Every warehouse strives for efficient order fulfillment. But without an effective fulfillment strategy, it’s difficult to control fulfillment costs, which can have a negative impact on the company’s bottom line. There are many factors that can impact costs, from warehouse replenishment practices to the warehouse equipment deployed to support the fulfillment process.
To learn more about what strategies today’s warehouse leaders implement to foster more efficient order fulfillment while keeping costs under control, we reached out to a panel of business leaders and warehouse pros and asked them to answer this question:
“What’s the #1 way warehouses control and reduce fulfillment costs?”
Meet Our Panel of Warehouse Pros:
Nate Masterson is the Marketing Manager for Maple Holistics.
“Work smart, not hard…”
Utilize your warehouse space with clever design. Make sure that you invest in your managers. Are they getting all the access that they need? If they are supported, they can better support your workers. Better supported workers make for a more efficiently run business. Understand and be clear with your delivery process, including packaging and returns. Although both these things are necessarily, they way you orchestrate both effects your bottom line.
Robert Rebitski is a member of the team over at Predictable Surgical Technologies, a medical supply store.
“One of the highest costs of warehouse management and fulfillment is labor…”
By properly managing your work force, you can significantly reduce your costs. A double effort of both better labor budget management and team building is crucial. Set up a labor budget based on planned activity, forecasts and seasons. This will help you determine the most efficient staffing, hiring and training plan. The most successful organizations realize the value of team building and employee satisfaction. Give your team a voice in your company’s vision and goals and hold them accountable. Employees who feel valued will work harder and more efficiently.
Lisa Chu is the Owner of Black n Bianco.
“The number one way to reduce fulfillment and warehouse cost is to simplify the process…”
There are so many awesome apps and platforms to help businesses sort, search and process orders in a very efficient and productive manner. Integrating these modern systems will help your employees become more productive and ease the stress of searching through a large warehouse. These systems have quick install times and require no IT or modifications. They were built for normal, everyday people to help make their businesses life easier. It’s also very efficient, meaning it will allow your employees to process more orders on a hourly basis with virtually impossible odds of shipping the incorrect products to your customers. Every business should take advantage of modern technology because it will give your business a very unfair advantage to those that don’t.
Sophie Miles is the VP of Marketing & Co-Founder of CalculatorBuddy.com, a tech company in expansion to USA, Canada, and South Africa.
“In our company what has worked best is what we call, the magic formula, the software + method…”
First, study the technological needs and get everything you need to adopt them. Computerizing warehouse management and controlling stock is a great idea in the medium term. Choose software that facilitates the valuation and control of permanent inventories based on inputs or outputs, with automated stock alerts, that is versatile and independent of the type of business. Keep in mind that an inventory control software will help your business be more profitable and efficient, and consequently, help you give a better service to your customers.
Then implant control methods. Define methods that fit the needs of your company and your software acquisitions. For example, the counting is carried out by personnel from another department other than the warehouse, who carry out samplings to perform surprise counts in order to check the reliability of the inventory, count more frequently the assets of greater value or greater turnover, etc.
Once the method is working, standardize it. Define normal parameters and fine-tune the physical inventory system. For example, with partially completed formats for counting, barcode readers, make inventories on specific dates, etc.
Jan Bednar is the CEO of ShipMonk, an e-commerce fulfillment company at the center of logistics and technology. He came to America at age 16 to pursue the American Dream and hasn’t looked back since.
“The number one way we reduce fulfillment costs is through automation…”
In the old world, let’s say you would need a picker, a packer, someone in receiving and an inventory cycle-counter for every 250 orders per day. So, at 1,000 orders a day you would need four of each. With automation, we still need these positions — you just need less of them to accomplish the same amount. This enables us to significantly reduce our operating costs as a fulfillment center, which allows us to scale!
Robin Schwartz, PHR
Robin Schwartz is the Managing Partner/Content Writer at MFG Jobs.
