May 1, 2012, 12:00 AM

Special Report: Fulfillment - New ways to drive efficiency

New services can cut e-retailers' costs while increasing customer satisfaction.

Lead Photo

Once she clicks the Buy button, the typical online shopper doesn't give a second thought to how the order will be fulfilled. She simply expects the goods she ordered to show up by the promised date, with the items she specified in good shape.

Living up to that expectation is especially important for online retailers who don't have the face-to-face contact with shoppers that physical-world merchants do. E-retailers must win consumers' confidence by meeting expectations, and one of the best ways to build customer loyalty is to deliver the goods on time, accurately and intact. Orders that arrive late, incomplete or damaged frustrate consumers and undermine a retailer's credibility.

Living up to the promise of order accuracy and prompt delivery requires e-retailers to coordinate a lot of moving parts, from the layout of their warehouses to ensuring efficient picking and packing, negotiating the best possible rates with package carriers and providing a simple way for a customer to return an item.

The good news for retailers is that the e-commerce boom has spawned an array of new services, software and technology from fulfillment specialists that can help web merchants satisfy customers while in many cases cutting their shipping costs.

Starting point

A good place to begin reviewing the new options available to e-retailers is with the facilities that store their goods.

"Warehouses should be designed to handle the peaks and valleys of ordering cycles so that orders are filled as fast as possible, regardless of the order volume or time of year," says Robert Toner, chief operating officer for Innotrac, a provider of fulfillment and customer care solutions for multichannel retailers.

The layout of the warehouse can have a big impact in improving efficiency. "It's not just about moving top sellers or seasonally popular items to the forefront of the picking zone, it's making sure orders are properly routed through the warehouse," Toner adds. "Setting up shipping lanes for each package carrier and routing the order down the corresponding lane saves time at the back-end sorting orders by carrier."

Knowing which items to move forward and back in the pick zone to coincide with the peaks and valleys of sales cycles requires retailers to frequently evaluate their sales forecasts. "Sales volume can change weekly and retailers need to stay on top of it so they can allocate resources to fulfillment accordingly," says Max Niclas Bense, international business development manager for Hermes Europe, a provider of supply chain, sourcing, transport logistics, e-commerce, fulfillment and consumer goods distribution solutions.

Another way to improve warehouse efficiency is by automating the picking process, which can speed throughput of an order. But retailers need to be careful how they approach automation. Some products, such as consumer electronics, furniture or hanging items, come in odd shapes, and automated picking systems often can't grab them easily.

"When a picking system struggles to grab an item, that creates a bottleneck that slows down the fulfillment cycle," Bense says. "Identifying which items in an order can't be handled by the picking system before fulfilling it, and manually picking them, prevents bottlenecks and keeps the fulfillment process flowing."

A perfect fit

A bottleneck also can occur at the packing station when an employee discovers the box selected to hold the order is either too small or too large. When that happens, he must find a box that's the right size. If the only available box is too large, the employee will spend more time adding filler material to prevent items from shifting.

Creating boxes with dimensions customized to hold all the items in the order, regardless of their size, shape and weight, can prevent slowdowns at the packing stations.

"Retailers typically keep several standard-sized boxes on hand to hold any item in their product catalog, but standard sizes can be too small in some cases or lead to unused space in the box that has to be filled with more packing material, which increases the packing costs," says Hanko Kiessner, CEO of Packsize International LLC, a provider of customized packaging solutions.

Having the right size box also can accelerate the picking process if items can be placed directly into a box, as opposed to a bin. There is another advantage to minimizing the use of unnecessarily big boxes: Larger boxes can jam on the conveyer belt as their bulk makes it hard to cleanly navigate curves, thereby disrupting the flow of traffic.

Expensive air

An even bigger problem is that unnecessarily large boxes increase the fees retailers pay to shipping carriers. "Unused space in a box adds to dimensional weight, which all retailers know is the elephant in the room when it comes to shipping costs," Kiessner says.

Parcel carriers created the calculation of dimensional weight pricing so they could charge more for large, lightweight packages that prevent them from maximizing the payload of their planes and trucks. Dimensional weight is calculated by multiplying the length times the height times the depth of the box. If the box size is greater than 5,184 cubic inches, the total cubic inches are divided by 166 for domestic ground shipments and 139 for international shipments. The dimensional weight formula is used for all air shipments.

"What most retailers don't realize about dimensional weight is that carriers will bill the greater of the actual weight and the dimensional weight," says Ken Wood, president of LJM Consultants, which helps retailers analyze shipping contracts, negotiate rates and audit weekly invoices. "A box weighing 21 pounds with the dimensions of 20 x 20 x 20 inches, which equals 8,000 cubic inches, will be listed as weighing 49 pounds when the dimensional weight formula is applied. It's a confusing practice that poses problems for retailers shipping lightweight items in large boxes."

One way retailers can avoid charges for exceeding dimensional weight guidelines is using a dimensional weight scale that measures the dimensions of the box using lasers and sends the dimensions to the retailer's shipping system to calculate its dimensional weight.

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