38 Ways to Improve Fulfillment

The key to an efficient warehouse and distribution operation is strong data. You can’t improve something you haven’t measured. The data will help companies to understand exactly what is going on, how long it is taking, and at what costs.

Benchmarking and Improving Performance

Implement an internal benchmarking plan to monitor your productivity, transaction throughput and your cost per transaction. In fulfillment, productivity reporting will assist with keeping a pulse on the performance of the major direct labor functions such as receiving, putaway, picking, packing and shipping.

1. All benchmarking and productivity measures should be accumulated at the individual level, and rolled up/reported to the shift and department level.

2. Feedback to the employee and department manager is key weekly. Benchmarking programs ensure that employees are working to a standard or goal instead of just working to the workload. Use printed reports or TV monitors to display the performance against the goal or standard so that employees know exactly how they are performing. Place these in common areas such as near time clocks and breaks rooms.

3. Measure the key units of work produced per hour. Some examples include receiving pallets, cases, units per man hour. In picking, track the lines and units per man hour. In packing, the cartons (packages) packed per order. With shipping, track the packages shipped per man hour. In returns, customer returns processed per man hour. Use this data to look for areas of process improvement in order to reduce the time for each function.

4. Measure customer service and time based metrics such as dock to stock, item and order fill rates, picking and shipping error rates, return processing time, and order turnaround time. These metrics are vitally important to understanding throughput as well as how you are servicing the customer. Companies should utilize these results to make improvements in the processes and to improve the overall customer experience.

5. Measure and report on cost based metrics such as the total warehouse costs as a percent to net sales and the total cost per order and shipment. Other important metrics include the cost per unit for various warehouse functions like the cost per unit received, picked, kitted or assembled. These cost based measures will help you understand where to reduce waste and excess handling

Manage the Labor Force

Labor is the second largest distribution expense item next to freight costs for most companies. Being able to effectively recruit, train and retain individuals is just as important as managing the existing workforce.

6. Hiring, recruitment, retention and attrition (turnover). Companies must focus on how to recruit the best candidates, and to retain those individuals. In working with a wide variety of clients, FCBCO has found the cost to recruit, train and retain an hourly employee can be as high as $3,000 to $10,000. Factor in the HR costs, training costs etc. and how many employees you lose in order to find the one that is willing to perform the work.

7. Consider doing a brief video reflecting the “day in the life of a warehouse worker.” Use it as a way to eliminate those individuals who don’t understand the manual requirements of the job.

8. Develop a “career path” for workers, showing a way for them to be able to move up and earn more based on mastering various skills, meeting the work standards, attendance, little to no infractions, etc. This will allow workers to know there is room to grow, and a long term home for them based on performance.

9. Companies must be diligent in ensuring that management and supervisors are “on the floor” and balancing the workloads on the floor, and monitoring performance and throughput throughout the day. These individuals also need real-time data to help understand when workers are not meeting the efficiency standards across various warehouse functions.

10. Another key ingredient is the skillsets of your manager and first line supervisors. How well do they manage the people and the workload? Do they need to improve their management skills? Local colleges and on-line universities offer management training courses that help your managers can more from the workforce?

11. Team building, successful organizations take team building seriously, promoting the strongest leaders to management and supervisory roles. Identify those people that are capable of coaching employees to achieve more through training and developing those workers. Promoting a strong team approach, and developing those teams is critical to meeting the increasing needs of the organization.

12. Many companies are still using Excel for their staffing software. Excel cannot save you as much money year over year as a good workforce program. Consider teaming up with your contact center to share a scheduling system. Or purchase a standalone warehouse labor system. It will pay for itself quickly. If you have one, understand how to use it to its maximum.

Continual Process Improvement, Reduction in Handling, Eliminate Touches 

Distribution management must focus on continual process improvement. It sounds easy and simple, but most companies struggle to achieve this. They get distracted and never follow through, additionally it’s not a continual process each year for many companies.

13. Each warehouse function must continually be evaluated to understand whether or not certain steps, process or materials can be excluded from the process. The less touches or materials used will improve the efficiency, and decrease cost. Mapping out each process will identify tasks that are done “because that’s the way we have always done it”. This mindset must be changed.

14. Slotting is one area in the warehouse where many companies fail to implement a disciplined process. Studies show that 75% of a picker’s time is in travel between locations while order picking. Slotting is the process of ensuring that SKU’s are assigned the optimal primary picking location based on its item velocity (movement), cube of the product, and replenishment frequency. Slotting must also take into account the fact that optimal locations are those at chest height that don’t require bending or reaching to pick the fastest moving products. A properly tuned slotting plan will reduce the footprint of the picking area, reduce the lost time due to excessive walking in the pick process, increase the throughput and reduce the cost per pick.

