When you partner with a fulfillment company, a great deal of work moves from your plate to their plate. You’ll want to understand fulfillment costs to assess the ROI of your relationship. In this blog post, we will examine pick and pack warehouse fees and give you a clear understanding of what these fees entail.
What do pick and pack warehouse fees include?
The pick and pack process involves a series of actions that go well beyond just “picking” a product off a shelf and “packing” it in a box.
These order fulfillment functions include:
- Receiving and processing the order in the warehouse
- Preparing the picking sequence for the greatest efficiency. There are many different warehouse picking strategies, and choosing the method that is the best fit for your particular order profile and patterns is invaluable in optimizing pick and pack fulfillment operations.
- Picking and scanning ordered items at the storage location
- Updating inventory in the system
- Sorting the picked items
- Preparing the box for final packaging
- Inserting products and packaging materials
- Labeling the package, if this is not automated
- Inspecting the box prior to shipment for quality control – order accuracy, correct packaging, correct labeling
- Sealing the box and staging it for the parcel carrier.
Value-added pick and pack services, such as warehouse kitting and packaging, may also be performed during the process. Warehouse kitting is the process of taking multiple SKUs and combining them into a single package, creating a new SKU. These complex kits may involve up to 20 different products.
While kitting is labor intensive, it can actually help reduce pick and pack fees if it involves pre-assembly of kits in bulk that are completed quickly when the final order comes in.
Each step in the pick and pack warehouse process has one thing in common: labor. To cover their costs, a fulfillment company must account for the time involved for each function. Therefore, they have a very good idea of how many seconds/minutes each function takes and can calculate total labor requirements based on these time standards.
Using your total order volume and the calculated labor to process an order, the fulfillment company will arrive at a set labor charge per order. Once the contract is executed, they will bill you according to the straightforward math of order and item quantities, and these rates will be set within the contract.
Managing your pick and pack costs
The three major costs components of a fulfillment operation are warehouse space, labor and parcel shipping. The biggest cost component is shipping, so you’ll want to do what you can to reduce parcel shipping costs. It can help ship under you are fulfillment partner’s parcel contract, since the 3PL can leverage aggregate freight volumes to negotiate lower rates.
In the warehouse, labor is your most significant cost, so you’ll want to work with a fulfillment partner that can control this aspect of pick and pack warehouse fees. Here are some key questions you'll want to ask your pick and pack fulfillment partner:
Are they leveraging automation to improve pick efficiency and reduce labor costs?
There are many levels of automation, all the way up to fully automated warehouses where robots do the picking. Most Etailers don’t have a need for maximum automation, but could benefit from affordable technology to streamline a high-volume pick and pack operation. Automation works best in situations with highly repeatable tasks. The extent of warehouse automation deployed will depend on a variety of factors, including volumes and order profile.
For instance, the bagging and automatic labeling machine like the one pictured here, can result in a 2- to 3-fold productivity increase and a very rapid return on investment – sometimes less than a year!
High-volume fulfillment operations are more likely to employ technology-aided picking processes that both control labor costs and increase accuracy, such as pick-to-light picking technology and voice picking.
You want a fulfillment partner who is constantly performing critical assessments and suggesting these types of productivity drivers in search of efficient pick and pack operations.
The pandemic and subsequent labor shortage have prompted some brands, including those who use eCommerce fulfillment services, to explore fully automated warehouses that use robots rather than people for picking and that move product within the warehouse with automated guided vehicles. As warehouse automation costs continue to drop, more brands increasingly will view that path as a logical choice. In fact, the era of the 24-hour automated fulfillment center has already started.
Do they have an RF-enabled warehouse management system (WMS)?
A full-featured WMS is pretty standard for top fulfillment companies, but there are still providers out there who work manually. A modern system is critical because it streamlines the picking process and greatly reduces labor costs.
- The system can combine multiple orders in a single “wave” that allows order pickers to go to one area of the warehouse to pick multiple orders, reducing travel time and maximizing efficiency.
- Data, such as order history and SKU information, can help fulfillment center operators organize their inventory to minimize space requirements and reduce travel time through the use of warehouse slotting. Pickers spend as much as 70% of their time moving between various points in the warehouse. Lowering that percentage lowers labor costs. Among the ways that slotting can accomplish that is placing fast movers within easy reach, locating items that often ship together next to each other, balancing picking activity across multiple aisles to avoid congestion and adjusting choice locations based on seasonally popular or promoted products.
- Scanning technology can record actions in real time and eliminate manual work.
- Data can be easily shared with other systems, including the customer and carrier partners.
- Most top fulfillment providers will offer a web view to the system, providing real-time inventory and order status.
Bottom line: an advanced warehouse management system is necessary to minimize your pick and pack warehouse fees.
Do they use productivity standards?
Measuring labor efficiency is an important step to maximizing it, and pick and pack fulfillment productivity standards are the best way to measure how efficient a pick and pack warehouse workforce is. Productivity standards are an essential way to determine if an inefficient pick and pack process is ballooning labor costs and cutting into profits. Fulfillment centers that establish productivity standards and stick to them will strengthen their operations in a variety of ways.
- Increased throughput while still emphasizing safety – associates with a productivity expectation will work to meet or exceed that objective. Without that standard, though, they lack a target and are less motivated to shoot for something.
- More satisfied employees due to fair and objective performance measures. Standards must be reasonable, even-handed and truly measurable. If they lack credibility or seem irrelevant or arbitrary, workers will tune them out.
- Improved ability to plan labor requirements – the use of standards bring a higher level of insight into the productivity in a fulfillment center, helping to better plan for workforce needs.
- Smart technology investments – without clear productivity guidelines, warehouses may inadvertently invest in technology they don’t need or miss the boat on technology they do need.
- Higher profits. This comes an ability to handle the same volume of work with fewer people because of a better understanding of throughput potential.
Some of the most common pick and pack productivity standards in a fulfillment warehouse include the number of pallets that can be put away each hour, the number of lines that can be picked per hour, the number of lines that can be packed per hour and the time required to build a particular kit.
Do they retain their workers and limit the use of temporary workers?
Retaining warehouse associates, especially in tight labor markets, is of critical importance to keeping pick and pack warehouse fees in line. In fact, there is nothing more crucial to limiting labor expenses than keeping the workers that you have. Through our 30+ years of experience running fulfillment warehouses, we have determined that the estimated total cost of losing a productive associate is at least $7,500. With the rise of sophisticated technology, fulfillment centers cannot afford to lose sight of the value of their current workers.
Training and onboarding new workers takes time, resources and money, and it could take them months or longer to reach a similar level of productivity to a more experienced associate. Similarly, limiting the percentage of temporary workers that a fulfillment center uses is an essential step to keeping fees from rising unnecessarily. Short-term staffers are not to be avoided altogether – in fact, they are a key component of managing demand peaks that require extra resources. However, temporary workers inevitably will operate at lower productivity levels than full-time associates, and they are more likely to make errors. Both factors drive up labor costs.
The Big Picture
It may be best to think of pick and pack warehouse costs like a parking meter – you only want to pay for the time you need. The right fulfillment partner can work with you to minimize your pick and pack labor costs.
To learn how Amware Fulfillment works with Etailers and direct sales companies to streamline fulfillment operations, contact us today.