Back in January 2002, when we last published this study, we were describing companies shell-shocked after 9/11 and facing a world that would never again be the same. Understandably, they were cautious, uncertain, and eager to hang on to what they had rather than venture in new directions. Austerity and cost cutting headlined their business lexicon. Innovation was banished from the boardroom.
Two years later, the situation is largely the same. Distribution execs still tend to stick with conventional equipment and systems. But they’re showing signs of experimentation — of awakening interest in new technologies, procedures, and management techniques, and as the economy recovers and budgets expand, this interest will transform the fulfillment center of the future into something very different from the current version. Our respondents are already preparing for major changes. For example, wireless technology is without a doubt the single largest factor that will influence logistics and distribution in the next decade — and 10.6% of this year’s respondents report using wireless technology or RFID tags.
BIN THERE, DONE THAT
As in the past, bin shelving, bar coders and scanners, and conveyors top the list of distribution center equipment. Manual sortation systems are still widely prevalent, used by 28.3% of the respondents; just 9.7% use automated methods for high-volume sortation, and a minuscule 4.4% employ them for low-volume sortation. Pick-to-light systems remain almost invisible, used by just 3.5% of the respondents. On the plus side, voice recognition has made slight headway — 2.7% of the sample uses the technology, compared to zero in 2002. Although 41.5% of the respondents process orders manually, and 28% use batch mode, electronic and real-time order processing have progressed somewhat. Among this year’s respondents, 17.2% process orders electronically and 12.7% do so in real time, up from 10.4% and 8.4% two years ago.
Manual checks dominate quality control, with 84.1% of companies opting for this method. As in the 2002 survey, slightly more than half (52.7%) of the respondents check all orders; 39.1% check them randomly, and 7.3% evaluate a statistical sample. Despite merchants’ much-vaunted focus on customer service, a sizable 41.6% of the respondents do not formally measure customer satisfaction. Among those that do, traditional methods prevail: 81.8% rely on surveys and 42.4% on return or cancellation rates, although e-mail follow-up has increased to 48.5% from 37.3% in our 2002 study.
RETURN TO SENDER
When it comes to managing returns, our respondents are doing something right. Nearly forty percent — a marked increase from 22.8% two years ago — say returns are less than 2% of their orders. Ways to get rid of overstock have also become more imaginative, including electronic catalog sales, outsourcing, telemarketing upsells, auctions, and reworking of products. About a third (34.5%) of respondents say their backorder rates are below 2%; roughly another third (35.4%) report 5%-14% of their merchandise as backordered. The average respondent has three inventory turns a year.
Shipping times have also improved considerably. In 2002, 22.8% of the respondents said they shipped an order at peak within six hours of receiving it; this year, that number has jumped to 32.7%. The percentage of respondents who take 25 to 48 hours to ship an order has dropped by half, from 33.7% in 2002 to 15.9% this year. During off-peak, 36.3% ship an order in six hours or less; 45.1% do so in 7 to 24 hours. Most respondents meet order shipment targets 95% of the time.
WHAT MATTERS
Respondents’ priorities have changed hardly at all in the past two years. Performance measurement, IT upgrades, and labor retention continue to hold the top spots on their list of concerns, while awareness of outsourcing and legal/tax issues is marginally higher. Given the national brouhaha over outsourcing, one would expect anxiety about the issue to be more widespread, but 63.8% of the respondents accord it only low to moderate importance.
E-commerce has made a strong comeback: Nearly 30% of the small companies in the sample rank it as an “extremely important” issue. A few respondents mention cost measurements, industry averages (presumably benchmarks), and picking systems as their main material handling concerns.
Rama Ramaswami is editorial director of O+F. Primedia Business research manager Rick Lowe conducted the research and analyzed the data for this report. To purchase a copy of the full study, visit www.opsandfulfillment.com.
