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How to Serve Customers Better, Making Omni-channel Retailing Profitable

Customer expectations are dictating changes in how they shop from companies, whether you are a retailer, wholesaler or manufacturer. In turn, retail companies are responding with new strategies to present advertising offers, make the sale, and serve the customer. In addition to shopping in-store, customer orders can come from e-Commerce sites, call centers, in-store kiosks, tablets, smart phones, laptops, etc. The order fulfillment options include shipping customer orders to stores for customer pick-up, shipping orders from stores or fulfillment centers, and drop shipping to customer homes. Providing a convenient shopping experience for an increasingly time-starved customer may be the difference between making a sale or a customer giving the sale to a competitor.

These forms of omni-channel shopping are not for all customers. However, for the increasingly technologically savvy customer – who often is your younger shopper – it is essential. There are major retailers that now have as much as 9% of total company sales coming from this form of retailing.

It's also important to take a holistic view of customer shopping. A holistic view means recognizing that the synergy that occurs between the channels will mean higher sales in total than if you treat them as separate channels and don't optimize customer service across them.

Technology is certainly key to providing these omni-channel services, but the bigger issue is how to re-conceptualize your retail model to stay connected with browsing shoppers and customers, and how you make the sale. Here are some tactics retailers and direct marketers are using:

  • Connecting with customers that are "pre-shopping" will give your merchants and marketers ideas of what they are looking for 
  • Keeping customer bases up-to-date on the latest offers, no matter where the customer is 
  • Using location history to promote in-store and cyber special events 
  • Increasing lifetime value by suggesting complementary products 
  • Reducing cart abandonment with offers and communication 
  • Nurturing loyal customers with special offers

Key Factors in Maximizing Omni-channel Shopping

  1. Practical, easy shopping is about convenience. It's about providing customers the options which allow them to shop when they want and from where they want. Online convenience begins with an easy-to-navigate, online shopping experience from websites and mobile devices. In shopping studies we do, this is still a major issue with many companies.
  2. Being in-stock when the customer orders. For many retailers these customer facing approaches mean they have to make inventory availability accessible. Systems have to reserve inventory to customer orders, whether it be for pick-up at the store, fulfillment from stores or DC's, or drop shipping from vendors to customer's homes and businesses.
  3. Merchandising your website. Are you offering the same product as in store? Some retailers offer extended sizes, product line extensions, and web exclusive product lines not available in stores.
  4. Building the infrastructure. Great technology is one thing but having the people, systems and facilities in place to deliver the product is at the heart of making the sale. As an example, a high percentage of orders resulting from e-commerce, catalog and call center sources are small orders of three items or less. The processes and methods used to pick and ship these small orders in DCs has to be very efficient. These are different systems and methods from what retailers use to crossdock inbound product and replenish store stocks. Call centers and order management systems also have a role in this new infrastructure. 
  5. Changes to store operations. We often hear from store managers, "These shopping methods often give the omni-channel customers the best selling merchandise." We also hear that we are using store personnel to fulfill orders and instead of being on the sales floor. Again, we have to adopt a holistic view of customer sales. Retailers have to make decisions about taking back returns at the store level that were fulfilled by another channel. 
  6. Shipping & handling. Omni-channel often means we have to get the order to the customer. We all know there is no such thing as "free shipping." Historically, many direct businesses offset some of their product picking and shipping costs by charging shipping and handling fees. Shipping and handling costs are a major percent of the retail order value. Customers are savvy and they don't want to pay excessive shipping costs. Amazon's Prime and competitor ShopRunner have created marketing approaches and low cost shipping that puts pressure on all other retailers and direct companies.

We expect that in-store retailing will be the predominant form of shopping for a long time to come. However, omni-channel strategies need to be addressed by all retailers today. The technologies and new forms of omni-channel marketing and fulfillment cannot be adapted successfully overnight. The customers and the competition are driving the way customers shop.

How Do Your Inventory Turns Compare?

Often times we meet with multichannel companies that don’t have reporting that accurately reflects the inventory turns, or they debate how significant this KPI is, and the need to analyze turns. By taking a financial view of inventory turns, companies can manage the inventory asset even better, which in turn leads to stronger profitability. Larger retail and multichannel businesses manage turns tightly in order to remain competitive and drive profit margins. Companies must bear in mind that on the balance sheet, inventory is typically one of the largest assets.

By managing turns, multichannel businesses are able to benefit the overall business in many ways. These include the ability to:

  • Reduce the total amount of inventory maintained on hand. This reduction in inventory means less capital invested in inventory, which can be invested in other aspects of the business.

  • Reduce the overall operating expenses, and carrying costs associated with the storage and maintenance of the inventory throughout the supply chain. These costs can range from 12% to as high as 25% of the net sales in some organizations. 

  • With the reduction of inventory, companies are able to run a more lean supply chain, and reduce the size and expense within their distribution centers.