“Invest in an inventory tracking system that is appropriate for your business size…”
Smaller warehouses may be able to create proprietary inventory tracking systems with database software. Larger organizations should consider using a system which allows for both movable and fixed tracking options. Moveable tracking allows organizations to see where items are located at all times while fixed tracking allows for easy management and assignment of destinations. Using moveable and fixed tracking together ensures greater inventory efficiency and accuracy, which then allows for reduced fulfillment costs.
Paul Trudgian owns and manages Paul Trudgian Ltd, a leading supply chain and logistics consultancy based in the UK. Paul is a highly experienced supply chain leader, with a 20-year background in supply chain management including the delivery of more than 60 consulting projects in the retail, defense, automotive, food, utilities and mining sectors.
“The #1 way for a warehouse to control and reduce fulfillment costs is to measure cost in relation to activity…”
All too often warehouse key performance indicators (KPIs) relate only to service, such as receiving efficiency, pick accuracy and order lead time. Service levels are of course important, but crucially they need to be achieved within the budgeted fulfillment cost. As part of any warehouse’s KPI suite, cost indicators need to be measured, and there needs to be a focus of continuous improvement on these indicators.
Inventory provides an excellent example of a cost indicator that should be measured and continuously improved. Inventory not only ties up working capital, which has its own cost that can impact the bottom line, but it also occupies space which costs money, requires handling which costs money and, when a warehouse’s storage is over-capacity, it creates inefficiencies in the workflow around the warehouse, which again will cost money.
Measuring and getting control of inventory levels, making sure that the inventory policy provides for ‘just enough’ inventory and not too much, will help ensure that working capital costs are minimized, storage costs are reduced and workflows are not constrained. This, in turn, will help control and reduce fulfillment costs.
Deepesh Patel is the Head of Partnerships and Marketing at Trade Finance Global, a trade and supply chain financing house working to help companies grow their trade lines. An avid fintech enthusiast, Deepesh works with the TFG team helping companies trade more and access better financing and works with technology providers to help make trade more effective.
“Warehouse management is changing significantly…”
With the rise of competition and pressure to cut operational costs and drive efficiency, as well as the globalization of workforce in larger companies (e.g., offshoring), the warehouse is changing significantly and FDs and CEOs are constantly needing to change and adapt their models to cope with this.
1) Warehousing space and inventory control
As the global population increases and high density clusters grow in major cities and hubs around the world, the competition for space will continue, and warehousing / inventory space will become a scarce resource. In the UK and Europe, it’s predicted that warehousing space will run out by 2020, driven by speculative plans to build property to accommodate population. Land availability in most island / populated cities will continue to drive up the cost of precious warehouses, and anyone managing goods supply, suppliers, factories or retail stock through warehousing will need to seriously consider the impact of rising costs. In the same way, it’s just as important to control inventory. The top operators work at a 99.9% efficiency when it comes to managing stock, but managing stock levels and inventory when there is variability (e.g., football for bar chains, foreign exchange / high value goods purchases during Brexit and seasonality for crop traders) is critical for keeping costs low and efficient.
2) Artificial intelligence and big data
Many modern business models in the supply chain management space (e.g., Deliveroo and Amazon) are using predictability algorithms and their big data sets to drive efficiency, manage stock and automate warehouse operations. The rise of drones and drone technology as well as robotics within warehouses, transport operations and the management of stock have grown.
3) Blockchain — warehouse management / control
Tracking and knowing your goods, where they come from and where your suppliers get those goods from has become increasingly important; not just for regulatory purposes, but also from a consumer perspective. During the recent Pride festivals, H&M came under scrutiny from its new Pride clothing line; where fair equality of people of all genders was not recognized in the countries that they were producing goods, and consumers reacted to this.
Blockchain offers a viable solution for tracing and tracking of goods from source to shelf, and given its immutability, traceability and inability to change historic data, evidence and proof of where goods come from is now completely traceable and can be made publicly available. Notwithstanding, blockchain storage of data can save trillions of operational and regulatory costs associated with tracking the flow of goods in global supply chains, allowing big companies to be more transparent and accountable about where their goods come from.
