It often takes a catalyst to spur a company to fix something that on its surface doesn't appear to be broken. The catalyst can take many forms, but it's frequently a major event like an acquisition or new contract. Such was the case a few years back for New Era Cap Inc., when it landed a major five-year licensing deal that promised to double its sales volume.
New Era is the number one provider of licensed headwear in the world, and it has a long history of supplying hats to professional athletes and sports fans alike. The company has held the contract to supply caps to Major League Baseball (MLB) since the 1970s, providing all of the headwear major leaguers wear on the field. It supplies the same style hats to concession stands and retail shops at the ballparks as well as to other merchants that sell team apparel, including sporting goods retailers (like Dick's, Footlocker, Lids, and The Sports Authority) and department stores.
New Era distributes all of these hats through its 300,000-square-foot distribution center (DC) in Harrisburg, Pa., which is operated by Menlo Logistics. The facility processes only hats; other sites handle T-shirts and other apparel. About 60 percent of the company's total goods pass through Harrisburg.
The hats themselves come in a dizzying variety. By way of illustration, consider what's involved in the MLB business alone. While baseball has only 30 teams, each team may have three or four different caps, such as home, away, and a couple of alternate caps. Plus, each of these caps comes in a range of sizes, according to Jeff Holker, Menlo's director of operations at the Harrisburg DC. "For fitted caps, there are 13 or 14 different sizes of caps, from a 6 3/4 all the way to what they call a 'bucket head,' which is 8 1/4," he says. And that doesn't include the caps the company produces for consumers—hats for spring training, new stadium openings, or to commemorate individual players or accomplishments, such as the retirement last year of Yankee player Derek Jeter.
On top of that, the company supplies knit hats for football season and winter wear as well as caps to pro hockey and basketball (though not exclusively) and to some college teams. As a result, the Harrisburg DC's stock-keeping unit (SKU) count currently stands at around 23,000.
FLIPPING THEIR LIDS
When New Era first began using the Harrisburg facility in 2009, operations were largely manual. But the following year, the company landed a major contract that would force it to make major changes.
The deal dropped into New Era's arms like a deep forward pass. In late 2010, the company signed a licensing deal to supply hats for the National Football League (NFL) starting in 2012. Under the agreement, New Era is now the official hat provider for NFL teams and all of their many merchandising channels. Picking up the NFL agreement would nearly double the volume that Harrisburg would have to handle. That meant New Era would need to find a way to double its throughput capacity without increasing the footprint of the building.
And that wasn't the only challenge the headwear supplier faced. Around the same time, New Era was seeing a major shift in customer ordering patterns. Rather than ordering in bulk and maintaining extensive inventories, customers were trimming their stocks to just what was required to meet their immediate needs and relying on suppliers to ship replenishments on a more frequent basis. As the trend took hold, New Era's customers shifted from ordering items in pallet- and case-load quantities to cartons containing multiple SKUs that have to be picked individually. Trouble was, the Harrisburg DC was not built with piece picking in mind.
Filling the additional orders under the old methods would require a big increase in labor and a lot of added expense. New Era realized that it needed to change its order fulfillment process if it wanted to remain efficient and competitive.
New Era's distribution center in Harrisburg, Pa.
TACKLING THE OPPORTUNITY
With the start of the football contract looming, New Era began drafting a new game plan for the Harrisburg facility. But it only had about six months to do it. You could say that the clock was already in the fourth quarter.
New Era and Menlo approached Fortna, a warehouse design and engineering firm, to evaluate the existing distribution process and then devise a comprehensive plan for renovating the DC and installing automated systems. Among other goals, they wanted a process that would improve overall service while reducing operating costs by at least 25 percent. And in the best baseball tradition, New Era also threw Fortna a curve—installation of the new systems would have to be completed in a three-month period while fulfillment operations continued as usual.
"Installing and upgrading this facility during operations was definitely a challenge," recalls Holker. "The key to that was really extensive planning and coordination with the customer, with Fortna, and with Menlo. Project management was critical. Reviews were about every other day in terms of making sure that everyone was aligned."
