Developing Plans to Improve Your Warehouse's Peak Performance

You made it through the peak period “but it wasn’t pretty.”  The additional volume revealed some serious issues in your fulfillment operation.  Your people weren’t able to meet the service level standards.  The facility was filled beyond capacity, became disorganized and almost impossible to move through.  You used far more overtime than planned.

During the peak period or shortly afterward is the time to do a peak period assessment and address how well your fulfillment team is serving the customer and meeting or exceeding the company’s goals in terms of service levels and costs.  While your most recent peak season is fresh in your mind, develop plans for operational improvement and implement before the next peak. 

To digress for a minute, when you’re “in the heat of the battle” and it’s not too late, take the time to start a list of symptoms or observations for improvement.  As consultants we find that being on-site during the peak is a real benefit to the assessment process later.  Sometimes we have been able to make observations and recommendations to improve processing and throughput immediately.

Our focus for this article is the warehouse operation, but a similar approach can be utilized for other areas of your business. The important thing to do is to spend time evaluating your past performance and putting a plan together to correct any issues that are identified. In many cases, the process of gathering information and data pertaining to the warehouse operation identifies potential improvements by itself. Many warehouse operations are not evaluated in both a qualitative and quantitative manner and as such opportunities for improvement are never fully identified. In order to improve anything, it first has to be measured and evaluated.  Be methodical in making the observations and analyzing the results.

The peak period assessment should be everyone’s priority.  One aspect of any effective audit of the operation is to involve those who were intimately involved. If you don’t actively involve warehouse supervision and hourly employees in the analysis, you are missing one of the most valuable assets at your disposal. Those closest to the action usually know and understand the issues and solutions better than anyone else.

Learn How to cut your costs by 10-20%

It’s impossible to detail all the things that should be reviewed in one article.  However, we have focused on the major areas of concern and where you should spent your time to get the biggest benefit. 

1.   How Well Did You Serve The Customer?

Quick order fulfillment time.  For in stock products, most fulfillment operations have a ordershipping standards of 24 to 48 hours. Most ship expedited and a high percent of orders same day as ordered. 

Review your order fulfillment metrics.

  • How well did you meet your standards? 
  • Did your expedited delivery performance meet customer’s expectations?
  • What are the major causes of being off standard?  Inventory availability or internal processing problems?
  • How well did the actual inventory level meet planned levels? 

Most fulfillment managers do not have responsibility for planning and ordering product. Additionally, reviewing the reports of the initial customer order and line item fill rates will help you understand your service levels to customers. 

  • Did you have the necessary inventory to meet your company’s initial customer order and item fill rate goals? 
  • If you had periods of severe back order levels, how did this impact your processes?
  • If you have an age of back orders report, what does this show in terms of customer service?  Cross docking back ordered products expedites back order processing. 

Evaluate shipping carrier performance. 

  • Did your package carriers meet your expectations? 
  • Review whether carrier pick ups were made on schedule.  From carrier reports and your internal systems, how well did the carrier meet their days to deliver metric to your customers? 
  • How many damage claims were noted in the returns process? 
  • Are there any condition issues (such insufficient dunnage) that can be attributed to improper handling in the warehouse?
  • Are there significant wrong deliveries by the vendor or address deliverability issues in your order management system?

Review types of errors beginning reported. 

In additional to internal operations reports and results of internal audit checks, reason for returns and customer service reports should be researched for symptoms of problems.   

  • What order accuracy rate did you attain? 
  • Was the return rate higher than expected?
  • Is there an overall problem above the natural return rate that certain categories of products have? 

Establish from all these sources, observations and recommendations about how well you serviced the customer.

2.  Meet Cost Per Order Objectives

One place to start in your analysis is to look at your financial performance comparing budget to actual for the five major expense categories which represent the total cost per order excluding shipping expenses.  The reason for isolating shipping costs is that it distorts any comparison should you try to benchmark with other businesses. 

  • How well did you perform against your budget for Direct Labor, Indirect Labor, Occupancy Costs, Packaging Costs and Contract Services?
  • How was your Cost per Order impacted by your plan to budget and actual performance? 
From our proprietary data base of warehouse costs, for multichannel companies with 2 or 3 line/customer orders, efficient companies have as total warehouse costs between $3.50 and $5.00 for back end fulfillment not including shipping expenses.  This equates typically to 5% to 7% of net sales.  Highly efficient and lower cost fulfillment operations may be under $3.00 per order.  Direct labor as a percent of total costs may represent between 35% and 50% of the total cost per order.
From your shipping bills and reports, what are the major reasons for being off budget?

This top level view will give you a direction of where to focus your efforts from an expense budget perspective.

3.  Use Labor Efficiently

  • As you review your detail labor reports for the peak period (budget to actual performance), how well did you meet your labor budgets?
  • If you did not meet the budget, can you attribute the variance to missed order forecasts or to lower labor productivity? 
  • What percent of your labor hours were overtime hours? How did this compare to your labor plan
  • Have you established productivity standards for all key warehouse functions? 
  • How well did each key function meet the expected productivity goals?  Picking, Packing, Receiving, Put away, Shipping, Returns, Replenishment, Value Added Services (e.g. kitting, personalization, etc.).
  • What opportunities are there to be more flexible with labor or to add shifts?
  • How well do employees understand the goals and get back feedback on the results?

Make sure they clear expectations that employees understand.  Measure actual performance of employees and functions.  Communicate and review results.

What are your conclusions regarding how labor could be used more efficiently in total and by function?

