As Amazon gets stronger and companies become more competitive, e-commerce companies need to continually find ways to improve operations, reduce expenses, and at the same time improve customer service. At the heart of this is continuous process improvement.
As we perform operational assessments for multichannel retailers - while companies have similar functions and processes - they often end up with very different outcomes and costs per order. From the hundreds of practical blogs on our website, here are 13 major ways to make your fulfillment operation more efficient and links to detailed blogs for improvement.
Understand your cost per order
Start by looking at your fulfillment expenses in six categories:
- Outbound shipping
- Management and supervision
- Direct labor
- Indirect labor
- Facilities (including utilities, security and maintenance)
- Shipping supplies
Outbound shipping expenses are larger than the sum of all the other components of the cost per order combined (items 2-6). For these non-outbound shipping costs, more than 50% is management and labor oriented. This gives you a starting point for identifying improvements that will have the greatest impact.
Compare your service level metrics
Best in class companies are achieving these service levels:
- Dock to stock put away: 2 hours
- Order fulfillment: 100% of orders ship same day as ordered
- Returns: same day for all steps
- Error rates: fully for bar coded products and processes: 99.8%
How does your business compare? Do a deep dive into the processes and make the changes which bring the biggest benefit and reduce time.
- What Are Your DTC Operations Metrics Showing You?
- How to Reduce Fulfillment Errors in Your Warehouse Operations
Reduce outbound shipping cost
Negotiate new agreements frequently. Employ enterprise shipping systems – for control of shipping from all shipping locations; gain access and analysis of shipping data; reduce manual effort for international order preparation and rate maintenance; reduced compliance costs; cartonization which will save packing costs. Consider multi-DC strategies to short time to customer and shipping expenses (see below).
- Where are You Losing on Shipping and Handling?
- 11 Ways to Save with an Enterprise Shipping System
- 20 Things to Consider When Picking a Shipping Software System
With labor being such a major expense, how can you improve hourly worker productivity? With regards to labor usage, the picking and packing departments make up more than 50% of the hourly labor cost in most direct businesses. Do you have a good estimate or actual costs by department of the hours and dollars you spend annually? Chart process flows at a detailed level to find ways to eliminate “touches” – the steps in every process – which will eliminate expense.
- 5 Ways to Increase Labor Productivity in Your Ecommerce Fulfillment Center
- 3 Imperatives for Warehouse Labor in Your DTC Business
- 7 Considerations for an Incentive Pay Plan in Your DTC Operations
Effective picking and slotting
As much as 60% to 75% of a picker’s time is travel. Effective slotting can reduce travel significantly, lowering the cost per unit picked. Effective slotting right-sizes pick slots based on product cube and sales velocity. It improves space utilization. More efficient picks and reduced costs are “hot pick” slot locations for high volume items. Effective slotting improves ergonomics and increases order accuracy.
- How to Improve Your Ecommerce Warehouse Slotting
- Improve Fulfillment Pick Rates with Efficient SKU Replenishment
Reduce employee turnover
What is excessive employee turnover costing you in terms of expense and losing experienced people? Put in place reporting that identifies why people leave your business, calculate the turnover rate and cost of losing an employee. When you consider all the costs of hiring and training, you may find costs range from $3,000 to $10,000. For highly compensated employees, the cost is much higher.
- What is Employee Turnover Costing Your DTC Fulfillment Operations?
- Are You Creating Career Paths For Your DTC Fulfillment Employees?
Improve the bench strength of your managers
Managers’ effectiveness directly affects everyone’s productivity. Evaluate where each manager needs improvement to get higher quality and productivity from the staff. What industry leadership training, online training and community college courses are available?
- Improving the Bench Strength of Your Operations Managers
- Educated Warehouse Employees Become Stakeholders
How to apply automation in a cost effective manner varies with order and unit volume. Invite a consultant in to evaluate your operation and advise how best to implement an automation strategy. Multichannel businesses are beginning to strategically implement robotics. If robotics and automation is not cost effective for you now, they will be cost effective for many companies in the next couple years.
- 9 Questions About Fulfillment Center Automation
- How Barcode Use Can Help Reduce Warehouse Costs
- Gaining WMS, Automation Synergies for Your Ecommerce Operations
- Making A Case for Warehouse Robotics
- 8 Things to Know About Voice Picking Technology
Supply cost study
Invite your box suppliers in to conduct a survey of how to reduce the number of cartons and dunnage. Can they offer storage and just in time delivery to save space?
Implement a multi-DC strategy
To reduce time-to-customer and shipping cost, investigate a multi-DC strategy. The West Coast may account for 20% of consumer multi-channel orders. A west coast based company locating a center in Memphis or Cincinnati may be able to serve 60 to 70% of east coast customers faster. Being closer to customers may increase sales through faster order delivery time. Second facilities come at a cost of additional management, hourly workers, facilities and inventory required. Outsourcing may provide faster implementation and a lower initial cost.
- Identifying the Right Market for Your Ecommerce Fulfillment Center
- For Your Next Ecommerce Warehouse: Existing Facility vs. Build to Suit
- Multiple DCs: Way to Reduce Cost of Shipping and Transit Times
- Evaluating Your Inventory Costs in a Multi-DC Format
Evaluate outsourcing options
For many companies, outsourcing has proven to be a high service and competitively priced option to internal fulfillment or to adding warehouses to be closer to the customer.
- 10 Ways A 3PL Can Help Multichannel Companies Operate Profitably
- 8 Factors When Considering a 3PL for Your Ecommerce Company
- 11 Key Indicators to Help Keep 3PL Service High
Implement new Warehouse Management System (WMS)
Is your current warehousing system – whether order management, ERP or WMS – the right platform for growth? Does it have functionality that will give you the tools such as labor management and productivity analysis, ASNs, interfaces to automation, visibility of orders and warehouse inventory, slotting, multiple level kitting and real time dashboards to manage work, to improve service levels and keep costs in line? Software as a Service has made good WMS affordable for more companies.
Be consistent with continual process improvement
It’s hard to continually improve operations if you look at process improvement as a project or an event. Managers rarely have the additional time required to research and implement on a continuous basis. Today’s lean organizations may find it difficult to schedule the improvement process annually. The companies that continually improve processes have trained professionals whose full-time job is process improvement. Promote someone in your organization and get them trained in Six Sigma and Lean principles. Another immediate option is to engage consultants on a regular basis to keep identifying ways to improve productivity, cost reduction and customer service improvements. Make process improvement part of your company culture.
- 15 Ways to Improve Warehouse Space Utilization
- 12 Ways to Get Your Warehouse Returns Area Ready For Christmas
- 11 Ways to Improve Dock-to-Stock in Your Ecommerce Operations
Continuous improvement in fulfillment process and systems is the only way to improve productivity, keep costs in line and better serve your customers.