Laying It All Out in the Distribution Center
This was written recently by Multichannel Merchant’s Melissa Dowling
Your warehouse layout plays a huge part in the effectiveness of your operation, says Curt Barry, president of operations consultancy F. Curtis Barry & Co., At a session during the NCOF show in Las Vegas in March, Barry detailed some of the steps to reviewing a distribution center layout.
It’s important to understand the utilization of the current warehouse layout, and use what is available, he said. You have to determine how the building dictates process flow.
Oftentimes you can’t see any space in a warehouse, Barry said. This can be a big problem when your goal should be to reduce the number of times you touch product. “How many times to you have to move product around” because of inefficient layout? Barry asked.
You also need to look at effective space and cube utilization and pick and storage design, as well as the number of dock doors, how materials handling equipment operates, and system capabilities and restrictions.
What happens when you don’t have enough warehouse space, and moving or expanding isn’t a near-term option? There are a few things you can do, Barry said.
For one, you could narrow the aisles in the facility to make room for more products. Or you could add a mezzanine if you have room to expand vertically. You might also consider a second work shift so that warehouse staff isn’t running in to each other.
But the main thing is getting management to act on slow-moving merchandise, Barry said, which is typically 80% of the inventory in any warehouse. “Distribution centers are crammed with stuff that doesn’t sell,” he noted.
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Measuring Your Employee’s Performance
The following is from a recently received email sent to Curt Barry…
Dear Curt -
We met briefly at the NCOF conference in Vegas, and I wanted to reach out to you regarding performance errors. I was hoping you could provide me with some insight into how other 3 PL fulfillment companies manage employee errors. Currently, we don’t have a strong policy in place to deal with these issues.
Some questions that arise in my mind are:
1. How many mistakes is too many?
2. Should the consequence be different in receiving than picking or packing?
3. If there is a larger mistake that causes our company should there be a more severe consequence?
I understand that everyone makes mistakes and I would like to allow for learning and coaching, but I also want to make sure that our employees have a formalized consequence to ongoing errors, and they know what to expect. If you have any feedback on this I would really appreciate it. Or, if you know any warehouse managers I could speak with to get ideas on what they do that would be great!
Thank you so much for your time!
Sharon, VP of Client Services, 3PL Company
Dear Sharon -
In my opinion, there are a couple levels of issues:
- Weekly productivity reporting by person through out the call center and fulfillment. Our clients display these by department and person on white boards, reports and monitors throughout the facilities.
- Contact center monitoring should be in place. There should be a form for evaluating the calls and a weighting system for the responses. What are your standards for monitoring experienced core employees versus new hires? Companies have developed coaching approaches to improve employees, get them to accept responsibility for improvement or a basis for asking them to leave the company.
- Personnel policy that deals with severe HR issues. These include theft, embezzlement, sexual harassment, etc. These should have clear documented policies which employees understand.
In terms of error rates, we would expect that controllable error rates would be only 0.5%. Meaning, 99.5% of all major transactions are error free. In bar coded systems it will be much higher.
In a speech a number of years ago when I made the statement about error rates of 0.5%, a national FedEx manager pointed out that meant 73,000 of their customers would not get their package on time in any given day. What is your management’s attitude about errors? And you are in a 3 PL service so what guarantees are you making to clients? Hope this helps. Call me if I can further explain.
Curt Barry
Hey, blog readers, what’s your company’s approach?
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BI systems across the enterprise
The most serious business information problem companies face is finding a “single version of the truth.” Many companies are installing best-of-breed systems for order management, fulfillment, call center, marketing, product information, inventory, finance and e-commerce.
Yet no one vendor in the marketplace today can provide more than two of the best-of-breed components needed. Even most ERP systems available to direct marketers don’t provide specialized direct, retail or warehouse management functions that are as good as best-of-breed.
Such systems have given companies access to the best system functionally for end users. But even when they are integrated with one another, you still have numerous - and differing - occurrences of key data and metrics.
The result of all these silos of information is that no one system provides more than 30% of the data needed by senior management; for larger companies it may be only 10% to 15%.
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Ways to Save Money
The following is a brief email that we received from one of our eNewsletter readers, in response to an article we wrote about saving money in your company…
Curt:
Just received your electronic May newsletter and wanted to send you some ways we are saving money.
