Two years ago, the supply chain team at American Eagle Outfitters (AEO)—parent company of American Eagle and Aerie brands—developed a strategic initiative to create a supply chain for the future that would support company growth through a shift to a digital-led commerce model. “We wanted to diversify ourselves out of the complex and labor intensive in-store markets and try to get closer to the customer,” said Shekar Natarajan, AEO Inc.’s chief supply chain officer.
The idea was to take its traditional model with three distribution centers and turn it into an adaptable, multitiered network. This would increase productivity by moving stored inventor y from retail locations further upstream to allow the company to better place product where there is customer demand—either online or in stores. The team gave themselves five years to execute their plan.
Then, in 2020, the COVID-19 pandemic reduced capacity at stores and accelerated digital growth. The team had to act fast to bring their multitiered network up to speed to meet new demands on their supply chain. “Luckily, we already had industry-leading digital shopping capabilities and a supply chain strategy ready to be implemented,” Natarajan says. “Our five-year strategy to transform AEO’s supply chain became a near-term priority. It was the team’s rallying cry and the right answer for the long term, and for the present in the midst of the pandemic.”
The team quickly added four third-party fulfillment locations, set up dynamic carton allocation to distribution and fulfillment facilities, and applied data science models to reduce stored inventory in retail back rooms. They were able to accomplish all of this in just three months. “The results are showing up in amazing ways,” Natarajan says, pointing to the company’s historic first-quarter profitability.
Employee Innovations
Labor shortages and employee safety were two of the major issues facing AEO and the supply chain team. “It usually takes a company two to three years to ramp up a distribution center to full pace,” Natarajan says. Bringing four new facilities online during COVID would be extra challenging.
To address labor shortages head-on, the team created drive-through hiring events at distribution centers, shortening the hiring process from two weeks to one day. As a result, the company was able to make upwards of 50 job offers a day.
Inside distribution centers, AEO was among the first to employ safety measures such as on-site nurses and thermal imaging to monitor employees’ temperatures. And to keep up with demand, the company installed robots between workers to maintain social distance and increase distribution center capacity.
A Springboard for the Future
“The supply chain process improvements and innovation we put in place gives us a significant competitive advantage,” Natarajan says. Now, as the team perfects the network they’ve put in place over the last year, he says he looks forward to future innovations the strategy may give rise to. “I feel innovation is like a flywheel: when set in motion it self-perpetuates.”
Natarajan says that being recognized as one of Fast Company’s Best Workplaces for Innovators may have similar effects: “Not only does it validate the work that we’ve been doing, but it’s inspiring for our entire AEO team and will help to attract the` diverse talent and thinking we need throughout every business function to continue to transform and disrupt the industry.”
Source: Fast Company
