Golden Age of Fulfillment

Aug 01, 2003 9:30 PM  By

DIRECT-TO-CUSTOMER FULFILLMENT has come a long way in the last decade. Or has it? Some of the clearest clues to the history of the industry lie in the numbers, and O+F’s tradition of providing industry benchmarks proves invaluable in sorting out the facts.

Back in 1995, when the Internet was still just a gleam on the screens of computer nerds and academics, the July/August issue of Operations & Fulfillment ran a cover story on that year’s operations benchmark survey. Seventy-five catalog companies with annual sales of $3 million to $500 million provided detailed information on their current practices and projected plans through 1997. The results are both interesting and, only eight years later, nostalgic.

For instance, just the size of fulfillment center labor forces seems huge: The average number of full-time warehouse employees during peak periods for catalog companies with over $100 million in annual revenue was 529 people; for firms with less than $30 million in revenue, the average was 40 people.

Even in 1995, the fastest-growing companies were counting on technology — bar coding, computerized locations, and “technology for inventory turns” — to keep their operations fast and accurate. According to the O+F survey, none of the larger catalogs had backorder processing software, but “78% intend to use it in 1997.” Automated bin replenishment, velocity-based stock putaway, bar coding for pick verification and location management, and automated multiline sortation were all categories of interest — but most survey respondents failed to report more than 55% actual usage of any of those technologies.

Some things, however, never change. The survey category that asked respondents what concerned them the most showed that for small and medium-sized companies, labor costs were the single most significant concern, whereas larger companies cited computer and software changes and change management as equally important.

A PERFECT 10

Some truths are timeless. So it is that a 1995 O+F story, “How Catalogs Harness the Power of Bar Code Technology,” contained these technology implementation pointers — every bit as valid today as they were in the last century.

  • Always consider the company’s plans for the future.

  • Determine the business needs and the data flow. This is probably the most critical component. Once the needs and data flow have been established, choosing the software and hardware becomes the last consideration.

  • Choose a vendor/partner. The vendor should provide proven service and support, integration capabilities, and an ability to meet current and future needs.

  • Develop a fool-proof installation plan. The installation of the system is one of the most critical stages of a project and one that brings the greatest chance of failure. Important considerations include knowing who is responsible for controlling the job; testing the entire system; having one person control the test; and simulating as many variables as possible.

Cost of Fulfillment Errors

Customer service time and phone charges $4.15
UPS call tag to pick up item 7.00
Return processing of the item 0.85
Pick/pack/ship item (inc. outgoing freight) 7.00
Unreturned items (10% of items at $20/item) 2.00
TOTAL COST $21.00
Source: O+F July/Aug. 1995
Note: This calculation does not include the cost of losing the customer. Also, costs can be much higher for a business catalog, which must issue credit invoices and may have a higher value per item.

Material Handling Snapshot

From one-half to two-thirds of all but the largest companies use manual processes for sorting through orders by shipping zone.

Revenue Annual Growth 1993 1995 1997
Less than 10% or less 14% 64% 86%
$30 million 11% or more 20% 53% 73%
$31 million 10% or less 14% 50% 57%
to $100 mill. 11% or more 0% 67% 75%
More than 10% or less 0% 18% 27%
$100 million 11% or more 0% 67% 78%
Source: O+F July/Aug. 1995