- Cut utility usage
- Drop non productive associates
- Reduce fulfillment goals from 92% to 85%
- Keep 15% of your OTB in your back pocket
- Only mail your best customers ( we are thinking of prospecting again this summer )
- Drop marginal books
- Flow inventory, more smaller orders, more frequently.
- Keep margins high, but salt the assortment with redlines for the illusion of markdown.
- Offer free personalization instead of a mark down.
We are actually making money on a reduced sales plan.
Hank
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15 Ways to Reduce Warehouse Expenses
As it appeared in Catalog Success Magazine written by Paul Miller
At the recent NCOF, Curt Barry, president of Richmond, VA-based multichannel operations & fulfillment consultancy F. Curtis Barry & Company, presented “15 Ways to Reduce Warehouse Expenses.” Here is a summary:
- Efficient receiving. Inventory accuracy and product flow through the warehouse all start with receiving. The single biggest improvement companies can often make is to develop and implement vendor compliance policies.
- Reduce inbound and outbound freight. Outbound freight now exceeds direct labor in many centers. Don’t be too proud to ask consultants to help negotiate new contracts, even if it’s on a gain share basis. Too many dollars are at stake.
- Put away. Look to reduce warehouse back orders and “can not finds” which may cost anywhere from 20 to 60 minutes to resolve.
- Slotting. Efficiency techniques include “hot pick areas” for fast selling products. The old 80/20 rule holds for product sales.
- Order Picking. Reduce the picking time—which is 70% of picking time is walk time in the warehouse—by using the proper approach to fit your business (e.g. singles, cart/bin, batch pick and sort, zone pick, etc.). In many businesses, singles are more then 50% of the pick volume.
- Reduce number of replenishments. Hold the equivalent of a week’s unit volume in the forward pick.
- Packing. Picking and packing amount to more than 50% of direct labor costs in the warehouse. Put packing supplies adjacent to the stations, and ensure you have the proper number of insert compartments, sufficient table top square footage, and adjustable length stations.
- Returns processing. Returns cost more than orders. Eliminate the controllable reasons for returns (e.g. picking errors, copy and art errors, etc.). Streamline the receiving process to get returns processed efficiently and refunds back to the customer quickly.
- Inventory Control. Inventory is the largest balance sheet asset in most businesses. Without accurate inventory you can’t have sales or move orders efficiently in the DC. Use aisle mapping (proper location of product without counting) frequently.
- Bar code scanning. May be the most underutilized technology in our industry. Maximize its use from dock receiving, to put away, to picking, pack confirmation, shipping, returns processing, inventory control and cycle counting. Speed product and order flow through the center. Increase inventory accuracy to 99.9%.
- Effective warehouse layout. Look to increase capacity within the same facility and streamline product and order flow.
- Work standards and measurement. You can’t improve that which you haven’t measured. Apply benchmarking principles to set up internal benchmarks. Use external benchmarking to understand what other companies achieve, and for best practice ideas.
- Management of labor. Labor is more than 50% of the cost per order for call center and warehouse.
- Developing a world-class team. There are 11 key issues you need to resolve, including staff empowerment, delegation, hiring competent people, recruiting and training the person who will take your place eventually, etc.
- Use 3rd party logistics. Barry’s clients have used 3PL more in the last two years than in the prior 10. Internal costs have increased to the point where, for many companies, on a total cost per order basis it’s cheaper to use 3PL. Additionally, they avoid having to invest in infrastructure such as warehouses and systems, and have reduced management of fulfillment, call center and IT. They can instead concentrate on the critical areas of marketing and merchandising.
Curt Barry is president of F. Curtis Barry & Company, a multichannel operations and warehouse consulting company. Helping you understand inventory cost savings and warehouse management are just a few of the ways we can help your multichannel business. Please visit FCBCO.com for more information.
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From the Dark Side of Productivity
I’m with a firm that spends much of its time helping clients improve productivity and reduce costs. We are ever mindful of the negative side—the “dark side”—of productivity projects. What is the dark side? It’s what happens if we don’t take the human factor into account. As someone with 30 years of experience in industrial engineering, I can tell you that there is no way to achieve long-term success in a re-engineering project without considering the effect it will have on people.
Two articles in the Wall Street Journal serve as stark reminders of this reality. The first, “Retailers Reprogram Workers in Efficiency Push” (September 10, 2008) described installations of workforce management software at AnnTaylor Stores Corp. and other retailers. According to the article, workforce management systems are “sweeping the industry as retailers fight to improve productivity and cut payroll costs.” As the Journal noted, some workers aren’t happy about the trend, saying the systems leave them with shorter shifts, make it difficult to schedule their lives, and “unleash Darwinian forces on the sales floor that damage morale.”