For companies that are struggling to understand the value of inventory turns, or those that are just beginning to think about implementing this KPI, in its simplest form it allows you to understand the length of time it is taking you to recover the dollars invested in inventory. For a business that is only turning the inventory two times per year, it is taking you six months to recognize that revenue invested in inventory. Turns of four times per year it is 90 days to recognize the dollars. For any business that is concerned about cash flow, this is a critical KPI to keep in mind, and to regularly review with management.

The chart below is based off of some of our multichannel clients; it allows you to understand how these businesses are managing the inventory asset. Additionally, we have shared the number of SKU’s, the number of merchandise vendors and an idea of net sales.

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In contrast to the above businesses, the growth of many large multichannel businesses and retailers hinge on managing the inventory turns. The chart below reflects the inventory turns for publicly traded companies based on their 10K filings. As you can see, many of these businesses are turning the inventory every 60 days to as much as every 30 days or so.

Large Companies Inventory Turns

For businesses to maintain and improve efficient inventory turns, you must look at your internal processes including planning, purchasing, managing inventory and the timely liquidation of overstocks. Companies must look at how each of these can be improved, and become more efficient. Additionally, you must implement and utilize reporting and KPI’s to understand the business better, which include not just turns, but also returns and cancellations, GMROI, sales to stock ratios, backorders and fill rates.

By measuring the business overall and comparing these KPI’s to other efficient and profitable businesses, you can establish a plan for improving the overall health of your business. Inventory turnover is key to the entire process, and to the health of your business. Implement these KPI’s and use them to monitor your business and identify areas of improvement.

F. Curtis Barry & Company is always available to help in analyzing and reviewing your inventory turns and other inventory metrics that you are using. If you would like to discuss, please reach out to Jeff Barry at 804-457-4028 or jbarry@fcbco.com.

Creating an Accurate System Budget

At this time of year most companies are preparing their capital budgets for fiscal year 2015. And as part of this exercise many CTOs are tasked with coming up with financial estimates for system improvements. Regardless of the system (order management systems, warehouse management systems, retail management systems, POS systems, inventory management systems, etc.) that is being considered for replacement or upgrades; there are several items that need to be considered regarding the cost of software and what it means to your business. The following points will help you better understand that there are more software cost considerations than just the licensing of the software itself.

Software
From an application licensing perspective, review the pricing model and any optional modules that may be necessary to support the functionality within your business. If your company needs some additional unique functionality that is an optional component of the vendor’s offering then you will need to include these costs as well. In most cases these optional or "bolt on" additional modules come with a price.

Much of the software being offered today comes both as a licensed model and a SaaS model giving you different options to acquire the software, and with the SaaS model an easier cost to absorb. The implementation and conversion costs will be the same regardless of the pricing model you choose and you will want to do the math to determine where the SaaS model becomes more expensive than if you would have purchased the license model.

Hardware
Will you host the application internally or in the "Cloud"? There are different cost considerations for both of these. If the vendor is supplying the hardware for the application and database servers, be certain the hardware is both sufficient to support the organization and that you are budgeting for any additional hardware that will be needed. Remember to include an environment for testing, training and software upgrades. Redundancy is also another factor to consider whether this is done internally or in the "Cloud", it needs to be budgeted for as well.

Maintenance
Understand the vendors’ maintenance and support plans and when payment is due. Many vendors charge these annual fees once the application is delivered/installed. Annual software maintenance can range from 18% to 25% or more of the MSRP or originally proposed license fees.

Services
The implementation of any software will incur one time start-up costs for the vendor’s project management (PM), travel to your facility to perform the Discovery/Gap Analysis. There will also be on going site visits by the vendor for follow up items, training, conference room pilots, and go-live assistance. If the proposed PM fees don’t look realistic, then you need to increase the time/dollars for these various services.

For items such as training and implementation services, understand the number of days being proposed and what roles or tasks will be performed by the vendor. Be careful of terminology like “the normal training days are X” or “the standard project management days are Y.” As stated above, is it realistic? Make sure the “typical” or “standard” days are sufficient for what you need to budget for.

Modifications
If you are unaware at the time of budgeting whether or not there will be a need for modifications, you should plan some contingency dollars. A fair number would be in the neighborhood of 25% of the base software license costs; should it be needed. If not needed, these budget dollars will give you more flexibility if there is a need for allocation of more dollars in other areas that may have been under budgeted.

Internal costs
All budgeted dollars so far have been focused on the vendor’s costs and have not addressed planning for internal expenses for traveling to perform the due diligence of vendor's client site visits and a site visit to the vendor finalist's headquarters. Be cautious as internal expenses are usually less budgeted for and can lead to project overruns fairly quickly.

