While the final figures are still being tabulated, there’s no doubt the 2016 holiday season will mark a high point in retail sales volume compared to prior years. It also generated an unprecedented volume of online sales – as if we needed proof that e-commerce and omni-channel are more than short-term factors.
Now the holiday rush is over. Revenue and profits have been tallied. You’re hopefully starting to see an end to the crush of post-holiday returns. While the pluses and minuses of Q4 performance are still somewhat top of mind, maybe it’s time to step back and evaluate systems and performance to see what improvements can be made in your warehouse or distribution center operations to ensure you’re keeping pace with what will no doubt be stronger competition in 2017.
Here are four areas that, in our opinion, deserve evaluation as you make your 2017 resource investments:
Improve labor productivity
Labor costs still make up 50–70 percent of distribution center costs. To compete at the speed of the best-in-class, you absolutely must re-evaluate your end-to-end labor management processes to gain ultimate efficiency. This includes labor planning, forecasting, hiring, training and performance management. Evaluating staffing alternatives (part time, on-call and on-demand labor options) or consideration of additional shifts should be a part of any comprehensive labor plan to address seasonal variation. And with the turnover rate of warehouse workers at 36 percent, per the US Bureau of Labor Statistics, actions to retain top performing staff should be a priority as well.
Ensuring optimal staff performance and retention is typically a two-part process of measurement and reward. Remember, you can’t improve what you don’t measure. Make sure your KPIs are tracked at the employee level and offer the right measure of real performance. Then consider implementing incentives based on these measured KPIs to help keep staff motivated.
Start or expand use of KPIs and predictive analytics
To be successful in today’s faster and unforgiving multi-channel environment, you need to dive much deeper into performance measurements than historical KPI metrics focused on high level indicators like on-time shipments and logistics costs. You need detailed, internal measurement to improve operating efficiency and productivity, reduce time and costs and achieve the high level of accuracy current market dynamics demand. Every process in the warehouse deserves to be measured - daily if possible – if you want to improve overall performance.
Consider establishing KPIs for the following areas:
Receiving, Putaway, Order Picking/Packing, Storage, Shipping and Returns
If you have already established and are reporting on a solid number of operational indicators you’re ready for the next phase – use of predictive analytics. Applying predictive analytics offers more accurate forecasting and better process optimization.
The latest warehouse management tools leverage data collected from several systems to generate more sophisticated and more accurate models of required inventory, reducing reliance on safety stock to maintain order fill rates. Using this approach can help minimize the volatility of inventory forecasting.
Predictive analytics can also assist with labor forecasting, warehouse stocking and strategies and determining when it might be time to upgrade pick technology to meet expanding customer requests.
Start treating returns as both a customer satisfaction and cost recovery center
There’s little argument that managing returns can be one of the most complex operations in a modern distribution center. It’s also become one of the best ways to promote customer satisfaction. According to Harris Interactive, 85 percent of buyers said they would stop buying from a company if the returns process became a hassle. Conversely, 95 percent said an effectively implemented returns policy would earn their repeat business.
The challenge for today’s retailer is finding ways to delight both the customer and the company’s bottom line. Capturing as much value as possible from returned goods can solidly impact your profit performance, and meeting that goal is squarely in the hands of the distribution center.
Putting the right processes and tools in place around the return inspection and sorting process, for example, can ensure optimal dispositioning so that return items are processed in alignment with warranty agreements and that scrap items are minimized. And with 40–60 percent of a year’s returns occurring typically between January and March, retailers need to provide as much automated support to staff as possible if they hope to recover costs effectively.
There’s no doubt that reverse logistics is a challenging and very different process than standard warehouse operations. The good news is that today’s advanced warehouse management systems often include support for reverse logistics and return management along with increasingly powerful data collection tools to assist.
Leverage the right warehouse management system
In today’s increasingly complex omni-channel retail environment, the use of a warehouse management system to support day-to-day distribution center operations and ensure efficient, data-enabled, automated processes is all but required for any type of sustainable success. But almost as important as having a WMS in place, is making sure you are using the right WMS.
Unfortunately, many retailers are still using home grown systems that lack sophistication and the ability to quickly adapt to supply chain change or simply components of an ERP system that lack focused warehouse management capabilities. With the speed of today’s market changes, having a flexible yet robust WMS can be critical.
For a growing number of retailers that means turning to the cloud. A cloud-based solution can offer significantly more flexibility, a lower initial and ongoing cost picture and a much shorter ROI profile. And since cloud solutions don’t require upfront capex investment, retailers can allocate capital to other business priorities without sacrificing the advantages of a full warehouse management system.
The above areas of operation are certainly not the only things worthy of investment as you build annual operating plans, but ensuring these functional areas are optimized has a significant potential for performance gain and competitive advantage.