Conducting a Post Season Audit on Your Fulfillment Operations

   

Although the 2007 holiday season hasn’t ended yet for many multichannel merchants, many of our clients are already preparing for holiday 2008. You should, too, by conducting a post-season audit. This process enables you to challenge your group to find ways to reduce costs and at the same time get critical data and observations to be used for the next holiday season.

In this article we will cover both the basics of performing a post-season audit as a base line for process improvement and cost reduction, as well as discuss the major potential cost reduction areas of the distribution center.

The first step in the audit is to form a post-season review team, which should include fulfillment supervisors and some key personnel in the DC. The team’s observations of what went right, what was marginal, and what needs to be fixed before next year should include finding answers to these questions:

  • What was the labor cost per order shipped during the increased staffing period of your holiday season, vs. your balance-of-year average cost per order shipped? This identifies how effectively you used the temporary holiday labor and how it performed.
  • What was the cost of training the seasonal labor force? Were they brought in at the right time for sufficient training and to match volume surges, or were they on the payroll too early?
  • What was the found error rate and subsequent rework required? Are they higher than normal? Why did they increase?
  • Did you use your experienced associates to pick and teach seasonal temps to pack? You should: It is easier and faster to teach packing than to teach picking, and if you use your experienced people to pick, your error rate should be lower.
  • Did you cross-train all regular associates to pack during the course of the year? Were they available to fill in for peaks after performing such tasks as receiving, put away, administrative/clerical, etc.? This enables you to hold down the number of seasonal temps required.
  • What was the rate of overtime during the holiday season versus the balance of the year? Also calculate labor man-hours per order shipped during the holiday season vs. the balance-of-year average. Low wages paid to temps may drive down the cost per order, but man hours used will identify your true performance.
  • What was the turnover rate for seasonal employees and for what reasons? How many rehires did you have to make, adding to training cost and putting inexperienced people to work? Too frequently, inexperienced and insufficiently trained people make little contribution and drive up costs.
  • Were there any issues with shortages of supplies? Why?
  • How did holiday volume perform to the sales forecast? A post-season audit is critical to understanding DC management’s responsiveness.
  • How did the DC perform daily against order volume? Did the facility fall behind scheduled shipments? How far behind by day? What was the order carryover identified as both orders and a percent carryover by day?
  • Did your carriers perform? Were their pickups on schedule?
  • Were there any bottlenecks in the flow of work? Why did they occur and how can they be averted next year?
  • What was your post-holiday season rate of returns? What were the reasons for returns, which were DC related (i.e. picking error, broken in transit, etc)? What was the turn around period between receiving the return and processing refund or exchanges? Any areas or bottlenecks in the returns process that need to be corrected? Was there sufficient receiving space? Did it infringe on outbound space?

To help answer these questions, use departmental reports throughout the center. These include transaction volume reports for orders received, picked, shipped, manifested, returns, back orders processed; service levels achieved (standard or plan and actual) payroll and productivity reports (budgeted and actual); DC inventory control reports about inventory adjustments, products not found in picking process, error reporting, etc.

Implementing Changes in Your Distribution Center

With the peak volume of the holiday season over, you should have just about finished your post-season audit of your operation. As we discussed previously, this will give you a good idea of how and where you can reduce and control expenses in your distribution center.

Now it's time to implement some changes. Where should you start?  Here’s a checklist of some steps to take.

  • Bring your workforce down to the size required for your post-holiday business forecast. Nothing increases costs more than excess people on the payroll—and by attempting to manage hours with too large a staff, you’ll wind up sending employees home early multiple days per week, running the risk of losing key associates who can’t afford to work less than 40 hours.

    This is also a great time to evaluate all employees and retain the workers who performed best. Frequently you’ll find gems in the seasonal staff who are better than some of your regular associates. So bite the bullet, make the difficult decisions, and reduce staff quickly.
  • Perform inventory consolidation in your storage area, both to organize storage and create space for new product arrivals. Consolidating inventory now will save inbound labor dollars later, as well as ease and expedite the ability to locate product.
  • Assure your key performance metrics are in place for pick, pack, ship, replenish, receive and put away. Be certain you are generating reporting on all the key indices which will help you manage expenses, including labor hours and dollars (regular and premium) measured against volumes received and shipped (units, lines, orders, boxes).  
  • Reconfigure your slotting and pick locations to reduce travel time to a minimum.  Relocate items appropriately to slow moving or to fast moving picks to create efficiency.  Remove seasonal items from the pick line so you are not walking by them each day.
  • If you didn’t cross-train all regular associates to pack last year, begin now for next year and continue cross-training throughout the year. Be sure any new employees retained from the seasonal worker ranks are fully trained and performing to standard. Training for seasonal associates is often quick, so if you are retaining people, make sure they are properly trained to be successful.
  • Develop a fulfillment to-do list from your post-season audit. Assign responsibilities and follow up to assure the tasks are being performed.

    If you have never developed goals and objectives for your operation and your fulfillment staff, this is the perfect time to start. Goals and objectives or key performance indicators are the most objective method of evaluating individual performance.  Successful accomplishment of goals and objectives adds to the profitability of the company.  
  • Create your fulfillment budget for the next fiscal year. Remember that an effective budget reflects improvement in performance and reduction of expense to enable the company to offer wage increases where appropriate.
  • Review transportation contracts. When shipping volume is down, every penny of cost becomes critical. Knowledgeable review of both inbound and outbound transportation contracts and costs can typically yield savings up to 20%.
  • Consult with your supply vendors for packaging, corrugated, styrofoam, etc. Are you able to return overstock for credit? Again, every penny saved during slow periods is important.
  • Determine if this is the time for experienced help to assist you in reconfiguring the warehouse. There are many ways to improve layout within your current walls to expand capacity and improve efficiency.

    Along those lines, are your systems generating the necessary results in the required time periods, or is your fulfillment center losing efficiency because your systems are unable to perform?  This is a great time to develop a systems requirement document identifying your needs for growth and for performance.
  • Conduct objective individual performance evaluations for your salaried staff. Objective and honest evaluations of individual performance are the building blocks of great teams.

And finally, the only good thing about slow volume is that it affords you the opportunity to evaluate past performance failures and to implement change for future performance successes.

How to Reduce Warehouse Expenses and Costs 10-20%