As Amazon gets stronger and companies become more competitive, ecommerce merchants need to continually find ways to improve operations, reduce expenses and improve the customer experience. At the heart of this is a continuous process improvement.
Drawn from the hundreds of operations blogs we have written for Multichannel Merchant, here are 13 ways to make your ecommerce fulfillment operations more efficient and improve performance. We have included links to past blogs which examine each area at greater depth.
Understand Your Cost Per Order
Analyze your ecommerce fulfillment expenses in six categories – freight, management and supervision, direct labor, indirect labor, facilities (including utilities, security and maintenance) and shipping supplies. Generally, freight expense exceeds the sum of all the other components of the cost per order above. Of the non-freight cost per order components, more than 50% is management and labor oriented. This gives you a starting point for identifying improvements with that will have the greatest impact.
Compare Your Service-Level Metrics
Here are some best-in-class service-level metrics: Dock-to-stock put away (2 hours); order fulfillment (100% of orders ship same day as ordered); returns (same day for all steps); and order accuracy rate (for barcoded products and processes, 99.8%). How do you compare? Do a deep dive into processes and metrics and make the changes which bring the biggest benefit and reduce time and errors.
Reduce Your Freight Costs
Negotiate new agreements frequently. Enterprise shipping systems give you control from all locations, reduce manual effort for international order preparation and rate maintenance and reduce compliance costs; they also provide cartonization which saves packing costs. Conduct an analysis to determine where you’re over-spending on shipping.
The picking and packing departments make up more than 50% of your cost per order, excluding outbound shipping. Do you have a good estimate or actual costs by department based on annual hours and dollars spent? How can you increase labor productivity? How are you incentivizing your associates to increase performance? Create a chart of your process flows at a detail level to find ways to eliminate “touches” to lower ecommerce fulfillment expenses.
Effective Picking and Slotting
As much as 60% to 75% of a picker’s time is spent in travel from one FC location to another. Effective slotting reduces travel significantly, lowering the cost per unit picked. Another good tactic is right-sizing pick slots based on product cube and sales velocity. Create “hot pick” slot locations for high-volume items, and revisit your replenishment process.
Reduce Employee Turnover
Is excessive employee turnover costing you in terms of expense and losing experienced people? Put in place turnover reporting that identifies why people leave; calculate the turnover rate and the cost of losing an employee. Considering all expenses, you may find costs are $3,000 to $10,000 per employee lost. For highly compensated employees it is much more. How are you incenting them with career paths and opportunities to advance?
Improve the Bench Strength of your Managers
Management’s effectiveness directly affects everyone’s productivity; what is your bench strength? Evaluate where each manager needs improvement to get higher quality and productivity from the overall ecommerce fulfillment staff. What industry leadership training, e-learning or community college courses are available?
Apply Automation Where it Makes Sense
How to apply ecommerce fulfillment center automation and realize an ROI varies based on a number of factors, including order and unit volumes. What kind of synergies can be achieved? Invite in a consultant to evaluate your operation and advise how best to implement an automation strategy.
Conduct a Packaging Supply Cost Study
Invite in your box suppliers to conduct a study focused on reducing the number of cartons and dunnage. Can they offer storage and just-in-time delivery to save space?
Consider a Multi-FC Strategy
To get orders to customers quicker and reduce shipping costs, investigate a multi-DC strategy. This reduce shipping costs by placing inventory closer to customers and improves sales through better customer satisfaction. Additional facilities come at a cost of additional management, hourly workers, capital costs and increased inventory. Outsourcing to a 3PL has proven to be a high service and competitively priced option to internal fulfillment or expanding your owned assets.
Implement a New System
Is your current warehouse software – whether WMS, order management, ERP or WMS – the right platform for growth? Do you need stronger tools such as labor management and productivity analysis, advanced shipping notices (ASNs), interfaces to automation, improved management of orders and inventory, slotting and multiple-level kitting? Here are some best practices on the WMS selection process. The rise of cloud-based systems has made a good WMS affordable for more companies.
Consider Outsourcing Options
For many small-to-midsized companies, outsourcing their ecommerce fulfillment to a third-party logistics provider (3PL) has proven to be a high service and competitively priced option to internal fulfillment or adding fulfillment centers, achieving closer-to-customers more cost effectively. Here are some tips for your 3PL selection process, and how to more effectively manage the relationship.
Be Consistent with Ongoing Process Improvement
It’s hard to continually improve your ecommerce fulfillment operations if you look at process improvement as a project or an event. Most ecommerce merchants are already running lean; many don’t have the bandwidth or experience to rethink processes. Those that make the biggest changes have trained professionals engaged full time in process improvement. Promote someone and get them trained in Six Sigma and Lean principles.
Take a good look at how you’re utilizing space in your facility; review your dock-to-stock process; and tighten up your vendor compliance requirements. You can also engage consultants on a regular basis to help you identify ways to improve productivity, reduce costs and improve service levels and customer satisfaction. Make process improvement an ongoing part of your company culture.
The only way to remain competitive and control costs is through continuous process improvement. Multichannel Merchant is a great resource in this regard, archiving hundreds of blogs on ecommerce fulfillment best practices, system selection and implementation, cost reduction and efficiency and improving customer service and satisfaction.
Brian Barry is President of F. Curtis Barry & Company