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Where are the savings? PLANNING |
Keep this top of mind — labor drives most of your warehouse and fulfillment costs. So, it makes good sense to consider sales projections when planning warehouse labor requirements. Unfortunately, many direct sellers do a terrible job sharing upstream data on sales forecasts and upcoming promotions with their downstream logistics teams and/or 3PL partners.
That results in a slew of problems:
Bottom line: Fix this communication gap and you can reduce labor costs by at least 10%.
Your base of customers and brand ambassadors – who they are, where they are – is different than it was 5 years ago, or even last year. When the design of your distribution network fails to account for shifts, you overspend — by a lot.
Here’s an example. Many companies stick with a single DC strategy for national distribution despite enormous sales growth. The downside?
The answer is a distribution network modeling exercise. That will determine the optimal number of warehouses you should have and where they should be located to deliver the best service at the lowest cost.
NOTE: A fulfillment 3PL that operates a national network of fulfillment centers can let you easily expand or change facilities as your direct selling business grows and changes.
Bottom Line: An optimized distribution network can yield 7-figure savings for high-volume direct sellers. One company shaved a million dollars off a $50 million freight spend after a modeling exercise determined it should add a second DC to lower parcel costs.
Direct sellers analyze data every which way possible, but when it comes to fulfillment operations often fail to dig into the data for insights. Analysis of operational and fulfillment gives you one of the best ways to identify leaking profits. Questions to explore:
Receiving operations
Labor efficiency
With the right tools, you don’t need to be a data scientist to do the number crunching and analysis. Think about investment firms like Schwab or Fidelity. They have tools that allow investors to do very complex analyses and display results in clear charts and graphs. You should have access to similar tools.
Bottom Line: Take the time to mine data you’re already measuring.
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Where are the savings? PICK & PACK OPERATIONS |
The wrong picking method can result in order pickers wasting precious time traveling around the warehouse searching for products or creating traffic jams that slow the picking process.
In a manual picking environment, DC operations employ five primary picking methods — discrete picking, batch picking, cluster picking, zone picking, and wave picking. Each method has its pros and cons. Some allow for easy training of temp workers, but aren’t very efficient for getting orders out the door quickly. One method is well-suited to high-volume orders for small-sized items, while another is better for retrieving large items.
Bottom Line: Choosing the right pick method for your business can easily drive a six-figure annual labor savings. If you lack the internal resources to do this, a knowledgeable 3PL or consultant can help you make the smart picking choice for labor efficiency.
You don’t have to spend big bucks on highly automated systems to achieve efficient eCommerce fulfillment. By taking advantage of basic automation tools, you can avoid paying workers to perform rote tasks.
Bottom Line: This type of low-level automation requires limited capital and, for higher-volume operations, delivers an ROI within one year.
Did you know 50% of what you pay warehouse workers for is for walking between product aisles and packing stations? Collaborative robots (cobots) solve that problem for you.
By bringing orders to and from pick aisles, cobots enable a 2x–3x increase in picking productivity. Cobots also improve associate satisfaction and retention by reducing the physical demands of the job. That's a huge advantage in a role where the yearly turnover rate is 43%.
Bottom Line: A Forester study of one robotics vendor found that cobots improved pick productivity by 100% while reducing picking error by 25% and the need for overtime pay by 15%. And you don’t have to invest millions to realize these benefits. A “Robots as a Service” financing model lets you implement almost immediately.
Where you put stuff in the warehouse matters. So, one often overlooked and underrated strategy for labor savings is slotting, which is the process of organizing inventory in a warehouse to minimize space requirements and reduce picker travel time. Efficient slotting lets fewer workers pick more orders, more efficiently by, for instance:
The issue isn’t that warehouse operators don’t do slotting, but that they don’t do it often enough. Typically, slotting happens at the onset of a project. But over time the volume changes or the SKU mix changes, and no slotting adjustments are made. Labor costs creep up, but very gradually, and no one attributes the increase to poor organization of inventory.
Bottom Line: Placing all your inventory in its optimal location results in efficient receiving, picking, and shipping. The annual labor savings from optimal slotting can be as much as 6 figures for higher-volume fulfillment operations.
