I was in a client facility last week working on a plan for a new warehouse. As we were discussing the outbound shipping history and its projected growth, we noted that it was erratic. The senior director commented that absenteeism and turnover were major problems for his center. Absenteeism caused as much as a 30% variation in units scheduled for shipment and employee turnover is 44%. This center has 105 hourly workers and seven managers. The turnover is 49 employees annually.Read More >
In a recent blog I mentioned that typically we see efficient, conventional - warehouses with minimal automation - have Total Warehouse Cost Per Order between $3.00 and $4.50 for consumer direct-to-customer companies. You might say, “For what sized company?”
To show how results can vary, I have selected 16 companies from our proprietary database of operations costs and productivity. They had 26.9 million orders annually with Total Warehouse Costs of $114 million. The “fully loaded” weighted average for Total Warehouse Cost Per Order was $4.24. Nine of these businesses had annual orders less than 1,000,000 and the largest was 7.2 million orders annually.
By “fully loaded costs” I mean management salaries, direct and indirect labor wages, total occupancy (including heat, light, space, depreciation and amortization for conveyance and MHE); and packing costs.
We excluded the outbound order shipping as it distorts comparisons between companies. Reasons: DIM/weight and negotiated carrier costs vary widely. Additionally we did not include cost of employee benefits, payroll taxes and vacation.Read More >
I was talking to a client and he confessed that time had slipped away from them in implementing a full warehouse assessment. As he and I were creatively thinking what he can do in the couple months before this Holiday Season, here are three things everyone can do to improve Holiday season productivity.
We have worked with hundreds of clients over the years to help them calculate and compare their total cost per order (call center and fulfillment functions). We are offering you the opportunity to take advantage of a free offer - if you collect and report what your major costs are for order taking and fulfillment, we will compare your total cost per order against other multichannel businesses that we within our benchmarking database. All companies will remain anonymous and blind to any others that participate. Click to download data collection spreadsheet.
Labor generally makes up 60–65% of the total cost of warehouse fulfillment (not including shipping). While hourly labor rates have increased 10% to 15% in the past five years, overall DC productivity has remained flat—so the cost per unit worked has increased. High turnover (15–25% or more in many distribution centers) adds even more costs. With most businesses struggling in the current economy, it’s imperative to get more from the resources you have. Selecting, training, and retaining good employees is one key to controlling rising costs in the warehouse.
F. Curtis Barry & Company is proud to present our just recently published WMS Vendor Round-Up Guide. It is the most comprehensive guide to Warehouse Management Systems that serve catalog and eCommerce fulfillment operations and distribution centers.
Industry Question: My company has just acquired 2 new gift catalogs, which are heavily Christmas oriented. My fourth quarter order projections are 3 times what they were last year. How am I going to hire, train, and retain so many more warehouse staff for only 3 months work?
Two articles in the Wall Street Journal (even though they have some "dust" on them) serve as stark reminders of this reality. The first, Retailers Reprogram Workers in Efficiency Push (September 10, 2008) described installations of workforce management software at AnnTaylor Stores Corp. and other retailers. According to the article, workforce management systems are sweeping the industry as retailers fight to improve productivity and cut payroll costs. As the Journal noted, some workers arent happy about the trend, saying the systems leave them with shorter shifts, make it difficult to schedule their lives, and unleash Darwinian forces on the sales floor that damage morale.
The Ann Taylor system keeps track of the usual productivity metrics: average sales per hour, units sold, and dollars per transaction. The system schedules the most productive people during the busiest hoursand, because it awards more-productive salespeople with favorable hours, it gives employees an incentive to persuade shoppers to buy things. And its worked, as far as the overall economic goals are concerned; the chains director of store operations said it has helped turn more store browsers into buyers. But, as the WSJ story made clear, it also resulted in the loss of some veteran salespeople who had developed long-term relationships with customers. By focusing strictly on the metrics that could be easily measured, the system actually penalized associates whose selling style depended on longer interactions with the customereven though such relationships often assured continued customer loyalty. Others found their hours cut back to the point where they could no longer afford to make the trip to work. During busy times, the formerly congenial staff began competing for customers, sometimes stealing them away from one another. While productivity was, indeed, increased, perhaps the most surprising unintended result of the system was that this story, with all its unflattering aspects, was splashed across Page A1 of The Wall Street Journal.