15. Picking Options. Within the direct labor functions, picking (and packing) are one of the largest labor areas. Developing effective picking processes is critical to the efficiency and throughput. Does your Order Management or Warehouse Management System give you the capability to organize the picking queue rather than printing and manually sorting? In many companies 50% of the orders are single item picks (e.g. ship alones, back orders, etc.). These should be separated from the multiline orders which are more complex. Picking options would include wave picking, cart bin picking, pick and pass, efficient ship alone processing, etc. In addition, your software should manage the walk routes of the pickers including “hot picks” which are located in the shortest distance.

16. Strengthening partnerships between operations, merchandising and other departments. Most management teams expect their departments and senior managers to be synergistic and achieve sales, profit and other goals set. However in practice are your relationships as good as they can be? Clearly at the heart of some of this is our attitudes. Operations is often looked upon as maintaining the “status quo” and inflexible. Merchandising is always chasing something new and not practical. I’ve used these extremes to make a point to get you thinking about how you view each other. FCBCO’s attitude is that without the Merchants we don’t have a business. Without Operations shipping product companies don’t have sales. Simplistically, we need each other’s talents, and there are ways to work more diligently on improving relationships.

17. Use what you have more productively. This seems straightforward, but most every company has material handling equipment that is not utilized how it was intended, or is not maximizing its usage. Examples of this are power conveyors that aren’t tuned to the operations and requiring manually turning on and off versus using sensors to direct workflow. Companies make substantial investments in material handling equipment, and management must continually review how it is used, and what improvement s must be made. In some cases, this misuse means that companies have outgrown the capabilities and need to investigate new equipment.

18. Companies should take a hard look at the packing functions in the warehouse. Along with picking it is the most manually intensive processes in the warehouse. It can be the most costly from a freight and materials perspective. Look to reduce the packing efforts by separating any ship alone products and process these separately, these should be in a different warehouse zone all together. 

19. Does your order taking, customer service and fulfillment build customer confidence? E-commerce and omnichannel shopping has become a major force in retail sales. But it isn’t all good. Step back and measure whether how you serve the customer from a contact center and fulfillment center build confidence in your business.

20. From a freight perspective, the packers control what box will be used to ship a customer order. If they select a box that is too large, you will paying for it from your carrier due to dimensional freight rules. Utilize warehouse software to look at the cube of the products and fill material to properly size the boxes. Continually evaluate the packing materials used to ensure that it is the cheapest option, without risk of damaged products. A properly sized shipping carton will also help packers from using too much fill material.

21. Use proper levels of quality checking. At times, companies will over inspect the inbound goods. This process can lead to excess direct labor costs, and reduce the time from receiving to the stock locations. Consider altering your inbound inspection to spot checks and to those vendors that have a historical problem with quality. Avoid reaching a point of diminishing returns – i.e. spending more in labor to find a problem unit, than the cost of the unit etc.

22. Receiving practices and cross docking. Efficient businesses measure their “dock to stock” time which is the elapsed time it takes the merchandise to be received until its putaway. Dock to stock for best in class is 2 hours. Many businesses are same shift received. Part of this process should also be to look at cross docking inbound receipts from receiving to the packing station in order to reduce touches and steps and facilitate the fulfillment of backorders and fast moving items. 

23. Process returns more efficiently. For most every company, returns cost more than orders to process. Untimely processing of customer credits, refunds and exchanges can damage customer service relationship. Companies must utilize software and good process to avoid letting returns back up. Efficient business focus on processing the customer credit/refund within 24 hours of receipt of the return, and perform the inventory disposition as a secondary step. This reduces the inbound calls from customers inquiring into the return. Acknowledging the return receipt with the customer via email, and the next steps will eliminate many of the customer service inquiries.

Warehouse Automation & Technology

As labor becomes more costly, and as companies struggle to find qualified labor for the warehouse, companies should investigate how warehouse automation can help to reduce cost and improve efficiency and throughput. Companies need to evaluate each process in the warehouse and determine what touchpoints and processes can be eliminated by equipment. Voice enabled entry has been successfully implemented throughout Fulfillment processes.

24. Inline scales for weighing products for shipping and manifesting, this reduces the need to manually weight cartons, and speeds up throughput.

25. Overhead scanners for shipping and manifesting, this reduces the manual process in the shipping department and speeds up throughput.

26. Label print and apply for shipping and manifesting, this reduces the manual process in the shipping department and speeds up throughput.

27. Power conveyor, when properly configured, will reduce material handling costs and walk time for workers needing to move goods.

28. On demand box cutting and building, in many operations people are used to assemble boxes in order to keep up with demand. There are many options that now integrated with your systems to build the right sized box, on demand, based on the items on the order.

29. Automation to support the automatic printing and delivery of customer invoices, spec sheets and more into customer shipping cartons.

30. Voice picking for more efficient picking and ability to be hands free for larger cube/ weight products. Voice enabled on-line applications have been implemented throughout all fulfillment processes.