Despite the use of warehouse management systems for tracking inventory, it's still necessary to check that what’s on the screen is what’s on the shelf. Currently, you're paying a staffer or a 3PL to do that counting work and it's a time-consuming and error-prone process.
Drones speed up the process and provide more reliable counts. A camera on the drone can read product barcodes, count cases, and even measure temperatures. Depending on the number of bins in a warehouse aisle, the drone can scan all products in an aisle in under 4 seconds.
Using drones to count on-hand inventory is not only faster, it’s cheaper than using a team of humans. A single drone can conduct a complete inventory count in a 25,000-square-foot area in 4 hours.
Bottom Line: For direct sellers with large inventories, drone technology can deliver mistake-free inventory counts while eliminating labor costs linked to periodic cycle counts and multi-day annual physical inventories.
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Where are the savings? PARCEL SHIPPING |
Many products offered by direct sellers are smaller, lightweight items. If these currently ship in boxes, there could be tremendous opportunity to cut costs by shipping in polybags instead.
Polybags help you win at the dimensional weight pricing game. By minimizing package size, bags eliminate unnecessary dim weight charges as well as packing material.
Besides saving on shipping costs with bags, you’ll also cut labor costs. That’s because the number of steps involved in packing orders into polybags is substantially lower than packing into boxes. We’ve seen process steps go from 13 to 3 with the switch to polybagging.
Bottom Line: Going from bag to box can yield substantial savings. One direct seller cut well over a million dollars in combined shipping, labor and packaging material costs by switching from box to bag for smaller, lightweight items.
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BOX |
POLYBAG |
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Productivity |
As many as 13 steps and 15 seconds to pack an order |
Just open, fill and seal. Potential throughput increase of 3.5x |
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Pack Station |
Adds to clutter and time to retrieve materials |
Less storage space required, greater packer productivity |
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Protection |
Filler and tape required |
No filler, so related supplies and labor are eliminated |
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Labels |
Add time, hassle, potential for error |
None if print-on-bag technology is utilized |
The postal service can bring big savings when it handles the last-mile trip to the consumer’s door, even if you use UPS or FedEx for the line haul. Using a practice known as parcel consolidation, you can ship a package close to your destination with your parcel carrier or consolidator, but then use USPS for the final mile to avoid home-delivery surcharges and other costs. FedEx (SmartPost), UPS (SurePost) and UPS Mail Innovations all work with the postal service to capitalize on the fact that USPS already delivers to homes 6 days a week.
This strategy lets USPS handle the final delivery of lightweight packages, while avoiding all the various hubs and hand-offs within the USPS network that make the system inefficient.
Bottom Line: Save up to 40% over parcel carrier only deliveries.
Direct selling companies that outsource fulfillment do so mainly to focus on their core business. They don't want to run warehouses and invest in costly fulfillment systems and automation. But one of the biggest potential advantages to outsourcing order fulfillment is actually freight savings.
Because 3PLs tend to manage parcel delivery for many companies, they can aggregate that total freight spend when negotiating rates with parcel carriers and then pass on the savings to you.
Bottom Line: The largest volume direct selling shippers may see little to no savings from this strategy because they have good rates directly negotiated with the carrier. But small and mid-sized brands can cut their parcel spend by 10% or more by shipping under the parcel account of a 3PL with better rates.
We often hear that companies are skittish about using regional parcel carriers. They’re hesitant to use regionals because of the administrative complexity that comes with a broader carrier mix or the loss of shipping discounts from divvying up their freight spend. But you shouldn’t overlook the benefits to including regionals in your carrier mix.
You can often get lower freight rates from regionals who can provide cost savings over national carriers for next-day and two-day service in their service territory. So, for instance, you might consider a regional partner to service a delivery area around one of your main fulfillment centers.
Plus, there are fewer surcharges. That’ because regionals typically charge less for peak, rural, residential, and weekend deliveries.
Best of all, regionals offer faster delivery, and their on-time delivery rate for next-day and same-day delivery averages 99%.
