For the distribution operations of the visible publicly traded company, "protecting that house" has taken on a whole new meaning: The company's recent implementation of sophisticated warehouse technologies and strategies are a direct response to mammoth demand and volume growth that shows no signs of slowdown from the current economic downturn.
Baltimore-headquartered Under Armour, the performance apparel brand lauded for its innovation in the textile industry, was founded in 1996 on founder Kevin Plank's vision to develop form-fitting performance moisture wicking apparel; its marketing and sales success drew investors and massive interest and the company became publicly traded in 2005; it reported revenues of $725 million for its most recent fiscal year.
Under Armour, under CEO Plank, continues to underscore its "brand authenticity," a main factor that it attributes to its dazzling growth and market popularity. But the company has now moved to become a broader supplier of sportswear and casual apparel and a wider range of accessories (including even sunglasses); it began offering footwear in 2006 and launched its performance running shoes this year to much fanfare.
Growth poses daunting fulfillment challenges
On the distribution side, that growing demand for all things Under Armour has brought evident challenges.
"From our perspective the biggest one is SKU growth," says Eric Olsson, Under Armour's director of distribution systems. "It has just been enormous."
Exponentially growing volume demands, over the past couple of years in particular, highlight the daunting fulfillment challenge: During 2007 at peak summer seasonal demand Under Armour's distribution operations were servicing a maximum of 4,500 SKUs at any given time; by last year, that count had skyrocketed to more than 20,000 SKUs and the number continues to grow.
Still, Olsson cites the distribution operations' unwavering commitment to supporting the company's growth strategy. "As a company we're doing a lot as we mature in terms of looking at SKU productivity and trying to make sure that we're growing in the right way, not growing just for growth's sake," he says.
"At the same time we don't want to constrain the business and [tell the company] 'don't come up with new SKUs' only because it's a challenge on the distribution side. Our job has been to try to understand the direction on the front end, where we want to go as a company, and then make sure we can keep up with it. That's very important to us."
Under Armour's main distribution operations in Baltimore entail two nearby warehouses (one that the company established earlier this decade, the other in 2007), with each just over 300,000 square feet.
Managing its supply chain to accommodate the growth remains an ongoing challenge. Says Olsson: "We visit warehouses [from other companies] and see what they've done, and hear: 'We've just implemented this capital project and we expect this to last us for the next 10 years.' [At Under Armour,] we're lucky if we'll see a year and a half."
Still, it is apparent that there is an elaborate expansion strategy in place: To keep up, Olsson says, Under Armour is in the process of growing its 3PL operations on the West Coast, out of Long Beach, CA, a move that he says helps the company as it sources footwear from Asia to the West Coast, and frees the company's operations in Baltimore to distribute apparel.
Serving the Under Armour "tail"
Beyond the sheer volume demands, Under Armour must also contend with unique delivery challenges within that growing SKU count.
Olsson cites apparel distribution data from one particular month, in which 90 percent of Under Armour's order volume was derived from 5,100 SKUs, yet the remaining 10 percent of volume amassed 19,500 SKUs. "That type of result is fairly true for us in general in any given month," he says.
"Our leadership on the e-commerce side really likes for us to service the tail," Olsson adds in referring to the latter group, "because the inventory is out there. We want to do that, but there's a certain cost to that, and that is part of our challenge."
Dynamics unique to Under Armour largely explain the interesting discrepancies among SKUs: As Olsson points out, the company's simple-styled white and black compression t-shirts and underwear that helped launch Under Armour to its early market prominence are "still the bread and butter of [the] business," often comprising orders that fall in that smaller 5,100 SKU category.
As for the "tail," it includes many seasonal items. Additionally, the company continues serving an increasingly broad customer base of men and women athletes and a more diverse array of channels. They include Under Armour's popular e-commerce site, big box retailers such as Dick's Sporting Goods and its own growing base of Under Armour brand retail operations, with several new locations sprouting up last year.
"Typically our key strategic business is wholesale, which tends to have a much smaller SKU set in terms of orders," Olsson said. "Where we tend to get that broad set of SKUs is across all of those direct-to-consumer channels or even just our independent business because they have a tendency to be a little more niche and not so focused in terms of the order."
