Crateamp;Barrel: The Sustainable distribution trendsetter

Crate and Barrel has always been a trendsetter. Founded in Chicago in the 1960s, the privately held home furnishings retailer set a new standard for contemporary and affordable housewares.

Today, Crate and Barrel is setting a new standard for something we'll call sustainable distribution. Last June, the retailer opened the largest industrial facility in the country to achieve Gold designation from the U.S. Green Building Council's Leadership in Energy and Environmental Design—or LEED—certification program.

The campus in Tracy, Calif., has 1.2 million square feet of distribution space spread across two buildings: One is an 800,000-square-foot facility that handles big-ticket items like furniture, while the other is a 400,000-square-foot building set up to distribute smaller housewares items. There is room to expand the distribution space to 2 million square feet on the current site if business dictates.

The campus was also designed to be Crate and Barrel's West Coast break-bulk operation. “All of our imports from Asia come through here and are then sent on to other distribution operations in Naperville, Ill., and Cranbury, N.J., based on customer demand,&#8#8221; says John J. Ling, vice president of supply chain management and logistics for the Northbrook, Ill.,-based company. In addition to the store replenishment and break-bulk processes that are up and running today, Crate and Barrel plans to implement a direct-to-consumer fulfillment operation out of the smaller of the two buildings later this year.

That operation will use state-of-the-art automated fulfillment technology from Kiva Systems (781-221-4640, http://www.kivasystems.com). But until that happens, this is not so much a materials handling story: about 20% of the product received in Tracy is crossdocked upon receipt. The rest is palletized, stored in racks and moved by lift trucks. That is pretty conventional. Rather, the new facility illustrates how Crate and Barrel's business and sustainability objectives were fused in the design of a green distribution center.

First, the DC was designed and constructed in a sustainable manner that minimizes Crate and Barrel's impact on the environment. On that score, Ling believes they have set the standard for sustainable distribution. “Over the last five years, we have taken on a mission to be a more sustainable company and a better corporate citizen,” says Ling. “It is not only something we believe in, but what our customers expect from us.”

While appealing to its customers and supporting its broader sustainability goals,&nbsnbsp; Crate and Barrel's use of a green design delivered a number of environmental benefits, including:

• more than 95% of the waste from the construction process was diverted away from landfills and recycled;
• a reduced development footprint that exceeded the local zoning board's open space requirement by 25%;
• more than a 34% reduction in ongoing water consumption compared to a traditional warehouse design;
• at least 35% of the total energy usage will be from renewable sources, and
• facility lighting uses motion-controlled florescent fixtures and the use of natural light from the extensive addition of skylights.

The facility was also constructed from environmentally sustainable materials:

• more than 40% of the building materials were produced regionally, reducing the carbon footprint associated with transporting those building materials;
• building materials were manufactured with more than 45% recycled content, and
• more than 50% of the wood products used in construction were certified sustainable by the Forest Stewardship Council (FSC).

Sustainability, however, is only half the equation in Tracy. The new campus also enables Crate and Barrel's broader supply chain strategy.

“It's harder and harder to differentiate yourself as a retailer solely on merchandise uniqueness because the world is becoming so transparent,” says Ling. “Success often comes down to who can find the best product and get it to market the quickest and at the best value. Our supply chain helps us accomplish that and Tracy is an important link in our distribution network.”

Optimizing the supply chain

According to company history, Crate and Barrel was founded in 1962 by Gordon and Carole Segal after the Chicago couple returned from a honeymoon in Europe where they were taken with the contemporary, but affordable housewares they saw during their travels. To set up shop, they leased an abandoned elevator factory in Chicago and purchased product directly from glassblowers, ceramicists and from factories making French copper pots and simple white bistro dinnerware. The first store opened with one employee and no cash register. With no money to buy fixtures, they displayed the merchandise on shipping crates and barrels— hence the name.

Nearly 50 years later, the company has grown to 7,500 employees and more than 170 stores in 16 North American markets. Two franchise stores in Dubai will open in spring of 2010. In addition to its stores, the company manages a direct-to-consumer catalog and Internet business that rings up more than $300 million a year in sales—about 25% of the business.

Ling joined the company in the late 1990s. He and CIO Ed Rennemann were given marching orders to create a distribution network and systems infrastructure to support the company's growth. Crate and Barrel had already outgrown the capacity of an existing Chicago warehouse and was storing merchandise at several local 3PLs. At the same time, business was growing faster on the East and West Coasts than in other regions of the country.

