Fulfilling Prophecies

6. SEEKING THE RIGHT SYSTEM

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   Merchants want warehouse automation and software that can provide an acceptable return on investment. This may entail redesigning distribution centers, operating processes, and systems to improve capacity and throughput and to lower the cost per order. A warehouse management system is critical to enabling the design of new processes. Along those lines, many chief financial officers now require a 12- to 18-month payback on major capital projects. So businesses need to perform a benefit analysis that includes hard savings and intangibles.

7. LATE HOLIDAY ORDERING

   Many consumer businesses heavily depend on the October-December holiday period for the majority of their sales and profits. Customers have been buying closer to the holiday, causing larger sales spikes. This means that businesses must consider hiring and training of seasonal workers not only for higher peaks but also for shorter periods. One way to deal with the issue is to stay in contact with good part-time workers throughout the year. You might consider paying them an incentive to come back or offering an incentive to ensure they stay through the season. Hire workers earlier so you have enough time to train them.

8. OUTSOURCING FULFILLMENT

   Finding a good match with a third-party fulfillment provider is becoming more difficult because of consolidations, changes in marketing direction by providers, and volatility in client-third-party relationships related to costs and service levels. You might consider using a structured methodology for bidding out such work: evaluation and selection of vendors, including an RFP, site visits, and reference checks. Be sure the vendor you choose has experience with your product type and order volume.

9. IMPROVING CUSTOMER SERVICE

   Repeat business requires complete customer satisfaction. Direct customers expect merchants to ship their orders the same day that an order is placed, or at least the next day; they expect to receive the order in good condition; and they do not tolerate a negative performance.

   As noted earlier, fourth-quarter holiday customers are ordering later each year. This means merchants must plan in order to secure repeat business. Everyone in the company needs to understand service level metrics, which should be reported just like productivity metrics. Fulfillment delivers on your company's marketing and merchandising promises. Promise realistically and over-deliver.

10. MASTERING WAREHOUSE INVENTORY MANAGEMENT

    Part of providing good service is increased attention to inventory management. Customer service improves as the initial order fill rate improves, and the cost of operations declines when a business no longer needs to spend time looking for lost or unavailable inventory and no longer incurs the cost of expedited delivery to offset missed shipping dates. Accurate inventory removes barriers to productivity. Four critical factors: Know what you own, how much, and where it is, and locate products in the most advantageous area.

11. REDUCING THE COST OF INBOUND AND OUTBOUND FREIGHT

    The cost of freight is possibly the most volatile of the major direct expenses. If you want to lower costs through competitive bidding, you need to evaluate multiple carriers. Cost reduction is important, but so are service plans and customer service. Investigate inbound and outbound consolidation. Consider a consultant experienced in negotiating with carriers to reduce costs. For outbound freight, use rate-shopping and best-way shipping; for inbound freight, use collect rather than vendor-paid or prepaid.

12. STEPPING UP SUPPLY CHAIN EFFICIENCY

    The best way to optimize the supply chain? Enlist vendors to do as much as possible, since they can typically do it at a lower cost. What's more, pre-processed products will move through the center more quickly, and most vendors can provide value-added services such as marking, packaging for retail/direct, color/size sortation, etc.

    Merchants are also looking to push quality assurance up the supply chain, catching and correcting errors while a product is still in the vendor's factory. More companies are adopting electronic purchase orders, advanced shipping notices, and drop-ship systems to connect the retailer and drop-ship vendors. More and more companies are strengthening their vendor compliance policies and manuals.

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Curt Barry is president of F. Curtis Barry & Co., a Richmond, VA-based fulfillment operations consultancy.

	The China syndrome

At our September Forecasting and Inventory ShareGroup, several inventory control managers expressed concerns about public safety, citing recalls during the past few months of Chinese-manufactured toys and household goods that contain lead. They worried about negative effects on consumer buying, increased testing of products at Chinese government-approved labs, and a slowdown in exports.

Indeed, as companies become more diligent about product specifications and testing, other problems in other countries are likely to surface. And this will probably result in slower import lead times and some lost sales. Merchants need to improve product specifications and require proof of independent testing. They need to think through with the merchants what such changes could mean to receiving goods and to customer service.

Many marketers now import more than 50% of the products they sell, and most of the goods come from Asia. It's important to stay on top of quality control and consumer safety issues with imported goods, or the risks of offshore manufacturing can quickly outweigh the rewards.
— CB

	Fulfillment operations metrics

	Cost per order (fully loaded)

$8-$13, including call center and warehouse. This cost includes direct labor, indirect labor, benefits, occupancy, packing supplies, telecom and credit card processing; it does not include shipping and handling revenue or shipping costs. Costs are evenly split between warehouse call center costs; 50% or more is direct labor in call center and warehouse.

	Order processing turnaround time

For in-stock products, 100% in 24 hours. Leaders such as Crutchfield and Backcountry.com are shipping all orders the same day, if the order is received by 5 p.m. The e-commerce sector is pushing toward same-day shipment.

	Initial customer order fill rate

The initial customer order fill rate — the percentage of customer orders shipped complete in 24 hours (or whatever your shipping standard is) — dramatically affects fulfillment performance. A few best-practice benchmarks by category:

• Advanced fashion: 70%-80%
• Reorderable apparel: 80%-90%
• Gifts/home: 85%-95%
• Business supplies: 98%-100%

	Order accuracy

• 99.5% without barcode
• 99.9% with full inventory process barcode

	Inventory accuracy

• Barcoded: 99.8%-99.9%
• Conventional: 99.5%

	Per-hour benchmarks

• Receiving units: 150-170 per hour
• Picked units: 140-180 per hour
• Orders packed: 25-30 per hour
• Packages shipped/manifested: 140-160 per hour
• Orders processed: 11-13 per full-time worker/hour
• Returns processed per hour(24-hour to 48-hour processing time)

• Apparel: 15-20 per hour
• Hard goods: 35-40 per hour

Source: F. Curtis Barry & Co., Benchmarking Fulfillment ShareGroups, 2007