Cover Story: Retailing for Dummies
Creating an Effective Labor Plan for Your Warehouse
Order fulfillment can be expensive. From technology to warehousing to shipping, there are a multitude of expenses involved with quickly getting the right orders to your customers.
Generally one of the largest ongoing expenses is labor. For retailers, better warehouse labor management can lead to better planning and better profits, and it all starts with getting the right data.
Starting With the Metrics
The first step toward labor optimization is making sure you have the right systems in place in order to gather accurate, meaningful metrics.
A key metric to look at is labor cost per order, which is calculated by dividing total labor costs by the number of orders for any given time period. If your goal is improved warehouse labor efficiencies, make sure your calculations account only for warehouse staff.
The more detailed data you have, the better. For instance, when evaluating warehouse labor costs, one option is to do so by department, such as receiving, pick/pack, returns, custom projects, etc. If you run multiple warehouse shifts, it's also a good idea to look at labor costs by shift.
Establishing Benchmarks
In order to see how far you've come, you first need to know where you started. That's why it's important to establish labor cost benchmarks prior to establishing new goals. When setting benchmarks, do so on a quarterly basis (at minimum) to account for the seasonality experienced by most retailers. For example, you may find your labor costs are significantly lower during the fourth quarter than at any other time of the year. Then as you compare metrics, make sure you analyze year-over-year data from the same time period.
If possible, take it a step further when establishing benchmarks, and do so on a monthly, weekly and even daily basis. Remember, the more detailed the data, the easier it is to identify the trouble areas.
Making Use of the Data
It's not uncommon for retailers to experience heavy variability in order volume throughout the year. Analyzing detailed labor cost data will help with one of the most important but difficult tasks of any fulfillment warehouse: labor planning.
Many warehouses plan accordingly for the seasons, but there's no reason labor planning can't go beyond that. For instance, if your data shows that labor costs are consistently high toward the latter part of the day or week as order volume decreases, you can adjust accordingly.
To reduce labor costs, it's a good idea to make use of both permanent and temporary workers. This will give you more flexibility to scale up or down as needed. It's also important that you give it time (analyze at least a year's worth of data) before making labor decisions.
One of the biggest benefits of outsourced fulfillment is that retailers don't have to worry about labor planning. For those that do their own fulfillment, however, the right data can lead to an effective labor plan, one which can have a dramatic impact on your business. — Steve Bulger is the marketing manager of eFulfillment Service, an order fulfillment service provider. Steve can be reached at bulger.s@efulfillmentservice.com.