4.  Evaluate Process and Layout

During PeakProcess and layout should be dealt with individually and inter-related together. From a process perspective.  In performing a warehouse assessment to make recommendations for improvement, trace the flow through the warehouse from two perspectives: product flow and customer order fulfillment flow.  Were there any bottlenecks or backlogs experienced?  Here are a few functions to review:

  • Receiving process and put away.  Did you meet your time standards for placing received product into a shippable status condition?  On the Receiving dock, did you clear the dock of receipts every night or was there congestion that reduced receiving efficiency?  Best in class companies have standards to clear the dock in 2 to 4 hours.
  • Warehouse inventory accuracy.  For “warehouse can’t finds”, how many times did your order selectors arrive at an empty pick slot when picking?  There are two potential areas:  Product in the right bin/slot location (product aisle mapping) and the accuracy of the inventory quantity count.
  • Picking. Did you experience any delays for picking due to congestion in the aisles, inadequate inventory, picking equipment issues, unexpected order spikes, or lower overall picking productivity
  • Packing.  Were you able to keep packers busy with no delays from running out of work? Did you schedule packers to start their shift later than the Picking function so work is available?
  • Returns.  We mentioned analyzing the reason codes for returns indicate any specific process issues that caused the return to occur.  How can the returns process be streamlined to eliminate un-necessary or duplicate efforts?  Were you able to keep up with the volume of returns coming back to the warehouse without creating an excessive backlog?  Did the returns processing time meet your expected performance standard?  Are customer’s being refunded or credited for returns in a timely fashion.
  • Layout perspective.  As you trace the product flow and order flow, what problems such as aisle congestion, back tracking flow, floor space utilization, etc. have you identified?

From this step in the analysis, what changes in process and methods can improve efficiency and reduce costs?

READ: 18 Warehouse Layout, Design and Efficiency Principles

5.  Apply Automation

To reduce labor, what opportunities are there for applying cost effective use of material handling equipment, conveyors, envelop stuffers, box makers, voice pick, pick to light and sorters, etc.?  It may benefit you to engage a consultant to study how equipment can gain improvement and gain ROI.

  • If you have a conveyor system, did it provide enough accumulation during peak?
  • Did you experience any downtime? 

Determine where you should spend time in further study of the possible application, the investment required and the ROI.

6.   Warehouse Staffing

From a staffing and human resources perspective, look at your hiring and staff goals and determine how well your human resource goals were meet.  Were the people available and trained on schedule as you ramped up?  Look at the training and its effectiveness and whether new employees performed at the expected productivity levels.   If you used employment or staffing agencies, did they provide employees who met your desired results in terms of productivity, flexibility, attendance, etc.?  Were there any employee attendance issues during the peak?  In the end determine your employee turnover for unplanned seasonal losses and calculate what the cost was to the organization.

What are the hiring and human resource recommendations you will make to management?

7.  Merchandise and Inventory Planning

There are several major ways inventory may have impacted your operation.  At the end of the peak period, how close was the actual demand and sales to the initial plans?  If there is a reasonable difference in plan to actual, this can create operating variances in labor costs.  If so, what variances were caused and was there any way they could have been minimized, such as reducing labor hours of the departments and personnel.

The second effect that inventory can have is storage capacity issues at peak inventory levels.  Did you have any excess inventory situations occur which used excessive forward or bulk inventory positions?  Looking at percent utilization, did you meet your storage utilization objectives as measured by the actual storage numbers compared to the capacity of the warehouse?  Often during the peak you lack the inventory cubic space and end up floor stacking which reduces picking and put away efficiency or leasing trailers and outside space. 

A third area of review is how much space is used by slow selling merchandise and overstocks.  In one fulfillment center we found that 60,000 sq. ft. of their 350,000 sq. ft. of space stored slow selling and overstock merchandise.  Identify from your age of inventory and over stock reporting, what they potential for better inventory management and maximizing capacity. 

What recommendations should be developed and how can you enlist the help of your  Merchants and Inventory Control departments?

READ: Key Principles to Assessing Your Warehouse Operations

8.  Vendor Performance

As part of your receiving department and vendor compliance procedures, you should measure the following key metrics:  on time delivery, damage, proper labeling, item and quantity accuracy and charge backs.  From these reports, what problems become evident or are they symptoms of?

What recommendations should be developed and how can you enlist the help of your  Merchants and Inventory Control departments?

9.  IT Performanc

When IT isn’t effective many processes can come to a stand still or be seriously degraded.  Did IT’s lack of support negatively affect your production?  Did you experience any delays due to system downtime (i.e. computing capacity required with additional volumes)?  During peaks do you need additional terminals, printers or telecom to stay up with increased volumes?  Was It responsive during the peak (i.e. from help desk, operations, programming)? 

What recommendations should be considered for improvement and how will you get help from the IT department?

10.  Demand Plan For Peak

As we perform warehouse assessments there are many statistics and characteristics about your Product Profile and Order Profiles that you’ll need to take into account.  If your planning for the next peak season, how will these Profiles change? What are the anticpated demand, sales and return volumes?  While the marketing sales plan may not yet be available, certainly management can give some idea of a percentage increase over this year.  From the marketing demand orders, you can calculate the shipped orders and units of demand and returns.  Additionally, by including the Merchants in your planning, it may give you advanced info about new merchandise categories that they are considering essential to having type of storage and cubic footage available. 

Develop Your Action Plan. Your objective from the assessment should be to develop an action plan for improvement.  Identify all potential changes. 

Determine the Possible Options.  Prioritize changes and what they will yield.  Find “the low hanging fruit”.  Use a phased approach.   Don’t try and take on too much change in any phase of improvement.  Involve your staff and senior management in developing the plan and gain buy in where necessary. 

Get into the mode of continuous process improvement. Throughout the year or after each  peak period, readdress and update your study answering the remaining issues. 

If you’re diligent about continuous assessment implementations, this will maximize customer service levels and efficiency.

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