The solution that Fortna came up with called for the installation of the company's own warehouse control system, new pick modules, RF (radio-frequency) picking, efficient pack stations, a shipping sorter, a "dynamic pick" area for expedited order processing, and new value-added service areas. The project was carried out in phases, so that one section of the building was renovated while work in another section continued under the manual processes. The entire implementation was completed within the three-month timeframe.
"Five years ago, this was a 100-percent manual distribution center; now it's highly automated and sophisticated—run by software and hardware. It has totally changed how New Era does business," notes Joe Stein, director for logistics and distribution for North America at New Era.
SEASONS OF CHANGE
Operationally, there was a silver lining to landing the NFL contract, as it helped to balance out what had been a fairly seasonal business for New Era. Previously, most products were shipped in the spring and summer to coincide with baseball season. Now, the three-shift facility handles more predictable volumes year round.
The hats themselves are manufactured both overseas and domestically. Among the factories is a facility New Era operates in the hat capital of Derby, N.Y., which is famous for having introduced the derby-style hat to the world.
The hats arrive in Harrisburg in containers and trucks. After they pass through receiving, they head to reserve storage in pallet racks unless needed immediately for picking areas. The picking zones contain a combination of carton flow racks, deck racking on the bottom levels of pallet racks, and bin shelving. Products are assigned to specific locations based on their volume and velocity. For example, most of the faster-moving products are housed in the carton flow racks.
Following instructions relayed via RF devices, workers pick items into cartons arranged on wheeled carts. Once all the items are gathered, the worker wheels the cart to one of seven conveyor drop zones. He or she then removes each carton from the cart and places it on the takeaway conveyor.
Rush orders are handled in a special section of the facility known as the "dynamic pick" area. This section houses the fastest-moving SKUs—those used to fill orders for large retailers that require replenishment shipments at least once a week. Flow racks here have 1,200 densely packed locations. As in other areas, picking here is directed by RF. Packing is handled at adjacent stations, with most cartons shipping with fewer than six hats.
One of the more interesting features of the facility is the 30,000-square-foot "heat seal room." If you've ever wondered how championship hats are ready for sale so quickly after a team wins the World Series or Super Bowl, that's where special "fast-response" processes like heat sealing come into play. Rather than preproduce winning hats for both teams, which would result in tremendous waste, New Era waits until the outcome has been decided before swinging into action, affixing championship patch decals to caps using special heat-sealing machines. Workers in this light manufacturing area actually watch the sporting events on large monitors so they can begin work the second a champ is crowned. As for how quickly this takes place, workers in New Era's heat seal room can turn out 40,000 hats in a single shift.
Once orders are completed in all areas, the products are conveyed through a sawtooth merge in the conveyor line that feeds value-added workstations and pack stations located on an upper-level mezzanine. At the pack stations, hats are checked, printouts and labels are produced, and the packages are sealed. The completed cartons are then placed onto a takeaway conveyor that transports them to a pop-up shipping sorter. The sorter diverts the cartons to seven lanes for shipment worldwide.
HATS OFF TO THE NEW SYSTEM
Today, over 14 million hats flow through the Harrisburg facility annually, with nearly 70,000 picked and packed daily during peak season. The automated equipment has been instrumental in helping New Era handle that volume, with room to grow.
The new system has also helped the company adapt to the shift toward smaller, more frequent customer orders. A typical order now consists of about six lines, with about seven hats per line. Many of the orders for large retailers are also packed and labeled for individual stores so that they can be swiftly cross-docked upon arrival at the customer's DC without requiring further processing.
On top of that, the new system gives New Era the flexibility to set aside certain picking cells for special processing to meet the demands of individual customers.
Although throughput has increased, processing times have been greatly reduced. Orders are now processed in hours as opposed to days under the old system. All the while, the cap distributor has kept a lid on operating expenses: Though the facility is now handling double its previous volume, operating costs have dropped by 30 percent.
Even better, the entire project was delivered under the original budget. That brought New Era a very handsome return on investment (ROI) of 1.5 years, which was also six months ahead of schedule—making the project a grand slam all around.