Over Easy

Newegg.com is the second-largest pure-play e-tailer in the United States, according to Internet Retailer’s Top 500 Retail Web Sites list. It registered sales of close to $1.9 billion from 8.7 million registered users in 2007 and is continuing to grow rapidly.

To manage growth and sustain high levels of customer service, the IT and consumer electronics seller recently consolidated two small distribution facilities in New Jersey that totaled approximately 70,000 sq. ft. into a single 374,000-sq.-ft. DC in Edison, N.J. In total, Newegg now has close to 1 million sq. ft. of distribution space for a product mix that numbers approximately 40,000 SKUs.

Newegg chose Grand Rapids, Mich.-based Dematic, a materials handling equipment manufacturer, designer and system integrator, to supply the solutions for the new facility.

“We wanted the latest technology to move our products through the DC,” says Newegg vice president of logistics Bob Zelis, “so we capitalized on the fastest and most efficient systems.”

According to Zelis, the C-L 100 zone routing conveyor system and SortDirector software, in combination with Dematic’s pick-to-light system and PickDirector software, offered the best solutions for “storing our inventories so that we could access products quickly and efficiently. They gave us the ability to cost-effectively pick orders for our customers and get them shipped the same day.”

One of Newegg’s key points of differentiation is the ability to provide what Zelis calls a “top-notch customer experience.

“Every day we make thousands of Newegg customers happy by delivering their purchases to them within three business days of placing their orders,” he says. “In fact, we are able to do so 99 percent of the time without costly express shipping charges.”

Newegg’s first investment in digital picking was in its California facility in 2005, and its second was in Tennessee in 2006. The Edison facility, the first to use Dematics’s digital solutions, began making its first shipments of small items in October 2007.

Pick-to-light system
As an Internet fulfillment house, Newegg required a system where SKUs were easily accessible once orders were received, says Stewart Resnick, the Dematic senior account manager who helped supervise the installation at the Edison facility.

Dematic, he says, “provided a system with multiple synchronized modules that gives Newegg picking space for all their fast-moving products, as well as accessible storage for slower-moving products.”

Since so many of the items Newegg carries look similar, the company “also needed a system that would ensure accurate and efficient picking, so we also provided the pick-to-light system,” Resnick says. “With pick-to-light, their employees don’t have to look for the products or check to be sure they are picking the right items: A light comes on that tells them where to go to pick the items they need and how many of those items to pick.”

The C-L 100 system and SortDirector software make it easy for Newegg to enhance the productivity of its workers. “The software helps us balance the workload demand of various pick zones within the system,” Zelis says. “That helps us fine-tune how we best utilize the pick-to-light system in the Edison warehouse.”

Newegg is projecting “about a 20 percent productivity improvement from putting in this software,” he says. “And while the system is still relatively new for us, we have been bumping up against that number.”

In the IT/electronics space, items that perform as fast movers/high turners change very quickly. “Our merchant partners can have an item that moves very fast,” Zelis says, “but as soon as they introduce the next generation of product, there tends to be a big surge in demand and their previous generation stops moving as rapidly. Our ability to rebalance where we store various products is key to how we manage labor.”

The C-L 100 system is also “very quiet,” Zelis says, “and the value of that is that it creates a good working environment for our employees. That is important to us.”

Energy-saving conveyor
Another benefit, he says, comes from features of the conveyor equipment designed to boost energy efficiency. “At this point, we believe it has reduced our energy costs by about 20 to 30 percent,” Zelis says. “It actually automatically turns off when it’s not in use. So if we have a portion of the conveyor system where we have nothing to convey, it’s not running constantly.”

While this fits very nicely into Newegg’s commitment to becoming “more green over time,” the greatest benefit the C-L 100 provides is the ability to help Newegg “be as efficient as possible in logistics so we can keep costs down as we meet our customers’ expectations.”

The system also makes it easy to diagnose problems. Dematic’s diagnostics software “helps us identify where there are troubles if a line goes down and to repair the issue very quickly,” Zelis says. “We can do some of the diagnostics ourselves, and Dematic can also dial in and see the performance of the conveyor should a problem arise that needs their help. That was very helpful when we were going through the start-up phase, and now it’s there as a contingency support if we should ever need it.”

Newegg’s distribution facilities operate six days a week, and the systems in place at the Edison location have helped to “significantly drive down our freight costs and ensure [that] our customers nationwide get their product as fast as possible,” Zelis says. “Innovative logistics solutions are at the core of our business philosophy, which has … kept us at the forefront of customer satisfaction in the industry.”