Andrei Vasilescu is a renowned Digital Marketing expert and CEO of a money saving platform called DontPayFull. He has been providing cutting edge digital marketing service to various international companies and different online coupons of various brands for years.
“Frequent audits, skilled employees and technology are key elements…”
To flawlessly control your warehouse, you have to take frequent physical audits of absolutely every living and non-living entity inside your warehouse. Categorically listing and properly tagging everything is the best way to get the full control of your warehouse management. By doing this, you will always be aware of your stocks with their retaining time in your warehouse. In the matter of reducing fulfillment costs, the less you have to touch the items in your warehouse, the less money you have to spend to ship any order or control your warehouse inventory. You have to streamline every type of operation inside your warehouse and deploy modern technologies to reduce handling costs.
Steven Osborn is the CEO of forward2me.
“Our top way for warehouses to control and reduce fulfillment costs is…”
The continuous measurement, refinement and innovation of manual processes.
As soon as a process, tasks or anything in between gets to a critical mass of man-hours, look at how it can be broken down into further sub-processes, using automation and technology to support the human work effort where it is most effective. This ensures humans are most involved at the edges — where the growth is coming from. Once the growth and lowered costs are in the bag, automation takes over and the humans move to the next area that requires control or change to reduce costs.
Dr. Ameerzeb Pirzada
Dr. Ameerzeb Pirzada is the Chief and Consultant Dentist at Z Dental Studio.
“Keeping track of your inventory…”
Knowing what you’re short of and knowing what you don’t want is the perfect way to control and prevent overstocking of goods and, as a result, reduce inventory and fulfillment costs. Now I know many old school managers keep a spreadsheet-based inventory management system; however, moving to a modern approach such as to applications that can keep track of warehouse’s inventory can keep your warehouse and stock fully automated. Above all, it reduces clerical mistakes, human error, saves time and furthermore, you won’t need new staff members just to keep track of your stock.
Punit Gupta is the Founder & CEO of EasyEcom — an omnichannel commerce platform. EasyEcom is a platform of choice for major brands like Casio, Provogue, Killer Jeans, Swiss Military, etc. to run their e-commerce business.
“The main reoccurring cost in the warehouse is the labor cost…”
Labor optimization requires process efficiency which has two major areas:
1. Picking: Picking requires careful planning. Fast moving items need to be stored near to the packing stations. Then warehouse management system pick list automation should guide the picker throughout the warehouse while picking, hence optimizing the path.
2. Sorting: Sorting becomes a nightmare if it’s manual. Hence, automated barcode scanner-based sorting is required to be able to process a number of orders quickly. A proper bin-based sort driven by barcode scanners will improve sorting speed along with removing errors that typically happen, as well.
William Crane is the Founder & CEO of IndustryStar Solutions, a supply chain services and software company that helps organizations launch new products.
“Companies face abundant challenges to…”
Reduce warehousing inventory and fulfillment costs, that, when combined, are often the root cause for not achieving or sustaining cost reductions. One major element of common frustration is the timely visibility of accurate warehousing inventory and fulfillment planning data. Teams need to have reliable data available in one place from which to calculate ideal future-state inventory levels.
Supplier delivery fluctuations add volatility to warehousing inventory and fulfillment models, negatively impacting efforts to reduce inventory, which could result in stockouts. This makes predictable supplier delivery times crucial to reducing warehousing inventory and fulfillment costs.
With an ideal plan, there are specific warehousing inventory and fulfillment targets, maximum inventory levels, storage locations and packages; then, there is actual reality. Everyday business challenges need to be understood and accounted for to bring about results. A deep understanding of the many variables, inter-dependencies and real-world risks will allow your team to succeed in obtaining sustainable warehousing inventory and fulfillment cost reduction. We use the following four actions to control and reduce warehousing inventory and fulfillment costs using Plan for Every Part (PFEP).
1. Define goals
The frequent statement we need to reduce warehousing inventory and fulfillment costs is rather broad, so defining your organizational goals regarding lowering costs will lead to better and quicker results. Invest the time up front to train your team on the fundamentals of the variables that impact warehousing inventory and fulfillment costs. This will ensure that when inventory levels are reduced, they are preserved.