Bottom Line: Although regional parcel carriers can’t replace the Big 3 for national distribution, they offer an excellent alternative in times of rising rates and capacity constraints. Use of regional carriers to handle a niche category (e.g., oversized) or region (e.g., Greater Dallas) can save up to 15% over major parcel carriers for that specific niche.
Your customers and brand ambassadors all want priority service. But do you know there’s still a substantial opportunity to meet customer expectations and cut costs at the same time if you have a fulfillment center close to the ship-to address?
We’re talking about shipments within Zones 1, 2 and 3. For instance, take a shipment from Dallas to nearby Waco that may have used express service. You can shift to more economical ground home delivery service and still meet a rapid delivery requirement. Customers don’t care how you get the order there, only that it arrives on time.
Bottom Line: By shifting inner-zone shipments to ground service, you can save $7 to $20 per package. That amounts to 30%–60% annually for packages shipping to zones 1–3.
Just as companies often get locked into using a single parcel carrier, they can lock into a specific service, as well. There are a wide variety of services available across parcel carriers, each with characteristics that may make it a more cost-effective option for some of your shipments.
For instance, you may love USPS Priority Mail, but for certain types of shipments another option could give you that exact service level for 25 percent less. One e-retailer we know was shipping a high volume of lightweight packages nationally from two warehouses and paying significant surcharges for fuel, residential delivery, and rural delivery. A shift to another carrier avoided the delivery surcharges, except for fuel, and saved as much as $8 per package. This is just one example. In other cases, a product from UPS, FedEx or USPS could be the optimal choice.
Bottom Line: By matching your shipping requirements with the right carrier and service, you’re looking at a savings potential of 5–10%. If you are partnered with the right 3PL, it should have an excellent knowledge of the shipping options and be advising you accordingly.
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Where are the savings? PEOPLE |
Quality warehouse associates are hard to find, and even harder to keep — especially in the fast-paced environment of D2C fulfillment.
Stabilizing your workforce must be job one. If you can do that, higher levels of productivity, work quality, and customer satisfaction will follow. Warehouse worker turnover is 43%, on average, in the U.S. High associate turnover means more errors from less experienced workers, and each error erodes the confidence of both customers and brand ambassadors.
Besides offering more money, what else can you do to keep your workers?
Bottom Line: We estimate the total cost of losing a productive associate to be $8,500 or more. If you keep 25 workers you otherwise would have lost, that’s over $200,000 that goes straight to your bottom line.
Many direct selling companies, including their 3PLs, don't do a good job measuring warehouse worker productivity. As a result, unproductive associates fly under the radar, and you have no real sense of what your throughput could or should be. By investing to create fair and accurate productivity standards and making those visible across all associates, you'll see a sharp rise in throughput and lower labor costs.
An ideal set of pick and pack productivity standards can be developed by combining time studies on existing processes, input from warehouse management software, and feedback from management and warehouse associates.
Bottom Line: Studies show that associates, once informed of a target, want to meet or beat it. It's human nature, and it’s why facilities that establish and monitor pick and pack productivity increase throughput by 10–15%.
Excellent training for warehouse associates is far from a luxury in today’s labor market, where workers are more elusive and expensive than ever. Direct sellers that hope to scale must hold on to, and make the most of, what they’ve got.
Companies that take shortcuts with training look at it the wrong way. They see training as a cost rather than an investment. As such, they fast-track training to get new workers and temps on the floor as soon as possible to get orders out the door.
But poorly trained staff make more mistakes and take much longer to become 100 percent productive. With this training philosophy, you’ll effectively double your labor costs because you’ll have four people operating at 50% productivity in place of two people who are 100% productive.
Bottom Line: When you invest in smarter training, you improve retention, increase productivity, and reduce error-related costs.
There you have it, 17 pro tips to cut costs and achieve fulfillment operations excellence. Implementing even one or two of these outlined strategies can keep direct selling companies on a straight path to higher profits.
Our advice: start small. Identify the low-hanging fruit and initiate only those projects you have the resources to tackle and complete.
If you’re looking to make a more comprehensive change to your fulfillment operations, consider partnering with a 3PL that brings best-practice experience in fulfilling direct sales orders.
Your brand, through its products, seeks to transform lives. Consider being the catalyst your organization needs to transform your fulfillment operations.