

Inside a Netflix Warehouse - michael_dorfman
http://www.chicagotribune.com/entertainment/chi-0804-netflixaug04,0,6424990.story

======
ShabbyDoo
Netflix has deployed the largest "legacy adapter layer" business process that
I can recall. This is a great example of how to start a business where the
end-state model is dependent on things outside of its scope of control (or
even influence).

When Netflix started in 1997, Most of its potential customers were using dial-
up, and there was no way Hollywood would have allowed digital distribution
anyway. So, they rode on top of some existing infrastructure: (1) the US mail
system, and (2) existing laws that allowed physical media movie rentals.

My wife and I have been Netflix subscribers for years. However, most of our
viewing is now done via the little Roku box, and physical disk delivery is of
a much secondary importance (their streaming media is better than DVD but not
as good as Blu-Ray).

Netflix is in this fantastic position of having a large customer base that can
shift from its relatively high marginal cost* business model to its new, much
lower marginal cost* * one.

* postage and manual labor.

* * I presume the movie studios are getting paid per-view?

~~~
wmf
About marginal cost, it's not obvious to me that postage both ways plus
sorting is more expensive than bandwidth plus royalties. Given that postage
gets more expensive and bandwidth gets cheaper, streaming should be cheaper at
some point if it isn't already.

~~~
ShabbyDoo
> bandwidth plus royalties

I think I've read that Netflix has an agreement with the studios where they
pay per shipment rather than per DVD. So, having 1000 of a new DVD on hand
costs little more than having only a few. The studios like it because it
aligns Netflix's cost structure with their own (basically fixed), so agency
costs are minimized.

I'm sure that Netflix pays less for bandwidth than Amazon sells theirs for.
So, we can presume streaming a two gig movie (probably much less in reality)
would cost much less than 30 cents -- postage one way for a DVD. Add in a few
more cents for data center, etc. and they're still better off relative to
postage.

~~~
ShabbyDoo
According to Mark Cuban, I am very wrong:

[http://blogmaverick.com/2009/08/05/the-ultimate-movie-
parado...](http://blogmaverick.com/2009/08/05/the-ultimate-movie-paradox-
redbox-vs-downloads/)

------
wallflower
The genius of their system is that most titles never ever get re-shelved
because the software is smart enough to do the match-making.

""It's a lot faster than a traditional shelving system where you have to run
around and marry up orders," says O'Handley. Dennys Torres, one of four
original operators when the hub opened, in January 2002, can clock more than
800 discs per hour. The Scan Tomorrows move faster, set aside by the handful.
Ship Discs get an envelope and a pair of stickers. "When we first started last
year," says Torres, "moving 4 boxes was a lot." He indicates sets of long,
narrow boxes filled with DVDs, some 320 discs in each. "We were taking long
breaks, two-hour lunches. Now, it's all work; everybody moves at least 10
boxes a day."

From "90,000 DVDs. No Shelves."
<http://www.fastcompany.com/magazine/74/netflix.html>

History of the Netflix Mailers: 1999 to 2005 (present version)

[http://money.cnn.com/popups/2006/biz2/netflix/frameset.exclu...](http://money.cnn.com/popups/2006/biz2/netflix/frameset.exclude.html)

------
madcaptenor
Their Philadelphia-area distribution center, where I get my Netflix DVDs from,
is located in a place called "Southeastern, PA".

This place does not actually exist. That is, there's no city or town called
"Southeastern". It's just a name for the particular post office they use.

------
edw519
_The second thing I noticed was how, for a Web-based business, there were few
computers -- maybe seven in the building,_

Don't let that mislead you. Make no mistake about it, this is a highly
automated business with a lot of thought, design, analysis, and most likely,
very tightly-targeted software.

With all the talk here at hn about cool stuff like algorithms, scaling, UI
design, CPM, etc., etc., etc., I still spend over 50% of my time helping
customers move shit from Point A to Point B. That's it.

It may sound old school and boring, but it's anything but. When you're doing
so much volume, every little thing matters. And lots of those little things
can be dramtically affected by good systems. Here's where you _have_ to get
good or die trying. When the smallest mistake turns a 50 cent profit into a
$100 loss, your systems must be on the razor's edge.

I bet the routing and error detection software in these warehouses is very
sophisticated and handles outlying cases most people would never think of.
Perhaps some journalist will take us on that trip with the next article :-)

~~~
pchristensen
Fat chance they'd let a programmer or systems designer anywhere near that
place with a reporter :)

------
ghshephard
"Its biggest secret remains the warehouses themselves -- for two reasons. No.
1, each holds several million DVDs, not to mention expensive mail-sorting
gizmos and dry-board posted statistics on how many discs were recently
returned damaged, placed in the wrong sleeve or scratched. And No. 2, Netflix
has grown leery of what happens when customers learn the location of a
warehouse -- they drop off DVDs at the door."

This seems in-genuine for multiple reasons:

1\. Other articles I've read on the Netflix Inventory Control system indicate
that there are almost _no_ DVDs in the warehouses, the vast majority are
either at customers, or in shipment. So the "Several Million DVDs" is an
unlikely claim.

2\. Expensive mail sorting gizmos? So? Are they afraid of theft? "Mail Sorting
Gizmos" neither lends themselves to easy snatch and grabs, transport, nor
resale.

3\. Dry-Boarded Stats on scratches, damaged, wrong sleeve. Doesn't sound like
competitively useful information to me, particularly after data like # of
Sleeves per hour (650-900) per employee, and interval of exercise (every 65
minutes) has been made public.

