F. Curtis Barry & Company Blog

“If you cannot measure it, you cannot improve it.”

That’s an observation that famed British physicist, Lord Kelvin, made about scientific experimentation and operational improvements over 100 years ago. It’s still pertinent today as we seek to improve e-commerce operations, be competitive and look to improve our profitability and customer service.

In order to improve operations, we first need to measure key metrics, which are units of work such as the total warehouse cost per order, shipped cost per carton, the cost per line on an order and cost per unit. Once we understand what these metrics show, we can then develop options for processes that reduce steps and therefore cost; or improve service levels in the warehouse such as order turnaround time measured in hours.

Companies that utilize third party fulfillment (3PL) services sometimes reach a point where they consider transitioning from the 3PL services to internal warehousing and order fulfillment. Some of what drives these decisions is to control costs, whereas others have had a bad experience with 3PLs and now only trust themselves with their product. Using a 3PL isn’t for every company.

Reviewing contracts for third party logistic (3PL) providers can be a daunting task – especially for those not familiar with the process.  One of the most critical aspects in any 3PL contract is the language surrounding pricing and rate increases.  It is vital to ensure that the language is fair for both the customer, as well as the 3PL.   

Most companies want to improve their operations and become more efficient. The desire and need to improve is there. However, their systems are holding them back. FCBCO sees time and time again during operational assessments, the majority of the recommendations for becoming more efficient and moving to the next level operationally, cannot be implemented without implementing a new system. The right Warehouse Management System (WMS) for your company makes improvement possible through stronger functionality and improved warehousing processes.

In our consulting practice, we often hear the question "how does my cost per order compare to others". Management wants to be sure that the warehouse and distribution expenses are in line, and as efficient as possible. Companies typically benchmark against other warehouse and distribution center operations, to measure the performance of their company’s services, processes and metrics against those of another business.  Companies also benchmark against the best in a specific industry (i.e. “best in class.”). The point of benchmarking is to identify internal opportunities for improvement as companies strive for continuous process improvement.

Many ecommerce fulfillment centers are largely dependent on manual labor. Direct and indirect labor costs generally make up 50% or more of the total cost per order (excluding outbound shipping). In many businesses as hourly wages have increased, overall DC productivity has remained flat resulting in an increased cost per unit produced (orders shipped, units picked, returns processed).

In many markets, even before the COVID crisis, the quality and availability of warehouse workers had decreased. High employee turnover in many distribution centers adds costs and instability to operations. The operations mantra is do more with the resources they have and to reduce cost per order.

Picking errors have a very high cost to your business in both actual costs, and in lower customer satisfaction, Life-Time Value (LTV) and customer retention. These aspects will erode your business’ profitability and customer and Net Promoter Scores (NPS).

A mis-pick or a picking error can occur for a variety of reasons:

• Picking a wrong item, in addition to, or instead of the correct item.
• Wrong quantity.
• Failure to pick an item.
• Picking an item that is unacceptable because of damage, incorrect labeling, or packaging.

This article discusses identifying the cost to your business and customer service as well as six ways to minimize picking errors.

Absolute productivity has declined in many companies because productivity has not kept up with the rate of increased costs over time. As an example, since the 1990s, labor rates have increased from around $5.00 per direct labor hour to $15.00. Some larger companies are paying $18.00 to $20.00 per hour in some markets.

We had a recent conversation with the President of a $65 million multichannel company. They had decided to replace their systems several years ago, using a disciplined approach to the evaluation and selection for their new warehouse management (WMS) solution. The problem is, two years later and they were still implementing the new WMS system.  Feedback from the President was that the implementation was so poor, that they had to switch integrator's part way through.

Without a doubt, Amazon is king of multi-distribution center processing and shipping.  In May 2019 industry sources estimated that Amazon shipped to 72% of the US population in one day from its 75 centers with 125,000 employees.  In 2019, Amazon shipped 3.5 billion packages, compared to FedEx at 3.4 billion.  Morgan Stanley expects Amazon to surpass UPS in 2022.