Successful online sales increasingly depend on an agile, efficient back-end fulfillment operation – to drive profitability and to keep customers happy and coming back. Here’s how you address some common challenges.
1. Bad Forecasting
Your company’s fulfillment operations need accurate sales forecasts to match labor with demand. Poor forecasts beget bad labor plans that beget inflated operating costs – or worse, staffing levels inadequate to get orders out on time.
Here’s what we see:
- Marketing doesn’t inform fulfillment of upcoming promotions
- Procurement doesn’t let fulfillment know when inbound products are on the way or stuck at the port
- Operations and logistics fail to leverage historical insights that can help predict upcoming volumes
The data is there. It’s just not being communicated to the people making staffing decisions in the warehouse.
How do you fix the problem? With data, whether this is historical data like monthly sales averages, data from marketing and merchandising departments on upcoming promotions, or data from your 3PL on historical volume spikes or lulls.
It’s crucial to educate marketing and other upstream functions about why accurate forecasts are so important to downstream operational efficiency.
2. A Single Warehouse Strategy
Using a single warehouse to provide national fulfillment is nowhere near sustainable for your business – unless you have a unique or special product that customers are willing to wait for.
What are the downsides of a single-DC strategy?
- If you’re shipping cross-country, the costly, high-zone parcel moves are killing you. A multi-DC network puts products closer to customers and reduces parcel costs.
- With a single DC, you’re taking too long to deliver, which is bad for repeat business.
- If a pandemic or natural disaster stops shipments for a week, can your business withstand that interruption?
While a single DC strategy makes sense for start-up brands, it's a harder strategy to rationalize if you're a high-volume B2C brand – especially since, in our analysis, there's at least a 10% net savings when you add a fulfillment center in another region.
How do you fix the problem? Do a distribution network analysis to determine the optimal number of warehouses you should have and where they should be.
3. Poor Retention of Warehouse Associates
Until machines completely replace people, the biggest productivity and profit killer in the B2C warehouse is an inability to hold on to warehouse workers.
Most acknowledge that labor is the toughest order fulfillment challenge right now. But the response tends to be more around recruitment than retention. If your workers leave as fast as they arrive, what have you accomplished – other than creating a highly efficient revolving door?
We estimate that each warehouse associate who leaves costs companies $8,500. And that’s just for HR-related departure and replacement costs. It doesn’t measure the productivity loss.
How do you fix the problem? Simple employee-care practices like the following are good investments:
- Keep up with market wages.
- Listen to those who are leaving to understand why.
- Show appreciation.
- Invest in developing your middle-level managers.
Until robots are widely embraced (just a matter of time), curbing worker turnover is the most effective and inexpensive way to increase productivity and boost company profits.
4. No Performance Standards for Fulfillment Associates
How do you handle the picker with 50% of the throughput of most others? Many companies don’t have productivity standards for warehouse workers and don’t measure their productivity. Without such standards, unproductive associates fly under the radar and your throughput falls at least 10–15% of where it could be.
How do you fix the problem? Develop productivity standards – the time it takes an average worker to perform a particular task correctly. You can set standards for almost any activity, but some of the most common in the fulfillment warehouse are:
- # of pallets that can be put away per hour
- # of lines that can be picked per hour
- # of lines that can be packed per hour
- Time required to build a specific kit
Once established, start monitoring that standard and applying it across your operation.
5. Failure to Automate as Order Volumes Increase
Brands are understandably cautious about any capital expenditure to automate fulfillment operations. But there's a cost to waiting, such as high labor-to-sales ratio; poor accuracy from reliance on manual, paper-based processes; and staffing challenges, particularly during peak shipping periods.
How do you fix the problem? Companies can take a slow, modular approach to technology investments so that expenses are in line with the business’s size and growth rate.
While your business is gaining traction, a predominantly manual approach supported by a Warehouse Management System (WMS) is, frankly, the right approach. But as your business matures and requires high-volume, high-velocity picking and shipping, investments in automation – automated/smart conveyors, robots, and more advanced picking technology like voice picking and pick to light – are essential.
6. Failure to Optimize Packaging
To reduce parcel shipping costs, don’t make the mistake of only looking downstream to the carriers. It’s very hard to influence those rates. Instead, look upstream. There you’ll find huge opportunities to cut costs through simple changes to your packaging.
For example, why can’t brands get something as simple as box size right? We’ve all experienced it. That tiny thing we ordered online arrives in a box big enough for two throw pillows.
Streamlining your packaging size and form can spare your brand from looking like an inefficient, non-green-conscious bumbler, while saving you a cool two to 10% in parcel shipping costs.
How do you fix the problem? Rightsize your packages. Could you go smaller using your current box selection? Maybe you need to expand your sizes to provide a more exact fit. Every ounce you lose helps.
Another weight loss strategy is to switch from a box to a poly bag or jiffy bubble mailer for smaller, lightweight shipments. It can effectively eliminate a few ounces, while still protecting products
7. Set-It-and-Forget-It Slotting Strategy
Slotting is the process of organizing inventory in a warehouse to minimize space requirements and reduce travel time. Efficient slotting lets fewer workers pick more orders, more efficiently.
The issue isn’t that warehouse operators don’t do slotting, but that they don’t do it often enough. Typically, slotting happens at the onset of a project. But over time the volume changes or the SKU mix changes and no adjustments are made. Labor costs creep up, but very gradually, and no one attributes the increase to poor organization of inventory.
How do you fix the problem? Assign the right resources to determine the best slotting strategy for your current orders and revisit this strategy monthly (ongoing adjustments to the existing strategy), quarterly (more substantial changes), and annually (major changes involving rezoning, additional racking, or different racking solutions).
To reduce pick time, consider the following:
- Put promoted/high-volume SKUs in forward-pick areas
- Create adjacent locations for products that often sell together
- Place fast-movers in locations that allow picking without bending or reaching
- Separate similar products/SKUs that could be mis-picked
- Balance picking activity across aisles to reduce productivity-killing congestion
It comes down to making sure that all the inventory is where you want it – for efficient receiving, picking, and shipping.
Get Fulfillment Right
The new battleground for competitive advantage in online selling is no longer product or price. It’s customer experience. As a result, brands need to get order fulfillment right.
This article originally appeared in the May/June, 2023 issue of PARCEL.