In House Fulfillment Optimization

Fulfilling orders for your own ecommerce business is something that you may have begun doing without much planning or even a conscious decision. DIY fulfillment is often learned progressively through mistakes made along the way. The purpose of this guide is to help you prevent a few of those mistakes while saving some time and money. Before we get started it's worth asking the question: "Is fulfilling my own orders really the best course?" There are benefits to outsourcing and benefits to doing it in house. A more helpful question might be: Can I outsource fulfillment at the level of quality and communication I require with the flexibility I need for less than I can do it in house, when all costs are considered?

Some fulfillment costs are easy to miss. Be sure to consider any fulfillment equipment that you'll need to buy or rent and the costs of the location you'll fulfill from. When you outsource fulfillment you'll have to navigate a variety of pricing structures and fees. Will your items ship directly to the Fulfillment house or will they need to be shipped to you first for counting, barcoding, or other operations? The list of items a fulfillment house can bill you for tends to be pretty long. If they have very few fees or their price seems much better than most, it may be too good to be true. We were so successful at shopping prices we managed to pick a couple fulfillment houses that weren't profitable enough to stay in business. The time and cost it takes to get set up with a new fulfillment house can be considerable. If you have to move repeatedly, the cost and time of moving will quickly become a real issue.

When you outsource your fulfillment, but not your customer service you may create a gap in your customer service system. Your CSRs have to wait on the fulfillment house for answers. When responses are slow, your company and your CSRs assume responsibility. Why can't you tell your customer if their package has shipped? Because until you hear back, you don't know. This is a tough item to quantify but any "fail" that affects your customer directly carries a significant cost. In fact 89% of customers have stopped doing business with a company after a bad experience.

After many tries at outsourcing we decided to bring our fulfillment back in-house. We really value the flexibility that in house fulfillment permits. If we want to try a new promotion or some type of experiment it's never a problem to do so. We worked with several fulfillment houses of over the course of 5 years and when we finally found one that seemed to really "get" ecommerce and handle situations with the care and consistency we could achieve in-house, we were paying far more than we could justify. However, every business is different, so the only way to know is to ask all the questions, evaluate all the options, and if you find a good fit, give it a try. That said, let's look at how you can optimize DIY fulfillment and get the most from your fulfillment budget.

In house Fulfillment Tips

Successful in-house fulfillment is about keeping costs low and quality high. If you continue to make improvements that increase your quality and or lower your cost, you'll be able to optimize your in house fulfillment as you grow. Keep in mind that some ideas and processes may be impractical now, but great in the future, and others should be implemented as soon as possible. Even if growth is slow and steady it pays to be mindful of aspects of your fulfillment which are not prepared to scale.

For example, maybe you have an experienced employee packing your orders. They know your products and bundles inside out and they can take the time to check every item. They can achieve good accuracy but it's not possible to scale accuracy based on experience and meticulous care. When you hire additional help it takes time for them to achieve a similar level of familiarity with the products. Until you put an easy to train system in place, one which eliminates the need for familiarity, every addition to your staff and every turnover is going to take time and introduce costly errors. We'll look at the important factors of a warehouse management system and how training can be simplified but first let's look at some low hanging fruit.

Avoid Re-Keying Data

If you're current system receives orders from the customer and requires your staff to re-type or copy/paste order data to create a shipping labels etc. you should strongly consider the use of an order manager and an integrated shopping cart. Obviously type-o's and related errors can be eliminated. Time and money can be saved. Even if you are in a situation where it's not currently possible to change either your cart or label generating software there are many solutions like Key Text (win) and Keyboard Maestro (mac) that can be set up to move data without re-typing. What you ultimately need though is a flexible shopping cart that allows you to handle your product types, variations, bundles or kits, discounts etc.Depending on the platform you choose you may edit orders and process shipping labels directly in your shopping cart but usually you'll import orders from your cart and other sources like Amazon and Ebay into an order manager where they can be edited, combined and then processed.

Lean, Clean and Obsessively Organized

It may seem petty. After all, your customers never see your shipping desk or your shipping room floor. I'm not saying that a clean environment guarantees accuracy but a un-kept shipping room seems to correlate heavily with increased shipping errors.

Here are a few scenarios: The stack of packing slips is bumped and falls off the desk. One of the upside down labels is mistaken for the adhesive backing from a previously shipped shipping label. It's left on the floor among the other paper and that order doesn't ship.

