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January 04, 2016

Working Smart

How to Ease Growing Pains in Your Fulfillment Operation

by Kirk Anderson

Click here to order the January 2016 issue in which this article appeared or click here to download it to your mobile device.


By starting out small, direct selling businesses can quickly tap into the latest trend. However, if that trend takes hold, the potential can be explosive. The ability to manage exponential growth is therefore critical to long-term success.

From a fulfillment perspective, many direct selling business startups will begin holding inventory in a rented space and move to bigger spaces as their inventory and business grow. While space itself may not necessarily be an issue, managing a growing inventory and getting the right orders to the right representatives in the right timeframe often is. This is important because direct sales companies have two customer bases: their distributors and the end consumer, where getting order fulfillment wrong means double disappointment.

To ease growing pains in their warehousing and fulfillment operations, fast-growing direct selling businesses may want to consider the following:

Optimize Your Inventory Visibility

The most critical aspect of your fulfillment operation is knowing what and how much inventory you have, as well as where it is in your extended supply chain.

While the aim is to carry an optimum amount of every item, out-of-stocks do happen and you need to know when they do. Unless you can get replacement stock quickly enough to meet your delivery promise, it’s better for an item to show as out of stock than for a representative or website channel to sell it and find out later that they can’t have it.

Equally, a lack of visibility can lead to excess inventory, causing companies to order more products that are already in stock. This ties up cash unnecessarily and leads to markdowns and obsolescence.

Many small businesses use spreadsheets to manage their inventory, and that works well up to a point. However, relying on people to input data takes time and gives rise to human error, both of which can increase exponentially as your fulfillment operation grows in size and complexity.


The most critical aspect of your fulfillment operation is knowing what and how much inventory you have, as well as where it is in your extended supply chain.


Accuracy

Ensuring that your inventory is accurate (i.e., that you really do have what you think you have and that it is where you think it is) is also critical, not only from a fulfillment perspective but also to prevent shrinkage.

Although an annual inventory take will identify issues after the fact, this is akin to shutting the stable door after the horse has bolted. Implementing a system to electronically reconcile inventory levels with inbound and outbound stock movements, along with a cycle-counting program to physically check a subset of your inventory against your records on a daily or weekly basis, will allow problems to be identified and addressed in near real-time.

Understand Your Order Profile

It is essential to understand the types and volumes of orders that your warehouse needs to handle and also the level of activity on individual products. How many orders do you receive each day? Are they single-item orders or multiple lines per order? Which are your most popular SKUs? All of these things have a significant impact on how your warehouse should be organized and which pick methods you should use.

When designing a warehouse, where the product is laid out is important. Since pickers spend most of their time walking to each item on their pick list, cutting down on travel time can greatly improve efficiency and productivity.

Most fulfillment operations follow the Pareto Rule in which 20 percent of SKUs will typically account for 80 percent of orders. Grouping these fast-movers together will automatically reduce travel times for your pickers and man-hours in your operation. To prevent congestion, make sure your fast-pick zone is designed to allow for high activity levels (e.g., wider aisles or maybe a one-way system).

Analyze Your Picking Methodology

Measured in time and money, order picking is the most costly activity within the warehouse. It is also the activity most closely linked to customer satisfaction. Choosing the right method is therefore imperative.

There are numerous factors to take into account when deciding what will work best in your operation. These include the characteristics of the product being handled (e.g., size, weight and shape), total number of transactions, total number of orders, picks per order, quantity per pick, picks per SKU, total number of SKUs, value-added processing such as personalization, and whether you are handling piece pick, case pick, or full-pallet loads. In many cases, a combination of picking methods is needed to handle diverse product and order characteristics.

Discrete order picking involves picking all the items for an order, one order at a time. The picker goes to each section and picks each individual item for that order before going back and starting on a new order. While discrete order picking is best to minimize confusion, since the picker isn’t juggling many orders, it does maximize cycle time. The picker is forced to walk the entire route for each order, cutting down on productivity.

For warehouses with more orders, especially orders with many of the same items, batch picking cuts down on cycle time, improving the picker’s efficiency. In one trip, the picker pulls many of the same items for multiple orders, separating them into different totes or cartons as he goes. Instead of traveling the same route 10 times for 10 orders, the picker can make one trip for 10 orders.

The Perfect Order

Your representatives and their customers expect you to get it right the first time, every time. Shipping the wrong product not only leads to disappointed customers, but also costs you to ship the wrong product back and to re-pick and re-ship the correct product to the customer. For many direct selling businesses, the value of the product doesn’t justify the cost of getting it returned, and wrongly shipped items are simply written off.

Most small companies start out with a paper-based picking process, where warehouse staff print lists or tickets to tell them what they need to pick. If your workers pick using a paper document, make sure that the picking document is clear and provides information the picker needs. Do not use shipping paperwork as picking paperwork. It includes extraneous information designed to aid the customer’s receipt, not the picker. The information should be presented in the order it is required: location, stock number, description, unit of measure and quantity required.

Always use large, easy-to-read fonts with double-spaced lines and horizontal rulers. The picker should use the clear, top copy of any multipage form. Second, make sure the picking document lists line items in pick route order to save the picker time and avoid accidentally skipping line items.

While these measures will help improve picking accuracy, there is still considerable room for human error. To completely eliminate confusion and guarantee that no line items are skipped, some form of automation technology is a great idea. With radio frequency (RF)-directed picking, for example, workers do not have a need for paper. A warehouse management system simply directs a worker to each location (in an efficient path) to pick items by sending the worker instructions via a handheld RF terminal. With a barcode scanner, the worker can confirm the location and item picked, thereby eliminating the potential for errors.

In operations where there are multiple SKUs of similar size and in similar packaging, a final scan to verify picked items prior to an order being released for shipment will ensure near perfect fulfillment accuracy.

Measure Your Performance

Most have heard the phrase, “If you can’t measure it, you can’t manage it,” and nowhere is this more important than in your fulfillment operation. Decide which metrics are mission-critical to your business (e.g., perfect orders, cash-to-cash cycle time, inventory accuracy, etc.). Benchmark your operation against these key performance indicators and set targets for improvement.


Time spent refining and streamlining your original fulfillment center will not be wasted. Get it right the first time and you’ll have a blueprint you can take anywhere.


Future-Proof Your Operation

The world’s most successful direct sales businesses are global corporations, with millions of representatives in hundreds of countries. Time spent refining and streamlining your original fulfillment center will not be wasted. Get it right the first time and you’ll have a blueprint you can take anywhere.

At the same time, maintaining a stable ratio between fulfillment costs and revenue is essential to long-term, sustainable growth. What worked fine six months ago might now be costing you money, customers or, most likely, both.

Regularly review your order profile and picking methodologies to ensure that your fulfillment operation adapts as your business grows and evolves.


Kirk Anderson is Vice President of Channel Sales at Synergy Logistics, having worked for Tier 1 warehouse management system and supply chain software companies for the past 17 years. Headquartered in the U.S. and U.K., Synergy Logistics focuses on developing effective SaaS/Cloud WMS software. Kirk Anderson is Vice President of Channel Sales at Synergy Logistics, having worked for Tier 1 warehouse management system and supply chain software companies for the past 17 years. Headquartered in the U.S. and U.K., Synergy Logistics focuses on developing effective SaaS/Cloud WMS software.