Warehouse Optimization Guide to Reducing Costly Picking Errors in Your Operations

In today's world, customer expect ecommerce orders to be timely and accurate. Problem orders due to incorrect items picked from the warehouse are one of the greatest customer service killers. Minimizing these picking errors is crucial for maintaining customer satisfaction and operational efficiency.

Every picking error in the warehouse not only negatively affects the customer but can cost $40-$50 or more to handle in a returns process.

To stay competitive, companies must determine what is causing the picking errors, and implement processes to improve accuracy. 

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).

These warehouse problems and picking errors 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.

In this article, we explore six proven methods to help your warehouse operations achieve greater accuracy in the picking processes.

Identifying the Cost of Picking Errors 

Fulfillment errors often end up as returns, and processing returns can cost more 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 $40 to $75 per error when all costs are taken into account. Consider these costs from a client that is on the lower end of the costs. 

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).  Depending on the business, LTV will be in the hundreds of dollars to thousands of dollars per customer.

Compounding this is that a high percentage of customers shop one-time from a business and never shop again. If the operations provide a bad experience, it gives them a solid reason to not shop again.   Losing customers will contribute to loss of profitability.

Picking Error Rates and Their Impacts 

In warehouse operations that are not fully utilizing barcodes and scanning, 1% to 2% error rates or more can typically be expected. This doesn't imply that you should be satisfied with 1-2% error rates.  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

Reducing warehouse picking errors drive up operating costs and negatively impact customers.  Correcting these picking errors in the warehouse should be a top priority for all operations.  Even minor mistakes in the picking process can lead to significant problems.  These can lead to many unintended consequences and damaging the brand. 

To improve order accuracy and reduce picking errors, here are six effective strategies that can improve your fulfillment operations. From tracking picking errors to implementing warehouse management systems, these methods will improve your picking processes.  In addition to streamlining your processes, these will also help to lower operational costs. 

What causes the majority of the picking 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. 

If your system is capable of scanning and utilizing barcodes, you must ask yourself the following:

• Is our WMS system holding the company back?
• Is our WMS system causing more inefficiencies and increasing operational costs?
• Can we grow or scale with the current WMS, or is it a liability? 

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.

Most companies ignore slotting until it becomes unbearable.  At this point companies are in a situation that takes a lot of resources to overcome. Utilize the Pareto Principle and focus on the top 20% of SKUs from a velocity perspective.  Break this top 20% up into smaller manageable chunks until all items are in the proper location with the right number of units. 

4. Invest in automation where return on investment is possible.  Picking automation has excelled with significant advancements that can assist most companies.  These picking technologies excel in driving speed with accuracy.  Not all technologies are meant for all product types or operations.  It is important to consider which automated solutions are best for your company. 

Many of the picking technologies being deployed today include:  

• Voice picking and voice directed systems
• Pick to light and put to light
• Automated picking modules for higher volume operations
• Goods to person picking 
• Picking co-bots
• Vertical Lift Modules (VLM)

A word of caution is to not get caught up in an unrealistic payback.  Automation is not a silver bullet for all your operational problems.  Additionally, some sales managers are a bit too optimistic on the savings.  Don't fall into these typical automation ROI mistakes.

5. Ways to improve a manual picking environment. Not everyone has a robust warehouse management system (WMS) and must have the most efficient paper-based process.  

• 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.

6. Adopt a cycle count schedule based on item sales velocity. The fastest selling (velocity) product is picked more often. Remember Pareto’s law will be at work, 20% of the items will give you 80% or more of the selling velocity. Count them frequently. Slowest selling product may be counted only quarterly or less.

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.