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Eagle Outfitters 2005

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									American Eagle Outfitters’ New DC Stands as a Model for
Combined Retail and Direct-to-Consumer Distribution
Supported by a seamless flow of state-of-the-art sortation, conveying and picking solutions by Dematic Corp.,
the company’s new Ottawa, Kansas 552,000-square-foot multi-use distribution center is capable of moving
25,000 SKUs and up to 300,000 items daily to meet the distribution needs of its three apparel business
divisions operating under one roof.

Within the fast moving apparel industry it is critical to keep product offerings in sync with seasonal demands and continually shifting
fashion tends. This poses unique challenges for those designing and operating distribution centers, particularly when multiple product
lines are being distributed to diverse audiences. Such is the case with American Eagle Outfitters’ (AE) new distribution center that
commenced operation in Ottawa, Kansas in May, 2007. This DC handles distribution for their recently launched Martin + Osa stores,
and rapidly growing direct-to-consumer e-commerce business. With logistics partners Dematic Corp., and Vargo Integrated Systems,
AE designed and implemented a super-streamlined, state-of-the-art automated facility to handle all distribution lines within one
operating system. At 552,000 square feet - and expandable to 720,000 - the new DC stands as a model showcase for optimized
efficiency in combined retail and direct-to-consumer distribution.

American Eagle Outfitters - based in Warrendale, PA with annual sales exceeding $2.7 billion - designs, markets and sells its own
brand of laidback clothing, targeting 15 to 25 year-olds. AE's collection includes standards like jeans and graphic T-shirts, as well as
accessories, outerwear, footwear, basics and swimwear. In 2006 alone, AE sold 6,500,000 pairs of women’s jeans. American Eagle
currently operates 835 stores in 50 states, the District of Columbia and Puerto Rico, and 73 AE stores in Canada. American Eagle also
operates AE.com, which offers additional sizes and styles of favorite AE merchandise and ships around the world. The American Eagle
brand also includes a new collection for the AE girl - Aerie - apparel designed to be comfortable and cozy, which is available in
American Eagle stores across the country and a growing number of Aerie stores.

The company recently introduced Martin + Osa, a new sportswear concept targeting 25 to 40 year-old women and men. Martin + Osa
carries apparel, accessories and footwear, centering around a theme of fun sportswear, and currently operates five stores.

AE opened their first store in 1977, and by 1999 the company had 400 retail outlets, with plans to open 50 new stores each year – a
target which AE has lived up to and exceeded. At that time AE’s only DC was in Warrendale, PA and had reached its capacity. In 2001
it opened a second DC in Ottawa, Kansas (not the current DC) to handle shipments west of the Mississippi, and in 2002 a third DC was
opened in Mississauga, Ontario for its Canadian stores. Anticipating more growth, in 2005 the company began looking for a scalable
warehouse logistics solution to accommodate not just its AE store additions, but its new retail marketing concepts - Martin + Osa,
AE.com and Aerie.

Vargo conducted an analysis of American Eagle’s needs and provided recommendations for the operational system design and the
equipment needed. Dematic then designed, built and installed the sortation, conveying and picking systems.


Designing a Multi-Use DC
“We spent a lot of time going around the country looking at distribution centers in the beginning,” says Michael Fostyk, Senior Vice
President of Logistics for American Eagle Outfitters. “We toured some of the best facilities for e-commerce, for example, and inspected
many material handling applications. We wanted to acquire a very comprehensive understanding of the resources available so we
could really design an outstanding DC to fit our requirements.”

“This new Ottawa, Kansas DC was intended to handle a number of different retail concepts of ours,” continues Fostyk. “Our AE stores
in the west U.S.; our rapidly expanding AE direct-to-consumers business; our new Martin + Osa stores; and our new Aerie product line,
which is marketed through ‘shops’ within our AE stores, connecting shops adjacent to our stores, and free-standing units. The DC also
has to deal with potential new retail concepts as well. We wanted to have distribution for multiple business functions within the same
four walls, which required a different mindset and approach for fulfillment.”