Respondent Profile
In O+F’s 2004 material handling survey, 87.1% of the respondents perform order fulfillment in-house. The typical respondent operates one facility with a median size of 52,500 sq. ft., handling 750 shipments a day during peak and 358 off-peak, and managing 5,192 SKUs annually. The number of full-time fulfillment center employees varies between 29 at peak and 19 off-peak; temps range from four to none. During an hour of operation at peak, the average facility receives 133 units, puts away 110, and picks 107; employees pack roughly 55 orders. Off-peak, the facility receives 40 units an hour, puts away 38, and picks 50, with workers packing an average of 31 orders per hour.
— RR
Methodology
On Sept. 18, 2003, Primedia Business Marketing Research mailed cover letters and two-page questionnaires (each containing 26 questions) to 1,000 domestic O+F subscribers selected by operations, warehouse, fulfillment, facilities, and online/e-commerce management job functions on an nth name basis. A $1 incentive was included in the mailing. By Oct. 14, 126 usable surveys were received, for a response rate of 12.7%. Means and medians were calculated according to standard statistical practices. Totals may not add up to 100% because of rounding. Results were reported in three categories: companies with annual sales under $10 million (29.4%), between $10 million and $49.9 million (29.4%), and $50 million or more (41.3%). Nearly half of the respondents (43.7%) hold positions in overall operations management; fulfillment and warehouse managers comprise 34.1% of the sample. In the “Other” category, 8.7% of respondents cite jobs in accounting, business process, or project management.
— RR
TOP INDUSTRY CONCERNS
| Mean Scores | |
|---|---|
| Performance measurement | 4.8 |
| Labor retention | 4.4 |
| Upgrading information technology | 4.4 |
| Systems integration | 4.3 |
| E-commerce | 4.1 |
| Legal/tax issues | 3.6 |
| International fulfillment | 3.2 |
| Reverse logistics | 3.1 |
| Outsourcing | 2.8 |
| Note: Base = respondents handling order fulfillment; responses ranked on a scale of 1 to 6, with 1 = Not at all important and 6 = Extremely important | |
UNITS/LINES PICKED
Total respondents = 113
| Per Hour/Peak | Percentage of Respondents |
|---|---|
| Less than 25 | 15.9% |
| 25-49 | 14.2% |
| 50-99 | 15.0% |
| 100-299 | 26.5% |
| 300-999 | 12.4% |
| 1,000 or more | 7.1% |
| Don’t know/not sure | 8.0% |
| No answer | 0.9% |
| Note: Base = respondents handling order fulfillment | |
INSTALLED SYSTEMS
Total respondents = 113
| Percentage of Respondents | |
|---|---|
| Bin shelving | 69.0% |
| Bar coders and scanners | 65.5% |
| Conveyors | 57.5% |
| Conventional aisle vehicles (10-ft. aisle) | 49.6% |
| Flow rack | 41.6% |
| Narrow aisle vehicles | 35.4% |
| Manual sortation systems | 28.3% |
| Single deep selective rack | 20.4% |
| Route optimization software | 15.9% |
| Wireless/RFID tags | 10.6% |
| High-volume automated sortation | 9.7% |
| Low-volume automated sortation | 4.4% |
| Pick-to-light systems | 3.5% |
| Voice recognition systems | 2.7% |
| No answer | 1.8% |
| Note: Base = respondents handling order fulfillment; multiple answers | |
ORDER PROCESSING METHODS
Total respondents = 110
| % of Respondents | |
|---|---|
| Manual | 41.5% |
| Batch | 28.0% |
| Electronic | 17.2% |
| Real-time | 12.7% |
| Other* | 0.6% |
| *Includes faxed-in and carried-over orders | |
| Note: Base = respondents handling order fulfillment; summary of means | |
ORDERS RETURNED
Total respondents = 113
| % of Respondents | |
|---|---|
| Less than 2% | 38.9% |
| 2%-4% | 22.1% |
| 5%-9% | 18.6% |
| 10%-14% | 6.2% |
| 15% or more | 7.1% |
| No answer | 7.1% |