Beyond the SKU breakdown, other distribution challenges abound for Under Armour. Team and league orders often require that the order be filled completely from the outset - as Olsson points out, when a softball squad is ordering a set of uniforms the order must be complete so the catcher, for instance, is accounted for along with the rest of the team.
Identifying the fast movers
Factors including the increasingly heightened constraints on Under Armour's physical warehouse space (brought about by the escalating growth), the company's rapidly changing assortment ("it's almost like we're a different business every six months because we're changing so much," Olsson says), and sometimes unpredictable consumer demand for its trendier products all influenced the company to seek out a solution to solve its distribution challenges.
Accordingly, the company recently chose to upgrade to a new warehouse management system (WMS) and it also decided to add a slotting optimization tool to help it scientifically determine the best picking profile for its Baltimore distribution operations. The slotting optimization technology was selected to enable Under Armour to make timely intelligent decisions, especially as order trends change.
Slotting optimization (also known as dynamic slotting) uses data on each product's physical characteristics and order frequency to calculate a relative value for each position its slot might inhabit within the facility. It then aggregates those values for all products, and compares millions of move combinations against user-configured strategies to determine the single optimal layout within the warehouse.
As input data changes, such as seasonal ordering trends or new or discontinued products, slotting optimization can revise its recommendations incrementally, to optimize warehouse efficiency without costly overhauls. In addition, slotting optimization is intended to enhance worker safety and mitigate risks, especially as stock is organized as efficiently as possible.
After evaluating all its warehouse needs, Under Armour recently selected new WMS and slotting optimization solutions simultaneously, both from supply chain solutions provider Manhattan Associates.
An interesting indication of the value that Under Armour places on slotting optimization technology was that it implemented and began using the Manhattan Associates' slotting tool first before going live with the vendor's WMS solution in April 2008. (From a time standpoint, WMS was strategically implemented just prior to Under Armour's peak demand season.)
Olsson notes that Manhattan Associates' proprietary slotting optimization technology meets the Under Armour challenge of identifying the "fast-moving" SKUs and ensures the company has the right technology applied to service those. "We can then deal with the smaller moving (SKUs) with a less expensive (warehouse) technology," says Olsson.
With Under Armour utilizing various picking technologies, the Manhattan Associates slotting optimization solution helps ensure that the company's SKUs identified as fast moving are slotted in the right locations of the warehouse. Olsson says a pick-to-light system is the company's designated picking methodology for fast-moving SKUs, followed by Radio Frequency (RF) picking for medium-velocity items. The slowest-moving SKUs are profiled under a reserve rack area.
To achieve even further efficiencies, Under Armour's pick-to-light area was recently converted from a "pick and pass" to a "zone picking" system, a strategy implemented by Olsson and staff to eliminate the need for an operator to touch every order.
Taking away the guesswork
"Of course, your fastest moving SKUs do have a tendency to change," Olsson notes. "There's changeover from season to season. It's based on new product launches. There are all kinds of reasons the profile changes." Slotting optimization replaces the need to generate manual reports and determine from those where to move SKUs. "Instead of a human having to make that decision, the slotting tool does it for us," he says.
Upon implementation of the slotting optimization solution (the software is Windows SQL Server based), Under Armour at first deployed a phased approach to slotting before graduating to the increasing levels of sophistication that the tool allows.
These days Under Armour is innovatively using slotting optimization to move as swiftly as possible within one of its three allocated areas: "Not only do we have the slow moving, medium and fast moving SKUs slotted properly," Olsson says, "but when I go to pick those slow moving SKUs, I can now try to determine how I can arrange them to be as close as possible so when I pick that order, it's as efficient and as quick as possible. It's fascinating stuff. It really is interesting analysis."
Olsson, alluding to slotting optimization's ROI for Under Armour, says the technology "is allowing us to most effectively work with the resources we have. We're spending our money wisely. Slotting optimization is enabling us to take advantage of the tools at our disposal first - before we have to invest more capital into the building."
Judging from its dynamic warehouse strategy, it is clear that Under Armour is, indeed, protecting that house.
Michael D. Cole can be reached at [email protected].
Headquarters: Baltimore, Maryland
Revenue: $725.2 million FY 2008
2009 Apparel Top 50: Ranked No. 22 in Profitability by Apparel (July 2009)