Besides the travel for site visits described above, you will need to consider the following:
• Any increase in payroll or overtime to complete the project
• Hiring of temporary labor or outside resources, such as consultants or programmers
• Upgrades to other networked hardware
• Conversion effort costs

Travel
Travel expenses are one example of internal expenses to potentially budget for. It’s often necessary to travel to and from vendors’ facilities, as well as travel expenses for the vendor to be onsite at your facility. These expenses can be as high as 15% to 18% of the total services for the project.

Other
Formalize a full budget before proceeding, being sure to build in sufficient dollars for items such as services, programming and training that may not have been sufficiently budgeted for by the vendor. By clearly defining your budget, you can avoid being one of the 49% of companies that exceed their IT budgets.

Contingency
You can never budget for every cost that will occur so you will want to build in a 20% to 25% or more contingency for the overall project. It is better to do this than underestimate what else may be needed and have to go back to management for additional dollars, if the those dollars are even available for the project.

Conclusion
Giving consideration to all of these additional and potential costs for a system project will greatly assist in creating a much more accurate budget for planning fiscal year 2015, for any system replacement or upgrade project. If you have any questions about a systems project that you are planning or would like to ask questions about specifics of what you read, reach out to Jeff Barry at 804-457-4028 or jbarry@fcbco.com.

20 Last Minute Ideas to Get Operations Ready For Christmas

For operations professionals in retail and direct commerce, we all know the drill, the risks and rewards of Christmas. With peaks that can be 5 to 15 times higher than the average week, if you get behind  processing orders,  you may not recover until Christmas is over.  For many companies, their entire year’s profit results from the 4th quarter’s sales. 

Along with these blessings come the challenges of hiring seasonal associates, integrating them into your  workforce effectively, dealing with planned volume and the continued chaos that disrupts the flow of your operations, among other things.

Most companies do their post-mortem for Christmas in January and February while Christmas past is still fresh in their minds.  This gives time to consider how major improvements and budget requests for changes in warehouse systems, warehouse layout, material flow and process changes, material handling equipment (MHE) and  conveyance systems can be made to improve throughput, storage capacity and reduce cost per order. 

While there may not be time to make these major changes, here are 20 important best practices every company should consider and can implement before Christmas.  These can make big differences in the efficiency and customer service you provide. 

The highest benefit areas you can affect are managing labor better (it’s 50% of your cost per order) - in particular the pick and pack departments which are more than 50% of your labor costs.  Also, working with shipping carriers - probably your highest overall cost – on your Christmas plans pays off too.  

Here are our picks to improve your operation this Christmas:

1. Establish Hot Pick Zones.  Locate the best selling items in the most accessible storage areas such as ends of aisles without creating a traffic jam.  This may only be 15 to 20% of your items.  As much as 70% of a picker’s time is in walking; reduce walk distance and time and you increase productivity and reduce costs.

2. Slotting.  What data can the merchants give you that gives additional sales velocity information that will help you with slotting product?  Planned sales by item or POs expected to have high sell through during the period can greatly help.  Again, reducing walk time of the pickers will improve productivity. 

3. Improve packing productivity.  Cushioned floor mats, tables with adjustable height to make them more ergonomic, large enough work surfaces, cubbyholes for inserts; are all beneficial.  Make sure the cartons and packing materials are replenished to the pack stations so packers don’t have to leave the station and can maximize their productivity.   

4. Managing your shipping expenses (prioritize orders to ship as many by ground as possible, i.e. move West Coast orders to the front of the queue and hold East Coast back to still meet promised receipt date).  Be sure you have shared your projections with your shipping carriers.  Can you get any extended pickup times for shipments and trailers to load during the day?

5. Alert your shipping carriers that you may need additional trailers  for increased volumes.  Rental trailers “spotted” on your lot can create additional seasonal storage space.

6. Seasonal managers.  Which full time and part time associates can step up to be seasonal supervisors?  Give them an incentive to do so for the peak season.  At the end of peak season they give up the responsibility.

7. Best labor source.  The most productive people are those that have worked for you in Christmases past.  Stay in touch with them, nurture this resource and offer them an incentive to work this peak season. 

8. “Recruit a friend”.  Productive employees often know good people looking for extra money. Offer them a small bonus if you recruit a friend or relative. 

9. Offer a bonus to work the entire season.  Along with returning seasonal workers and recruiting a friend, offer an additional bonus to those that work the entire season.  Quitting early can really hurt you.

10. Temp agencies.  Some clients of our have had great results.  It also gives you a preview of workers you might consider as full time associates.  Companies often don’t want to pay the additional costs for these agencies.

11. Buddy system.  Assign each seasonal associate a “buddy” that is a year around employee.  Task the year round employee to be available to answer all the seasonal associate's questions and help them be productive. 

12. Safety and security.  Is your facility a safe place to work?  Knowing how your facility changes with the volume, what should you change?  Example:  replenishment and put away in off hours to reduce aisle congestion. 

13. Disaster response.  Be sure the “telephone tree” is up-to-date in case bad winter weather throws you a curve.  Are the seasonal workers on the lists?  Do they understand the emergency plans?