31. Warehouse Management Systems (WMS). It used to be that if you wanted a Warehouse Management System your initial investment could easily be several hundred thousand dollars to millions of dollars. Through more competition and SaaS technology, these costs have come down significantly, to the point where even companies as small as $2 to $4 million can invest in a fairly robust warehouse management system for their needs. Companies can find a wide variety of Software as a Service (SaaS) and perpetual license models, that can be hosted or on premise. These systems can greatly reduce a company’s operating costs due to streamlined processes and reduced labor.

Inventory Management in the Warehouse

Effective inventory management is the single most important tool to improve customer service and reduce cost of operation. Companies must look at the critical key performance indicators (KPI’s) and report to management on a regular basis. These KPI’s will assist you with determining the slow moving inventory that is negatively affecting margins, needlessly consuming excessive space in the warehouse, and hurting customer service.

32. Measure inventory turns on a monthly basis. Inventory that is turning too slowly will eat into your cash flow, and take up valuable space in the warehouse. Inventory that is turning too quickly can also create customer service issues, and can increase the landed costs which will affect margin dollars. Calculate this by taking the annual cost of goods sold divided by the average inventory, at cost.

33. Measuring Inventory aging to understand where significantly aged and excess inventory is consuming warehouse space. In addition, slow moving inventory has a greater risk of becoming damaged or unsaleable.

34. Measure item and order fill rates of the orders taken over the life of a catalog, the percentage of customer orders ultimately shipped 100% complete.

35. Calculate and report on your company’s inventory carrying costs. These costs include interest rates on borrowed money invested in inventory, warehouse occupancy costs including utilities, insurance on inventory, taxes owed on inventory – and lost opportunity costs. The longer inventory sits, the more margin dollars are eroded due to the carrying costs.

Additional Warehousing and Distribution Ideas

36. Freight Management. In the past few years, freight has surpassed labor as the number one cost in the warehouse. Companies must look at both the inbound and outbound freight, and the ways the total volume can be analyzed in order to restructure freight agreements. Companies must have resources in place that can assist with negotiating these contracts, as well as freight auditing. The costs are not going down, and neither are your customers’ expectations. Our clients have used our partnership with several freight consulting companies to reduce freight 10% to 20%

37. Multi-DC Strategy. To reduce time to customer and ultimately reduce freight costs, some businesses have invested in multi-DCs. For many companies this is the right strategy to service customers in 1 or 2 day ground shipping. In these types of studies you should determine the increased cost of management, labor, occupancy, affect on freight costs, systems functions required to manage and assign customer orders to centers, etc. Inventory increases dramatically with each shipping location when SKUs are replicated.

38. Outsourcing Options. In some businesses, there are practical and cost effective reasons to outsource part or all of your business. It may be to deal with a peak, support of new product categories, when fulfillment is not your company’s core competency, establishing a new distribution center in a new geographical area or when you are going international. Some companies utilize outsourcing to handle specific kitting functions, or returns processing. You must evaluate the internal processes and functions performed, and determine if some, or all aspects, might be better suited by a 3PL or outsourcer. Outsourcing some functions can also reduce HR and hiring burdens that many warehouses face.

10 Ways Third Party Fulfillment Work Profitably For Multichannel Companies

Understand that much of our consulting is on internal fulfillment operations. We just completed a project to compare 3 PF services and costs to expanding the cost of expanding a company’s fulfillment operation. Here are 10 ways and benefits that our clients have profitably used third Party Fulfillment.

1. Provide lower cost per order when compared to internally managed operations. This isn’t always true but it can be for small to moderate sized companies.
2. Allows your company to concentrate management time on marketing, merchandising and e-commerce front end marketing. One client has used 3PF since 1988.
3. Scale to peak. During the holiday season, some clients have 10:1 order ratio (peak to average week). 3PF allows them to successfully during the 60 days at peak without hiring staff and having greater internal capacity.
4. Avoid capital investment in fulfillment facilities, order management systems, telephone technology and website platforms. This lets you use capital to grow the business in other ways
5. Provide distribution across the country so that they are 1 day by ground from a high percent of the customers. Many larger 3PF have strategically placed facilities that make this a reality.
6. Perform inbound bulk processing operations. For retailers using rail services, one client uses 3PF to break bulk and distribute to 1,000+ stores.
7. Process inbound receipts at a port and distribution to stores. This is often common place with larger retailers.
8. Distribution of international orders. Direct companies use 3PF partners to serve the EU and Asia.
9. Brick & mortar retailers contract with 3PF partners to ship direct orders from their e-commerce marketplaces rather than bring this into their DCs.
10. 4 PL managing transportation, some merchandise storage and cross docking to stores. One large retail organization contracted for services to distribute from East and West Coast 

23 Ways to Improve Inventory Management 

Inventory management and forecasting are strategic issues. Companies that recognize this fact can typically provide higher levels of service to their customers and post higher profits. Developing a comprehensive inventory strategy involves a number of departments — including fulfillment, marketing, and merchandising — as well as inventory control. It also involves implementing inventory best practices. Here are 23 best practices that will most likely benefit your business the most. 

