According to OnTrac, 86% of consumers define fast delivery as two days or less, and 63% will switch retailers if they cannot receive their items within this timeframe. Although Amazon dominates the supply chain headlines, faster order fulfillment is not an eCommerce-only phenomenon. Most supply chain strategies are undergoing changes to meet this demand.
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 or 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 needed to build efficient waves. This delay would prevent next-day delivery of these orders, which is no longer acceptable to today’s consumers.
The key point in this equation is 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 if 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 of 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 your 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 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, other significant inefficiencies can occur. Many operations prioritize putaway and replenishment activity over picking activity, even though the picking process is much more time-consuming and expensive. For example, if an operation receives solid SKU pallets but picks pieces, units, or 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, you can shorten the average distance each picker travels. If you know the cubic velocity of your SKUs, you can fine-tune the balance between picking and replenishment tasks to keep a specific number of days of demand in each forward picking location without overtaxing replenishment labor.
3. Lean Inventory vs. Fill Rate
Accountants advise the business not to 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 into the consumer’s hands the same or next day.
This is not an impossible proposition if you have visibility into 100% of your inventory and can offer options to the consumer like Buy Online Pickup in Store (BOPIS). eCommerce operations are forced to add inventory or deal with lost sales 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 costs 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 fulfillment costs while keeping accuracy near 100%.
Most picking errors are actually replenishment errors, where the wrong product (a green widget) was placed in the forward pick location (a 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 eliminates this. Like products should not be slotted next to each other in the forward picking locations to avoid this type of picking error. A Goods to Person picking system will automatically direct 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 mispicks and mostly catch 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 advancements in automation technology. 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 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-filling materials. There are several automatic cartoning technologies that automatically load orders into the carton and cut the height of the carton to 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 demand 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. Successful companies are those with enough foresight to see the value in dedicating the personnel and the discipline to re-engineering and investing in new or re-engineered processes.
Frequently Asked Questions
What percentage of consumers expect fast delivery?
According to OnTrac, 86% of consumers define fast delivery as two days or less, and 63% will switch retailers if they cannot receive their items within that timeframe. This makes faster order fulfillment a priority across retail, eCommerce, and wholesale distribution, not just for Amazon-scale operations.
What is the tradeoff between efficiency and responsiveness in order fulfillment?
Batching a full day’s orders into large picking waves increases efficiency but delays shipment, which can prevent next-day delivery. High-volume operations can prioritize urgent orders if their software supports it, while medium-volume operations (roughly 2,000–5,000 orders per day) often benefit most from directed or automated discrete order picking to balance speed and efficiency.
How does the balance between picking and replenishment affect fulfillment operations?
Picking is more time-consuming and expensive than replenishment, but many operations prioritize putaway and replenishment activity anyway, which creates inefficiency for pickers. Keeping 2–30 days of demand in forward pick locations, sized using SKU cubic velocity data, helps balance labor between the two tasks.
What is the tradeoff between lean inventory and fill rate?
Keeping lean inventory reduces holding costs, but insufficient stock leads to lost sales, especially in eCommerce and Omni Channel retail where consumers expect same- or next-day delivery. Better inventory visibility, historical sales data, and forecasting make it easier to optimize inventory levels without over- or under-stocking.
How can businesses balance order accuracy and productivity?
Achieving 100% order accuracy can slow down fulfillment and add labor costs that eat into thin order margins. Barcoding forward pick locations, requiring scan verification during replenishment, avoiding similar products in adjacent pick slots, and using Goods to Person systems or Warehouse Execution Software (WES) for carton cube checking all help maintain accuracy without sacrificing productivity.
What is the tradeoff between packing speed and freight or packaging costs?
Packing orders quickly can conflict with using high-quality, sustainable packaging materials and minimizing dimensional weight for shipping. Automated bagging machines and automatic cartoning technology that cuts carton height to fit the order now allow companies to pack 480–600 cartons per hour with little to no labor while still reducing material use and freight costs.