14. Head off backorders.  The #1 source for creating customer service problems is backorders not processing in the DC.  Work with management to see if inventory control or the merchants can change their processes and follow up on open purchase orders two weeks in advance of expected receipt dates.  It’s a busy time for everyone but this can give call center and web system info about item availability.  

15. Second and third shifts. Put in place second and third shifts to keep up with the volume.  Schedule replenishment tasks for off hours so that the bulk of the staff is not impeded by pallets, boxes, pallet jacks, forklifts, etc. in the aisles.  This will improve facility safety too. 

16. Work simplification. One of the hardest parts about using seasonal labor is they don’t know your system and processes. To improve seasonal associates’ productivity, break down complex tasks.  You still have time to consider where in the operation you can break more complex tasks into simpler tasks.  Many companies have items which require special and complex packaging (posters and prints for example). Full time packers know the process, but seasonal workers do not. Consider prepacking these items offline at Holiday to assure consistent and correct packaging. Chances are better the seasonal labor will be able to be more productive.  Match seasonal skill sets to tasks.

17. Improve communication and productivity improves. Post standards, expectations and productivity numbers.  Be sure to adhere to having daily floor manager and shift change meetings.  Post on white boards strategically placed around your facility the main productivity rates and challenges. 

18. Contingency plan.  Have you worked out with your supervisors and senior management what your options are if the business is +/- 10-20% from your plan?  Overtime, more workers, etc.?  Where would you use more people effectively?  Remember, more than 50% of the direct labor is in the pick and pack departments.

19. Reduce peak season production systems disasters.  Stick to a policy of not implementing new systems and non-critical modifications September through December. 

20. Continuous improvement.  Keep a journal of problems and ideas encountered as a starting point for planning for next year.  Invite a consultant in to observe your peaks this year to assist in making major process changes, product workflow and material handling equipment changes for next year and the peak season.

In the off season consider these additional labor best practices: Seasonal differentials and incentive pay;  aptitude and selection testing; screening and back ground checks;  adopt “flex hours” policy, overhaul your training program, etc.  All these ideas can improve the quality of the hire and decrease attrition.

Conclusion
Making the best seasonal associate hire and managing the workforce effectively is at the heart of reducing costs and providing great customer service.  Working with you carriers to fine tune the outbound brings big dividends too. Remember, it is still not too late to make some changes that will ensure a smooth and productive Holiday season.

Contact us if you would like to discuss how to implement some of these last minute ideas into your oepration. Reach out to Jeff Barry at 804-457-4028 or jbarry@fcbco.com to schedule a call.

Three Things You Can Do Before This Holiday Season

I was talking to a client and he confessed that time had slipped away from them in implementing a full warehouse assessment.  As he and I were creatively thinking what he can do in the couple months before this Holiday Season, here are three things everyone can do to improve Holiday season productivity.

1. Improve your odds with new employees
Hire right. How many times have you had new employees quit because they didn’t understand what the job entailed, or the new employee didn’t like the job once they tried it? No matter how good the person comes across in an interview, you can’t tell how well you’ve hired until they start working.

  • Some companies have had good results by giving prospective employees some limited instruction and then letting them try the work.
  • Determine if there are tests you can give that assess whether people can do the work or have a good chance of fitting into your culture.
  • Use a “buddy system” with a seasoned employee in the department to get the new employee off to the best start.
  • Look at whether you have an effective training program by function. Will cross training improve production and give you flexibility in staff utilization?

2. Measure employee turnover and do something about it
Set up a system to track and calculate employee turnover monthly. Develop a turnover report showing the number of employees hired, employees who started training, employees who left while in training and the number who leave once they graduate to the production staff. Establish an exit interview process to learn more about why people leave. Look at the turnover by months and years of service. Are you seeing turnover with long-term employees? New hires? Calculate the cost of recruiting, training and losing an employee and get management to understand the reasons and the costs. From there, establish a plan of action for change.

3. Set standards or expectations
There is an old industrial engineering axiom: You can’t improve something you haven’t measured. Set up production goals by department and individual. (Departments or functions include receiving, put away, replenishment, picking, packing, shipping, and returns.) There are two ways to do this: engineered standards, and benchmark goals or expectations. Engineered standards are expensive for small to moderate sized companies to establish and maintain. However, most companies can gain from setting expectations based on benchmarking with other companies. This will let you understand productivity, costs and best practices in other businesses. Study your operation and set up internal production standards that can be measured and are fair. Don’t just use someone else’s standards, as they probably will not fit your operation. The most important benchmark exercise is to measure your production against yourself, seasonally, by month and week. Increase the “height of the bar” over time and you’ll generally see overall productivity increase. The most difficult part of all this is getting accurate production data.

If you would like to discuss how we can help you improve productivity for this Holiday season, it is not too late to put measures in place. Contact Jeff Barry at 804-457-4028 to schedule a call or email him at jbarry@fcbco.com.