The items gathered to be packed for an order are placed on a large desk with other items that have not been put away. The box gets moved or pushed sliding one of the order items into a group of other products gathered on the table. Everything makes it into the box except for that item.

A packer leaves early and sets a packing slip on a case of product that hadn't been put away. Another packer sees a current packing slip that happens to have a quantity of 12 bottles of SKU14. The case of 12 is actually 12 bottles of SKU15, but it didn't occur to the second packer that the packing slip and the case of product could be completely unrelated. Checking the items which had already been boxed didn't cross their mind.

Some of these scenarios might seem far fetched and that's the point. Errors normally occur from strange circumstances or exceptions, rarely something you'd expect. Fortunately though you don't have to foresee each of these opportunities for error to prevent them. Putting a well thought out system in place will prevent odd ball errors you never could have dreamt up.

Each of these scenarios and many more can be prevented with the following systems & procedures:

  • Packing slips are always clipped on a clipboard, never stacked loose.
  • When shipping labels are adhered there is a recycling bin near by to receive the backing.
  • If you see any discarded paper or product on the floor you take care of it asap.
  • Keep the work area clean as you go. Only make specific exceptions when required.
  • The packing of an order should never be interrupted in progress. Once packing begins it must be finished. If that's not possible the packing slip needs to be handed off with the picked products to another packer. If that's not possible the packing slip should be put back with slips for the other unpacked orders and product needs to be placed in an area to be re-shelved
  • Packing should be done on a packing table not much larger what's needed to accommodate your boxes and the items which will be packed. Only items for the current order and the box should be on the table. If packing is not in progress the packing table should be 100% clear. No exceptions.
  • Product that needs to be restocked need a specific location. Picked items need a specific location so do damaged items. Of course getting items to their proper location needs to be give sufficient priority to ensure it always happens, otherwise the locations are meaningless.

Pick Lists and Bins

Depending on your shipping volume, number of SKUs, size of the SKUSs and warehouse size a pick list may seem like overkill or they may already be an obvious necessity. In most cases they begin to make sense at around 30-50 orders per day but I'd recommend their use sooner rather than later for a few reasons:

If you have a picker with a pick list they can gather products from the warehouse for many orders at once (a batch of orders). The number of orders in the batch is chosen based on the physical size of the products and the average number of items per order. Picking without the interruption of stopping to pack each order tends to be more efficient and less error prone. If the pick list product locations and physical product locations are organized in the same order the picker can move through the shelves making only one pass per batch. Steps are reduced and efficiency is increased further.

It may be tempting to group variants of the same item in the same bin but each item should have it's own bin and the bins should have effective dividers so that overflow from one doesn't mix with another.

You may choose to have each person pick a batch and then pack their own batch or have the orders picked and packet by different people. The advantage of the latter is that it offers a double check because both the picker and packer have a chance of discovering a mis-pick. Of course the correctly picked items may still be packed in the wrong order unless barcode packing verification is used.

Every item picked for a batch of orders will be required to pack that same batch. If items are left over or additional items are required, there is a good chance that an issue occurred. Smaller batches are beneficial in this case because fewer orders would need to be checked when a discrepancy occurs. Of course it's much more efficient to have packing software in place that tells you before you put the wrong item in the box. Opening and checking even 20 orders to find the one that's missing the left over item is time consuming, not to mention humiliating.

Start small and Plan big with your bin system. You might not expect to have ever have multiple warehouse sections but adding a few well planned digits to your bin names now won't cost anything and it will save you time later should you expand. Here are some standard conventions for naming your bin locations:

Organize your physical bins in alpha numerical order. Let's say you have a pick list for 100 orders. The items on the pick list are sorted by bin location. Ideally, your picker should be able to make one pass through your warehouse without backtracking and collect everything on the list to the pick cart.

Example bin location: S-C-29-07

S = WarehouseSection: If the warehouse is divided into a handful of large sections it makes updating locations easier. Instead of having to re-order all the shelves for a move you only have to re-order shelves in one section. It's also possible to have pickers start in a given section so they are not all in the same area at the same time. If your whole warehouse is one row of shelves you might choose to begin all primary picking locations with the same section letter. The pallets used to replenish the pick locations can all be grouped into another section. If you have inventory on one row of shelving and along one wall you might have section R and section W. If you have multiple buildings or rooms you might use the Warehouse section to designate each building or room.

