Avoid Fulfillment Woes

How to use a warehouse assessment to improve customer service and decrease costs.

Your warehouse this past holiday season was near capacity; you made it through the season, but it wasn’t pretty. The marketing plans for the new year and next holiday are up considerably. The executive committee of your multichannel company has made a decision that the company must meet the aggressive sales plan, and you have to find ways to stay in this facility for at least one more year. You have two months to come up with a new operational plan. What are you going to do?

A key starting point to improving multichannel operations and reducing overall costs is to conduct a thorough warehouse assessment. To measure the operational efficiency of your warehouse, start with an on-site audit to evaluate the operation against a set of internal expectations and external, industry-accepted best practices and averages.

Before you begin an overall assessment, know that the basis of real improvement must always be the result of actual measurement. Without the metrics for what’s being done, an assessment can’t serve as a basis for advancement.

Internal operations reports are indispensable. A serious audit should include weekly productivity reports from all departments — including receiving; quality assurance; inventory control; replenishment; picking, packing and shipping; personalization
and gift wrapping; and back-order handling — in terms of units of work processed per paid hour and reporting of errors.

Discover Patterns

Other areas that require attention are inventory functions such as stock put-away, shrinkage control, inventory counts, initial order fill rate and supplies inventory. Analysis of returns reports in particular can help in discovering patterns that need improvement.

Once you’ve gathered all the research and data available for warehouse operations, compare desired service standards with your company’s actual performance. One avenue of analysis is internal data compared with benchmark figures from such sources as trade publications or consulting firms. But it can be extremely useful to compare actual figures from the operations reports of other merchants of comparable size in the same industry. Be careful what period of time you’re comparing yourself in: low, average or peak periods of productivity.

Real Time, Real Space

The second, indispensable part of a warehouse assessment is an on-the-ground, on-site inspection and analysis. Start with a warehouse and distribution center walkthrough. Look for signs of operational efficiency, such as organization, productivity boards for employees to check, possible areas of congestion in aisles, lack of space in receiving and returns processing, and use of cubes in product storage.

Check to confirm that various departments in the distribution center have enough space to operate during peak season. Does workflow seem consistent and efficient, or does it require excessive movement from one department area to another? Are material handling systems configured to move product through the center as smoothly as possible?

Members of your warehouse staff will have the best sense of how the operation actually works. So, don’t neglect to interview them, both managers and personnel, and to ask about space, workflow and processes. Solicit ideas about possible operational improvements.

Analysis Into Action

Once an assessment is complete, consider improvements to move operations levels from less-than-desired performance standards to best practice benchmarks, while maximizing the overall efficiency of the warehouse.

One tool in the process is related to determining space needs for optimal performance. Consider data on product characteristics in the light of performance goals. This data typically involves attributes such as cubic dimensions, stockability, conveyance, shipping and vendor master pack units, product sales movement or velocity, and inventory on hand. By converting this data to physical units, you can help improve layouts for various warehouse function areas.

Many companies have a hard time translating business goals into high levels of fulfillment service, usually because warehouses are designed on the basis of criteria different from those in the company’s “business plan.” Increased inventory levels, for instance, require more cubic space, while increasing the size of forward pick positions requires a longer pick line. Operational profile data on this level rarely surface at the level of overall business strategy.

Simplicity and consistency are principles that can go a long way to making warehouse operations efficient. For example, some smaller distribution centers rely on experienced personnel to remember product locations for order picking. Others require pickers to manually sort pick tickets. It’s far more effective to use your order processing system to incorporate a location numbering system that routes pickers through picking tasks. Such straightforward organization makes it easy to train new employees in the center.

Case Study

Here’s an example of how a warehouse assessment can work to improve capacity, productivity and customer service while reducing costs. During the holiday 2004 season, a multititle direct marketer experienced more than 100,000 order backlogs and backorders. Order volume during the peak days of a three-week period were 10 to 12 times that of an ordinary week. While sales were welcome, the backlogs and backorders increased shipping costs and reduced operating efficiency.

Because the merchant’s order volume was growing about 25 percent a year, the company asked my firm to help with warehouse operations planning for the 2005 holiday season. We provided a warehouse assessment to help determine how to meet growing demand.

Using the existing facility was not a feasible long-term option, and an expansion or a move would be necessary. But if possible, the cataloger wanted to get one more year’s use from the existing space, in part to help it make a more informed decision about long-term plans. Additionally, the company wanted to increase customer service during the peak weeks, which would reduce expenses absorbed to ship before Christmas and yield a significant increase in customer satisfaction.

The on-site assessment, conducted with the client’s warehouse managers and staff, began with a review of the productivity and production numbers from the previous season. This review analyzed planned orders, shipments, and inventory and productivity rates. Important measures included peak shipments, peak staffing levels by department, number of SKUs and demand by SKU.

The review also analyzed the operation itself, focusing on warehouse layout, flow and processes. The following recommendations, which were implemented by the marketer, emerged from the review:
1. Create a hot-pick area for the fastest-selling or “A” items.
2. Expand and/or modify the area for picking and packing ship-alone items.
3. Start peak hiring and training three weeks earlier in the season. This practice allowed the client to run a full, second shift instead of the previous one-and-a-half shift schedule.
4. Make minor changes, based on sales velocity, to the pick line layout. It increased the pick slot sizes for selected items, improving picking and replenishment functions.
5. Re-slot faster-selling items closer to takeaway conveyors. It reduced pickers’ walking times.
6. Use off-site storage for excess/reserve inventory. This process improved on-site buffer inventory efficiency and ensured that the limited, on-site space held correct items for pick-slot replenishment.

Result: The client processed 150,000 orders during its peak week in 2005, up from 120,000 orders the previous year, and was in a far better in-stock position. There was a dramatic decrease in expense for expedited shipping (by 20 percent) that the client had to absorb to get the shipment to the customer before Christmas.

Curt Barry is president of consultancy F. Curtis Barry & Co. Reach him at (804) 740-8743 or cbarry@fcbco.com.