Problem: A direct marketer experienced order backlogs and backorders exceeding 100,000 during Holiday 2004. Order volume during the peak days within a three-week Holiday period for this multi-title merchant were 10 to 12 times that of an average week. While the sales surge was welcome, the backlogs and backorders meant the marketer's shipping costs were increased (so that it could satisfy customer demand), and its operating efficiencies were reduced.
The marketer asked F. Curtis Barry & Company to assist with its Holiday 2005 warehouse operations planning. During our post-mortem of the 2004 Holiday season, several capacity and throughput issues surfaced. Since the marketer's order volume was growing rapidly — about 25 percent per year — company management was concerned about their ability to meet customer expectations during peak periods in 2005, a concern that was based on the problems that surfaced the previous year.
Management at the direct marketing company asked F. Curtis Barry & Company to conduct a warehouse assessment to help them determine what changes would be needed to adequately meet growing demand. They determined that using their facility's existing footprint was not a good long-term solution. They surmised that facility expansion or a move eventually would be required. But if possible, they wanted to get one more year of life from the existing space, using that time to do their research to help them make a more informed decision and long-term plans.
Solution: To help the client determine if another year — including another peak season — in the facility was possible, we conducted an on-site assessment and audit, done in conjunction with the client's warehouse managers and staff.
Our first steps were to agree on the design metrics for the next season and to review past productivity and capacity numbers from the past season. During this process, we analyzed planned orders, shipments, inventory and productivity rates. Some of the key metrics we looked at included peak shipments, peak staffing levels by department, number of SKUs and demand by SKU.
In addition to reviewing the numbers, we analyzed the operation itself, looking particularly at warehouse layout, flow and processes — a review that was done in cooperation with the client's staff. Several issues surfaced, and we made the following recommendations, which were implemented:
1. Create a hot-pick area for the fastest-selling "A" items. This enabled the client to concentrate a large amount of order processing in a limited area, thereby increasing efficiency and throughput. Pallet picks and flow racks were used as slotting media.
2. An area for picking and packing ship-alone items was expanded and modified.
3. Previously, the warehouse operated on a 1 1/2 shift basis. By starting the hiring and training period three weeks earlier in the season, the client was able to have a full second shift added and ready for the peak period.
4. Minor changes to the pick line's layout — modifications based on sales velocity — effectively increased the pick slot sizes for selected items. Both picking and replenishment functions benefited from having proper-sized slots.
5. Faster-selling items were reslotted to positions closer to the takeaway conveyor to reduce pickers' walking times.
6. For several years, the client has been using off-site storage for excess reserve inventory. We implemented a process that increased the efficiency of the on-site buffer inventory, thus insuring that the limited on-site space held the correct items for pick slot replenishment.
Result: The client processed about 150,000 orders during its peak week in 2005, up from the 120,000 orders it processed in 2004. And order backlog and backorder processing were dramatically reduced.
Through the cooperative efforts of the client's staff and our objective recommendations, many significant improvements were achieved. The key to a successful assessment is to combine the client's experience and knowledge with the consultant's expertise and experience to develop and implement a successful strategy. It's never too early to start getting ready for the next peak season.