C = Isle: These are the isles you walk down while picking. There are two ways Isles can be labeled. One is to give each side of the Isle it's own label. This will take pickers down the isle and then back up again on the other side. This a lot like back-tracking. The other option is to give both sides of the isle the same label. In other words you'll label the area between the rows rather than the rows. With this method the shelve numbers are staggered like street addresses with the even numbers on one side and the odd on the other. This is truly one pass picking. If there is a possibility of having more than 26 isles you should use give yourself two digits for the isle and you may want to use numbers instead of letters.

29 = Shelf: Shelves are arrangements of bins or areas of a pallet rack. If you think you many have more than 99 shelves in an isle then you should give yourself 3 digits. If that will never happen you can save some space by sticking with two. More on location length in a moment.

07 = Bin: The number of the bin. Keep in mind the full bin number is S-C-29-07. This can be printed as text and as a barcode adhered to the bin itself. If it were ever lost someone would be able to help it get back to it's exact spot on the shelf. Some barcode inventory systems may have you scan the bin barcode prior to receiving the inventory to ensure it's being stocked in the right location.

You can use any numbering/lettering system you like but it's helpful to keep these guidelines in mind:

  • Start with the Largest area like a warehouse or warehouse section and move to the smallest designation like a bin or basket.
  • Avoid extra characters to keep the length reasonable. The longer the string of characters the larger your barcode will need to be in order to ensure reliable scanning. 3" X 1" is a very practical and common size. If you keep the length reasonable (under 14 characters) your scanner should have no trouble reading a barcode at this size, even when the printing is not a 5 star job.
  • Be sure to use a 0's as placeholders when you have a single digit numeric value in a field that supports two or three digit numbers. ie use 01 rather than 1 when you have 2 possible characters. Otherwise 05 will be recorded as 5 and will be right beside 50 when you sort by bin location.
  • Using hyphens to separate the Section, Isle, Shelf and Bin does increase the overall length a few characters but it makes the locations legible so it's worth the cost.
  • If you know that you'll be using 2 digits rather than 3 to name your areas you can use the extra space to add a letter and improve readability even further:
You can see how the number of characters impacts the barcode density:

Inventory & Barcode Inventory Software

Running out of inventory is something everyone tries to avoid but the more your system relies on manual entry and remembering to update spreadsheets etc. the less likely you'll be able to rely on it. Many times you'll have to do a manual count before ordering anyway which seems to defeat the purpose. The process of handling backorders can be especially tedious and error prone. Even when no error is made there are customer service costs and the customer is no doubt disappointed to hear the news. If you're running out of inventory you may be trying to cut the numbers too close. Reordering a little too early does tie up some extra capital but unless you're able to effectively manage inventory and prevent overselling it, you'll likely find the impact to be less than the fully realized cost of sales lost, customer service time and errors related to out of stocks. If you're having trouble predicting demand for the short term you can either keep extra inventory on hand, or if your volume is enough that the cost to do so is too great, it's likely time to begin using inventory forecasting software.

Until then, simply having a system in place to alert you to when inventory reaches a set level can be extremely effective as long as the reorder points are set to levels that are helpful. When choosing a reorder level you'll need to know how many you sell per month on average and how fast sales are increasing if applicable. The reorder level should be high enough that you'll still have plenty on hand when your new inventory arrives. Be sure to figure in worst case scenario manufacturing delays, shipping (plan on delays), clearing customs if applicable, time to receive and count the new inventory and then add a healthy buffer. Keep in mind that running out of inventory at a fulfillment house is just as easy to do and can often take longer to replenish, so an inventory system is still a necessity whether you outsource or keep fulfillment in-house.

Barcode inventory systems reduce entry errors and speed up inventory tasks. The features vary but every barcode inventory system allows you to scan items rather than keying in a SKU. This is significant because not only does keying in data take longer, it also opens up an opportunity for error. If you happen to be performing an inventory cycle count without barcode scanning and you accidentally key in and update the inventory level for the wrong SKU, you are left with two incorrect levels which could lead to both an over sell and a premature reorder. The barcode inventory system is much like any other inventory management system except that it's set up to be easily compatible with barcodes.

Some barcode inventory systems allow you to count items with the scanner. You might transfer inventory from it's current box to a new one, scanning the barcode of every item as you move it from box to box. If you're counting cases of product or pre-counted packages it may be more efficient to manually count the cases or packages and then manually type in the number.

