Audit Your Fulfillment Center Operations: 10 Questions to Ask

Did your company struggle to meet holiday fulfillment requirements? Did you come into the New Year hoping to improve your fulfillment center operations and do an even better job of meeting customer expectations in 2017? If you answered yes to either question, perhaps it’s time to take a step back and do an in-depth audit of this very important aspect of your business.   

Sure, we know – just one more item to add to your jam-packed TO DO list. But before you dismiss the idea, know that a fulfillment audit could pack quite a financial return on the time investment.  It will help you identify potential savings areas and detect both current and future problems – in your own operations and those of third party logistics (3PL) partners. 

Here are 10 questions you’ll want to ask yourself when assessing your fulfillment center operations:

1. Can we adequately handle volume surges?

Whether you’re managing fulfillment on your own or outsourcing the function to a third party (or a combination of the two approaches), you need a fulfillment solution that can handle volume spikes without a hitch. For example, if you had a hard time accommodating a holiday season uptick in orders this past holiday, then it’s time to reassess your approach. This inability to scale will undoubtedly recur and may stymie growth in 2017. Look for a 3PL that can quickly add warehouse space, hire workers, and leverage sophisticated systems to handle volume spikes seamlessly.

2. Are we meeting Service Level Agreements (SLA) and target operational metrics? 

That should be an easy question to answer. But for some companies it’s not because key performance metrics (KPIs) like on-time shipping performance and order accuracy have not been established. In the absence of these measures, it’s easy to fall into the trap of assuming everything is running smoothly and profitably…even if it isn’t. The latter occurs when companies choose to manage KPIs based on “noise level” (e.g., the number of customer complaints) versus accurate data points. To overcome this issue, get more data-driven. Utilize an established set of KPIs, report on those metrics regularly, and work to continually improve performance.

3. Do we have enough physical space for our product distribution needs now and into the future?

It’s hard to scale a business if you don’t have the space to store and ship your products. Too many companies wait until their warehouse if full before searching for alternative or additional space. This could prove costly since its now a seller’s market for fulfillment warehouse space.  Another question is whether you want to be in the real estate business at all. By working with the right outside fulfillment center partner, you can easily expand space while turning this storage cost into a variable expense and preserving your capital to invest in other areas.

4. Are we paying too much for small-parcel shipping?

Shipping is your largest fulfillment expense, so it’s important to regularly assess your parcel rates and shipping strategies.  If you are a smaller volume shipper, you lack the leverage to successfully negotiate with UPS, FedEx and other carriers. Look for a fulfillment partner that manages a lot of parcel volume.  They can help:

• Improve rates through leveraged buying. A 3PL will have better rates with parcel carriers due to their aggregate volumes across all customers. They can pass on these savings to you.
• Consolidate parcel shipments with other shippers. A parcel consolidation strategy can save up to 20% on parcel costs. Individual shipments from multiple companies – all destined for the same region – can be combined into a full truckload and then delivered to USPS terminals in that region, where they are injected into the postal system for final delivery. This strategy avoids the parcel carrier’s network altogether.

5. Are we able to meet customer demand for faster delivery?

Amazon is driving an increasingly aggressive customer expectation for order fulfillment timeframe.  Amazon Prime customers get their order in two days. The latest buzz is around same-day fulfillment. It’s a trend that no Etailer can ignore.  From a fulfillment operations perspective, it comes down to the location and number of inventory points you have. Many online businesses have grown up in and around the company’s original location. If fulfillment operations are outsourced, these locations are often very close to the headquarters location. That can work for a time, but as your market grows and your ship-to points expand, long-distance shipments add time and fulfillment costs.  To meet customer demand for fast delivery, your company may need a presence in multiple geographic regions, understanding that more facilities will reduce shipping costs but at the same time increase associated inventory costs. One solution is to partner with a logistics provider that offers nationwide fulfillment and allows you to meet a growing expectation of 1- to 2-day delivery times.

6. Is our equipment adequate and available to meet fluctuating demands?

If you found yourself stretched thin on scanners, forklifts, and other types of material handling equipment during this past holiday season, it’s time to reassess your equipment investment approach and how it’s impacting your operations. It helps to assess these infrastructure components in the context of sales forecasts. You can avert this problem by buying or leasing more equipment well in advance of the next big volume surge, or by partnering with a 3PL that already has a wide variety of equipment that can be shared across multiple customers and used as needed.   

7. Is our logistics department (or partner) helping to decrease fulfillment costs and improve service?

If your fulfillment department or logistics partner isn’t presenting you with regular opportunities to do both, then it’s time to reassess. Too many fulfillment providers focus on the execution of day-to-day transactions and don’t put enough time into making proactive recommendations that can make your company work better, faster, and smarter. For in-sourced operations, if your own staff is too buried in day-to-day tasks to develop proactive ideas, it’s time to find some outside assistance to drive continuous improvement. 

8. Do we have redundant and backup systems to ensure 100% uptime?

Excuses like, “Sorry but our server was down and we can’t ship your order for four days” don’t cut it in today’s fast-paced fulfillment environment. In fact, these explanations could quickly send your best customers to the nearest competitor. A competitor that, in many cases, is just one click away. You can avoid this problem by having redundant and backup systems in place, or by working with a logistics provider that uses backup Internet connectivity, performs frequent data backups, and has a disaster recovery plan in place. If a snowstorm cripples your Cincinnati DC for several days, for instance, you need a solution that can take all of the impacted orders and quickly parse them out to other facilities in non-affected areas, assuming you have multiple inventory points. That requires advanced systems to handle this seamlessly.  Make sure your current system backup strategy (or lack thereof) does not represent a risk to your operation. 

9. How much of our time is spent thinking about fulfillment?

While the order fulfillment process is a critical aspect of any firm’s operational strategy, it should not deflect your attention away from company strategy and growth.  In fact, once your fulfillment infrastructure is in place, it should run like a well-oiled machine, with occasional adjustments.  If today you’re spending too much time responding to customer complaints or sitting in on meetings to discuss sub-par fulfillment performance, it may be time to consider outsourcing the function to a B2C fulfillment specialist.  Choosing the right partner will certainly require a solid investment of time, but once the right partner is in place, you should have the foundation you need to build and grow the business with no limitations.  

10. Do you have the right people?

This is the last, but perhaps the most important, question in your fulfillment center audit. Without talented people to build and sustain a top-notch fulfillment operation, the challenge falls to the business leader, and that’s just not workable. Often responsibility for fulfillment operations is assigned to individuals who lack engineering and operational expertise. Actually, this can work out fine if they have the right administrative skills since outsourcing provides access to experienced fulfillment experts. These 3PL partners can act as your “virtual fulfillment team,” providing day-to-day execution and ongoing advice on how to scale your fulfillment center operation to handle any stage of business growth.