer, Zappos.com, now a part of Amazon, has since expanded into apparel and accessories. Today, it offers millions of products from over 1,000 clothing and shoe brands, according to the company's website, with gross merchandise sales exceeding $1 billion annually.

While that kind of growth may be great for the bottom line, it has also placed enormous pressure on the back end of the operation. For example, in order to cope with surging order volume, the company was forced to expand its Shepherdsville, Ky., fulfillment distribution center just three years after its opening. When it was built in 2003, the 280,000-square-foot DC, located just 21 miles from UPS's WorldPort Louisville air hub, seemed relatively spacious. But by 2006, the facility was bursting at the seams, leading Zappos to add another 832,000 square feet in an adjacent building, which is where most fulfillment operations take place today.

Another source of pressure is the need for speed. The retailer promises customers that orders received by 4 p.m. will be delivered anywhere in the contiguous 48 states the next day—which sets a pretty high bar for fulfillment performance. "Once a customer has made a purchase, it's a race to the front door," says Jerry Koch, director of corporate marketing and product management for Intelligrated, which provided much of the material handling equipment used by Zappos.com. "That makes it challenging for operations."

It didn't take long for the company to realize the only way to handle its fast-growing volume within those tight time parameters would be to invest in a large-scale automated material handling system. After weighing its options, it found the solution it sought in a combination of homegrown warehouse management software and a material handling system that features high-speed sorters.

Tracking shoes
At the heart of Zappos' fulfillment operation is a sophisticated inventory management system that essentially treats each item as its own stock-keeping unit (SKU). "We individualize each unit with its own serial number," explains Craig Adkins, the retailer's vice president of services and operations, who notes that because of variations in size and color, it's possible to have 40 SKUs of a single style of shoe. "That gives us better quality [data] due to the complexity of size and color variation. We know the life-cycle history of every item. We know the details of shipping, returns, processing, and placing goods back in inventory."

To make this level of tracking possible, Zappos applies a unique label to every pair of shoes at receiving. As cartons arrive (either in truckload shipments from a single manufacturer, like Ugg, or in mixed shipments delivered via parcel carrier, primarily UPS), they first undergo an initial sorting. As workers remove the shoeboxes from shipping cases, they apply labels to the boxes and then scan the labels before sending the boxes on to pick locations.

"It's a relatively simple system," Adkins says. "We don't have to worry about palletizing or de-palletizing." Plus, there's no need to make decisions regarding what to keep in live inventory and what to send to storage. Adkins explains that unlike many fulfillment operations, Zappos doesn't have reserve storage. "Everything we receive goes to a pickable location," he says. That largely because although it stocks a lot of SKUs, the retailer carries a limited number of each particular shoe style, size, and color.

The receiving process is designed with efficiency in mind. "From the point of receiving to the shelf is measured in less than hours," Adkins says. That's crucial because company policy states that only goods that are in stock in the DC can be offered on its website. "It's really important to have a short cycle time," Adkins says.

What's ordered today ships today
To choreograph the fulfillment process, Zappos.com relies on a homegrown warehouse management system that is tightly integrated with its order management system. "When an order comes in, in a short period of time, it's put into a pick wave, whether it's a multi-item or single item order," Adkins says.

The picking and shipping process combines manual order selection with automated material handling from Intelligrated. At the heart of both the receiving and shipping systems are Intelligrated high-speed sliding shoe sorters. As merchandise arrives, high-speed sorters direct the incoming goods to putaway locations, primarily static racks. Order selectors pick goods from the racks, scanning those individualized bar codes, and introduce them to Intelligrated conveyors—no totes are involved. The goods then move to a second sliding shoe sorter. In-line scanners direct each product to the correct packing area.

"We have a tiered sort system," Adkins explains. Single-item orders go directly to pack stations specifically for that type of order. Multi-item orders move to stations where employees pick goods and place them in bins as directed by the system. Once an order is complete, the system generates a packing slip for the specific bin, which is then sent to a packer.

Completed packages move through Intelligrated print-and-apply modules for labeling, then travel along a third sliding shoe sorter to the correct shipping lane, where they are conveyed directly onto a trailer. The sorter handles more than 100 cartons a minute.

Intelligrated also developed a customized conveyor system that limits the amount of time a package spends traveling on a conveyor to a maximum of five minutes. That was necessary to meet Zappo.com's requirement that all orders be processed in an hour or less—a capability that allows it to fulfill its promise to deliver orders the next day. (Most orders ship via UPS's Next Day Air service.) The overall system is capable of shipping 300,000 products a day.

Many happy returns
Zappos.com also has developed a robust system for handling returns. Its easy return policy—it pays for shipping and allows returns for up to a year after purchase—means that about a third of the goods it ships out are returned, typically on the order of 15,000 to 20,000 items daily.

The retailer receives those returns, which usually amount to several truckloads a day, through dedicated doors. Returns that come back in the same carton they were shipped in (the majority of returns) are unloaded manually and conveyed to return stations. Items that arrive in envelopes or other packaging considered non-conveyable are placed in trays or hand carried to the return stations.

At the return stations, the packages are unpacked, scanned, inspected, and, if still salable, returned to inventory. "One of the things that really helps us is that individual bar code," Adkins says.

Room for expansion
When Zappos installed the initial handling system back in 2006, it did so with an eye toward expansion. In particular, the sortation system included more diverts than were required at the time.

That proved to be a far-sighted move. Along with the company's organic growth, the retailer's acquisition by Amazon in 2009 opened up new fulfillment opportunities for the facility, which had to double capacity.

Because of the advance planning, the transition proved relatively easy, Adkins reports. "We figured what we needed, built it onto the end, and backed into the system," he says. "Cutover was in less than a day. We cannot shut down operations. When we work with material handling engineering companies, that is part of the deal."