Fulfilling Prophecies Nov 1, 2007 12:00 PM
, BY CURT BARRY
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You know it, we know it: These are tough times in the multichannel marketing industry — on the front end and back end. And with many merchants now heading into the busiest period of the year, there isn't a whole lot of time to reflect on the state of fulfillment.
But it's important to stay on top of operations trends to try to keep your costs down and your service up. Based on our company's consulting assignments and proprietary data from the F. Curtis Barry & Co. Benchmarking ShareGroups, we have a pretty good idea of what's going on in multichannel fulfillment. Among the key challenges: the need to increase productivity, managing the rise in transportation costs, and reducing operations costs.
We should point out that “cost of operation” now encompasses the concept of maximizing return on all assets, including employees, facility, inventory, material handling equipment, and systems and software. The number-one issue for many direct operations is how to reduce the two largest costs — direct labor and inbound and outbound freight.
Managing multichannel operations is another issue, as more merchants are opening stores and selling wholesale in addition to catalog and Web channels. Fulfillment has had to become more complex to handle processing small-order pick, pack, and ship or shift to larger regular store replenishment or large wholesale orders.
What else is going on in the industry? Let's take a look at 12 trends.
MANAGING MULTIPLE WAREHOUSE LOCATIONS
As companies strive to deliver faster to the customer, keep their ability to supply stores within a day's transportation time, and decrease freight costs, many are considering multiple distribution centers. The downsides include the increased span of control necessary, more inventory, and the need for fulfillment systems with inventory functions robust enough to manage more than one DC. In evaluating potential new locations, consider labor cost, quality, and availability; inbound and outbound freight costs; facility expenses; and economic incentives.
GETTING A HANDLE ON PERFORMANCE REQUIREMENTS AND METRICS
Improvement requires measurement, and more fulfillment operations recognize the need to capture metrics for regular and overtime man-hours and labor dollars worked and paid. Marketers also must develop comparisons to volume measurement such as units, lines, or orders shipped. (See “Fulfillment operations metrics,” left, for some current direct fulfillment operations standards.)
DEALING WITH LABOR COST, AVAILABILITY, AND QUALITY
Good help is hard to find, as multichannel merchants must frequently compete for workers with other warehouse operations. It's also expensive: Pay rates in many markets have risen above $11 per hour, compared to $7 per hour just five years ago. In site location studies, we are finding that labor availability and quality compete with transportation costs as the most important factor in deciding to move a DC.
This increase in labor cost is often accompanied by a decrease in absolute productivity in terms of units of work output. Since direct labor is 50% or more of the fulfillment expense, companies must find ways to reverse this trend. The basis for improvement is to set expectations for performance (such as units per man-hour for pick/pack), measure results, and provide feedback to employees and management.
KEEPING THE GOOD WORKERS
Employee turnover is expensive, so you want to hang on to your star workers. It helps to clearly communicate what is expected and then give employees feedback, and to create a work culture that makes people want to stay. Most people want to know how they are doing and to be part of a team. Staff development is a big part of this: You need to hire strong first-line managers. Typical issues include improving production; motivating employees; getting first-line managers to help plan changes to accommodate order and inventory volume growth; managing a multilingual workforce; and overseeing a workforce with flexible schedules.
IMPROVING THE CAPACITY OF EXISTING FACILITIES
Expanding or relocating a facility is expensive and it puts customer service at risk. The trend is to improve space utilization and increase warehouse capacity rather than to relocate immediately. A company can frequently extend the life of an existing facility for two or more years through an operational assessment to identify possible reconfigurations. Though even this level of internal change may be disruptive, it does not compare to moving to a new facility and training a new workforce.
