Grays Online chief information officer Stewart McGrath.

Ju Yeon Jung

Starting out as a traditional auctioneering company in the 1990s, the Gray Group’s first foray into the online market was taken with a sale of five laptops. The company now moves between 120,000 and 160,000 items per month and prides itself on its impeccable service standards. And those 160,000 items include a wide assortment of almost ‘anything and everything’, including mining equipment, trucks, IT gear, wine and spirits, electronics, furniture, home wares, toys, perfumes and jewellery.

The substantial growth of the company, however, has brought existing problems in its traditional warehousing methods to the surface. Late last year, after going on a steep learning curve, the company integrated a Manhattan warehouse management system to its internal auction system to streamline complex inventory management procedures. Equipped with the new system, the company is now planning to expand its vision of modernising the traditional auction industry.

Auction goes online
If you imagine a conventional auction scene, it goes something like this: people congregate in a room and start shouting out their bidding numbers, as an auctioneer leads the ‘going going gone’ process in his trademark monotonous and fast patter, with eyes rolling. How would you transfer that kind of vibrant physical activity to an online environment? A valid question indeed.

The company’s chief information officer Stewart McGrath says there have been few within the auction industry to migrate online.

“In around 2000, our managing director convinced the team that the move to online was an interesting thing to look into, that auctions could successfully be conducted online,” he says.

“What we had to deal with during the last couple of years was the fear of the unknown - whether something could be auctioned and sold online.”

The answer was ‘yes’, according to Mr McGrath, as GraysOnline, the company’s online platform, has been successfully operating and proved auction’s compatibility with the online environment. He says the success, which is expected to continue, not only changed the traditional auction model but also helped ‘break’ the fear of the unknown.

“Over time, we’ve been able to show people that you can actually get to a deeper and broader market base by going online. You can obviously improve the auction routine,” he says.

The company’s business is split into business sales, asset management and auction services, the latter of which consisting of two different groups: traditional auctions and online auctions, with both groups procuring and selling both industrial and consumer-type products.

While historically the goods that ended up in auctioneers’ warehouses were used, potentially carton or superficially damaged or about to reach the end of their lifecycle, an increasing number of vendors are now using GraysOnline as a primary route to market.

Mr McGrath says that in particular, the company’s reputation as Australia’s largest online wine seller entices wine vendors to utilise the website as the main sales channel, by directly targeting and advertising to GraysOnline users.

The company is still running an auction complex each in Brisbane and Melbourne, which still attract the buyers who enjoy the “challenge of getting in front of the auctioneer at the right time”. The Sydney facility, however, was closed last year due to declining participation by potential bidders.

“We just couldn’t see a sufficient number of buyers coming into the auction to go through all the traditional auction procedures,” he says. “We came to the conclusion that it is much more beneficial for the buyers, the vendors, and for us, to put the items online.”

Time for a change
In the traditional auction industry, warehouses are usually managed by auctioneers, heavily relying on their personal understanding of incoming items. Initially, it was also the approach that GraysOnline adopted to manage its then 2,500 sqm inventory facility.

“The people we were working with in the warehouse had experience as auctioneers and were sufficiently flexible to be able to work with a minimum of infrastructure. They would control the receiving and dispatching of the goods, go through the floor and know what and how to auction,” Mr McGrath says. “They’d know where everything is and what the items were.”

As the business grew, however, the company needed more space to store goods, which forced them to utilise two separate warehouses. The flexibility of auctioneers also started to reach its limitations. Items got lost and mistakes in shipping started to occur “at an intolerable level”, he says.

A quick solution seemed elusive as the management team had little information on scheduled shipments, warehouse operation procedures or space allocation.

He says: “We [the management team] took the view that we were growing quickly, and we believed that we would continue to grow. And if we were to continue to grow, there was no way that we were going to be able to maintain our sanity and control over the warehouse.

“The very first thing that we wanted was an inventory management system. We wanted to know where our stuff was on the shelf, rather than walking around trying to find something as closing time was getting near.”

Realising the need for a warehouse management system (WMS) was one thing. But figuring out how to utilise one was another.

“This[WMS] was all new to us. The people who were running the warehouse were auctioneers, and my background is in accounting. But we knew that there was no way we could expand without doing something,” he says.

The learning process started. The management team got together and sketched out the system requirements.

“We spent a lot of time trying to understand what the current processes of our business were and what we were trying to achieve with the project. It was about more than just a system, it involved the redesign of the warehouse infrastructure, new processes, and changed warehouse roles.

“From there, we learned a little bit about running warehouse management systems, and that it’s better to control the receiving and sending processes, as well as the warehouse inventory management,” he says.

