Colorbök, Inc.

PRODUCT

Accellos One Warehouse

KEY BENEFITS

Overall costs reduced by $25,000 per month on average
2009 total savings of nearly $435,000 – a 132.2% return on investment in single year
Inventory accuracy increased from 96% in 2006 to 98.978% in 2009; cost dropped from $60k to $15k; time dropped from 5 days to 1.5 days; periodic cycle counts eliminated
On total 2009 inventory valuation of $6,157,684, negative variance was only $1,345.00

COMPANY

Management at the Ann Arbor, Michigan scrapbook, craft and hobby products company Colorbök, Inc. were at a critical decision point in early 2008 as they contemplated the increasing costs and complexity of the business. The company designs and specifies products in Michigan for manufacture by various sources in China and import to the U.S.

Distribution was increasingly costly and management had undertaken a review to determine just what their distribution strategy ought to be: continue with its own distribution operations or outsource it. Colorbök’s strength is its creativity and design process, not in the distribution and warehousing of goods, and one thing was apparent: although its distribution center in Rancho Cucamonga, California was less than three years old, it was top-heavy with both process and personnel.

Nevertheless, reluctant to turn over control of this vital logistics activity to outsiders, Colorbök opted for retaining it as a core activity as long as it could find ways to reduce costs while still maintaining the level of customer service demanded by the mass retail industry.

TECHNOLOGY FACTORS

A key element became the acquisition of a warehouse management system that could integrate readily with the company’s Microsoft Dynamics GP ERP software to eliminate cumbersome paper-based processes and streamline distribution center operations. Under the leadership of IT Director Scott Genereaux, Colorbök selected Accellos One Warehouse, immediately impacting virtually all aspects of its warehousing operations and quickly generating operating cost savings.

In Colorbök’s network environment, there are no servers located at the California Distribution Center but instead, Dynamics and Accellos One Warehouse applications servers are co-located by the Ann Arbor services firm Online Technologies, Inc. In-house computing resources are assigned mainly to the high-volume data requirements of the company’s design operations. With all warehouse management and Dynamics GP transactions between Ann Arbor and Rancho Cucamonga conducted over the company’s wide area network, no additional infrastructure costs were needed at the distribution center.

CREATIVITY AND COMMERCE

Colorbök originated in 1984 with the introduction of Alpha Notes, notepads that were die-cut into alphabet shapes. The product became an instant success and Colorbök quickly won a reputation as a stationery company noted for originality, innovation and creativity. Building on that early success, the company’s sales have continued to grow tremendously in both proprietary product lines such as Cloud 9 Design, Heidi Grace Design, and well-recognized licensed brands such as Crayola, Peanuts, Laura Ashley and Build-A-Bear.

Because of the China connection and ever increasing freight costs, Colorbök had relocated its receiving and distribution operations to the West Coast in 2005 to avoid trucking the containerized product nearly 2,000 miles from ports there to the Midwest. Much of its merchandise moves in relatively large shipments to major retailers like Costco, K-Mart, Target, Walgreen’s and Wal-Mart; specialty stores like Toys-R-Us; and crafts chains like Michael’s and JoAnn but the customer base also includes numerous smaller, independent outlets with correspondingly smaller orders that also must be accommodated.

The West Coast distribution center occupies three-quarters of a city block in Rancho Cucamonga, a foothill community some 55 miles east of Los Angeles. It is a commodious structure: more than 180,000 square feet, with a ceiling height of 31 feet yielding total storage area of more than 5,600,000 cubic feet. The warehouse runs two shifts with a regular staff of 44 employees, pulling from temporary pool of about 45 more as needed. Managing a constantly changing inventory of from 4,000-7,000 SKUs using the purely paper transaction processes of its Microsoft Dynamics GP enterprise software was becoming prohibitive in terms of both cost and performance.

DESIGN AND PRODUCTION

Typically, everything begins with the 30-member design staff in Ann Arbor, where the focus is on developing and designing “products that people actually want to buy,” according to IT Director Genereaux. The product development process is an ongoing one with frequent new product launches and a constant rotation of new items in and old items out, creating a challenging SKU-tracking process. For example, the 2008 inventory count showed some 6,800 SKUs, while the 2009 count dropped to a little over 4,000.

When product specifications arrive in China, the merchandise is sourced to a broad selection of manufacturers, with Colorbök’s Shenzhen staff maintaining close control over production, quality and shipping schedules. The finished product moves with precision via container shipments managed and tracked until received by their California Distribution Center by the Container Management Dynamics GP add-on, developed by an Accellos partner.

NEED FOR A NEW SOLUTION

Pre-Accellos, the Rancho Cucamonga warehouse was loosely zoned and merchandise was put away on a space-available basis. Every activity was performed with paper forms, usually commencing with the inbound receiving documents being matched to Excel based tracking documents. Records were hand-keyed into the software. Pick lists and labels were manually printed and distributed. Besides the delays and error possibilities endemic to paper-driven processes, personnel requirements were high and costs continued to mount.

When it acquired Microsoft Dynamics GP in December 2004, Colorbök also acquired Accellos' EDI program called vSync. vSync bolted on to Microsoft Dynamics to accept incoming EDI orders, translate them and insert them into the Dynamics software.

In filling orders, warehouse supervisors assigned the pick lists and labels to floor operators who retrieved the goods and applied the labels. As inventory was picked for an order, the floor operator would record on the pick list the quantity picked and any shortages encountered, with all quantities defined in each units. Later, the pick lists were passed on to data entry personnel who manually entered the information into Dynamics GP. Replenishment was based solely on observation, so supervisors needed constantly to cruise the huge warehouse floor to check for empty or delinquent bins.

