With the rapid increase of e-commerce orders affecting many businesses today, often distribution operations can’t keep up with fulfilling orders. Typical e-commerce orders carry small numbers of stock-keeping units (SKUs), but more orders through the warehouse require different processes to handle the increase in volume.

What can retailers do to speed their throughput processes to improve fulfillment? How can the retailer gain more space in the warehouse? What is the best process for analyzing pitfalls in the warehouse and then fixing them?

There is not always one answer or system that solves everyone’s problem. Each business is unique, along with their material handling needs, but all companies share the common goal of improving their warehouse operations. To improve warehouse operations, an in-depth process for warehouse improvements should include:

  • Review the current process and identify areas of improvements
  • Document process workflows Identify customer service requirements
  • Project inventory & SKU (Stock Keeping Unit) requirements
  • Define key cost drivers
  • Develop alternatives to be reviewed
  • Identify space and equipment requirements
  • Define framework to track, monitor, and manage processes
  • Develop transition plan
  • Prescribe re-engineered business processing procedures
  • Implement and test

Review Current Processes and Identify Areas for Improvement

Retailers want to make sure their warehouse solution provide the right product, in the right quantity, at the right time, to the right location intact, at an optimal cost. Warehouse managers have metrics in place to monitor performance, which may vary per retailer, but typically include:

  • Percentage of SKU stock outs (lost sales)
  • Inventory turnovers
  • Cycle times
  • Inventory damage
  • Backorders
  • Dock to stock cycle time
  • Number of mispicks/picking errors
  • On-time shipment
  • Order filling accuracy
  • Peak volume

If the warehouse is unable to meet or sustain their business objectives, then retailers need to identify the issues and address area where improvements can be made. This can be done by understanding what is happening within their four walls. Walk the aisles. Work side-by-side with pickers and packers. Talk to workers to see if they have ideas for improvement. Typically, front-line employees have a good sense of what they’d like to see and do to improve and optimize their work.

It is important to assess the warehouse, profile and measure current performances, and establish target key metrics based on findings. Identify gaps and other areas where there is an opportunity for improvement. Look at alternatives and options for filling the gaps, such as adding an additional shift, training employees, implementing lean methodologies to eliminate waste, or update material handling equipment.

Profile Customer Service Requirements

While Amazon has set the stage for consumers’ expectations, few orders are time sensitive enough that they need to arrive at the home of the customer on the same day as ordered. Getting a true understanding of what customers want versus what customers need can save thousands of dollars in shipping and fulfillment costs. Products that are critical to a company’s operations, such as a part for a computer, must be distributed within hours. In contrast, apparel typically has a lower service requirement.

Understanding customer demand, service levels, seasonality, demand variability and promotional initiatives can determine the velocity that an order needs to be filled, and at what cost. Collect and analyze order data within the business to develop customer profiles and preferences. Organize the warehouse in fast and slow-moving SKUs. Consider eliminating less profitable SKUs.

Project inventory & SKU Requirements

Many e-commerce warehouses have an increase of SKUs coming from brand extensions, new colors, new packaging, promotions, etc., stretching the DC to the nearly breaking point.

Depending on the unique inventory mix, product characteristics, line velocity, cubic velocity and other operational requirements, there are order fulfillment strategies which may help balance the load and alleviate some of the congestion:

  • Warehouse slotting (or profiling) is the process of putting SKUs in the right picking locations within the warehouse. Properly slotting a facility reduces labor costs and improves throughput by increasing pick and replenishment efficiencies, increasing order accuracy, and reducing ergonomic risks associated with improper picking and replenishment arrangements.
  • Key factors when conducting a slotting study are the SKU or product data, existing or potential location sizes, and the technologies available for picking and storage. SKU information such as product type, dimensions, weight, and usage are all key factors when determining the proper picking/storage medium and handling methodology.
  • Shipping: In some circumstances, a “divide and conquer” shipping strategy can reduce internal inventory handling requirements to free up additional space and capacity. Options include shipping inventory to stores, drop shipping from manufacturer, private labeling, and/or outsourcing to a third-party logistics providers.
  • Qualifying: Detailed SKU-level tracking equips management to “tidy up” the product mix, retaining optimum quantities of products that sell while reducing or eliminating those that don’t. Giving qualified SKUs premier space and placement streamlines productivity and profitability.

Next month we will discuss equipment and space recommendations. Stay tuned.

Jim McLafferty is Director of Post and Parcel Sales at DMW&H. DMW&H is a material handling systems integrator for retailers, food/beverage distributors, and wine/spirit distributors.