Peak period order volumes often stress fulfillment processes and labor requirements which may cause decreased customer service and drive costs higher. Process exceptions and errors are magnified by order volume. How well did your fulfillment center perform in the last peak season? Do you have a plan for improvement to scale to the next peak season’s projected volume? This article details how to identify the operational changes to evaluate, and possibly change, to make the next peak season more efficient.
Form A Fulfillment Process Improvement Team
While the processes and functions you are looking to improve are fulfillment center related, other departments such as merchandising or purchasing, accounting, and IT may have valuable input and may also benefit from this process improvement. Get subject matter leaders in those areas to be on the team.
Start with your staff and the team compiling what they feel went right. What was marginal or needs improvement? From management’s perspective, what can they add in terms of customer service, order throughput, and costs?
To get down to a much lower level of detail, an effective operations assessment will need to be completed to evaluate the following:
- Current inbound product flow from dock to stock; outbound order picking and shipping; and merchandise returns and the refund process, etc. Then assess the current processes and determine potential changes to those processes that will make order fulfillment more efficient and reduce processing time.
- Measurement of the current space capacity and utilization. Look for ways to increase product storage in the same footprint.
- What bottlenecks and congestion affected operations? Why do they occur, and can they be averted next year (e.g. replenishment of pick lines with off-shift labor)?
- Service level measurements of dock to stock; order throughput; returns throughput, etc. How well are you servicing the customer compared to your fulfillment center’s standards?
- Where would changes in deploying material handling equipment (MHE) and automation reduce costs and improve throughput?
- Do you have effective productivity and fulfillment center management reporting by function, employee, and measurement against goals? Feedback to employees?
- How well did your warehouse management system support the current operation? What future operational changes will require system and IT changes?
- For multi-fulfillment center operations, how well did your fulfillment network function? What level of customer service did it achieve? How accurate was the inventory planning by center? Were there excessive backorders adding to shipping costs? Are there system changes that would benefit?
- In addition to reviewing expenses budget to actual, analyze cost per order; fulfillment department costs (e.g. receiving); cost per unit of work produced (i.e. cost per shipped order, cost per line, cost per unit; cost per pick line; cost per return processed, cost per returned unit, etc.)? Where do these high-level cost indicators point for further investigation?
Improve Peak Season Planning
Does your organization do sufficient planning for peak volumes? From a fulfillment perspective, do you have projected order curves for three months forward by week? The marketing, purchasing, or merchandisers may provide order projections by week through a season or three to six months forward. However, what analysis and planning do your fulfillment center need to do to improve the planning of fulfillment staffing, seasonal hiring, shift planning, and department functions (i.e. receiving, picking, packing, etc.)?
Then as the peak season progresses, update the actual by week and day to project more accurately in the near future and next year. If you are a high return business (e.g., apparel e-commerce), project return flow to occur two to three weeks after weekly order shipments.
Does your peak order profile change? Are there more or fewer lines on an order? Are there more rush shipments? Is there seasonality to product assortments that influence how customers order and therefore slotting?
Managing the peak. Given the order volume increase and length of the peak period, how do you manage the fulfillment center differently from average weeks? Does this mean partial or additional shifts? How do your team leaders and managers need to manage differently? How will they best use temporary people that don’t know your systems, products, or warehouse? Did overtime exceed the plan last year?
Plan slotting before peak product arrives. Peak order volume means much larger receipt volumes in advance of the season. Before you bring in the bulk of the product and congestion occurs, think through how you are going to use the space and slotting for best picking efficiencies. How will seasonal product/item velocities change slotting requirements?
What safety stock is being planned by purchasing and merchandising? How does this impact your storage requirements
Hourly Employee Costs, Availability, Productivity
In most fulfillment centers, labor is more than 60% of the cost of fulfillment. The rising cost of labor, competition for open positions, and availability is a major problem for many companies and in many marketplaces. What challenges does labor have in planning for the next peak season and longer-term?
According to Indeed.com, the job employment website, the average base pay for warehouse workers is $16.78 per hour and an average $4,750 in overtime. The hourly wage rate is up from $12.92 just 22 months earlier (29% increase). When you factor in benefits such as healthcare, training, and more – the fully loaded cost per hour balloons to $28.86 per hour. Companies typically have the following costs over and above the base pay:
- Benefits and healthcare 35% of payroll costs
- Workers comp and unemployment 8% of payroll costs
- Training 4% of payroll costs
- Recruitment, hiring and HR 25% of payroll costs
These benefit and overhead costs add $12.08 cost per hour for a fully loaded cost per hour of $28.86. All without any increase in productivity, efficiency, or accuracy.
For your fulfillment center, what were the challenges and costs of recruiting and training the seasonal workforce? Did overtime paid to exceed the plan? Was the seasonal workforce brought in at the right time for sufficient training and to match volume surges? Too frequently, inexperienced, and insufficiently trained people have lower productivity than expected and drive-up costs. What absenteeism and unplanned turnover occurred?
Some companies experience peak order levels that are 10 to 14 times higher than their average week. How does your core team have to operate differently to supervise temporary or seasonal employees effectively?
Automation and Robotics Strategy
In non-automated operations, temp workers must be brought in a week or two in advance to be trained on company policy, process, and equipment. Today with the increased use of robotics and automation, companies can train workers to accurately pick products in a short period of time – typically 3 to 5 days or less depending on the function and automation. Automation assists with reducing the absenteeism and turnover of the temp workforce. With sky-rocketing labor costs, lack of worker availability, and the need to scale fulfillment for peak as well as address future growth, should your operation investigate automation and robotics further?
How did the fulfillment center perform daily with the order volume? On a day-to-day basis was there unexpected order carryover because of lower productivity? Or higher volume? Lack of inventory?
What were the error rate and subsequent rework required? Was this higher than normal? Why did these errors increase?
Supply Chain Problems
Admittedly, the world supply chain problems have wreaked havoc on company and warehouse performance. We addressed safety stocks above. Are there other problems that can be addressed that you have more control of? For example, do you have vendor compliance policies that allow receipts to flow directly into stock without rework, additional time delay, and added costs?
From an Outbound Transportation perspective, using the peak season carrier bills, what was the final cost per order shipped? Was the shipped order profile different during the peak than expected? How did it affect operations?
Were carrier pickups on schedule? For smaller shippers, is there now an opportunity to have dropped trailers to allow loading during the day?
Did carrier problems such as reduced shipment pickups, late delivery, damage, etc. cause customer service problems?
Were there any issues with shortages of supplies? Would WMS cartonization functions assist in packing processes and dunnage costs?
Conveyor and Material Handling
Were there outages or equipment problems that were problematic last peak? Is there sufficient equipment to handle the future peak? Is it time to replace some outdated equipment that caused shutdowns or delays in fulfilling orders?
When you consider your longer-term growth plans and labor challenges as discussed above, should you consider transitioning to 3PL for some, or all of the fulfillment functions? As a supplement to your internal fulfillment, is there a cost-effective strategy to implement 3PL to ease peak? 3PLs can support everything from inbound processing of goods through value-added services and returns processing and refurbishment.
Develop an Improvement Plan
In many industries, the peak season represents a high percentage of sales and profit. With the assessment details, develop a plan to adopt for your next peak. Set priorities where you can realize the greatest payback. Set these as business objectives and incorporate them into bonus plans.