1. Synchronize promotions. Successful strategic inventory management relies on tying creative and marketing plans to merchandising plans. Marketers and merchants need to develop company wide planning calendars and projections for all promotions in all channels — catalog, online, e-mail, stores, space ads, etc. Merchants and the inventory control group then plan product purchasing, availability, and receipts to support these events. There are three aspects to this planning. First, the marketing department compiles and continually updates the marketing calendar. Second, the marketing team plans the expected orders by week for the promotions. Third, the inventory control and merchandising teams plan the demand in units for the promotions. Often e-mail campaigns trip up multichannel merchants. The campaigns may appear on the marketing calendar, but all too frequently no one decides which items will be promoted until a couple weeks before the actual date of the promotion. By then product has been ordered for the season and may already have arrived in the distribution center. This lack of longer term planning can cause contention between channels for best-sellers, leading to customer frustration and backorders.

2. Revamp the organizational structure. To implement more-streamlined inventory practices, many companies have adopted a new organizational structure: The merchandising department handles product selection, sourcing, and development and works with the creative department on promotions. The inventory control group is primarily responsible for overseeing the prior season’s category and item history, working with the merchants on assortment planning, managing the inventory, forecasting, reordering, receipt planning, post-mortem evaluation of item performance, and vendor communication and compliance. Merchandising may still place initial purchase orders, but in most cases inventory control will pick up relationships with vendors and do the necessary reordering and stock balancing

3. Take a longer view of item planning. Rather than planning items one promotion at a time, plan an item across promotions. Doing so enables you to plan receipts in line with promotions, reduce backorders, make minimum order requirements, and significantly reduce planning time

4. Develop vendor compliance policies and manual. Vendor compliance means that product arrives from a vendor as it should in proper condition and delivered in the agreed-upon manner. Merchandising, inventory management, purchasing, operations and finance all have a vested interest in improving and developing vendor compliance. In addition to product quality, compliance standards that vendors must meet include packaging and shipping requirements, advanced shipping notices, master case and inner case, case labeling, product packaging and polybag specifications, accounting and paperwork requirements, logistics requirements and routing guides, scheduling and statistical sampling requirements, to name just a few. Other topics a manual should cover include service expectations, packing and shipping instructions, invoicing, chargebacks and reasons, packing list information, purchase order and other forms, transportation, labeling, palletizing, shipping carton identification and labeling, routing guides, item specification sheets, retail and direct packaging, accounting and paperwork standards, company contact lists, ship-alone carton specifications. Then put your vendor manual out on your corporate website (with a link for active vendors) so that the manual can be updated and communicated to the vendors. Many operations don’t have a good vendor compliance manual, but admit they should have one. This document lays out the details of how you and your vendors will handle each and every step in the product fulfillment relationship. While creating such a manual requires a bit of an investment in time, it can save a lot of headaches later on and reduce time to process product and money. When questions arise as to how to handle situations with vendors, you’ve already determined your company’s position on the issues – it’s in your manual! For example, when it comes to bar codes, the manual may specify to vendors what type of bar codes should be used, their location on the package, and whether they need to be human-readable.

5. Enforce vendor compliance. The inventory control team is generally responsible for administrating vendor compliance policies because they communicate most frequently with the vendors. One of the basic goals of a compliance program is to push inspection up the supply chain and to have tasks like inspection, repackaging or labeling done by the vendor. Problems can be more readily corrected if they are identified before product ships to the distribution center rather than rework in the DC.

6. Push compliance upstream. Wherever possible, push the quality control program to your vendor facilities rather than to your receiving dock. For example, it is helpful if you can participate in inspections and approvals of product before they are shipped. In addition, try to have your vendors complete as many value-added services as possible under the quality umbrella established at the vendor site. The more work they can do at their end, the less you have to do in your warehouse.

7. Product specifications. Include written item specifications in purchasing negotiations. Both the multichannel retailer and the vendor should have something in writing that accurately depicts each products specifications, including important factors such as representing colors as accurately as possible and using the correct sizes and measurements. The multichannel retailer should specify these standards. This step is even more important if you have a unique product. Apparel items, for instance, must have detailed specifications, because it is critical to ensure that your customers are getting what they expect. Many return codes that list “not as pictured” as the return reason are caused simply by depicting an item in your catalog or website inaccurately. Eliminate that problem, and you likely eliminate a number of your returns.

8. Vendor Scorecards. Use vendor scorecards in reviewing merchandising process. Develop a scorecard to measure and evaluate the performance of your vendors. Used on an ongoing basis, a scorecard enables you to rank your vendors-for example, as level A, B and C. These rankings can then help you determine how often you need to inspect and sample product shipments from those vendors: An A-level or best-ranked vendor is not going to require the same level of scrutiny as is a B-level vendor. Some multichannel retailers are extending the evaluation programs to include performance standards such as on-time delivery, product design, knowledge of the market segment, price competitiveness, and packaging and paperwork accuracy. Make vendor review a part of the merchandise ordering cycle. Schedule a planned vendor review process to coincide with placing orders for product. It is a great time to review performance and gain commitments for improvement while using the leverage of the purchase order.