“We purchased property across the street from our existing original DC in Ottawa, Kansas,” Fostyk says. “The plan was to build the new
DC there and connect it to the existing DC through a bridge tunnel with conveyors going both ways. In 2005, we began design of the
new building, as well as bringing in Vargo as systems integrator, and Dematic to design and build the sortation, conveying and picking
systems. The building design and material handling design were developed simultaneously to bring about a completely compatible DC
solution.”

“Dematic was selected because it has designed, installed and serviced 95 percent of our material handling equipment in all three of our
DCs,” continues Fostyk. “We were pleased with the work Dematic had performed for us, the quality of the company’s equipment and
the reliability of its service.”
This solution was designed to incorporate a number of material handling procedures for both retail and direct-to-consumer product
handling, including cross-docking, full-case shipping, break-cases, and warehouse storage. The Ottawa DC is a highly automated, very
computerized system, with cutting-edge WMS and a total of thirty computer servers for running just the DC operation.


Floor Sets & Store Replenishment
Approximately 70 percent of AE’ product is handled as flow-through, the remainder is warehoused and then picked to supply their e-
commerce business and to replenish the retail stores. The majority of AE’s retail store product comes in as floor sets, where brand new
merchandise will be brought in, about to debut in the stores, in a variety of sizes, designs and colors. A floor set may consist of a
seasonal package, or a sweater package or jeans package. AE produces eleven significant floor sets annually for its stores, and has
the procedure honed down to a fine art - transforming the stores literally overnight to an entire new theme and product selection.

Before any shipments actually arrive at the warehouse, AE receives an advanced shipping notice (ASN) detailing all cases in the
shipment. With floor sets, these shipments are designated for specific retail stores, and are cross-docked directly to shipping. Floor sets
for all of its stores are received at their DC and cross-docked, and can be shipped out within an hour.

After the shipping of the floor sets, additional solid-size units come into the warehouse. They are then released to the stores - as the
product sells AE continues to replenish it. Every size, color and style that is sold up to Sunday in each week will be back in the stores
by the following Friday. The DC is designed to just keep moving the goods in and out.


High-Speed Sortation
Aside from the flow-through to AE stores, all other product that comes into the DC is funneled through a Dematic high-speed RS 200
receiving sorter - this includes product for Aerie, Martin + Osa and AE direct - and is again funneled through a Dematic high-speed RS
200 shipping sorter when leaving the DC. But, between these two points all the product is being stored, picked and sorted in
compartmentalized areas of the DC for each of the above divisions.

These two receiving and shipping sorters, plus four additional high-speed sortation units built by Dematic and used throughout the
facility, are a cornerstone of the DC’s speed and versatility. State-of-the-art cross-belt sorters, shoe sorters and tilt-tray sorters are used
to direct product throughout the three business units, connected by seven miles of conveyor system, also designed by Dematic. Using
this set up, the Ottawa DC can handle over 25,000 product SKUs running seamlessly at up to 300,000 items a day, on two shifts,
through this system.

With the AE direct business, there is also an additional software optimization system in place which coordinates the picking process
with the sortation chute assignments to maximize the timing of the conveyor, effectively ensuring that all pieces of an order arrive in
close time proximity to be packed. The Dematic cross-belt units provide precision sortation by using mini-belts on each carrier, which in
turn allows for tighter centerlines from chute to chute.

“AE believes in maintaining minimal inventory, keeping their products flowing through the system and out,” says Tom Main, Vice
President of Sales for Vargo. “We know we have to turn every complete shipping chute that has an order in it every six minutes. We
have to have ten orders an hour going out of every one of those chutes to meet American Eagle’s peak demand. So, we had to design
the system to ensure that every piece to an order arrives at a converge point to be packed within one minute of each other. Considering
there could be thousands of order items in the system at a given time period, this is quite a smooth operation.”


Picking & Automated Zone Routing
Dematic also designed and integrated state-of-the-art picking technology into the DC, incorporating multiple picking technologies and
automated pick zone routing. The AE direct section can handle roughly 25,000 SKUs of total inventory. This unit has two pick modules,
each 420 feet long and four levels high, using an optimization picking program developed by Dematic. There is another module for
Martin + Osa, also using a put-to-light packing program by Dematic. The AE and Aerie business pick module services the company’s
retail stores, and uses pick-to-voice and zone routing technology. Hand-held RF units are also being used throughout all areas.