The Ann Taylor system keeps track of the usual productivity metrics: average sales per hour, units sold, and dollars per transaction. The system schedules the most productive people during the busiest hours—and, because it awards more-productive salespeople with favorable hours, it gives employees an incentive to persuade shoppers to buy things. And it’s worked, as far as the overall economic goals are concerned; the chain’s director of store operations said it has helped turn more store browsers into buyers. But, as the WSJ story made clear, it also resulted in the loss of some veteran salespeople who had developed long-term relationships with customers. By focusing strictly on the metrics that could be easily measured, the system actually penalized associates whose selling style depended on longer interactions with the customer—even though such relationships often assured continued customer loyalty. Others found their hours cut back to the point where they could no longer afford to make the trip to work. During busy times, the formerly congenial staff began competing for customers, sometimes stealing them away from one another. While productivity was, indeed, increased, perhaps the most surprising unintended result of the system was that this story, with all its unflattering aspects, was splashed across Page A1 of The Wall Street Journal.
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Top Ways to Cut Costs and Improve Customer Satisfaction
Every smart business manager is constantly looking for ways to reduce costs and make the operation more productive. In today’s challenging economic climate, such efforts become even more crucial. Small steps that can help to save money may make a big difference. Our experience in the fulfillment and call center has been that often the same process improvements used to reduce costs also result in better service—and greater customer satisfaction. These are some of our top tips in four of the key areas.
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How to Select the Right Front- and Back-End Systems for 3rd Party Fulfillment
More and more companies today are outsourcing fulfillment to avoid making investments in that non-core area, or in the technology necessary for it. We’ve also seen hundreds of start-up e-commerce companies that simply don’t want to be in the fulfillment business. All of these companies are turning to third-party fulfillment (3PF) providers like you. With so much riding on it, it is very important that your front-end (call center, customer service, and marketing) and back-end (warehousing, order management, and fulfillment) systems and technology give you a continuing competitive advantage. The systems you select will have significant ramifications for your personnel’s productivity, as well as how effectively you serve your customers and help them grow their businesses—and the management information these systems provide can help you grow your business. No matter what type of system you’re considering, the purchase is a long-term investment. In short, selecting the right front- and back-end systems for your 3PF business is a major undertaking.
In this article, we’re going to lay out the major functional considerations for new software and the methodology for selecting a system. Over our past 25 years as industry consultants, we have both assisted companies in selecting third-party fulfillment providers and helped third-party providers select new front- and back-end systems to improve their fulfillment services, reduce costs and improve customer service.
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How Will You Provide Your CEO’s Favorite Reports?
You have just spent four months doing your homework to replace your aging call center and order management system: gathering user requirements, writing an RFP, getting capable vendors to bid on it, conducting demos and selecting the finalist. Yet there is one more activity that, if not done superbly, will shake management’s confidence that replacement of the old system will go smoothly. If you haven’t adequately studied how management at every level—from CEO to department managers—will get the information they’re used to having in order to run the business on an online, daily, weekly, monthly and year-end basis, your credibility could be in trouble. Even when business analysts feel they have done an adequate job of determining user requirements, this area frequently gets cut short. There are a variety of reasons:
- In requirements and demos, users often spend too little time reviewing the entire system. Some feel they can do it in half a day. In reality, it is a two-day task—and even then you run the risk of not seeing everything.
- Vendors have stopped developing reports—yes, that’s right: no reports. “But we have online displays of data!” software vendors and less experienced users will say. Of course, when you go live with the new system, users line up at your door and want to know, “Where are those 10 important reports I had in the old system?”
- Then there’s the fact that management, while sponsoring the systems replacement effort, takes little time to see whether their most important data is in the system or find out how they will get it from the new system. The biggest area of systems deficiency is in the lack of plans and historical data. Many order management systems have been developed without history by product, category, list segment, total business by year, or any other criteria. Management therefore has adapted with its own spreadsheets and Access systems. How will they get the information in the formats they will need?