9. Track key inventory metrics. An industrial engineering axiom states that what isn’t measured can’t be improved. From an inventory perspective, the metrics are the same for online sales as for catalogs and other mediums, although the forecasting systems requirements for Internet promotions may be different from those for catalog and retail inventory.

The metrics include:

• top-line and bottom-line growth
• maintained gross margin
• initial customer order fill rate (see chart)
• final fill rate/returns/cancellations
• gross margin return on investment (GMROI)
• turnover
• cost of backorders
• age of inventory
• measures of overstock
• write-downs as a percentage of costs

Key metrics for stores would include:

• top-line and bottom-line growth
• comparable-store sales (year over year) maintained gross margin
• turnover
• GMROI
• weeks of supply
• markdowns/margin loss from write-downs
• age of inventory
• sell-through percent
• stock-to-sales ratios

10. Invest in technology to support the inventory processes. At the heart of capturing these metrics are your retail and direct systems. Keep in mind that metrics produced by systems will be used for dashboard reporting to top management and that management will need drill-down capability to see details at lower levels of reporting such as merchandise divisions. Ideally a multichannel merchant wants to implement channel-appropriate merchandise planning, inventory forecasting, trending, and performance systems now. In the real world, many multichannel companies are still working through what their requirements are specifically for e-mail and Internet forecasting functions. Analyze your Internet demand and determine how different it is from catalog demand, and develop systems functions accordingly.

11. Become an expert at the art of master scheduling. A system with master-scheduling capability takes into account all promotional plans by item. It will also add demand projections by week, subtract returns and cancellations, add in the expected receipts and plot delivery dates for purchase orders (POs), and then calculate whether an item is running short or overstocked across channels. Because the calculations are by week, you can see where more on order is needed or the effect of delaying POs on the net requirements. To acquire a system with this capability, management needs to make a significant investment. In a recent client study the costs ranged from $400,000 to $1.5 million. Software companies are looking to develop full fledged retail, Internet, and catalog planning and inventory management functionality; no one vendor has all the functions needed today

12. Develop exception reporting. A natural outgrowth of systems with master scheduling, exception reporting helps rebuyers and inventory managers know where to take action without their having to review every item every week in detail. Retail and direct inventory systems both use exception reporting. Types of exception reports include:

• top-line and bottom-line growth
• maintained gross margin
• management reports (for instance, top 50/bottom 50 in sales)
• product characteristic reports (e.g., all items in a certain fabric across departments)
• POs needed based on stock-out calculations, on hand and on order, and projected
• demand with item/vendor lead time
• ranking reports for returns, cancellations, gross margin, and liquidation
• forecast variance plan to actual
• slow sellers and candidates for liquidation
• new vs. repeat performance
• imported vs. domestic product

13. Identify lost demand. To capture and plan for phantom, or shadow, demand, multichannel retailers must record order information in the contact center. For Web sales, analytics systems are starting to have the capability to report when items move in and out of a customer’s order process. Once you’ve captured the metrics, you need to report to the merchants the consequences of being out of stock in cases when customers substituted items for those that were sold out. Then the numbers need to get into merchandise planning for the next season. Multichannel retailers have found that best-sellers that were out of stock might have been able to sell an additional 10%-30% based on phantom demand.

14. Plan by assortment. Preseason assortment planning of categories and products relies on the past sales performance of items or, for items not sold in the past, similar product, along with item availability. Retail assortment planning is top down by category and bottom up by item.

15. Track inbound receipts. Inbound tracking of receipts not only benefits the fulfillment operation but also helps inventory management. Smaller companies often lack this capability, and it can really hurt their DC planning and their customer service. But many freight consolidators and carriers, including United Parcel Service and FedEx, offer tracking services. Or you can implement inbound systems so that vendors send ASNs when purchase orders have shipped. UPS and FedEx both provide this service.

16. Create coverage reports. Coverage is defined as having sufficient quantities of products already in the DC when a promotion is in-home. Companies need to develop coverage reports to show how much is in DC vs. the initial demand projected. There are always some games played in this area with management. Because 50% or more of orders related to a catalog drop take place in the first four weeks after the drop, if you don’t have sufficient quantities of a product by the time the catalogs hit mailboxes, you’re going to create backorders early in the promotion. Merchandising and inventory control need to follow up closely with vendors to ensure higher initial coverage by the time first orders arrive. As for the initial coverage rate, defined as the quantity of units in stock by product and SKU before a catalog mails or an e-mail promotion is sent, you should have sufficient coverage for the first two to three weeks in all SKUs, but most businesses are well below these levels.

17. Balance understock/overstock. What is the balance point between the cost of being out of stock on an item ($7-$12 per unit on backorder, according to our proprietary studies) and the cost of overstock (margin loss you experience from liquidating categories of product)? Chief financial officers often try to identify this at a top level. Merchants and inventory control experts need to identify how much risk lies in being under- or overstocked as they do the merchandise planning. New items, exclusives, and imports obviously have much more risk. Exclusives and imported merchandise may also have higher minimum quantities.

