Case Study: Opening Your First Ecommerce Fulfillment Center

This a client case study of a direct-to-customer company moving from third-party to opening its own ecommerce fulfillment center. The business has another channel fulfilled internally which will stay at low order levels with non-direct systems and processes.

The direct portion of the business has much higher order levels and excellent growth plans. Once the initial business was proven, the owners felt they wanted to move to internal fulfillment.

The warehouse has good managers but they didn’t have any DTC order fulfillment process or system experience. The hourly workers are all new hires with no DTC experience.

This is a story of people working hard to meet management’s goals. It illustrates issues most DC transition teams will have to face and solve. We expect it will help you think about the planning and startup challenges for your ecommerce fulfillment center.

Expanded Space

To expand capacity, the company needed to greatly increase the square footage. Even with few available facilities in its market, there was no thought of relocation which would have added capital costs, complications and time. Unfortunately, they will face space problems in about two years’ time. Under-sizing space needs is very common when companies are planning new facilities.

New Ramp-Up Period

As the facility opens and ramps up, the speed at which new employees can reach high productivity varies and may take up to six months or longer. This business underestimated the timeframe at two to three months. They had to work two shifts and weekends to get production to acceptable levels and error rates. During that period, both the new facility and the legacy 3PL shipped orders.

Managing Order Production

The company’s marketing team is very accurate at making daily projections, which allows manpower planning accuracy for ecommerce fulfillment center operations. Many of the products are kits which are assembled on site in advance.

From an order curve perspective, the busiest day is Monday, averaging more than 3,000 orders. The curve decreases each day so there may only be 200 orders on a Friday. The plan with the 3PL was to release increasing numbers of orders to the new ecommerce fulfillment center.

The biggest hurdle was having all the employees reaching acceptable productivity on a daily basis. This is common in new facility startups. Some days early in the week, the company processed only 600-700 orders per day. Realizing the tsunami they were facing, management regrouped and quickly decided to make the changes outlined below. One area that needs much more work is product projections by unit and kit inventory projections.

After two months the ecommerce fulfillment center is keeping up with incoming orders with minimal carryover. But they have not logged a week yet where they have achieved this every day. These are not stretch goals and will be easier once the hourly staff puts up some wins on the board.

New DTC system

As stated earlier, the other channel did not use DTC processes and systems. A separate order management system selection process is underway and will be implemented this year. The management adapted the processes of the old system to work in the interim.

Qualitative Standards

The direct business is much faster so the standards had to change. They now, for instance, clear dock receipts within each shift, ship 100% of orders daily and plan replenishments so they don’t interfere with picking.

Early Temp Employee Evaluation

The labor market where the ecommerce fulfillment center is located has an unemployment rate of 3%, so the company relies almost completely on a hiring agency. They give hourly employees less than a day to prove themselves; those that don’t make the grade quickly go back to the agency.

In opening a new facility, plan for turnover of new hires and the occasional manager. There’s almost always turnover in new hires, maybe as much as 25%, because most employees will not have DTC experience. The pace is likely faster than they were used to at prior warehouse jobs. Retail store replenishment is totally different from small order pick, pack and shipping. All this adds uncertainty to the facility ramp-up.

Floor Management, Communication, Coaching

There are several key practices that have helped this company avoid serious issues. First, managers are out on the floor with associates, have very few meetings and don’t sit in an office. This allows them to be very nimble and catch things before they fall through the cracks.

Second, they are regularly communicating with hourly employees. This helps them correct startup problems, answer questions, catch errors and determine whether they will meet the day’s production goals. Third, they coach employees either on the floor or after hours.

While each ecommerce fulfillment center will have different startup challenges and processes, this management team is overcoming great obstacles. Congratulations! There are many lessons to draw on as you plan your new facility opening.

Brian Barry is president of F. Curtis Barry & Company