In addition to the other inventory control measures you put in place you can also employ the red tape rule. It's free and it's a great backup system. When you choose your re-order point simply box the same amount of inventory and set it "behind" the inventory you pull from. It may be in a secondary re-stocking location. If you're reorder point is 4 cases you box the last 4 cases. This box is taped with with bright red duct tape and this tape is only used for this single purpose. Next comes the magic. When this tape is cut, it is the sole responsibility of the cutter to take a very specific action. For example, emailing you or the individual responsible for placing re-orders, with a subject "Red tape cut: SKU: SKU-GOES-HERE. If the order has not already been placed for some reason you can place it now and it should still arrive in time.

Packing Software

The idea of using software to assist with packing accuracy is not new. Fulfillment centers have been using barcode packing systems for many years. Until recently the software was geared towards larger operations and hardware was more costly. Now even the smallest inhouse fulfillment operations can implement a scan and pack system with a Chromebook, a $20 USB scanner and an application like GroovePacker which runs right from your browser. A thermal label printer makes barcoding your own items easy, UPS and FedEx will often provide these for free especially if you have a little volume. If all of your inventory comes from the manufacture pre-barcoded even less preparation is required.

Why would I want to scan every order I pack?

Here are a few of the benefits:

  • Faster Packing: Yes it takes time to scan an item but it takes more time to double and triple check and then re-ship when something goes wrong. Scanning allows packers to move much faster and avoid re-shipments.
  • Less Customer Service: It takes multiple emails to resolve incorrect shipments. Nobody wins. Prevent packing errors and watch your least fun service emails and most draining phone calls evaporate.
  • Prevent customer injuries: You shipped the wrong item and the replacement won't make it in time for the Wedding, Appointment etc. Yet you still refuse to cover $50 Next Day Air shipping? In that customer's eyes you're adding insult to injury. You could have avoided both the injury and the insult.
  • Improved Feedback: It's difficult enough to maintain great feedback despite all the things that are out of your control. This is in your control. Insist that every step is taken to assure accuracy.
  • Errors add up: Why pay for errors that upset your customers? Instead, take a fraction of the time and money spent on errors and put a barcode scan pack system in place. It will pay for itself every month.
  • Competitive Advantage: Let your customers know that you take their satisfaction so seriously that you've implemented state of the art barcode packing verification to ensure order accuracy. Put yourself in their shoes. Would you rather order from the company that is set up to basically guarantee accuracy or the one that just hopes to get it right?
  • Go Green: Yes, even the earth will appreciate the extra box, product, packing material, labels and fossil fuels not required to ship out a replacement or receive a return.
  • Better Physical Inventory Tracking: Sometimes the difference between what is sold and what is shipped is not an error. You may have several versions of an item and you might decide to give a loyal customer a free upgrade or include a free gift. Unless the proper record is created for this exchange your inventory is then wrong. Without barcode scan pack verification you'll also have shipping errors creating inventory discrepancies. If your packing software is also a barcode inventory management system it can debit your inventory in real time as you ship giving you another layer of inventory control and visibility.
  • Faster Training: Implementing Scan and Pack software has many direct benefits but also some hidden benefits that come with the implementation. For example, clearly marked bins, ordered shelves, clean work areas, and clearly defined procedures all add up to make training new hires fast and easy. Imagine creating a training system based on an internal web page with a few videos, and having new staff basically ready to go when they're done watching. That is freedom and flexibility. When training is difficult, hiring gets delayed because of the time it takes and the errors introduced. Have you ever been terrified to loose a key member of your warehouse or hesitant to let people go, even when the signs are clear that it's past time for a change?
  • Less Turnover / Easier Turnover: Many companies struggle to reduce turnover for pickers and packers. "What turnover should you expect for fulfillment staff?" they ask... We were there too. It was one of the main reasons we attempted to outsource fulfillment. We screened pickers and packers hoping to find individuals who enjoyed the job, maintained high shipping accuracy and would stick around. Ultimately we learned that it was less about finding the right order fulfillment staff and more about building a warehouse management system that allowed new staff to start and begin shipping accurately with minimal training. Not surprisingly the same system made the job more enjoyable and reduced turnover.

In short, a clever barcode scan and pack system (or packing verification system) can track your inventory and either eliminate or help you address many of the issues that in-house fulfillment operations struggle with. It won't make diy fulfillment fall into place overnight but it is a powerful tool that your warehouse systems can be built around.

I hope I've been able to provide some tips you can put to use in your own DIY fulfilment operation.

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