The first step was to build a new 800,000-square-foot campus in Naperville, Ill., in 1998. It was designed with one large facility to handle store replenishment for the Midwest and break-bulk shipments from overseas and a smaller facility to handle large-ticket items and home delivery operations. This facility was expanded to 1.2 million square feet when the direct-to-consumer fulfillment operation was added and became the model for future designs.

Six years ago, a similar campus went up in Cranbury, N.J., with a large facility to handle break-bulk shipments from Europe and store replenishment for the East Coast. This was followed by an adjoining smaller facility to handle big-ticket merchandise and home delivery operations. This campus was expanded to 950,000 total square feet in 2008 to support direct-to-consumer sales on the East Coast.

A third 400,000-square-foot facility is located in the heart of the furniture industry in Lincolnton, N.C. From that location, Crate and Barrel consolidates upholstered furniture from nearby manufacturers and feeds the rest of the distribution network on a just-in-time basis to fill customer orders.

Crate and Barrel also receives imported furniture from other sources and stores them in the DC for further distribution based on demand. Crate and Barrel also maintains a network of 20-plus smaller delivery hubs that receive and crossdock deluxe furniture for home delivery. The network of hub locations also allows Crate and Barrel to determine the most cost effective and efficient way to make a delivery, no matter where the sale is made.

“If you live in Indiana, order furniture while you're on vacation in Florida and want it shipped to your summer home in Michigan, we'll figure out the shortest distance and the shortest order cycle time to complete the delivery,” says Ling.

As both imports from Asia and business on the West Coast grew, Crate and Barrel began to look for a location for a West Coast distribution campus similar to Naperville and Cranbury.

“We had two older and smaller facilities near Oakland where the leases were expiring,” Ling says. While the company has more business in Southern California, Crate and Barrel was hesitant to open a facility in the Los Angeles region.

“We bring in about 7,000 containers a year, where some of the big box retailers can bring in more than 20,000 containers a month,” Ling says. “We didn't want to be a small fish in a big pond and have our merchandise sit on a ship waiting to be unloaded.”

Instead, Crate and Barrel chose a site in Tracy, which is close to the Port in Oakland, where it is a bigger player and can also ship to the rest of the country.

Sustainable distribution

In addition to a strategic location, Tracy provided Crate and Barrel with the opportunity to combine its supply chain efforts with its sustainability initiatives.

“Over the past five years, we have increased our focus on becoming a more sustainable company and a better corporate citizen,” says Ling. That mission has been driven by a combination of altruism and customer demand. “We cater to a very sophisticated, educated and demanding customer,” Ling says. “As an example, they are asking us important questions about where the wood in our furniture comes from and how the furniture is made.”

The company's efforts began with the way it sources the raw materials that go into many of its products. For instance, Crate and Barrel was the first national U.S. retailer to partner with The Tropical Forest Trust (TFT), an international organization that works with local tree farmers and harvesters to help them develop more sustainable practices with the goal of achieving certification from the Forest Stewardship Council (FSC).

As the company expanded its green initiatives, it realized that the supply chain plays a critical role. Crate and Barrel looked for ways to reduce the packaging and dunnage used in its inbound and outbound shipments and to incorporate recycled content wherever possible. “Today, we strive to ensure that everything we buy has some recycled content or FSC certification,” Ling says. “That includes the paper we use for our catalogs.”

Building a green distribution center was the next logical step. Working with ProLogis (800-566-2706, http://www.prologis.com) on a design for the Tracy facility, Crate and Barrel realized they could almost get basic LEED certification simply as a result of California's strict environmental laws. So, to get to the next level, achieving Gold certification became the goal.

The two companies hired the M.E. Group (http://www.megroup.com), a green design consultant, to identify areas that could make a difference. “The M.E. Group was part of every design meeting we had and they gave us ideas and direction for every aspect of the building design,” Ling says. “That allowed us to be thoughtful and smart about the design and construction process without affecting the overall cost of the building.”

One example: Crate and Barrel chose not to install solar power until they see how the regulatory environment and technology develops. However, because one of their goals is to get 35% of the building's electricity from alternative sources of energy, they did strengthen the roof trusses so they can implement solar at a later date.

Other initiatives included recycling more than 95% of the construction site waste, and installing a sophisticated lighting system with motion detectors, timers and skylights to help achieve a 37% reduction in energy usage.

But perhaps one of the most important lessons from the project is that building a sustainable facility did not require Crate and Barrel to alter its usual business objectives for a distribution center. “This is an $80 million facility,” Ling adds. “But we did not have to change our ROI or the impact the new operation has on our distribution network to do things that also support our core beliefs.”