Following the system specification process, the company closed its tender in June 2007, deciding to implement the Manhattan ILS system. The WMS itself, however, was not enough to complete the warehouse management puzzle.

Challenges turn into opportunities
Given the auction process and the consumer-oriented nature of the business, the company needed a high level of flexibility in its warehouse management system, especially to accommodate its unique receiving procedures and the comprehensive range of discrete stock.

When goods are received, they need to be processed according to their type. In the case of the auction industry, the process also includes photographing products and capturing their specifications as well as recording an external description.

Mr McGrath says: “For example, in the case of IT gear, we have to go through the additional process of wiping hard drives and reformatting operating systems.

“There’s a whole complexity around building a description of a product, which wouldn’t normally exist in a typical warehousing operation.”

The variety of stock keeping units (SKUs) adds another layer of intricacy to inventory management. Dealing with virtually any type of goods, the company receives an extensive range of unusual items. GraysOnline features over 50 product categories, from mining equipment to cosmetics.

According to Mr McGrath, the 150,000 items in the company’s warehouse are represented by around 70,000 SKUs.

Vendor information is another factor that increases the warehouse’s SKUs. Products could be of exactly the same type and located in exactly the same position on the shelf, but there are cases where they need to be recorded as separate SKUs as each vendor could have different requirements.

He explains: “We could potentially receive the same electronics product from two different vendors at the same time. They need to be different SKUs because vendor requirements of those items, such as scheduling returns, would be different.

“Also, if we receive a pallet of wine from a vendor at one time, that wine would be recorded as one SKU. But if we receive a pallet of a wine from a vendor this month and receive another one two months from now, the wine on the two pallets may have different SKUs, despite them being the same item, in order to satisfy our vendor’s requirements”

Incorporating these complexities into the Manhattan system did not seem feasible at first.

“That to me was quite disappointing in some respects, but through going on site visits and talking to other WMS customers, we learned that what we were being told was fair enough,” McGrath says.

“After all, warehouse management systems deal with warehouse management, not necessarily with the complexities that we [as an auction house] were after.”

The company, together with Manhattan, started to rework the interface between their systems to make the best use of the software within Grays’ environment. By modifying the internal auction system to integrate with the Manhattan solution, the required level of flexibility was achieved.

The complex procedures at the receiving end are taken care of through Grays’ auction system, and these are uploaded to the WMS to make the rest of the procedures able to run through standard warehouse management routines. Once items arrive, the necessary information is captured to construct a shipping notice. Upon the completion of the shipping notice, the information is sent through to the Manhattan system. All items are barcoded and put away, scanned and their location entered into the WMS.

Double the capacity, double the space
The new warehouse management system went live last October. While the project demanded a fair amount of internal and external resources, the outcomes were rewarding. Firstly, the company’s order picking capacity has doubled.

Mr McGrath says: “If we look at our wine side, prior to going live with the Manhattan system, we were running in the order of 1,100 cases picked per day, employing ten people. After the implementation, we are picking in the order of 2,000 to 2,100 cases of wine per day with nine people. There’s a significant saving there.”

The new system also helped the management team regain control over warehouse operations.

“Now, the management team has more information about the warehouse infrastructure, which made it easier for them to coordinate and organise the staff. Based on this information, they can decide on the right number of people, the right roles, and the right time for various warehouse operations,” he says.

With the help of the new system, the company’s dispatch time has been reduced to around one day.

“We target a 24-hour turnaround between the order dropping in the warehouse and the order getting out of the door. The majority of orders that go in to the warehouse come out on our carriers trucks on the same or the next day.”

The combination of in-house and warehouse systems choose the carrier and categorise the products in the warehouse to allow more efficient pick-up or delivery. Along with a number of smaller local couriers, the company is utilising Star Track, Australia Post and Allied Express, which carry large parcel-type items, small items and wine respectively. Often, freight can be consolidated in cases such as when a bidder purchases multiple items from the same sale. With some products, customers can also collect their goods from the warehouse in person.

The Grays Group is planning to relocate from three separate Sydney locations totalling 16,500 sqm to a 30,000 sqm facility in Homebush by the end of this year. The company will transfer the existing warehouse equipment to the new location, and with the operating space to be almost doubled, the robustness of the recently implemented WMS in the new environment will be put to the test.

“It may be a risk moving into the new and bigger space, but you have to take the risk at some point, considering the future growth of the business” Mr McGrath says. “How to optimise the move to the new facility is a jigsaw puzzle we have to put together. And we have the opportunity to use the space more efficiently.”

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