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:
This article discusses identifying the cost to your business and customer service as well as six ways to minimize picking errors.
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:
Identifying and measuring these costs, we find actual costs can be $50 to $75 per error when all costs are taken into account.
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 reasons to not shop again. Losing customers will contribute to loss of profitability.
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.
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?
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
6. Adopt a 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.