How Well Are You Treating Your Customers?

If you want to increase sales (and who doesn’t), you need to increase your initial customer order fill rate.  About 50% of the time, when I’m working with direct merchants and I ask, “Are you measuring initial customer order fill rate”, I get the answer “Yes”.  But 50% of the time as we talk through it, in reality they are not.  What they are measuring is actually the backorder rate or the line item fill rate. 

So what is initial customer order fill rate? It is the percentage of orders shipped complete within your fulfillment center’s order fill rate standards.  In other words, if a customer’s order has 3 lines on it and you can only initially fill 2 lines, your initial customer order fill rate is zero. 

In the definition above I mentioned “within your fulfillment center’s order fill standard”.  Currently on average, that order fill rate standard for a fulfillment center is 24 hours (except for weekends where there may not be any warehouse staffing or orders being shipped).  Also, to be competitive many centers are shipping more than 50% of their orders same day to cater to the customer’s “point, click and receive” mentality. 

So what does initial customer order fill rate show?  It shows how well you’re servicing the customer from an inventory perspective.  For example, let’s look at the Apparel Initial Order Fill Rate graph featured.  Since Holiday peak season is coming, let’s look at the last quarter of the year, weeks 39 to 52.  This is an actual order fill rate graph for a customer we have just completed an Inventory Assessment for, and they had never measured their customer order fill rate.  Think about this performance from the customer’s experience.   The percent of orders shipped complete is between 65% and 80% each week.  If you’re the customer, what is the impression of the service you get?  Since it’s the major gift giving season, I would submit to you that the customer that experiences the 65% to 80% orders shipped complete is not the company that you as a customer will more than likely do business with again.

Initial Order Fill Rate resized 600

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Here are some direct merchant industry fill rates to compare.

Initial Order Fill Rate
Customer orders shipped complete
Advanced fashion: 70%-80%
Reorderable, basic apparel:  80%-90%
Gifts/housewares:  85%-95%
Business products:  98%-100%

Final Order Fill Rate
Of the orders taken over the life of a catalog, the percentage of customer orders ultimately shipped 100% complete. 
Advanced fashion:  90%-95%
Reorderable, basic apparel:  95%-99%
Gifts/housewares:  96%-100%
Business products:  100%

To return to back to the initial item fill rate and the backorder rates for a minute. Both of these measures generally are 10 percentage points higher than the initial customer order fill rate, because they don’t take into account the partial shipments of customer orders.  Or said another way, they don’t look at it from a customer order perspective.

To be far the apparel client has some handicaps:
• 30% to 50% of items are new product, so there is no history by item for new products
• There may be only a single order or one reorder
• Exclusive and imported product are hard to deal with because of the long vendor lead times and higher reorder quantities often by SKU.

In summary, look at your initial order fill rates to see how well you are treating your customers and if you are able to get the product out to your customers in a timely fashion this holiday season. If you would like to discuss, we ask that you contact Jeff Barry at 804-457-4028 or email him at jbarry@fcbco.com.

PLAN NOW - FedEx and UPS DIM Weight Rate Changes for 2015

Late on a Friday afternoon in early May, FedEx dropped a bombshell — effective January 1, 2015, all ground shipments, regardless of size, will be subject to DIM (short for dimensional) charges.  For many shippers, this will amount to a dou- ble-digit rate increase, and that will be on top of the yet-to-be-announced 2015 rate increases (last year’s increase was 4.9%). Currently, only an estimated 15% of FedEx ground shipments — those 3 cubic feet or greater — are subject to these charges. FedEx now delivers about 4.6 million ground packages per day, so that’s 3.9 million new daily packages that will now be subject to the charges. Although we have not heard yet from the other carriers, it’s a pretty safe bet that most will follow suit. So regardless of the carriers that you currently use, there is a very good chance that at least some of your shipments will be affected by these new charges.

First, let’s look at the events that precipitated this change, and then we’ll explore some options on how to reduce — or even eliminate — the impact of these charges.

Why the change now? For years, the car- riers have experienced explosive growth in B2C shipments, and those shipments are starting to take a toll on these carriers’ pickup and delivery networks. UPS and FedEx now capture the dimensions of each shipment while in transit, and they have taken note that many of these new shipments are in relatively large, but lightweight boxes. For both carriers, vir- tually  all  of  their  transportation  modes — including trailers spotted at shippers’ locations, cargo planes, tractor trailer rigs and rail vans — will often physically fill up with packages long before they hit their maximum operating weight. We are even hearing reports that some carriers’ delivery vehicles are starting to “cube out” on busy days. Normally, a delivery van is loaded with the packages for the entire route in the morning, and returns to the station at the end of the day. However, if the delivery vehicle “cubes out,” the driver will be forced to return to the station in the middle of the route to re- load, and costs will skyrocket. The only other alternative is for the carriers to re- place their delivery fleets with larger vehicles — an extremely costly proposition. FedEx is hoping to change shippers’ behavior with these new rules, before that becomes a common occurrence.

