Improving Peak-period Warehouse Performance

Dec 01, 2010 10:30 PM  By

You made it through the last peak period, but it wasn’t pretty. Maybe your warehouse was stretched beyond capacity, disorganized and hard to navigate. Or perhaps you used more overtime than planned, and your operation still wasn’t able to meet your service standards consistently.

Before the next busy season hits, you need to take stock of the situation and develop a plan to improve logistics and performance. A methodical approach to gathering and analyzing metrics and other data on peak-time operations will help you uncover opportunities to hone warehouse practices year-round, as well.

The best times to undertake these evaluations are during the crunch period or shortly thereafter. You want the specifics to be fresh in your mind and the minds of the supervisors and employees who will be invaluable in collecting information and identifying issues and solutions.

Here are seven key areas that will yield the biggest benefits.

  1. Customer service performance

    Review your order fulfillment metrics to evaluate how well you met your customer service standards.

    For comparative purposes, most operations have 24- to 48-hour shipping standards for in-stock products, and they typically ship expedited orders and a high percentage of total orders on the same day ordered.

    Where your shipping performance was less than standard, were the major causes related to inventory availability, or processing issues?

    How well did actual inventory levels meet planned levels? Review the order and line reports to determine if you had sufficient inventory to meet your initial customer order and item-fill-rate goals.

    If you experienced periods of severe back-order levels, how did this affect your processes and customer service levels? Age-of-back-order reports, if available, are useful in assessing the service-level ramifications. If you’re not cross-docking back-ordered products, this could be one effective way to expedite this processing function.

    Evaluate shipping carrier performance through your internal tracking systems and carrier reports. Did your parcel carriers make pick-ups on schedule? Did they meet their days-to-deliver metrics?

    Were there significant numbers of wrong deliveries by product vendors? Are there address deliverability issues in your order management system?

    Determine your order fulfillment accuracy rate and investigate your error categories. Analyze customer service and reason-for-return reports, as well as internal operations reports and audit-check results.

    Was your overall return rate higher than expected? Were your return rates within specific product categories higher than the typical or expected rates for those categories?

    How many returns were attributed to damage claims? Were these due largely to carrier handling, or are some product damages attributable to improper warehouse handling or shipping practices, such as insufficient dunnage?

    Include your team’s observations and recommendations in summarizing your service for the peak period and conclusions about areas for improvement.

  2. Cost-per-order performance

    Assess your financial performance to identify areas that are creating unnecessarily high costs.

    Compare budget to actual for five of the major expense categories that go into total cost per order: direct labor, indirect labor, occupancy, packaging and contract services. For this analysis, exclude shipping costs to enable undistorted benchmarking against other businesses.

    Using shipping bills and reports, identify the major reasons that specific lines were off budget. Also assess how your operation’s costs stack up against the industry averages.

    Based on our proprietary database, we know that total warehouse costs (excluding shipping) for efficient multichannel companies with two to three lines/customer orders range between $3.50 and $5 per order. (Highly efficient operations may run under $3.) Typically, this equates to 5% to 7% of net sales.

  3. Labor performance/cost and staffing issues

    Given labor’s contribution to costs — direct labor generally represents 35% to 50% of total cost per order — this area demands particularly close scrutiny.

    Review your detailed labor reports for the peak period, comparing budget to actual. If you exceeded budget, was the variance due to order misforecasting or inventory issues (more on these below), or lower-than-expected labor productivity? What percentage of your labor hours were overtime, and how did this compare to plan?

    Might it be cost effective to implement more flexible labor schedules, or add shifts? Have you established productivity standards for warehouse functions, including picking, packing, receiving, put-away, shipping, returns, replenishment and value-added services such as kitting?

    How well did each key function meet its productivity goals? Are you sure that you’re communicating these standards effectively — and reviewing results consistently?

    What are your conclusions about how existing labor could be used more efficiently overall, and in regard to specific functions?

    You should examine staffing or human resources issues as part of the labor productivity/cost equation. Review your staffing and hiring goals in respect to peak periods, and assess how well these goals were met.

    Were the needed people available and trained on schedule, as you ramped up? If you used employment agencies, did they provide workers who met your desired results in terms of productivity, flexibility and attendance?

    Whether seasonal workers were agency-referred or direct hires, a fair assessment of their performance requires an objective review of the effectiveness of the training process. You’ll need supervisor and employee input on this.