4\. Drop Off DVDs at the door - This is a bad thing, why?

Nope, My guess is that NetFlix is trying to delay the inevitable, which is
unionization of their workforce by trying to keep the location of their shops
confidential and avoid organized labor leaders paying their sorters/packers a
visit...

~~~
uybuyvg
Warehouse with million * untraceable, easily sold, small items worth $10 each.
Security costs = $$$.

------
akkartik
I loved this recent slideshow on Netflix culture:
<http://www.slideshare.net/reed2001/culture-1798664>

~~~
srveit
Also see the HN comments here <http://news.ycombinator.com/item?id=740524>

------
just_the_tip
Video of a Netflix hub:

<http://www.youtube.com/watch?v=CWA0LKfEv3c>

~~~
madebylaw
Weird. In this video they have people hand stuffing envelopes but in the
original article they have a machine stuffer. I wonder, is the video just
outdated?

------
CWuestefeld
Am I reading this right? It seems to say that every day, every disc that’s
currently is in stock is processed so that any that need to sent to customers
can be pulled out for delivery. And my intuition tells me that would be crazy.

"Then discs are scanned a second time -- if a title is requested, and around
95 percent of titles get rented at least once every 90 days, the machine
separates it and sorts it out by ZIP code. (The entire inventory of the
building is run through this daily, a process that alerts other warehouses of
the location of every one of the 89 million discs owned by Netflix.)"

~~~
URSpider94
I think I understand why.

If you DON'T scan the discs every day, then you need to organize them in some
fashion so that they could be picked from the shelves when an order comes in.

If you DO scan them every day, then they can just go on the shelves in random
order. The scanner will automatically pick out the discs that it needs to ship
that day as they go through.

So, you pay extra for machines and labor to scan every day, but you save on
the added cost for sorting equipment, as well as random-accessible storage
units and people/equipment to locate and pull random movies from the stacks.

This makes even more sense if, as others have suggested, most of the Netflix
inventory is deployed in the field at any one time, and not sitting on the
warehouse shelves.

------
krschultz
Surprisingly manual process - at least on the incoming side. I was interested
to know how many discs are stored at one warehouse, but that is probably too
specific for them to disseminate freely.

~~~
cake
I'm surprised too by the manual process described in the article.

I wonder why it itsn't more automated, they could photograph the disc to see
if it matches the sleeve for example. It seems like a terrible job to manually
check the discs.

~~~
pbhjpbhj
How quick and accurate is image matching? They can recognise the sleeve
quickly but not, it seems the discs. OCR-ing movie titles from discs would be
near impossible with any degree of accuracy.

Is there not a unique code/barcode around the central hole on the back though?
Or could they overprint a barcode?

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felideon
_It's also the reason that the time of day you mail your DVD back has no
effect on when you receive your next one._

Huh? Sure it doesn't matter if you send it before the last pick up of the day:
Netflix will receive and ship a DVD the next day and I get the movie the day
after.

But if I drop it off after the last pickup time (after 5:00pm for me), I get a
DVD back a day later rather than the usual 2-day turnaround.

~~~
brown9-2
Huh? Of course Netflix can't pick it up from the post office if the post
office hasn't picked it up from the mailbin yet.

What they're referring to is the fact that it doesn't matter if you drop you
DVD in the mailbin at 9am or minutes before last pick up.

------
Mintz
Interesting. I didn't expect Netflix to have a "fun" atmosphere like Zappos or
anything, but it's funny to hear about a trendy web company with little, if
any, character.

I wonder why the employees are required to wear the red Netflix t-shirts. It's
not like they need to look presentable for customers or anything...

~~~
brown9-2
I would imagine that working as some sort of engineer in the corporate
headquarters is worlds apart from working in the warehouse sorting DVDs, and
that you couldn't draw inferences about one from the other...

------
conorgil145
This warehouse sounds like a job that is far too tedious for me. I'm glad they
get full health insurance and a 40 hour work week though.

I can't wait until every title they offer can be streamed to the Xbox360. They
have a great selection already, but it will make Netflix even better than it
already is!

------
joshfinnie
similar story about the netflix warehouse in Hartford, CT.
[http://www.courant.com/community/hartford/hc-
netflix-0722.ar...](http://www.courant.com/community/hartford/hc-
netflix-0722.artjul22,0,2929816.story)

------
brown9-2
I've noticed this in other articles/media "trips" to warehouses before:

 _Forty-two people work here, nearly every one in a red Netflix T-shirt._

What is up with the shirts?

~~~
Tangurena
What they probably did was hand out shirts to the employees to look snappy for
the visiting dignatary. Most companies I've worked for try to do the same.
Some require higher "dress levels" when visitors are coming (like the current
one says "no shorts & flip flops; use business casual" only on days when
important-enough outsiders come by.

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domodomo
Heh, the onomatopoeia in this article really rescued it towards the end there.

------
yarone
Does anyone know if Netflix is moving to a burn-on-demand model like Redbox?

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jrockway
OK, so where is this warehouse? I doubt that they have kept the location
secret for this long. (Also, who cares where it is?)

~~~
knightinblue
Fear of corporate espionage perhaps? Netflix seems to have perfected the
system, maybe they don't want competitors snooping around.

That and ppl asking to drop off/pick up discs at the warehouse.

~~~
ohlol
The story explains Netflix's reasons.

