If you haven’t formally evaluated your e-commerce peak season fulfillment, make this the year you do so. Many businesses achieve 60% to 70% of the profits in the last quarter of the year. Their order levels are 10 to 15 times average weeks. From your peak analysis of successes and failures, develop a plan to improve your fulfillment performance from a multi-faceted approach.
Here are 10 ways to analyze your peak performance and develop a plan for improvement:
1. Ask employees for key improvement areas
Solicit key employees for areas of success and areas needing improvement. This is an activity that is easy to do and gets people thinking about the process. A couple of examples might be:
- “Our parcel shipper met our cut-offs 98% of the time.”
- “Our absenteeism rate caused us to carry over customer orders the next day.”
Later, do a deeper dive to determine why and use data to validate the impressions and determine options for improvement.
2. Review key metrics
What internal metrics give you the most accurate picture of your operational performance?
- Initial customer order fill rates – the percent of all orders shipped complete for all lines on a customer order. This metric tells you how completely you are filling orders. This is not the same as a back order percent. The initial fill rate is often 10 full percentage points lower than the back order rate.
- From call center reporting, what were the major categories of complaints? While these may be the outliers – the extreme – they are a helpful to know and understand.
- What are your error rates (e.g. damaged in transit and mis-picks)?
- Are there excessive return rates for products or vendors? Is the turnaround time for returns making resaleable inventory available to fill orders quickly? Are you crediting customer accounts within the week of receipt?
- How well are you meeting your same day pick and ship goals? To compete with Amazon, many e-commerce businesses are attempting to ship a high percent of orders the same day as ordered.
- Supporting other channels, did you meet the service levels of Amazon, other portals and fulfillment partners? If your operations are multichannel, how well did you support the company’s stores in meeting store level programs for fulfillment? These would include replenishing stores but also order on-line and pick up at store.
What potential areas of improvement do these KPIs point to?
3. Analyzing shipping carriers and costs
Shipping/carrier cost is the #1 cost of order fulfillment, larger than all other fulfillment costs (i.e. direct and indirect labor, facilities, packing material costs). But because of the time most e-commerce fulfillment managers spend on on this monthly, we have chosen to keep this section brief. Consider these things:
- Were your shipping costs in line with the budget?
- Did back orders shipped separately from the remainder of the order drive costs up?
- Did shipping carriers meet your objectives for dropping a trailer daily and meeting the cut-off times?
Analyze cost of shipping versus S&H income to focus on this major expense.
4. Evaluate hiring and seasonal ramp up
How well did your hiring and recruitment process work (i.e. job fairs, recruitment websites, ads and billboards)? What was the cost in terms of management time? What improvements can you make to training employees and lowering the costs of seasonal ramp up? Who are the people you want to hire full time? How can you set up a plan to stay in touch with good seasonal workers? Are there bonuses being paid for labor hired through a “refer a friend” program and staying the entire season?
5. Labor budget performance
Direct labor is often more than 50% of the fulfillment costs in e-commerce operations excluding shipping costs. How well did you meet your labor budget goals - actual to plan for both internal labor and temp labor agencies? A good first step is to understand how the marketing department’s demand plan – orders by week – compared actual to plan. Changes in demand plans can often affect labor cost and availability. What were the major causes for use of overtime pay? Did your incentive pay plan work as expected? What adjustments need to be made to increase production in the next year as well as peak?
If you use temp agencies, how well did they meet your goals? Are there good people you should hire on staff? If you used second shifts, how well were these managed? Was it difficult or more expensive to staff for, and was the absenteeism higher than expected? Were errors higher than expected?
Calculate employee turnover for the year two ways - with seasonal workers and without. What are the costs of this attrition? Is it excessive for your company?
6. Analyze workflow, storage needs, congestion
At the heart of making operational changes should be to perform a warehouse assessment. While the topic is too lengthy to cover here, we offer a downloadable article called, “38 Ways to Improve Your Fulfillment Operations” you might be interested in.
There are many possible outcomes here; to consider. Congestion slows processing. Quick cell phone pictures and videos help capture the issues of how congested your center becomes. Racking and aisles crammed with product make it difficult for workers to move and may result in forklift related injuries. One recommendation is to do the replenishment in off hours which improves safety.
Temp workers that don’t know your operation or warehousing may be best suited for the simpler tasks. How can processes be simplified or broken into multiple steps that makes functions easier to do? That may help everyone in long run.
In the function of inbound receiving, how well did the merchandise vendors perform? Did they create back orders; problems with their purchase orders in terms of substitutions; and late deliveries? Did they fail to meet your vendor compliance program?
At the heart of this assessment will be great future recommendations.
7. Inventory performance and operations
While purchasing and inventory management isn’t generally the province of operations, inventory availability dramatically affects throughput and costs. Was the backorder rate higher than expected, causing customer service problems and higher internal and shipping costs? As the season is completed, is there excess inventory that will not be carried over that needs to be liquidated?
8. Evaluate drop ship vendor
While in most cases, merchants set up these programs, fulfillment managers may be responsible for some aspects of managing customer service. Review the drop ship vendor and determine what their service levels were to the customer, costs of services and shipping. Are these achieving goals?
9. Evaluate multi-DC operations
How well did the distributed fulfillment network work? What level of customer service did it achieve? Was there excessive back orders adding shipping costs? Analyze the remaining inventory to see what excess needs liquidation.
10. Develop an improvement plan
Armed with details and options, develop a plan for your next peak season. This may not be the total plan that you are considering for fulfillment (e.g. adding capacity or an additional facility). Set priorities for where you can get the highest pay back.
Some of these findings will also be input to objectives and bonus plans for the coming year.
From F. Curtis Barry & Company to your company, we hope your business had a profitable year and delivered exceptional customer service! Happy Holidays!
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