Break down whether the organization wishes to reduce inventory cost, type or location. Set granular, quantitative inventory targets, by part, using a bottom-up approach. This will be exponentially easier for teams to execute..
Focus on quick, low-risk wins. Most businesses are amazed by the bottom-line savings and implementing a phased approach to build team momentum is usually best. A PFEP software application is the perfect tool to use for defining quantitative inventory targets and calculating ideal variable inputs that will reduce costs.
2. Audit maximum inventory levels
Before rushing into action to reduce inventory, audit actual inventory levels. Establishing a warehousing inventory and fulfillment cost baseline is critical to calculate the cost reduction and to earn support from leadership. Download a list of current maximum inventory levels from the company’s Enterprise Resource Planning (ERP) system to outline planned current-state maximum inventory levels by part number. Then, utilize PFEP to calculate the maximum target inventory levels and compare these numbers to the current maximum inventory levels.
This analysis will highlight the deltas where significant warehousing inventory and fulfillment cost reduction opportunities lie. Next, perform a thorough site walk to record the actual inventory levels, which will highlight additional areas of warehousing inventory and fulfillment cost improvement. Lastly, adjust your ERP system to reflect the ideal maximum inventory level, by part, calculated in the PFEP.
3. Review buffer stock levels
As with maximum inventory levels, if your ERP system is automatically reordering inventory, or your team is manually ordering from planning spreadsheets, it does not mean inventory is any more accurate.
Buffer stock is an important level and prevalent input that, when refined, could generate cost reductions. One significant variable for ideal buffer stock is supplier ratings; suppliers with quality or delivery issues should have a higher buffer stock. Suppliers with long lead times should also have a higher buffer stock to mitigate stockouts due to the potential impact of missed shipments.
It is common practice for companies to add additional buffer stock after just one mishap with a supplier, then never return the buffer stock level to its ideal state, which results in having higher inventory then needed. To counter this, audit and adjust current state buffer stock to reflect your calculated PFEP numbers.
4. Check pull signals
It is critical to analyze the number of pull signals to ensure the number of signals reflects the target calculated in PFEP. A classic issue for Kanban card warehousing inventory and fulfillment control systems is using too many cards, which increases the buffer stock, leading to surplus inventory in the system. Digital systems are far less prone to error in this regard, however, it does not mean the number of pull signals in your warehousing inventory and fulfillment control system is accurate.
Regardless of the system your organization has in place, the underlying process for pull signals is key, especially for the site where the signal is triggered. The preferred location for triggering a reorder should be as close to the part package as possible to mitigate excess buffer stock inventory.
Adjusting pull signal numbers could change your warehousing inventory and fulfillment costs within days, depending on how quickly turns happen, but tuning ideal pull signals over a series of weeks and monitoring their impact will provide a more accurate data set and encourage team member buy-in.
Warehousing inventory and fulfillment costs are a universal struggle for many businesses, but the cost reduction results achieved, and their long-term sustainability, depend on whether the solutions applied are temporary fixes or institutional changes. Embracing a PFEP application for analyzing and adjusting your maximum inventory levels, buffer stock levels and pull signals to reduce warehousing inventory and fulfillment costs will support your company on its way to becoming a lean extended enterprise.
Doug Orlove is the VP of Operations at Amify. He has an extensive background in supply chain and finance, having led operations teams at Dole Food Company, Frito-Lay and Medge. He has over 20 years of experience managing inventory and production planning. Doug studied Biology at Georgia Tech and has a masters in Logistics from Florida Tech.
“Ensuring the optimal amount of inventory on hand through demand planning is key to…”
Maintaining an efficient product flow through the warehouse. Excess inventory amounts will contribute to handling and storage costs, while inventory shortages slow down the order fulfillment process and affect customer service. Forecasts can be improved by adopting supply chain management concepts such as information sharing. Point of sale data is harnessed to provide accurate base demand levels. Layering seasonality and trends on top of the base demand will provide an accurate projection of future product needs.