18. Optimize your SKUs. SKU optimization crosses finance, DC, and inventory lines. In the past decade, many multichannel retailers expanded the range of color and size SKUs for individual items, and sales increased accordingly. Merchandise with high SKU counts (bedding, shoes, apparel) creates the biggest challenges. Now companies recognize that the cost of fulfillment (labor, space) and liquidation for slow-moving items can be high compared with their actual sales. SKU profitability or optimization needs to be determined with fully loaded costs (advertising costs, fulfillment costs, overhead, etc. Can SKUs be reduced without significant sales decreases but owning far less inventory?

19. Don’t forget drop-ship controls. Drop ship merchandise is a great way to broaden the assortment without owning the product until you order it to be sent to the customers. Vendors who drop ship to your customers require a slightly different type of control. There are software systems available that can track drop-ship performance and order status information. Having some degree of control over the service levels being met by your vendors in drop shipping is critical. You still need a type of system in place to make sure the order gets to the customer, even though it doesn’t physically go through your hands. You may have to pre-approve the vendors, see a certain number of samples, or institute some other measure of control with regard to drop shipping. Implementing a vendor quality control program - and enforcing it consistently - is not easy, but its potential benefits make the effort worthwhile. Such a program can keep your overall costs in line, improving your bottom line and at the same time enhancing long-term customer satisfaction and the lifetime value of your customers.

Best Practice Inventory Metrics

Unless a company has a proprietary credit program, inventory will generally be its largest balance sheet asset - and knowing standard inventory metrics is the key to protecting that asset. Here are some best-practice standards:

Gross Margin Return on Investment (GMROI)

You’ll need to know the turnover to measure your gross margin return on investment: maintained margin (decimal) x turnover = GMROI. Our studies indicate that good performance is over 2.00. To see how even small improvements in either gross margin or turnover can improve results, plug in your stats. Improve one or the other by a moderate amount and see how the GMROI improves

Initial Order Fill Rate Reporting

Most multichannel retailers don’t measure and report a weekly order fill rate; instead they only measure initial item fill rate or backorders. Initial order fill represents what percentage of the orders shipped complete (all items on an order) in the DC’s order turnaround time standard. This is an excellent measure of customer service.

20. Manage inbound freight much closer. Have a qualified consultant perform a freight audit to see what additional savings can be gained. Join a freight consortium to maximize savings. Some people have more experience than others in negotiating with carriers. Not everyone can save money using a consultant. Where we have found savings we have saved clients 10% to 20% annually. We analyze several months of transportation invoices and we will give you a free analysis and an estimate which we will guarantee of the savings.

21. Streamline processes. As part of continual process improvement, assess the processes of seasonal planning, weekly forecasting, and end-of-season analysis for your multichannel business. Streamline how the Inventory Control buyers perform their work and manage inventory. Process improvement should be aimed at:

• Improved planning and forecasting accuracy
• Improvement in customer initial order fill rate and turnover
• Implementing vendor compliance policies
• Dashboards for inventory management
• Reducing liquidation costs by achieving a higher percentage recovery of product costs
• Streamlining the weekly forecasting and rebuying processes

22. Invest in inventory control staff. The Inventory Control Department manages the largest balance sheet asset in the company. Hire and retain strong people, provide them tools, have high expectations of them, then reward their solid performance well. Do you have enough people considering the number of products, vendors, promotions, purchase orders? Should you have a different organizational structure?

23. Omnichannel shipping increases sales and customer service. Omnichannel shipping from stores and distribution centers has dramatically decreased time to customer and increased competition for the sale. However, managing inventory from many different shipping points has increased the complexity significantly. WalMart has almost 11,000 stores and DCs. Amazon has a DC within 20 miles of 44% of the US population. Additionally, options like pick from store/ship to store has made Inventory Control Systems customer facing applications rather than just back office systems. It is imperative to have accurate on-line inventory and availability; in-store access to customer orders to process, pick and ship, etc. Product is still #1 but service is becoming the great differentiator. Perform an assessment of your customers’ service and customer facing systems. Develop a plan to improve. 

13 Ways to Improve IT

1. Post implementation audit. Is there functionality you are not using that you were expecting to with your new system? Are you creating workarounds already for the new system? If you answered yes to either or both of these questions, it is time to conduct a Post Implementation Audit of your recently installed software. These audits are typically done within the first 30- 60 days from the “go live”, but can be performed at any time – even with older applications. You have made a major investment in the new software, you need to get the most out of it to realize your ROI. The objectives of the audit should be:

• Identify and document the open items which were not completed. These should include modifications, training, procedures, system functions not yet implemented or in operation, etc.
• Does the vendor have training classes which will help you get more out of advanced functionality?
• How well has the company’s employees adopted the new system and adjusted their daily work and responsibilities? Are there people that need to be retrained?
• Is the system in balance with accounting totals?
• Develop a plan for management which includes who will be responsible, cost to complete, date, any resources required, etc. There are often activities the vendor or VAR is responsible for versus the user company.
• Is there functionality you completely forgot about?