Here are the current dimensional fac- tors for FedEx, UPS and the Postal Service — the higher the DIM number, the higher the potential for additional charges:

To calculate the DIM, multiply the length times the width times the height, and divide the result by the DIM factor. Round up that number, and if it’s higher than the actual weight of the package, you will pay the dimensional weight. Here’s an example of a 12 lb zone 8 ground residen- tial shipment in a 14” X 14” x 14” box, with a DIM factor of 166:

14 x 14 x 14=2,744 cubic ins/166=16.5, rounded up to 17 lbs. Under the 2014 rule, this package would be billed at the 12 lb rate of $19.67 with fuel. If the new rule were in effect today, this package would be billed at the 17 lb rate — $24.26 — a 23% increase.

DIM factors are really a measurement of the density of each package, expressed in pounds per cubic foot, or PCF. Here are the PCFs for common DIM factors:

194 DIM — minimum 8.9 lbs per cu ft. Until January of 2011, the U.S. do- mestic factor for UPS and FedEx. Note that the Postal Service still uses 194, and so does at least one regional carrier — OnTrac Ground.

166 DIM — minimum 10.4 lbs per cu ft. This was the US factor for internation- al shipments until January of 2011. 166 is the new domestic factor for UPS and FedEx, adopted in 2011. Confused yet?

139 DIM — minimum 12.4 lbs per cu ft. This is the new international factor for UPS and FedEx international shipments.

115 DIM — minimum 15 lbs per cu ft. Not currently used in the United States, but this factor is used by some carriers in
Canada, Europe and Asia.

Steps to Take Now

Survey Your Current Packages
Some shippers already employ in-line cubing equipment, which electronically measures the dimensions of each pack- age. If you don’t have cubing equipment but have a large number of packages to survey, you can now rent a portable cubing station. Some shippers employ “cartonization logic” software, which op- timizes the carton size for each shipment prior to pick and pack. If you don’t have either, you’ll probably need to manually survey a good cross section of your ship- ments. You should record the external dimensions in 1/8” increments (don’t rely on the carton manufacturer’s dimen- sions, which may be the inside dimen- sions of the box). Secondly, record the actual scale weight of the box in fractions of a pound. Finally, multiply the length, width and height, then divide the result by the scale weight, to get the lbs per cubic ft — abbreviated PCF. If the PCF is 10.4 or higher, you’re probably home free, and you shouldn’t be impacted by the changes (at least for domestic ship- ments). If your PCF is lower than 10.4 on some of your packages, you’ll need to look at your options.
 
Smaller Boxes May be the Answer
You will want to focus on the worst of- fenders first — those packages  with the lowest PCF. The obvious solution is to see if smaller boxes will work. Some shippers use a limited range of box sizes, and these shippers may want to consider increasing the number of stock box sizes in inventory.

Use Less (or More Effective) Dunnage
Dunnage is the term for the material used to cushion the item in the carton. If you use less dunnage, you may be able to use a smaller carton. Styrofoam peanuts,  although  lightweight,  have fallen out of favor with many shippers. Crumpled Kraft paper works well (and is easily recyclable), but can add sev- eral ounces to the shipment — and that could push the scale weight into the next higher pound. Amazon and a num- ber of other high-volume shippers have switched almost entirely to air pillows, which  offer  great  cushioning  ability. They also weigh next to nothing, so you are not likely to push your shipments into the next weight break.

Work  with  a  Packaging  Designer  FedEx has just opened a new “Tech Connect”  state-of-the-art  packaging  lab  in Memphis  —  good  timing,  considering the  new  rules.  UPS  offers  a  compre- hensive package lab as well, and both of these facilities can help you redesign your packaging and meet the new dimen- sional  rules,  while  still  protecting  your shipments from damage while in transit. In  addition,  most  carton  manufacturers offer these services, and there are a num- ber of qualified independent designers as well. A word of caution: start the conver- sation now, because these labs are likely to be very busy in the coming months, due to the dimensional changes.

Consider Your Carrier Options
As you can see from the chart on the pre- vious page, the Postal Service has more lenient dimensional rules than UPS and FedEx, at least for now. For instance, Pri- ority Mail for zones 2-4 (up to 600 miles) has no DIM factor because these packag- es stay on the ground, while zones 5-8, which travel by air, have a more lenient 194 DIM — and the DIM only applies if the package is over 1 cubic foot.

And don’t rule out so-called region- al carriers who may have more tolerant DIMs. Since regional carriers’ line haul distances are lower, their line haul cost may represent a lower percentage of their total costs, and that may be reflected in a more favorable DIM. For instance, On- Trac’s 2014 Ground DIM is 194, com- pared to 166 for UPS and FedEx.