Jim Milan is Communications & SEO Manager for Auto Accessories Garage, a fast-growing online retailer of auto parts and accessories.
“The flow of information…”
With so many moving parts, the productivity of your warehouse is only as dependable as the communication that travels throughout it. Any misunderstanding or break in communication can easily rack up costs in time and money. Try asking employees to think of aspects of communication or the communication systems that are frustrating to them. This should reveal the areas that could use improvement.
Misha Kaura is the CEO of Darlinghurst Enterprises, which comprises fashion labels Misha Kaura and Mishactiv, as well as Darlinghurst Garment Factory.
“At Darlinghurst Garment Factory, our biggest advantage is…”
Using project management tools available online to control and reduce our fulfillment costs. We also provide free room, board and child care to all factory workers, which means that they are more engaged at work with minimal stresses outside of work. This key advantage means that our employees are whip-smart and always bring their A-game everyday, which I think has helped us grow a lot. I think we as an organization are only as good as our team, and I’m very proud of my team. As a result of project management and taking care of our people, we’ve experienced 20% growth each month since implementing a divide-and-conquer methodology of getting the clothes to the customer at warp-speed.
Nina Pineda is a Consultant for PodM2M.
“One of the biggest costs in fulfillment is labor…”
Both direct and indirect labor costs need to be taken into account when planning budgets for fulfillment, and about 50% of the budget is spent on staff for picking and packing. Since labor requirements often fluctuate, it is vital to closely manage the staffing ratio to ensure that the number of staff match the demand and avoid over- or under-staffing which can have a massive effect on efficiency and costs. In recent years, the increase in automation in the warehouse environment has led to reduced costs, increased efficiency and a more in-depth understanding of the processes involved in the fulfillment process.
The Internet of Things (IoT) has had a large part to play in this. For example, time that used to be spent by staff monitoring machinery for intermittent problems can now be replaced by a monitoring device that alerts them when a problem is detected. Experts that used to be required on-site to manage complex machinery such as labeling, measurement or conveyors can now be contacted remotely when a problem arises, rather than spending time physically in the warehouse. A huge variety of sensors can be deployed throughout the warehouse to monitor the status of machinery and processes, with data being sent back to a centralized platform for analysis. All these technologies result in staff having more time to concentrate on other tasks, and the overall efficiency of the fulfillment process is greatly improved, enabling faster throughput and reducing costs.
Brian Sheehan is a Sales Manager for Hollingsworth LLC, a global fulfillment company. He is an industry professional in supply-chain management, with 15 years of operational and business development experience and knowledge in the categories of fulfillment, kitting, packaging, assembly, distribution, program management and return management.
“At Hollingsworth LLC, we have two secrets that enable us to deliver cost-effective and quick fulfillment…”
We use demand sensing and shaping technologies to accurately forecast customer needs. By anticipating customer needs, we are able to effectively purchase and warehouse what is needed. Our aim is to reduce overstock therefore improving our buying processes.
The next big secret to warehouse management is Global Order Promising (GOP). GOP is a method of increasing on-time delivery, improving the reliability and accuracy of order promises, better managing commitments to key customers and more. It also maintains a company’s visibility of their manufacturing, supplier, and transportation capacity while promising orders to optimize their inventory management. Our customers want their products ASAP and we aim to give them that exact experience.
Darren Cottingham is director of DT Driver Training, Australasia’s largest provider of online training for forklift operators and drivers of work vehicles.
“An often-overlooked way of improving efficiency in warehouse operations is traffic management…”
Goods have to come in, goods have to go out and time is money. Efficient traffic management means having a process to receive and unload goods while not interrupting delivery vehicles collecting goods or workers or automated machinery transporting goods to dispatch points.
Analyze your requirements for how you break the freight on receipt. For example, how many actions does the truck driver need to do to get to your loading dock or warehouse door ready for the freight to be taken off the truck? How many people are involved? Do you need a forklift to help receive the goods into the warehouse? Does the movement of forklifts affect drivers who have arrived to pick up orders? Are drivers often left waiting in a queue which blocks other traffic?