2. Network with other companies. Networking with other users of your software to resolve issues and workarounds. If the vendor has a user group be more proactive. FCBCO has always found these to be invaluable. User groups give you other users to call to swap ideas and understand how they have adapted the system and changed their processes. Look for informal user communities where users are active, and help each other with answering questions

3. Develop exception reports. React faster to merchandising trends and get better utilization of personnel’s time from wading through voluminous reports looking for the data they need to react to with Exception reporting. Exception reporting may already be part of the standard report offering from your ERP or OMS vendor. Exception reporting presents to the user only the items that action needs to be taken with

4. Single version of the truth. Every business is dependent on spreadsheets to analyze and react in some fashion to the results. A fair amount of the time data is rekeyed into spreadsheets and therefore prone to errors. Making a buying decision, for example, based on spreadsheet analysis that had data keyed in can be costly if the data entered was inaccurate. A single version of the truth means that all the stake holders agree to the source of the data, the fields being used in a calculation, and the way the fields are being calculated. This standardizes the way everyone in the organization looks at the data, all analysis and decision making should be done based off this information.

5. Don’t use IT as an excuse. In many companies, IT is lean just like every other department. There are fewer resources and an increasing list of system requests from users. As a company, don’t let IT be the excuse for users not getting the data and analytics they need to manage the business. Companies need to work with IT to put in place the tools that will empower users to take control of their data needs.

6. If your ERP, OMS or WMS does not have built in tools to query/report on the database consider building a data warehouse to do so. This could be as simple as replicating the database on another server every night or if you are in a mirrored environment you will have a secondary repository dynamically. Queries and reports should be done from the data warehouse or the mirrored database so as to not interfere with the production response time.

7. An effective way for your business to save time and additional IT costs is to have a report writer tool that is user friendly. With user based reporting they can extract the data needed without having to write a request to IT to perform it and wait for potentially weeks to get the results. If your ERP, OMS or WMS has this type of report writing tool get key users trained in each functional area of the business on how to utilize it and begin to save on IT time and costs for report development.

8. If you don’t have internal resources to allow you to get the data/results you need consider utilizing a contractor who specializes in data warehousing and/or reporting software.

9. Software maintenance. Some businesses will stop software maintenance to save money. Although this may sound prudent it can be very detrimental for the following reasons:

• Stopping maintenance means stopping support unless your software vendor offers support fees on a call by call basis. This will only work for an interim period as vendors usually only support the current version and one version back.
• You will no longer receive bug fixes, interim and major software releases.
• Unless you have the source code how will you fix/modify the software when needing to do so?

10. Requests for modifications. Before you spend the time writing up a request of modification have you done your research to be sure the functionality you need is not already part of the system; maybe in another functional area/menu? Search the software’s user documentation for some of the key words that you would include in your modification request. If not found ask the vendor if it exists or someone from your user contacts to see if they use or know of it. This type of research can also lead to co-development costs with other users if they also could utilize the same functionality. After you have exhausted your attempts to find what you need in the existing software offering develop your request for quote for the modification. Make sure you are through on your description, include screen shots or anything else that supports what you want to have accomplished by the system. Get both a cost and the time frame to develop, test and implement from the vendor. Review thoroughly the vendor’s response to the modification and correct anything that is not 100% accurate as once you sign off on the RFQ it is what is going to be developed. After you have exhausted your attempts to find what you need in the existing software offering develop your request for quote for the modification. Make sure you are through on your description, include screen shots or anything else that supports what you want to have accomplished by the system. Get both a cost and the time frame to develop, test and implement from the vendor. Review thoroughly the vendor’s response to the modification and correct anything that is not 100% accurate as once you sign off on the RFQ it is what is going to be developed. Monitor the vendor’s progress on a weekly basis to manage the progress and the costs.

11. Evaluate integrations to other software applications. Although you may have a current integration to a third party application, evaluate if you have defined all the integrations needed. For example if you have a third party warehouse management system (WMS) are all of the transactions that are performed in the warehouse mapped through the integration process to and from your ERP system. An example of this is a client that had to make inventory adjustments in the WMS and then double enter the same adjustment in the ERP system so they would remain in sync. Maybe you put off doing all the interfaces as part of the implementation as they seem insignificant or you would plan on doing them later. Without this integration due diligence you will end up having to make changes in both systems to keep them in sync. Have you setup checks and balances between the two systems to evaluate and report on errors; e.g. failure of a transaction to post to the recipient system. Initiate a way (email/call) of notifying the responsible person when it occurs so that it can be addressed quickly. Are the interfaces being done in a timely manner, if information needs to be more fluid consider initiating the interface to happen at regular time intervals versus once a day

12. Learn more about the business. There may be IT resources who are knowledgeable of the system and the database and could be of even further assistance if they knew more about how your business operates. Have the IT resource spend time with given departments to understand how they use the system and what they need. Over time this IT resource will be of greater value through his understanding of both the system and the business operations to develop reporting quicker. Or offer suggestions on how to utilize the software for the user to obtain what they need.

