The 2 Cent Refund Check – What Are Operational Inefficiencies Really Costing You?

call center, call center management, distribution center, ecommerce, ecommerce fulfillment, inventory management, Operations and Fulfillment, retail inventory, Warehouse/Distribution CenterAs God is my witness, this is a true story. It’s an example I challenge the reader to find in their business and eradicate.

My car insurance company issued me a $0.02 check on Jan. 6 with this explanation on the check stub: “This refund is due to a recent adjustment to your policy.” My January statement arrived two weeks later showing that they had in fact refunded me that amount.

  • Mistake #1 – Neither the insurance company nor I have made any adjustment to my policy since August 2014.
  • Mistake #2 – When I got the billing statement, I had mistakenly written a check for two cents more than was due (yes, I’m still writing some paper checks!). It wasn’t an “adjustment” to my policy but an overpayment.
  • Mistake #3 – A clerical employee probably made a wrong decision about the reason for the refund and kicked off the check issuing process.
  • Mistake #4 – This is a very expensive transaction when you consider the clerical effort, the specially design form (a self-mailer combining check, stub and envelope), using presorted first-class mail, plus the processing costs back through my bank, into the insurance company’s bank and through their internal systems.
  • Mistake #5 – I get a billing statement from the insurance company every month. Why on earth couldn’t this have been handled as a “credit due to overpayment” without a check written?
  • Ah hah #1 – Long forgotten by me, the insurance company charges me a monthly “premium installment charge” of $5. Wasteful of me but it may be indicative of what they think certain transactions cost. In this case, processing monthly bills rather than annual bills runs $60.

I can hear you saying, “Not us, guy.” But I challenge you to audit your systems and processes, and find and eliminate inefficiencies in your business like vermin. I say eradicate these operational inefficiencies because they eat into your profits every day.

Here are some recent client examples from the past month:

  • A $10 million company still manually printing and filing orders.
  • A large multichannel company where the cost per order is twice what we would have expected. Is it wrong data? Inefficiencies? More study is needed.
  • A client that came to the right decision; it was 80% cheaper, and twice as fast to change current processes and systems, than to wholesale replace the current software with a new system.
  • A replacements parts warehouse (a small part of a mega-manufacturing business) that has allowed inventory to grow without good control practices and systems until it has consumed an  overstocked 80,000 square foot facility with obsolete parts.

Not us, you say? Check again and see where your inefficiencies are.

Here’s how to find out:

1). Do a detailed study of the product flow and system processes in your business. The “vermin” are in the details. You will be extremely surprised at the results.

2). Make changes to your call center and fulfillment systems to improve productivity. Look at activity-based processes and costs in your business. Know the costs to process transactions as well as errors. Every time someone has to touch a piece of paper or product or process a transaction, there is an actual cost. Most businesses have lost this visibility. The $60.00 annual charge above could easily be the cost of doing a monthly process instead of an annual one.  Even though I have poked fun at my insurance company, I think they are one of the smart American companies – but even they don’t get it right all the time.

3). Be sure you know what good external benchmarks are, and what your internal productivity is.  Then compare them to your “costs per” (order, call, inbound receipt, put away, replenish, pick, pack, ship, return, count, etc.). These need to be on a unit basis too – cost per order, line, per unit and per box shipped. You get the point.

Just my two cents – happy hunting!

Curt Barry is president of F. Curtis Barry & Company