- Software vendors convince the users that they can develop the reports they need with Crystal Reports, a query language or a data warehouse tool the vendor has included in the purchase agreement. But here’s the problem: Do you know how many and which reports will need to be replaced, or how much effort this will take? Our experience in implementing order management and warehouse management systems is that there are literally hundreds of reports that have to be replicated in order to be comparable. Just this week, in working with a client we discovered there were over 200 key reports that would have to be replaced in some form.
Think about some of the reporting needs of various departments:
- How will Merchants get their merchandise performance reports? Do they require history? Plans? Vendor analysis? Category trending? Contribution to profit?
- Does your Marketing department require source code statistics? Do they need figures by channel performance in terms of demand, average order, etc.? How about conversion rates for first time to multi-buyers? Reactivation of inactive customer accounts? What about history and plans?
- Is there productivity analysis required for the Call Center? What about customer compliance and inquiry reporting from customer files?
- What data do you need to provide Fulfillment with reports about picker and packer productivity? How will they feed their departmental productivity and cost systems, which may be manual or spreadsheets?
You get the picture. Here’s what you need to do: Be proactive in soliciting specifics on what analysis is required. Collect the requirements and determine where each analysis will come from in the new system. Get users to sign off on the new system, confirming that it meets their needs. Cost out the time and effort required to provide all of this and make it a key ingredient in your system conversion work plan. I think you’ll find that reporting is an area of systems requirements on which many don’t spend enough time before going live.
Brian Barry is a Senior Consultant with F. Curtis Barry & Company, a multichannel operations and fulfillment consulting firm with expertise in multichannel systems, warehouse, call center, inventory, and benchmarking; Learn more online at www.fcbco.com.
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My Site-To-Store Delivery Experience
I had the pleasure of ordering online with the masses on Thanksgiving Day, and wanted to share my experience with you. I was on the lookout for an Xbox 360 and had been checking out all the Black Friday sales ads, online and in print, hoping that someone would have a great deal. As usual, I kept checking all the price-shopping websites along with a number of retailers’ websites to see who had the best possible deal at the best price. Lo and behold, in this case it turned out to be Wal-Mart.
Wal-Mart happened to have the best deal available on Thursday, November 27. After many hours of research I decided to jump in and make the purchase on Thanksgiving morning. The Wal-Mart site offered a bundled package for the Xbox—not unique in the fact of offering a bundled package, but unique because it turned out you could select the components in the bundled package: different consoles, controllers and games. Everything went well with the purchase on the site and then I decided to give Wal-Mart’s Ship-To-Store option a shot. Order online, have your order shipped to the store for pickup and pay no shipping charges. Sounded good to me, so I gave it a whirl.
I identified my local Wal-Mart store during the checkout process, and immediately after placing the order received a confirmation for the 4 items I ordered in the bundle, each with an expected in-store date of between 12/09/08 and 12/15/08. Off to eat Thanksgiving turkey.
An e-mail arrived on December 3rd stating that 3 of the 4 items had arrived in the store. The e-mail contained the instructions for pickup: simply print the e-mail containing the order barcode, find the Site-To-Store pickup area in Wal-Mart, show ID and that’s it. So off to Wal-Mart I went on Friday, December 5th. The instructions also noted that most of the Site-To-Store pickup areas are located in the rear of the store and sure enough, that is exactly where it was. The person working the register took my printed e-mail, asked for identification and promptly went back to find the order. Within a minute he was back, the order was scanned and I was out the door with my 3 items, receipt in hand (not bad considering I’m usually the one that picks the slowest moving line with the slowest moving associate). The next day I received an e-mail confirming that the items had been picked up.
On Monday, December 8th, I received an email for the 4th item. This time, I used the option to identify another person for pickup. On Tuesday, that person picked up the last item without any issues. On Wednesday I received an e-mail confirming that the last item had been picked up. All in all, it was a great experience.
When I picked up the 3 items, I asked the associate if many people were using the Ship-To-Store program. The comment was, “Oh my goodness, don’t you see all the products lying around here? We are out of storage space in the back of the store and don’t have anywhere else to put things. I don’t know what we are going to do. There have been a lot of people using the Ship-To-Store option.” Judging from the number of orders that were there, it certainly looked like many people are using the service.
From my vantage point, the process worked extremely well, was easy to use and didn’t cost anything for shipping. What’s your experience?
Joseph (Tocky) Lawrence is Vice President of F. Curtis Barry & Company, a multichannel operations and fulfillment consulting firm with expertise in multichannel systems, warehouse, call center, inventory, and benchmarking; Learn more online at: http://www.fcbco.com