“The picking areas are set up separately for each of the business units,” says Main. “Multiple systems are being used including pick-to-
light, pick-to-voice and hand-held RF. Each of the business units has multi-level, rack-supported pick modules, 600 feet in length. Each
module has a conveyor going down the middle - some have pallets flow-feeding them, and some have parts flow-feeding. Up to 6,200
items can be picked per hour.”

With the Dematic pick-to-light system, the operator scans a bar-coded address label attached to a product, carton or tote box. Digital
displays located in front of each pick bin tell the operator which SKUs to pick and how many. By providing eyes-free, hands-free
operation, voice-pick workers are able to hear instructions without having to look down at a hand-held computer screen display or
fumble with a pack of picking labels.

The picking modules are supplied by an empty-tote sorter which sorts the totes to supply the picking personnel. There is also a full-tote
distribution system which takes the totes to the induction system.
The hand-held RF devices offer a very high level of picking accuracy. The operator is directed to a location where they must scan a
barcode to confirm they are in the correct location, before they are given the actual picking instructions.

The company is functioning somewhat differently with active pick locations, particularly in its direct business. Most of its pick locations
are active pick locations, whether picking for a store or picking for a customer. Most DCs have a limited amount of active pick locations,
and put excess inventory into reserve storage. When their active locations deplete, they have to pull product out more frequently. This
additional time and labor is reduced with American Eagle Outfitters’ DC.

Automated pick zone routing was used for the Aerie order fulfillment. The zone routing will take an order, scan the tote and transport it
to where the next pick is required. It first takes the tote to the centerline conveyor and transfers it to the next designated pick zone.
Once it is picked, it is then sent to the next zone, automatically, and to as many pick zones as required to fill that order. This is very
sophisticated technology and quite unique in the apparel industry.


Waveless Picking
For its direct business, AE is using waveless picking - a solution to the stopping and starting when picking by waves. When a new order
comes in, if it is designated to have priority over something that is already in the system, it puts a picking priority tote in front of those
with less priority.

“Basically, with standard waving, people will order goods up to a cut-off point, a certain time,” says Fostyk. “A DC will queue up at a
certain point in time, and maybe there are now a thousand orders that need to be picked, and they need to be shipped by a certain time
of the day. The wave handles those orders.”

“With the waveless picking system, orders are coming in real-time, they are jumping into this queue, and they are prioritized based on
how they are to be shipped,” Fostyk explains. “So you may start picking product at 8:00 in the morning. If a customer orders at 10:00
a.m. for the next day, then delivery of that order is prioritized and moved into the front, software-wise, to the people that are picking. In
the past, our pickers would start in the beginning of a row and work their way down the row - if another order came on that had priority
then they would have to go back to pick that product and get it down to the packing station. That is now all done smoothly and
seamlessly. The labor savings I am sure will prove to be considerable. We will also be able to provide better service times to our
customers, at a significantly lower cost.”

AE is constantly upgrading its distribution systems, using automation to minimize its inventory load and costs. Since 1993 its cost of
distribution, relative to sales, has consistently decreased every year.

Its new DC has been undergoing performance testing for the past several months before the planned May, 2007 go-live. All indications
are that this new DC will increase warehouse accuracy, speed up consumer order delivery, decrease labor hours, and stand as a model
system for mixed-use retail and direct-to-consumer distribution.




About Dematic: Based on a rich tradition of over 70 years of worldwide industry expertise in creating logistics results and more than 10,000
systems installed worldwide, Dematic Corp. is the world’s leading suppliers of logistics automation solutions, systems and service.
Beginning with Rapistan’s rich history from gravity conveyors to automated, modular conveyor and sortation solutions, Dematic now offers a full
range of engineered and highly configurable system solutions that optimize warehousing and distribution operations. With Dematic, companies can
reduce distribution costs, maximize overall logistics efficiencies, and increase the operating speed of their supply chain.
Dematic is a global company with operations in 22 countries around the world. Its North American headquarters is located in Grand Rapids,
Michigan. For genuine Rapistan conveyor system parts, or more Dematic information, visit www.dematic.us.

								
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