This article originally appeared in the September/October issue of PARCEL.
Though it happened two decades ago, the dot-com craze of the 1990s created significant misinformation about warehouse fulfillment. But one thing is true — it may be the fastest-growing type of specialized warehousing. As the handling of e-commerce transactions continues to grow, the fulfillment process creates curiosity and even excitement.
Journalists have sometimes misinformed their readers by claiming that fulfillment was one of the great inventions of the 1990s. They either ignored — or were ignorant of — the facts about Sears and other mail-order companies. These firms were engaged in fulfillment operations in the early years of the 20th century. Within the warehouse, many processes were remarkably similar to those used today, although communications and transportation were different.
Orders arrived by US mail, addressed simply to: "Sears Roebuck and Company, Chicago, Illinois." There were no ZIP Codes, and the postal people knew how to find Sears without a detailed address. Customer delivery was usually accomplished by parcel post. When Sears opened its giant mail-order plant on the west side of Chicago in 1906, that building was the largest commercial structure in the world. When Henry Ford was looking for fresh ideas to perfect his automobile assembly line, the Sears mail-order plant was one of the places that he visited.
What Is Fulfillment, Exactly?
What features make fulfillment different from other types of warehousing? Unlike most operations, the warehousing people have direct contact with the consumers who order merchandise. Orders are much smaller than those handled by other warehouse operations. Information is always transmitted electronically.
Because consumers are looking for quality service and fast delivery, customer service requirements are particularly challenging. Order complexity is often quite high, and precise inventory management is necessary to handle a fulfillment operation.
Orders may be placed by e-commerce websites, email, fax, or telephone. A software system reports receipt of the orders as well as delivery tracking information that is needed to provide assistance for customers.
Many fulfillment centers spend more money on communications equipment than shipping equipment. They handle toll-free lines as well as credit cards. Order volume is higher than other types of warehousing, making systems technology critical. Fulfillment operators exchange data with customers every day, but leading distribution centers handle data on the web, in real-time, and around-the-clock. Data may be exchanged between fulfillment center and client— and sometimes with the consumer who placed the order. Easy access to records is critical.
Don’t Overlook the Importance of the WMS
The warehouse management system (WMS) is a critical element. The system supports inventory control, maintenance of "quick pick" areas, organization of orders for picking, scanning of cartons for accuracy, and carrier selection. When international shipping is involved, handling of import/export documentation and customs clearance procedures must be part of the information system.
These five areas rely on the information system to enhance productivity and effectiveness:
· Optimizing pick, put away, and replenishment.
· Establishing rules for each type of material movement based on factors such as unit of measure or minimum/maximum levels.
· Establishing zones to separate storage areas such as bulk, pallet rack, flow rack, and customer returns.
· Integrating with data collection devices to enable accurate tracking of goods through the warehouse.
· Integrating manifest applications to track shipping information.
Receiving Requires a Different Approach
Receiving differs from conventional warehousing. Backorders are common, requiring the receiver to isolate and expedite those SKUs that are urgently needed to fulfill orders. The volume of customer returns is higher than in other kinds of warehousing. The WMS is used to control the put-away and storage of inbound materials. This system should optimize bin utilization and adapt to information about inventory status.
Storage and handling functions are also different. Fulfillment warehousing usually involves fast turns and low volume. Because outbound is handled with parcel services, the fulfillment center has equipment to weigh and meter the parcel shipments.
Paper flow is also more complex than for other types of warehousing. The fulfillment center may create invoices. It will also handle some credit functions, sometimes even including collections. Accounts Receivable aging reports are frequently required.
Handling of credit cards is normally required, and some fulfillment centers even handle banking for their customer. Fulfillment centers are certified by Visa under Payment Card Industry Data Security Standard (PCI-DSS) in order to control the risk of identity theft. The fulfillment operator must be familiar with banking and credit card transactions.
In this environment, quality staffing is of critical importance. While some of the fulfillment jobs are repetitive, the workers need to be well-motivated. The best operators hire good people and keep them.
Because of exposure to theft and fraudulent claims, the liability problem is significant. Sometimes theft is the result of a fraudulent order. A fulfillment center operator is expected to absorb the financial consequences of errors. The liability limitations that exist in conventional contract warehousing do not apply in fulfillment. To compensate for the added risk, pricing of fulfillment services must produce ample margins.
The fulfillment operator must justify the faith that clients place with him or her by acting with integrity and professionalism. Financial responsibility is a necessary ingredient. A teamwork approach is essential. Employees must be empowered to do whatever it takes to serve clients. Finally, the fulfillment center operator must be innovative. Latest technology should be constantly introduced to enhance the ability to serve the customers
Ken Ackerman is CEO, Ackerman Co. He has been active in logistics and warehousing management for his entire career. Since 2007, he has also been a Group Chair for Vistage International, the world’s leading chief executive organization. Join him at 10 am on Tuesday, September 19 for his session titled, “What It Takes to Have a Successful Fulfillment Operation” at the 2017 PARCEL Forum in Nashville.