Map out the process and see where you are losing time. You might be able to define delivery windows for incoming and outgoing goods. For example, incoming goods can only arrive between 8:00 am and 3:00 pm, while outgoing goods can only leave between 3:00 pm and 6:00 pm. You might be able to use separate doors for incoming versus outgoing goods, or you might be able to reconfigure your warehouse traffic flow to reduce instances where two vehicles meet and must give way to one another.
Scott Crumrine is Guava Family, Inc.’s Founder & CEO. Guava Family is a family oriented design and manufacturing company that specializes in creating travel cribs and baby gear. Scott founded Guava Family 10 years ago after graduating from Stanford University business school.
“Transparency in inventory management is key…”
In order to control and decrease fulfillment costs, it’s important to place an emphasis on transparency in the inventory management process. Focusing on improving transparency and communication between departments allows you to analyze the fulfillment process from a collective bird’s eye view. By integrating data collected and forecasted from departments like sales, inventory and logistics management, you gain insight and visibility into every aspect in the fulfillment process. This process gives management insights into how to improve processes and cut costs at every level.
Abhishek Biswas is a Content Writer at Orderhive, an inventory management tool which helps retailers by automating and managing their inventory.
“Well, there’s not only one way to how warehouses control and reduce the cost of fulfillment…”
According to your warehouse’s needs, you have to choose the right one.
In recent days, it is observed that many online sellers and retailers are moving towards warehouse automation by leveraging modern technology. Because of this they enjoy the benefits like:
- Lower warehouse cost
- Increased sales
- Reduced overstocking or understocking
- Improved speed and efficiency of processes
To get more efficiency retailers have started using warehouse inventory management software that automates a large chunk of the workflow, which reduces inaccuracies and saves costs. For the retailers who have inventory located at different geographical locations for them, these types of tools often diminish the manual process of monitoring it daily.
In addition, optimizing the warehouse space is also a key reason for reduced fulfillment cost, because space utilization within a warehouse is directly connected to the travel time of pickers. Poor space utilization during pickup and dispatch of products leads to inefficiency and higher costs.
Alexandra Zelenko is a Marketing and Technical Writer at DDI Development company that delivers web and mobile digital solutions for a wide range of business expertise, such as recruitment, fintech, CRM, e-learning, logistics, etc.
“Companies should consider a Warehouse Management System (WMS) or…”
An ERP system with a robust WMS implementation to boost warehouse efficiency and reduce cost. There are different types of solutions ranging from simple systems to more complex ones. Commonly, they are used to control and track the transfer and storage of materials in a warehouse. The system involves a number of processes that are important when shipping, receiving or even putting away materials and integrates with other systems in the supply chain to ensure data transparency throughout your company. Even though the goal is to save money, keeping up with the best technology will do that for you in the long run, and using better barcode scanners can reduce picking and shipping errors, which saves time and money.
Dave Masterson is the General Manager of Shelter Works, a manufacturer of fiberglass shelters and buildings. Dave has over 20 years of experience implementing process and operational improvements in multi-site businesses. He holds an M.B.A. from Webster University and his M.S. degree in Engineering Management. Dave is a Certified Master Black Belt, subject matter expert and trainer in Strategy Deployment and Lean, Six Sigma design.
“One of the top ways to control and reduce fulfillment costs is to…”
Negotiate costs on small package, Less than Truckload (LTT) truckload and container load freight, as well as packaging materials, such as boxes, tape, labels, etc. When negotiating with a carrier, discounts are important but so are the base rate and accessorial charges such as fuel surcharges. Of course, in negotiating, it is important for the purchaser to negotiate rates while ensuring the quality and service levels are maintained.
Forming strong professional relationships with suppliers will help a purchaser to negotiate favorable terms that will significantly help reduce fulfillment costs.
6 River Systems is the world’s leading collaborative fulfillment solution, and the first collaborative robotics fulfillment solution to help warehouses across the country fulfill more than one million units in a week. Learn more about how 6 River Systems’ Chuck leverages AI to help your associates get more done in less time.