Endicia Weighs In on Dimensional Changes
We spoke to Amine Khechfe, co-founder and general manager of Endicia, a sell- er of electronic postage services, who believes the price hike will prove to be a boon for the Postal Service. “This is definitely an advertisement for them,” he said. Khechfe notes that a migration of business to the Postal Service from Fe- dEx and UPS was already underway be- fore the FedEx announcement. Quoting from a recent report by the Colography Group, Khechfe said that “the Postal Service has seen 10-15% growth in small lightweight, 5 pounds and under parcel volume since 2011 where the Post Of- fice is making the final delivery, whereas FedEx and UPS have both seen declines, giving USPS a significant share of this market.” Khechfe also believes that the dimensional change will likely cause many shippers to reevaluate their carri- er portfolios. “I would definitely say that this dimensional announcement is going to put the Postal Service in the driver’s seat,” he said. “Based on Endicia’s anal- ysis, a switch to the Postal Service will likely make sense for 12-inch-cube pack- ages of up to three pounds, and even four pounds for larger shippers.”

Avoid Invoice Shock by Acting Now
Whatever your course of action, you will want to start the planning process now. The carriers realize that some customer changes, such as redesigning packag- ing, can take months to implement, and that’s probably why FedEx gave its cus- tomers nearly eight months’ lead time. You won’t want to be among the ship- pers who wait for their first invoice in 2015 to determine the real impacts on their shipments!

We would recommend giving Jeff Barry a call at 804-457-4028 or email him at jbarry@fcbco.com to schedule a call to discuss immediately.

Inventory Best Practice Assessments Show Issues in Systems to Fix

Since inventory is the largest balance sheet asset in most companies, this is certainly a hot spot for allcompanies. “Systems” don't take into account the total costs of owning slow-moving inventory (occupancy, interest on the investment, distribution center labor to maintain and control it, etc.). Only management can analyze these expenses and methodically reduce them.

Even companies that manage inventory well can uncover ways to do it better. A zero-based reassessment of inventory levels, turns, systems and practices will almost certainly reveal eye-opening inefficiencies and limitations that are undermining cost control.

In many companies, small purchasing/inventory departments are being overwhelmed by ever-increasing product assortments. SKU counts aren't being optimized. “Good buys for discounts” take far longer to sell through than planned.

Frequently, inadequate systems are a core problem. Some typical inventory management system or order management system problem areas to investigate are:

  • Do your systems provide truly accurate data-tracking/histories for sales and stock plans? Are they incapable of helping re-buyers spot where they should be taking action on under- and over-stocks?
  • Do the systems provide views of aged inventory by time slices (one to 30 days, 31 to 60 days, etc.) to the SKU level? If not, a walk through your distribution center to see how long products have been there should quickly convince you of the need to get these systems capabilities in place.
  • Do the systems lack sufficient capabilities for managing unlisted products (products currently not included in an active or planned promotion)?

Streamlining needs to go beyond systems upgrades, however — that's why a holistic approach is so important.

Case in point: One of our clients is a $40 million multichannel business that was struggling to stay within its merchandising budget. Senior management had been unable to reach consensus on the root causes or solutions. Our review of all aspects of the business revealed multiple problems. The company does need a major system upgrade to enable efficient identification of overstocks within their large assortment. But it also needs a stronger inventory manager, and it's actually understaffed. Inventory control's plans aren't in synch with marketing's goals. Plus, off-price cadence promotions have conditioned customers to wait for these sales.

This company can cut inventory levels by 30% and realize major cost benefits (even with added inventory staff) — if senior management is willing to implement changes that require fundamentally different business rules/operational methods.

Turns, in particular, are vital signs of the effectiveness of your inventory management. Dig into all of the factors behind turns, and you'll discover multiple areas ripe for improving efficiencies.
F. Curtis Barry & Company helps clients identify better ways to manage their inventory by conducting inventory best practice assessments. Our recommendations assist our clients to not only understand but manage their inventory levels more effectively and efficiently.

Ensure a Smooth Order Management System Selection and Implementation

Warehouse Management Systems and Order Management System selection and implementation is serious business, and no one wants to make an already complex process more difficult or more costly. Over the years, F. Curtis Barry & Company has determined some principles to follow during an order management system or warehouse management system implementation project that will significantly improve the chances of success for all parties concerned. There may not be any absolute guarantees, but following these ten proven principles will definitely smooth the way for your next implementation project.

1. Adhere to a well-disciplined, proven methodology for selection and implementation.

2. Have executive management buy in and sign off at various points. We have learned that if we do not document the decisions and progress of the project and report on a regular basis to executive management, business decisions and changes in the scope of the original project may conflict with what management has in mind. Consistent, objective status reporting may bring to light issues that the vendor or the project team may have neglected to bring to the attention of management.

3. Perform thorough and proper due diligence to ensure a close fit between your business requirements and the application you have selected. Be sure to include a low number of modifications and clearly define interfaces and data conversion issues.

