Faster Order Fulfillment: 5 Tradeoffs and Opportunities To Consider
|David Lodwig – Author|
Account and Marketing Executive
Surveys show that ~65% of eCommerce consumers want next day delivery and they will look for the retailer who will provide it at the lowest total cost (product cost + shipping). Although Amazon dominates the supply chain headlines, faster order fulfillment is not an eCommerce phenomenon. Most supply chain strategies are undergoing changes to meet this demand.
Free Guide: Top Order Fulfillment KPI Indicators
Retailers are formulating or refining the way they provide omni channel services while maintaining profit margins. eCommerce companies (E-tailers) are working to add value to their brand and gain/maintain customer loyalty to compete with the increasing presence of Amazon. Wholesale distributors and manufacturers are working to incorporate drop shipping direct to consumer orders for their retail clients.
It is common, across all industries, that supply chains are tasked to fulfill orders faster, with a higher level of service, while reducing the cost per order. Although there are usually tradeoffs between these tasks, there are also opportunities to reduce costs when redesigning the fulfillment process for increased volume. The tradeoffs enter the equation when increased service is required. Here are 5 tradeoffs to consider when designing or re-designing your fulfillment operation for today’s Omni Channel consumer.
1. Efficiency vs. Responsiveness/Higher Service Level
Increased order volumes generally drive economies of scale that result in increased efficiency. In the order fulfillment process that efficiency is fueled by creating and processing large batches of orders at one time. The most efficient scenario would be to group an entire day’s worth of orders together before breaking them down into waves with logical groupings to maximize the efficiency of order pickers in each wave. The tradeoff is a longer internal order cycle time and delayed shipment of those orders due to the time to build efficient waves. This delay would prevent next day delivery of these orders, which is no longer acceptable to today’s consumer.
The key point in this equation is the volume. If your order volume is large, prioritizing a small number of orders that require same or next day shipment is not hard to do as long as your software systems support prioritization. If your business is built on a high service level and all orders received by mid-afternoon (or later) are shipped same day, you may not have the volume of orders or time to wait to gather large waves for picking. If you have a medium volume operation about 2,000-5,000 orders per day and 1-7 lines per order, directed or automated discrete order picking may be the most efficient way to pick you orders anyway. Today’s directed (Pick-to-Voice, Pick-to-Light, Radio Frequency Terminals) and automated (Goods to Person) solutions can produce 250-450 lines per hour per picker. This is usually enough order picking horsepower to help medium volume operations meet the Omni Channel consumer demands.
2. Picking vs. Replenishment
This is a tradeoff that is frequently not recognized in fulfillment operations and it requires a delicate balance. If picking and replenishment are out of balance, then other significant inefficiencies can occur. Many operations prioritize putaway and replenishment activity over the picking activity when the picking process is much more time-consuming and expensive. For example, if an operation receives solid SKU pallets but picks pieces/units/eaches to fulfill orders, they may keep SKUs on a pallet for putaway and/or the forward pick location. This is very efficient for putaway and replenishment labor but not for pickers. Forward pick locations should have 2-30 days of demand. If that demand will fit in carton flow or shelving then you can shorten the average distance each pickers travels. If you know the cubic velocity of your SKUs you can fine tune the balance between the picking and replenishment tasks to keep a specific number of days demand in each forward picking location and not over tax replenishment labor.
3. Lean Inventory vs. Fill Rate
Accountants advise the business to not keep too much or unnecessary inventory on hand. Salespeople advise the business that they cannot sell a product if it is out of stock. So who is right in this tradeoff? The answer is not easy to determine. If you are in the eCommerce or Omni Channel Retail business, you need to be able to get the product in the consumer’s hands the same or next day. This is not an impossible proposition if you have visibility to 100% of your inventory and can offer options to the consumer like Buy Online Pickup in Store (BOPS). ECommerce operations are forced to add inventory or deal with the lost sale if they are out of stock. In both cases, better inventory visibility, historical sales, and forecast data make optimizing your inventory an easier task to get right.
4. Accuracy vs. Productivity
Businesses and consumers want 100% of orders to be 100% accurate. If not done properly, this can create added cost and reduce customer service levels. In other words, it slows down the order fulfillment process. The tradeoff is plainly apparent when there is $8.00-$10.00 of labor expended fulfilling a $20.00-$30.00 order. All the profit is used up making sure the order is accurate. Modern order fulfillment solutions can be applied to lessen the fulfillment costs while keeping the accuracy near 100%.
Most picking errors are actually replenishment errors where the wrong product (green widget) was placed in the forward pick location (red widget slot). Barcoding the forward pick locations (front and rear of the carton and pallet flow rack) and requiring replenishers to scan the product and the picking location eliminate this. Like products should not be slotted next to each other in the forward picking locations to avoid this type of picking error (like red and green widgets in the same bay of pallet or carton flow rack). A Goods to Person picking system will automatically direct the putaway and minimize the chance of having the wrong product in the picking slot, but you still need to verify via scanning. It will also only present the product needed for the order, one at a time.
There are other automated ways to assure order accuracy, but they are not as comprehensive and are better used as a secondary checking method. Checking an order’s weight is effective if your products are not too light. Variances in expected weight do not catch most mis-picks and mostly quantity errors. Shipping carton cube checking is now a financially practical solution with new automatic cubing equipment and Warehouse Execution Software (WES). The shipping carton can be measured on the outbound conveyor and checked against the total cube of the order calculated by the WES.
5. Packing: Speed vs. Freight and Packaging Costs
Packing orders for shipping has always had its tradeoffs, but they are lessening due to automation technology advancements. There is a tradeoff between packing orders fast and packing them well. Packing them well means great materials and presentation to the consumer as well as maximizing the cube of the shipping container and minimizing packaging materials used. Today’s Omni Channel consumer wants to feel catered to, and Omni Channel marketers want to convey their brand image with every consumer interaction.
Many brands want to use ecologically responsible packaging materials and minimize the amount of material used. Sustainable materials cost more and can require additional labor, for example, styrofoam peanuts were fast but are extinct now due to their consumer/environmental image. Distribution center managers are being asked to reduce their fulfillment costs while parcel carriers are raising rates and adding surcharges like dimensional weight pricing.
Advances in packaging materials and packaging automation are starting to make it possible to create a better more sustainable shipment while reducing costs at the same time. Small non-fragile products can be put through automatic bagging machines that use the lowest cost materials and require no void fill materials. There are several automatic cartoning technologies that automatically load orders into the carton and cut the height of the carton at the height of the order inside. Then a specialized sealing machine automatically closes and seals the carton. This automatic carton technology does not require any void fill. The carton material is not inexpensive but reduces the labor to pack and seal 480-600 cartons per hour to practically zero.
Focus on Reengineering your Processes
There have always been tradeoffs between speed and quality in order fulfillment operations. But there are new developments in software and automation that are narrowing the gap. It is possible to be more responsive to increasing consumer demands without long-term cost increases and accuracy does not have to be paid for with low productivity rates. Skilled process planning and integrating some of your systems will yield faster and more accurate orders that get to consumers in a shorter period of time.
The new tradeoffs managers will have to deal with are the amount of time invested to yield cost savings and customer service advantages. Both can be used to win the battle with competitors that are trying to achieve the same goals. The successful companies will be those with enough foresight to see the value in dedicating the personnel and the discipline to re-engineer and invest in new or re-engineered processes.