13. Achieving return on investment. Do a systems implementation audit. If you are not meeting your return on investment (ROI) with the new software finding out what is causing this is crucial for you to meet your ROI. If users are working outside of the system find out why. If they are not achieving the desired results of the new system find out why. What is needed to correct these issues; more training, collaboration with other departments for timing or other data that is needed, etc. 

9 Ways to Improve Your Contact Center

Here are 9 ways to make your Customer Contact Center more efficient and service the customer better.

1. Does your order taking, customer service and fulfillment build customer confidence? We ask clients on a regular basis, when is the last time you and your senior management have listened to customer calls in the contact center? The most common response we get is it’s been years. Yes, we want to delegate management to our contact center directors. But when we’ve listened to customer calls for clients, we always intrigued with things like what products and services they’re asking for, and how they feel about the company. What is the level of lost sales for not serving their initial product request in your company? We advocate setting up a Lunch and Learn session with senior management to listen in and critique calls. Include merchants, marketing and operations. It will be very helpful to understanding how to improve your customer service and product assortment. Empower the rep. Create for the customer a single point of resolution for the inquiries and that occasional complaint. It pays off handsomely.

2. Implement a call monitoring program. It is surprising how many companies do not have call monitoring programs for the contact center. We know from experience that multichannel calls centers that management agrees on how the customer will be handled, how the representative is empowered and making all of the information in the ERP or order management system improves the customer experience. Have you lost touch with the customer and what they are asking for as well as how well your reps are serving the customer?

3. Performing a post season audit is essential. After your peak season, determine what went really well, what needed a band aid to get accomplished and what were severe problems. Operational assessment of metrics, productivity, service levels, attrition, revenue generation and process improvements which should be considered. Put together a continuous improvement plan for your customer contact center.

4. Utilize benchmarking to improve performance. Implement an internal benchmarking plan to monitor your productivity, service level, efficiency and profitability. Here are some key metrics:

• Quality of Calls

? Communication skills (through call monitoring – see below)

? Adherence to policies and procedures through call monitoring (see below)

? First call resolution rate

? Transfer rate

• Efficiency

? Cost per call and contact

? Rep Occupancy

? Call length (average handle time + wrap up time)

• Profitability

? Conversion rate

? Cross sell/up sell (see below)

? Employee Turnover (see below)

• Service levels

? Average Speed to Answer

? Blockage

? Abandonment

All benchmarking and productivity measures should be accumulated at the individual level, and rolled up/reported to the shift and department level. Feedback to the employee and department manager is key weekly. Benchmarking programs ensure that workers are working to a standard or goal instead of just working to the workload. Use printed reports or TV monitors to display the performance against the goal or standard so that employees know exactly how they are performing. Place these in common areas such as near time clocks and breaks rooms.

5. Develop and track the cost of employee turnover. Companies must focus on how to recruit the best candidates, and to retain those individuals. In working with a wide variety of clients, FCBCO has found the cost to recruit, train and retain an hourly employee can be as high as $3,000 to $10,000. Factor in the HR costs, training costs etc. and how many employees you lose in order to find the one that is willing to perform the work. Many contact centers average employee turnover of 40% to 50% or higher. Review the reasons why attrition is so high and put a plan together to reduce it.

6. Streamline internet marketplaces. Over the past 15 years, contact center operations have changed dramatically. With the advent of Internet marketplaces like Amazon, Kmart, Sears, Walmart, eBay, etc., contact centers have taken on the responsibility for the liaison with these marketplaces. You may be providing customer service to these marketplaces, managing inventories, etc. Many companies have simply overlaid these onto contact center operations. Step back and take a look at the IT tools you need to better manage this so it does require so much manual effort.

7. Develop effective training and procedures. Effective documentation supports the training and use of the new system. Without procedures, it may take six months or longer for the company to return to its former productivity levels or reach the new goals. Additionally, the customer would not be served uniformly if company policies and procedures are not developed and agreed upon. Examples include crushed cartons, cartons wrapped with packing tape so many times they look like a mummy, product damaged upon arrival because it didn’t have void fill, etc.

8. Consider implementing workforce software. Many companies are still using Excel for their staffing software. Excel cannot do as good a job with scheduling employees as a commercial systems. Team up with Fulfillment Center to share the system and bring more benefit to the company. It will pay for itself quickly. If you have one, are you using all the options available to maximize its benefit?

9. Develop cross selling/up-selling programs. More companies need to look at this as a way to increase average order. Will you use incentives in order to achieve higher results? Your agents can do it effectively and not be offensive to the customer. Good cross sell program can increase the average order 5% on the average order value (AOV). But to get that success you have to teach the represents to get over being afraid of to make the offer.

Source: Curt Barry - F Curtis Barry & Company