4. When you discover serious discrepancies, it’s better to change the business process to fit the system, where realistic, rather than modify the system heavily. Modifications result in higher costs, risks, and potential delay of the implementation. We have learned that, unlike e-commerce software models, a so-called fully customizable solution is not necessarily the best fit for many businesses.

We used to advocate modifying applications to be more in line with the business, but it is better to make sure that the system’s business process can really be adopted by the business. We learned that modifications and complex integrations are risky and expensive and can cause serious delays. Often modifications turn out to be unnecessary once the new system is fully understood by the new users.

5. Demand that the internal project manager and the vendor project manager be well disciplined and organized. We have learned that we need to help support our client company with these tasks. There have been instances where a project has suffered because the client’s project manager was not well organized or capable of multi-tasking and keeping the project team up to date.

6. Select a DTC system that can support features and functions in the intended marketplace (appropriate sales channels, application integrations, SKU numbering, etc).

7. Adhere to a well-defined project plan and timeline that suits both vendor and client, making sure to a lot sufficient time for each task without jeopardizing the project. Appropriate status reporting is crucial for monitoring the overall progress of each task.

8. Make sure you have a fair and well-defined, detailed negotiated contract including statement of work, pricing for hardware, software licenses, modifications, training, file conversion, etc.

9. Require budget approval of estimates and of any change in scope prior to the work performed.

10. Although difficult to quantify, good chemistry between client, vendors, and consultants is important to the success of systems selection and implementation.

Warehouse Layout and Design Ideas to Begin Improving DC Capacity

Probably the most frequent lament heard from our clients during our Warehouse Layout and Design projects is “I am running out of space in the warehouse”. Unless you are that rare company that has control over your forecasting and inventory management functions, you have probably said the same thing.

The first reaction from the warehouse is that you have too much inventory. Although it is easy to dismiss this as typical whining, there usually is some basis to the complaint. Take a quick look at the aging of your inventory and apply the true carrying costs of that aged segment to determine if it makes sense to consider some type of liquidation to reduce inventory levels. Having said that, let’s take a look at some ideas that might increase the storage capacity in your warehouse.

There are the obvious issues of overall warehouse layout and design and space utilization that affect the storage capacity along with the selection of appropriate material handling equipment and warehouse automation. After you achieve an effective layout, it is time to look for the fine tuning that can add to capacity. The following list represents several potential options or issues to consider.

1. Rack over doors – Most receiving dock doors are spaced far enough apart to permit rack to be erected that spans the door openings. These racks can provide several levels of product storage above the clear height of the door opening. Many companies use this pallet rack storage for pallet or packaging material inventory storage.

2. Tunnels in Rack – In warehouses where pallet rack is utilized, a missed opportunity exist if rack “tunnels” are not used over main or cross aisles. Most warehouses try to align rows of rack on either side of a main or cross aisle. The area above these aisles is wasted unless racking is installed that bridges the aisle between the ends of rows of rack. Even allowing clearance for lift truck traffic, it is possible to add two or three levels of pallet storage on these”tunnels”.

3. Width of existing aisles - Most material handling equipment is designed with a minimum aisle width or turning radius associated with that particular style. Make sure that you have not overdesigned the aisle width and waste potential storage space. In larger warehouses with many aisles of racking, a small decrease in each aisle width can add additional rack bays for storage. Make sure you don’t go too far in making them too narrow and causing other operational issues.

4. Utilize all potential space in each location - We see instances where one or two cases stored in a location designed for a full pallet. It is necessary to have a variety of location sizes to accommodate the variety of storage needs on a product by product basis. Another waste of space occurs in picking areas where only the front portion of the pick slot is utilized with empty space left behind. The slotting process should take care of this, but we see it a lot in many warehouses. Make sure the pick slot is designed to fit the cubic velocity of the SKU. It is impossible to attain 100% of capacity on a daily basis but the higher % you can maintain in established locations, the more space you will have available.

5. Consider a mezzanine when and where it makes sense - If you can find the right use for this type space, you can double the footprint of the warehouse where you install the mezzanine. Issues such as beneficial use and the cost per square foot of space in your area will determine the potential use.

6. Ratio of aisle space to storage space - One way to reduce the ratio is to block stack pallets of product on the floor and stack them two or three levels high. It requires enough inventory of the same SKU and product that can be stacked without damage. Floor stacking pallets four or five deep is not uncommon in operations with high stackable inventory per SKU. This ability to deep stack pallets with few aisles manages the space ratio to your advantage.

Theses are a few ideas to consider, and by no means a complete list. The key is to objectively look for opportunities with an open mind, utilizing your staff for ideas and other outside resources.

If we can assist in reviewing your warehouse layout and design plan or assist with an operations assessment to recommend industry best practices to improve product workflow, don't hesitate to contact Jeff Barry at 804-457-4028 or jbarry@fcbco.com.

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