The future of retail operations

In 2019, American Eagle Outfitters (AEO) was running out of a capacity. Faced with three options, build a new distribution center, set up an Edge network (an open, shared network and collaborative platform), or do both, the retailer chose to develop a network that would bring their products closer to customers, reduce their reliance on national carriers, and diversify its labor poll. "Our vision was to build a supply chain model for the future, one that decentralizes our logistics operations and creates a shared supply chain network," explained Shekar Natarajan, chief supply chain officer at AEO, during an educational session at CSCMP's EDGE Conference. 

To start, the company focused on developing three key capabilities: Edge fulfillment, middle-mile optimization, and inventory service. AEO acquired Quiet Logistics and all its fulfillment centers, expanding the companies operations from two full-service distribution centers to 9 locations of various sizes throughout the U.S. This acquisition, in turn, increased the company's capacity of fulfillment and opened access to a larger carrier network.

The second capability AEO built centered around optimizing the middle-mile operations. This included inventory polling with other partners, creating sortation algorithms, and line-haul management. With retailers competing for limited resources (people, capacity, etc.), decentralizing its logistics operations helped AEO open and share resources across the physical and digital realm.

The third capability involved developing inventory services using machine learning and algorithms to bring together brand retail stores, brand warehouses, and the Quiet fulfillment centers. These services included assortment selection planning; placement, planning, and efficient inventory rebalancing; daily delivery and transfer operations; and unproductive inventory management.

 "The increase in capacity we now have in order to support the business—access to additional carriers, closer proximity to customers, and the diversified labor pool—the results from what we have built have been tremendous," said Rob Carroll, AEO senior vice president of corporate strategy and business development. The results: an increase in inventory productivity by 300 base points (BPS), the cost to ship a package to customers is $1 less than before, 80% reduction in our replenishment facilities with a 35% reduction in delivery times to customers.

With this new model, AEO believes that shared supply chain problems need shared solutions, that an open supply chain creates a marketplace that brings scale and collective optimization opportunities. What if the world of brands were sharing a supply chain network? Currently, AEO's network includes over 100 partners with access to 40 different carriers. What if purpose, planet, and profits were not at odds? With a shared retail network, "we'd have 90,000 less trucks on the road; $49 billion miles would be saved; $40 billion in operational savings; and a 30% reduction in our carbon footprint," says Natarajan. "This model is not only scalable, it is also sustainable."