Considering all of the challenges today’s ecommerce fulfillment centers face, it’s difficult to know what aspect to tackle first when assessing your operation. While it’s OK to have just some general objectives - like reduce fulfillment costs – many companies’ assessments have more specific objectives such as addressing increased fulfillment expenses without incremental increases in productivity.
Other specific objectives include:
- How can the company gain more useable space to store product?
- How to reduce errors?
- What can be done to reduce order throughput times?
The assessment process we perform with our clients identifies areas where you can improve operational performance. The five basic components of the assessment are:
- Gather relevant data, including information and metrics to determine productivity, service levels, and error
- Walkthrough and observations of the operation and processes
- Interviews with key staff
- Development of potential options
- Develop action plan
What operational metrics do you regularly report on and what do these indicate about your fulfillment performance? A few metrics we recommend starting with include:
- cost per order
- cost per cartoon shipped
- labor cost per order
Your assessment should compare your desired standards of service and productivity with your actual performance.
Fulfillment centers are a long-term commitment and are expensive to acquire and operate. What opportunities are there to add pallet racking in terms of tiers or to use of space over doors and on the outer walls?
In some cases, we find that pallet racking is installed in the wrong direction in a center. While this mistake minimizes available space, deinstalling and reinstalling racking while a center remains operational has many challenges.
We recommend asking yourself the following questions:
- When eye-balling your bulk space, is it honey-combed in terms of partial pallets?
- Does your warehousing system aid you with directed put away and managing space?
- In forward picking are you using the same sized pick faces for every product? Or do you use a variety of storage media?
- Do store up to one week’s demand to reduce replenishment runs?
- What opportunities are there to better manage available space?
Direct and indirect labor represents more than 50% of the costs considering labor, total facilities costs (above) and packing materials costs. We have excluded shipping costs which distorts comparisons. Shipping costs often exceed the sum of all these costs.
This blogs gives nine key points to managing labor more efficiently, including:
- streamline functions
- develop labor budgets by function
- provide incentives
Layout and workflow
How well does your warehouse’s layout serve the processes of storing product - inbound receipt processing through put away? Then, how well does it facilitate all of the steps in the processes of filling customer orders and processing returns?
One of the best ways to find weak points is to diagram the inbound product and orders flow. What are the ways you can make the layout more productive?
Inbound vendor compliance
Vendor compliance is a great strategy for reducing costs in your business. Effective vendor compliance procedures will:
- decrease inbound transportation costs
- allow greater planning of receiving labor and reduced truck congestion
- reduce fulfillment center costs in rework and correction and merchandise delays in processing receipts
- lower accounting department costs for dealing with errors in paperwork.
Small retailers need to explore how these procedures can positively impact their business, even if they don’t institute charge backs.
There are two aspects to improving inventory systems:
- Being in stock when the customer orders without being significantly overstocked: Most centers can process orders if they have the item inventory in a single day. So what can management and merchants do that optimizes inventory availability? Here is a blog with six major recommendations.
- Having accurate inventory and being able to track inventory usage and location throughout the warehouse: Is your staff able to consistently locate the product when picking it and not create “warehouse back orders?" With fully barcoded product, warehouse locations and processes you can reach an inventory of 99.98%.
Maintaining slotting procedures are critical to an efficient operation. A few ways you can improve efficiency include:
- provide primary pick space for one week’s average unit sales for each SKU
- implement hot pick locations to reduce picker walk time
- focus on the top 10% of fast selling SKUs to ensure that they are properly slotted
- make sure the slotting process is maintained as a dynamic, ongoing process
Picking is a major expense in ecommerce fulfillment centers. We recommend a couple of ways to improve picking productivity and accuracy essential to order throughput in our blog post, including:
- maintain accurate product slotting and location control
- ensure staff can easily read the pick tickets
- use voice picking to improve accuracy and efficiency
Packing labor is also a major expense for ecommerce fulfillment centers. When assessing your packing process, materials, automation, and branding, we recommend assessing these seven areas:
Packing process and materials
Bulk purchases of packing materials and storage space
Head of operation's review of product selection
Environmental impact of packing materials
Involving outside experts.
Most companies have not improved productivity significantly in the last ten years to offset costs. What may seem like a daunting task is actually simple - most employees want to know what’s expected of them and how they are measuring up to those expectations. Simply put, measuring and reporting productivity in the warehouse improves performance.
Is this the appropriate time to take productivity measurement to the department level?
Warehouse Management System
When assessing your operation, are part of the solutions being considered dependent on higher functionality from your existing systems or a new WMS? If so, you will want to fully consider opportunities to employ automation in your warehouse.
From Assessment to Action
Once you gather and analyze all of the information, patterns will emerge and you’ll have a quantifiable picture of what you do well and what needs to be improved.
From there, develop an action plan for this year. Where can you get the biggest improvements from the smallest number of changes? Keep all the observations and conclusions organized so you can review at any time - but most importantly next year when you continue the process improvement cycle.