Ironically, just a few days before that story appeared, the Journal carried a remembrance of Michael Hammer, often called the Father of Re-Engineering, who had passed away at age 60 on September 4th. The Journal story pointed out that Mr. Hammer, author of the 1993 business best seller "Reengineering the Corporation: A Manifesto for Business Revolution," was a remarkably successful and influential consultant. He revolutionized many businesses. Among his achievements, he had helped Schneider National trucking cut the time it took to complete a job bid from two weeks to two days; and by focusing attention on refinery safety and efficiency, he had allowed Royal Dutch Shell to improve reliability and reduce costs. He was lauded and recognized by Time and Forbes, and commanded huge consulting and lecture fees as a result.
Yet Mr. Hammer also had second thoughts. In a 1996 interview, the Journal recalls, he admitted that he and other re-engineering proponents hadn't paid enough attention to people. "I wasn't smart enough about that," Mr. Hammer said. "I was reflecting my engineering background and was insufficiently appreciative of the human dimension. I've learned that's critical." It was because of that early omission, the Journal notes, that re-engineering had a dark side, as the streamlining of processes in supply chain logistics and operations often went hand in hand with reductions in workers. Often the term became jargon for mass layoffs.
There are lessons we can take away from these two stories, and you should consider them when youre looking for ways to improve productivity and cut costs in your supply chain logistics:
- Whats the effect on the customer? Think about the reaction most people will have when reading the Ann Taylor story. Why would anybody want to work in retail? Service is already lacking in most retail stores; is removing its last vestiges really a good thing?
- Be careful what you ask for. I believe that people will give you what you ask for. If you want lower costs per call and push your people to shorten the call, theyll deliver. But ask yourself, is that the outcome you really want?
- Are you measuring the key performance indicators? Many businesses still arent benchmarking their supply chain logistics and operations internally. A $75 million personalized business with a complex call center recently had us implement their first cost-per-call, cost-per-order, cost-per-transaction reporting systemand they got some real surprises. Remember: you cant improve something that you havent measured.
- Direct has a real advantage. The president of a large general merchandise cataloger recently told me he wanted efficiency, but not at the cost of sacrificing customer service. Many of our customers tell us that the casual, helpful, really interested call center reps are why they deal with our business. Our knowledge of the products and their application is extremely important to making the salenot a short, brisk conversation. Direct companies come out on top if they provide a higher level of service.
Failure to fully understand where youre starting from, what you hope to achieve, and to think re-engineering through to all its possible consequences, can lead to any number of unintended results; winding up on the front page of the Wall Street Journal might be the least of your problems.
If you're interested in more information on productivity measurements and benchmarking your operations and would like to talk with a consultant, contact Jeff Barry at firstname.lastname@example.org, or call (804) 740-8743. F. Curtis Barry & Co. is a national consulting firm that works with eCommerce, catalog, retail, manufacturing and wholesale distributors on projects focusing on supply chain strategies, order management systems, warehouse management systems, inventory management, third party logistics, and to reduce freight costs.
Cost Per Order (fully loaded)
I recently took a step back and tried to determine what type of company would use our warehouse consulting services. We try to help businesses with their warehousing needs by providing a variety of consulting services. Our goal is to help businesses cope with these challenging economic times by making recommendations for controlling their operating costs. My focus was on developing a list of potential businesses that might need assistance. In the past, our client base consisted of the companies you would traditionally think of as direct to customer and business to business entities. I thought a good place to start would be to research recent past warehousing clients.Read More >