May 2, 2008, 12:00 AM

Promises Fulfilled

Retailers and fulfillment experts offer five ways to easily improve fulfillment and delivery operations.

With a design for a new sophisticated warehouse and the company’s reputation for service on the line, Zappos.com Inc. vice president of fulfillment Craig Adkins wasn’t satisfied. A product fetched from the farthest point in the warehouse under the new design took about 35 minutes to get to a packing station, and that would make it impossible for Zappos, a web-only retailer, to meet its promise of fast service.

“We’re competing with brick-and-mortar retailers to give customers the instant gratification they get from going to a store,” Adkins says. “So we need to process each order within an hour or less, and we can’t afford to have any item sitting on a conveyor belt for 35 minutes.”

For Adkins, that meant going back to the drawing boards with FKI Logistex, the company providing the material handling equipment, including conveyors and package scanners, integrated with Zappos’s in-house developed web-based order management and warehouse management software. The result: A redesigned system with additional 24-inch-wide conveyor belts that direct two levels of conveyors and merging points to a new common area-“like a spider web,” Adkins says.

Higher speed, less cost

The new design and extra material handling equipment added about 1.5% in costs to the $10 million project, but it was worth it, Adkins says. The time from the farthest point in the warehouse to a packing station is now about five minutes, fast enough for Zappos to meet its goal of taking West Coast U.S. orders as late as 8 p.m. and shipping them the following day. “We want customers to get an unexpected ‘Wow!’ when they expect to get a package in a few days but get it the next day,” Adkins says.

The new system, built with multiple scan points to ensure the correct products are attached to each order, is also designed to cut costs by preventing the need for workers to go back and pick different items or to re-ship orders, Adkins says.

The customized warehouse system at Zappos-a fast-growing retailer expecting to do about $1 billion this year in sales-is designed to handle an inventory of more than 4 million units (or 1 million SKUs) with up to 50,000 or more units ordered per day. In the world of fulfillment, the Zappos system represents one of the more ambitious and technology-heavy methods of streamlining the flow of orders to get them picked, packed and delivered to a customer’s door as fast and efficiently as possible.

But merchants can take other steps to significantly upgrade fulfillment and delivery operations, including some that require only hard thinking. They range from technology-intensive methods to get the most productive use of warehouse space to simple steps in packaging, managing contracts and reviewing fulfillment policies.

Here are five areas of easy improvement that retailers and fulfillment experts recommend:

1. Better organized warehouses

One of the first and most obvious steps a retailer can take to expedite fulfillment at lower cost is to get the best use of space in warehouses and distribution centers. Methods range from high-tech systems to a dose of common sense.

Offering as many products as possible can attract and retain the maximum number of customers, but it presents to the warehouse manager the difficult job of storing all those products, including slow-sellers, in a way that supports fast picking, packing and shipping. “The biggest enemy of any distribution center manager is carrying a bunch of products that rarely move,” says Bob Chase, vice president of consulting services for e-commerce technology firm Fry Inc.

Outdoor sports apparel and gear retailer Backcountry.com, with a base of 114,000 SKUs that it changes twice a year for summer and winter product lines, arranges its fast- and slow-moving products in a way that makes it easier to meet its goal of accepting orders as late as 5 p.m. Eastern time for same-day shipment, says Jeff Carter, vice president of fulfillment. Acting on recommendations from carrier UPS, it arranged its distribution center to place the retailer’s most popular products-about 60% of a total 800,000 items-in primary locations so they can be more quickly picked, he says.

Within the primary locations, Backcountry also stores each SKU to make it as easy and fast as possible for workers to find and grab products, he adds. For popular polo shirts, for example, the retailer sorts them by size, but mixes them by color in the same bin because it’s easier for a worker to quickly grab a yellow or black shirt than to search through the labels of individual shirts for the ordered size.

2. Closely reviewed shipping contracts.

One of the quickest ways to lower shipping costs is through regular monitoring of carrier contracts, a step that many small retailers overlook, says Brian Hodgson, vice president of marketing and business engineering at Kewill Systems plc, a provider of shipping management products and services. “I don’t see enough smaller shippers looking at carrier invoices,” he says.

But with constantly changing shipping rate schedules, including fuel surcharges and supplementary charges placed on things like unusual destinations or package sizes, retailers should routinely review carrier services and fees, he adds. Reviews should cover complex matters like international shipping, which can lead to fines for export declarations that inaccurately list the country of origin of product materials, as well as more local and mundane matters like the difference in one- and two-day shipping times and rates between two U.S. cities.

In one case, a retailer reviewed carrier schedules and found it was unnecessarily paying about $23 for expedited shipping to a particular region, when the $8 ground shipping service delivered orders within the same time, Hodgson says.

At Backcountry.com, Carter designates a transportation manager to spend several hours in January reviewing the terms of new annual rate schedules, then about one or two hours per month randomly checking carrier records to ensure that delivery times meet contract terms. At the same time, the manager checks for any fees and surcharges that may be negotiable. “It’s important to be diligent in understanding what you get charged from shipping companies, and balance the shipping costs against product margins,” Carter says.

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