Five ways to cut time and costs out of getting orders to customers
By Paul Demery
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.
Retailers should also look for ways to cooperate with carriers, such as by loading truck trailers before drivers arrive, so a driver can drop off a trailer and switch to a loaded one without having to wait around at the carrier’s expense, says Hernan Vera, group director of marketing for global supply solutions at Ryder System Inc., a provider of trucking and shipping management technology and services. “When the retailer-shipper and carrier agree to be flexible, it can help keep overall shipping costs down,” he says.
3. Smarter packaging and handling
Growing about 40% annually in sales, GiftsForYouNow.com, a retailer and wholesaler of personalized products like sweatshirts, picture frames and coffee mugs, has found ways to expedite fulfillment while cutting costs through basic steps like using flexible packaging materials and eliminating redundant steps in package handling, says general manager Chuck Albanese. “We’re constantly working on how to get products out the door better and faster,” he says.
Instead of shipping sweatshirts in boxes as it had in the past, GiftsForYouNow.com now sends them in flexible vinyl pouches that it can easily fold to fit a product’s size and shape. When it does ship things in boxes, it’s replacing craft paper as protective packaging material with much lighter plastic air pillows. The result is lower overall packaging weight, plus the ability to load more products onto a single truck, leading to an estimated 10% savings in shipping fees, or about 50 to 60 cents per package, Albanese says.
The retailer also recently found that a fulfillment step designed for accurate order packing was slowing down some orders. With about 4,000 variations of products including all of its personalization techniques, GiftsForYouNow.com often caters to multi-product orders. To keep them organized, it has a long-standing policy of routing all finished products to a common staging area, where they get packed along with other items in the same order. The system works well for most orders, but the retailer has rearranged package flow to let single-item orders skip the common staging area and go to a new designated packing and shipping area. “Now we get single orders out a day earlier,” Albanese says.
4. Motivating workers
All the best fulfillment technology and processes still need cooperation from workers to produce the most value, as Backcountry.com has learned. With home-grown software running its warehouse management system and helping workers sort key products into primary pick areas, Backcountry has also taken some of its best steps toward productivity in fulfillment operations by motivating workers, Carter says. In a recent warehouse tour it hosted for other retailers, one of the things the visitors found most impressive were large illustrations placed on the wall inside the building’s entrance. The illustrations include large photographs of outdoor scenery taken by workers along with three charts of productivity: inventory storage accuracy, production levels in orders processed per hour, and shipping accuracy, which is based on percentage of orders received by customers without getting reshipped.
The illustrations address three common problems associated with unhappy workers—anonymity, irrelevance and lack of performance measurement, Carter says. The employee-taken photographs provide front-office recognition of workers’ personal efforts as well as a more attractive entrance, while the performance charts reveal the results of everyone working together. First displayed a year ago, the illustrations have shown signs of boosting both morale and productivity by making workers feel more recognized and by publicizing their group efforts, Carter adds.
Now Backcountry is taking other steps to build motivation and a more productive workforce. In addition to routinely helping workers identify ways to improve performance, the retailer is moving to quarterly instead of annual employee reviews. “Each employee now can earn a pay increase each quarter based on performance,” Carter says. “We did the first quarterly review in January based on fourth-quarter work. It went well.”
5. Consolidating shipments
After improving its packaging and handling operations, GiftsForYouNow.com has reduced overall shipping costs by about 14% by using Newgistics as its partner for consolidating shipments and forwarding them to the U.S. Postal Service for local delivery, Albanese says.
Once the retailer’s orders are picked, packed and ready to go, Newgistics takes skids of orders to its own facility, where it sorts them by size and weight to designate each order for the least costly local delivery by the U.S.P.S., then forwards the orders to either a Postal Service bulk mail center or local post office nearest the customer’s address.
Regardless of what steps retailers take to improve fulfillment and make it more cost-efficient, perhaps the best advice is to never stop rethinking processes, says Adkins of Zappos. “We measure every process on an ongoing basis,” he says. “Even for something as simple as packing an item, we do multiple time studies so we know how long it takes to pack different numbers of items per order, and we set up cameras to watch all the different subtasks of packing. In one case, a manager studied the packing process and made it 25% faster to pack certain kinds of orders.”
paul@verticalwebmedia.com
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