Warehouse 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 fulfillment picking error can occur for a variety of reasons:
- A wrong item, in addition to, or instead of the correct item was picked.
- The wrong quantity was picked.
- An item was failed to be picked completely.
- An item that is unacceptable because of damage, incorrect labeling, or packaging was picked.
This article discusses identifying the cost to your business and customer service as well as six ways to minimize picking errors.
Identifying the cost of mis-picks to your business
Fulfillment errors often end up as returns, and processing returns can cost more than than the cost associated with picking the original order. Here is a list of typical costs:
- Resolving a picking error often starts with a customer service call or chat to return the product resulting in time spent by customer service.
- Returns processing labor to receive, process and make the item available for resale.
- Refunding a customer’s return shipping cost.
- Potential rework and repackaging of the item if packaging is damaged.
- Cost of picking and shipping cost for the correct or replacement item.
- Labor cost to do a cycle count, if a mis-pick resulted from a stocking error.
- Loss of gross margin on sale if the customer cancels.
Identifying and measuring these costs, we find actual costs can be $50 to $75 per error when all costs are taken into account. Here is an example of how costs of an error add up.
However, the highest cost to a business occurs if the mis-pick results in the loss of a customer and their Life-Time Value (LTV). Marketers use the LTV metric to measure each customer’s net profit over the time they shop with your business. There are many different ways to calculate LTV but in general, it incorporates the cost to acquire a new customer, to continue to solicit the customer, the cost of fulfillment and shipping; and LTV results in calculating the net profitability of the customer over the time they shop with you. Depending on the business, LTV can be in the hundred of dollars to thousands of dollars per customer.
Compounding this, in many businesses, a high percentage of customers shop one-time from a business and never shop again. If operations give them solid reasons to not shop because of poor service, losing customers will contribute to loss of profitability.
What is an acceptable error rate for your business?
In warehouse operations that are not fully utilizing barcodes, 1% to 2% error rates or more can typically be expected. Full implementation of barcodes in warehouse operations – receiving, put away, picking, pack confirmation, shipping, returns and cycle counting increases the accuracy rate of inventory and processes to 99.99%.
While a 1% error rate sounds small, the costs to your business can be sizable. Let’s say you ship 1,500 orders per day, 260 business days per year. If you count just the operations costs – let’s say at $50 per error, these costs equate to $195,000 annually.
- 1% of 1,500 orders = 15 orders have an error per day
- 15 errors X $50 X 260 days per year = $195,000
We are not going to estimate LTV because it varies by business. It would need to be objectively measured by marketing in a controlled test.
However, what is an acceptable error rate for your business?
6 Ways to reduce your warehouse picking errors
Here are six major ways to reduce errors:1. Track mis-picks and costs. Among all the fulfillment center metrics you can collect and report, mis-picks, the reasons and sources/causes of the errors and costs should be right at the top of your list. Make this a part of your operations strategy.
What causes the majority of the errors? Are there flawed processes which allow errors to occur? Are there some errors occurring in the receiving or the vendor environment that introduces errors into the DC? Are there issues with certain pickers causing a higher percent of the problems? Review your picking process and identify why they occur.2. Full implementation of barcodes and scanning processes. Full use of barcodes and scanning throughout all fulfillment center processes is a recommended industry best practice. In particular, barcode picking technology and pack confirmation scanning can reduce pick errors. Barcode labeling and scanning is the pre-requisite for all the more advanced technologies.
3. Reduce fatigue with improved slotting. We all know that pickers spend 70% of their time walking between pick locations. This can cause fatigue which can result in pickers being more prone to errors. Look at your slotting routines and continually improve your slotting regimen.
4. Invest in automation where return on investment is possible
- Voice picking
- Pick to light and put to light
- Automated picking modules for higher volume operations
- Goods to person picking and conveyance systems
- Implement visual checking in the pack out process
- Be sure that the pick document font size is large enough to be easily read
- Is your pick area illumination strong enough? Often secondary pick areas are not as brightly illuminated
- Emphasize picking from the location on the pick document - not from memory or where the picker thinks the item is located (“It was in this location yesterday?”)
- Do not locate color or size SKUs next to each other if mis-picks occur frequently
Reducing picking errors with these methods and investment will radically decrease errors and costs and improve your customer service. WERC and DC Velocity's annual report says it is the single most important metric warehouse and distribution managers report.