    Using the staffing intelligence gathered, you should be able to quantify your employee turnover and unplanned seasonal losses, calculate the cost to the company, and plan to implement new hiring, training and other human resources procedures that are needed — or at least make recommendations to management.

  4. Merchandise and inventory planning

    Buying and inventory planning procedures should be evaluated to assess their impacts on labor and storage costs and ROI in respect to space used vs. sales contribution.

    At the end of the peak period, how close were actual sales to the initial buying/inventory plan? Any significant difference likely resulted in labor-cost variances. Identify these inventory-caused variances and determine if there are ways that you might have minimized those costs, such as by reducing department hours and/or personnel.

    Inventory problems can also create significant storage-capacity issues — during peak times, in particular.

    Investigate whether you had excess-inventory situations that resulted in excessive forward or bulk-inventory positions. Analyze your actual storage usage metrics during the peak period, in percentage terms, against your metrics objectives and your total warehouse capacity.

    Going forward, you want to avoid the common scenario of running short on inventory space during peak times. This can lead to floor-stacking (reducing picking and put-away efficiencies) and/or spending unbudgeted money on leasing trailers and outside space.

    A third area of inventory-procedures review involves using your age-of-inventory and overstock reports to identify space being used for slow-selling merchandise and overstocks. Explore and assess options for minimizing these less productive uses of space and maximizing space for more profitable merchandise.

  5. Vendor performance

    Vendor performance can many other aspects of the operation. As part of your receiving department and vendor compliance procedures, you should measure the following key metrics: on-time delivery, damage, proper labeling, item and quantity accuracy, and charge-backs.

    Use these reports to identify vendor issues and analyze their causes, including possible vendor/warehouse interface or communications issues.

    Your summaries of inventory-related and vendor-related recommendations should include ways to enlist the help of your merchants and inventory-control departments.

  6. Process and layout

    Evaluate your process and layout individually and in respect to their interaction. Looking first at process evaluation, start by tracing both product flow and order fulfillment flow through the warehouse to identify all areas where bottlenecks or backlogs occurred.

    Here are some key process functions to review:

    • Receiving and put-away

      Did you meet your time standards for getting received product into shipable-status condition? Were you able, at minimum, to clear the receiving dock of receipts every night, or did congestion hinder receiving efficiency?

    • Picking

      During picking, how frequently did your order selectors arrive at an empty pick slot or encounter “can’t finds”? Determine how often this occurred as a result of inadequate inventory or quantity-count inaccuracies, versus product aisle mapping problems or products being in the wrong bins/slot locations. Were picking delays caused by other problems, such as congestion in the aisles, equipment issues, unexpected order spikes, or below-par picking-employee productivity?

    • Packing

      Were you able to keep packers busy consistently, avoiding idle periods? Did you schedule packers to start their shifts later than pickers, to ensure ample available packing work?

    • Returns

      Use your analysis of reasons cited on returns reports to pinpoint non-vendor, internal issues, such as packing methods, that may be contributing to excessive returns. Also analyze where the process can be streamlined to eliminate unnecessary or duplicate efforts.

    Were you able to keep up with the returns volume, avoiding excessive backlogs? Did returns processing times meet your performance standards? Were customers refunded or credited for returns in a timely fashion?

    Separately, analyze the layout-specific issues identified while tracing the product and order flows, such as aisle congestion, back-tracking flow, and inefficient or obstructive floor-space usage.

    Get input from employees on both process and layout issues, and make sure you’ve thought through how specific solutions in one area may affect the other. Summarize the changes in each that should result in improved efficiency and reduced costs.

  7. IT performance and automation

    When your IT isn’t effective, many processes can come to a standstill or be seriously degraded.

    Did you experience production delays due to system downtime — for instance, because of insufficient computing capacity to handle the additional volumes? Might you require additional terminals, printers or telecom capacity to keep up with peak-period volumes? Was IT responsive during the peak period (i.e., help-desk, operations and programming support)?

    Enlist IT’s input in formulating peak-period recommendations. Are there opportunities to reduce labor costs through cost-effective use of automated materials-handling equipment, conveyors, envelope stuffers, box makers, sorters, voice-pick, pick-to-light or other options?

    Such decisions need to be based on ROI assessments — costs of purchasing/implementing versus operational savings realized. Identify the areas and applications that represent the greatest potential leverage opportunities, and so deserve the time and resources required to determine their ROI.

Curt Barry (cbarry@fcbco.com) is president of F. Curtis Barry & Co., a multichannel operations and fulfillment consultancy.