SECOND LOOK

“We had established the California distribution center in 2005 and achieved major efficiencies in doing so,” Genereaux says. “But now we were taking a second look. It became apparent that we had a lot of built-in costs that were severely impacting our customer service and profitability.”

The company examined several solutions, discounting “Tier One” solutions early on because of their cost. In the mid-tier, management considered three competitors, one of them Accellos One Warehouse, which was presented by consultant and Accellos partner WMSI, Inc. Because Genereaux, Director of Distribution Kit Christensen and Inventory Control Manager Tony Carranza had performed an extensive analysis of the distribution operations, they had a solid understanding of what was needed in terms of both performance and ROI.

“We had three basic criteria,” Genereaux says. “They were cost, features and functionality, and ease of implementation. Accellos One Warehouse fell nicely into our affordability range. It satisfied the 80-20 rule, meaning that it met 80 percent of our requirements out of the box. It was already interfaced to our Microsoft Dynamics GP software, so the implementation process would be limited to incorporating its functionality into our operating methods and procedures.”

ACCELLOS ONE WAREHOUSE

Accellos One WMS is a scalable and flexible real-time warehouse management software system that streamlines operations and inventory management through the use of automated paper-free processes and radio frequency (RF) communications. With these technologies, it tracks stock into, out of and within warehouses, streamlining and verifying processes with each movement.

For inbound product, it facilitates receiving up to full containers and coordinates the breakdown and putaway activities. For picking and shipping, it facilitates order receipt and fulfillment through wireless RF terminals, customer compliant label generation and real-time integration back to Dynamics GP. It is all manageable through a web-based wave planning console that keeps track of orders and their status throughout the distribution process.

When Colorbök acquired the system, WSMI technicians supported its implementation, assisted with the necessary warehouse modifications and integrated its proprietary Shipping Live system to facilitate documentation and carrier selection for outbound loads.

Where previously inventory was stored on a space-available basis, the warehouse was now mapped into zones that were virtualized within the software, which now indicates locations of default bins for each product identification code. The warehouse employs five to seven levels of shelving, with the bottom two designated as pickable bins. The bins are set up to accommodate various size quantities of a given SKU, ranging from case packs of up to 48 individual units down to single units. The upper shelves hold replenishment stock and if they are full, the stock is placed in overflow positions organized to simplify replenishment of nearby product locations.

WORKFLOW

Colorbök deploys a battery of as many as 35 wireless handheld scanners in the distribution center. These scanners communicate remotely with the Accellos One Warehouse inventory files at the Ann Arbor host site, continuously sending and receiving new information with each transaction.

When containers of product arrive, their contents have already been recorded in Microsoft Dynamics via the Container Management application, and all that remains is for the inbound shipments to be confirmed and moved to their respective locations in the warehouse. Warehouse personnel scan the container labels, relaying the information to Accellos One Warehouse, which in turn records the products’ bin locations. Customer orders normally allow three to seven days of lead time, giving Colorbök time to confirm whether product is available or short and to notify the customer of any potential problems. The web-based management portal of Accellos One allows Colorbök management to view, prioritize and plan order fulfillment scheduling in real time by looking at all order details simultaneously.

PICKING AND SHIPPING

Supervisors first allocate the product to be picked in Accellos One Warehouse and then instruct the software to wave the orders. The software will not execute the wave if it cannot confirm that product is actually in one or more pickable bins, and if it is not, an automatic replenishment order is generated to allow inventory personal to replenish picking bins using the RF terminals.

Pickers are directed to the proper bins via their RF guns. Most of the product is shipped with customer-compliant labels that are printed as the product is waved. When the waved orders are sent to the floor to be picked, the labels accompany the pickers, ready to be applied as they are assembled for the order. In this manner, the product is only touched once during the entire fulfillment and shipping process.

When orders are ready to ship, Colorbök calls the customers, many of whom schedule preferred carriers. If no preferred carrier is designated, Colorbök assigns one through Shipping Live.

IMPACT

From go-live in October 2008, the impact of the new warehouse management software was swift. No impact was recorded in October, but strong positive signals emerged in November and December showed hard savings of almost $21,000. Within a few weeks after the first realized savings, Colorbök President and CEO Chuck McGonigle shared monthly tracking results with the board of directors: “On average we are enjoying a $25,000 monthly reduction in costs,” he stated. “In 2007 CALRC (the California facility) head-count peaked at 115 people. Today we have 48 hourly workers in CALRC and Kit Christensen, Director of Distribution, has been challenged this year not to increase above 60 people during peak shipping months.”

Annual inventory normally took seven to eight days, with costs further amplified by delayed or lost revenue since there could be no product shipments during the inventory period. Because Accellos One Warehouse automatically maintains a running inventory, periodic cycle counts have been eliminated.

According to Christensen, the paperless, automated environment enabled him and his staff to complete the December 2009 annual inventory of more than 800,000 cases in only one and one-half days at a labor cost of $15,745.80, achieving 98.978-percent accuracy. In contrast, the 2006 physical inventory took five days, cost $60,276.76 in labor and achieved a final accuracy of 96 percent.

On a total 2009 inventory valuation of $6,157,684, there was a negative variance of only $1,345.00.

The overall cost of the warehouse management reengineering project was under $330,000 and calculations for calendar 2009 indicated total savings of nearly $435,000 for a 132.2-percent return on investment in a single year.

“This has been a hugely successful undertaking,” Genereaux says, “and it is one that will continue to support profitability for the company for many years to come.”