AMHSA - Is order fulfilment fulfilling?
October 10th 2007

Order fulfilment is a complex part of any warehouse or distribution centre operation. In the future the problem will become more complex. The Automated Materials Handling Systems Association here outlines the fulfilment challenge, the central business purpose, economics and approaches to deliver effective and dulfilling fulfilment.

The facts

• Order fulfilment is the most critical and labour intensive part of the warehouse operations: it influences a company’s profit margin and represents 55 per cent of warehouse costs.
• Both Small and large companies can benefit from automation in order fulfilment.
• The number of web-based shoppers increased by seventy per cent between 2006 and 2007.

What is order fulfilment?

The activities performed once an order is received . We will assume in this article that it is a consumer that requires an order fulfilling rather than a production process looking for a kit of parts or a sub assembly.

By telephone , web or e-mail the consumer places an order. The supplier can than deal with this oder in a number of ways. The order can be fulfilled from the supplier own warehouse, the manufacturer of the goods or from a fulfilment outsourcer. The goods are then delivered to the consumer by a distribution network.

The challenges of order fulfilment

Many large stores are now seeing a significant increase in internet shopping while mail order “big book“ shopping declines. Internet shopping is forecast to grow by 70 per cent next year according to some companies, although other research shows a year by year increase of 35 per cent. Predictions show Europe will outstrip the USA in internet shopping. Some experts state that companies will look to increase their order fulfilment by 65 per cent over the coming year . Almost half of the UK population now shop online, according to some analysis’s reports.

Many online shoppers ask for a store pick-up service. Many retailers do not offer this service, but with customer demand it will grow. The challenges presented may be the main reason few retailers offer this service even though 60 per cent of shoppers want this. Predictions are that by 2009 a quarter of all UK shopping will be conducted via the internet, with the online market worth £80billion. Good news but it brings many problems for the retailer. Internet orders will make order peaks much higher in small time frames.

One of the challenges is knowing when to expect this peak and how to deal with it. Consumers being let down once have far more choice now of where to look for an alternative supplier. As well as leaving negative comments on the internet for all to see or even effect the supplier rating.

Assuming the retailer has overcome this problem they still have to get Automated Materials Handling Systems Asso the goods to the consumer. Past performance over Christmas 2006 deliveries has shown this to be a very vulnerable area. Even when the consumer has paid extra to get goods in time they have badly been let down. Was this a cause of :

• Stock problems and not telling the customer at order the stock situation.
• WMS system problems.
• Picking and despatch problems – maybe seasonal
• Distribution problems.

The labour cost associated with order fulfilment is the Distribution Centers largest cost center: Preparing an order to be picked; checking whether or not a customer can receive a requested order; verifying that the customer can, in fact, receive the item(s) that they have ordered.

It is often self-defeating, for example, to try to automate very difficult, minor tasks. Order picking – a key element in the distribution chain – often requires different approaches for fast- and slow-movers and for odd or bulky items. Here, manual picking or semi-automatic picking – such as pick-by-light or pick-by-voice – may be preferable to full automation.

Who needs order fulfilment?

• If your labour costs are high or growing.
• When the space available to you is not enough for the operations you are doing or intend to do.
• Your manual process is creating costs and backlog in other areas.
• You have accountability and picking errors.
• If 10 per cent of your goods satisfy 50 per cent of your orders automate the process.
• If 20 per cent of our goods satisfy 30 per cent of your orders automate the process.

Central business purpose of order fulfilment

1) Save labour

Systems have certainly saved labour in the goods-in area but, more importantly, they significantly increased accuracy and shortened the time between goods arriving at the warehouse and being available for sale.

2) Increase throughput

Critical to success in the home entertainment business is speed of delivery from the warehouse to the customer. Fast delivery, with goods ordered by 5pm being delivered to the UK mainland the next day. Solutions should be designed to allow systems to be upgraded easily when required, to keep pace with changing business needs and maintain competitive advantage.

The economics of order fulfilment

ROI has become one of the most popular metrics used to understand, evaluate, and compare the value of different investment options. Many variations of the ROI equations have emerged over the years, tailored to individual company or industry needs. The standard ROI equation is presented below along with the definitions of the equation’s terms.

ROI = Net Benefits ÷ initial and re-occurring costs * 100 per cent

Do those with existing systems know what it is? How do they calculate it ? Do they consider this when planning automated system? In fact, companies should automate only where there is a positive benefit from doing so – benefits such as improved customer service, shorter lead-times and lower cost per unit handled, accuracy and tracability.

A company recently installed a home entertainment system using the equipment supplied by an AMHSA member and achieved the following:

• 100 per cent increased capacity
• 40 per cent reduction in people resources
• 38 per cent reduction in cost per part picked going from 42p to 26p per unit
• Virtually eliminating picking errors
• £1m per annum savings in staffing alone

Clear benefits

The benefits resulting from the installation of an automated logistics system are clear and measurable, with the principal ones being reduced total stockholding, lower staffing levels, improved service levels and higher accuracy and customer satisfaction. Systems also opened up possibilities for new operational benefits to be achieved.

Approaches to order fulfilment

Order fulfilment systems combine software and equipment to optimise product flow and transform the simple warehouse or distribution centre into a sophisticated order processing facility through:

• Wave generation
• Resource balanced work plan generation giving maximum efficiency
• Pick detail execution planning
• Real time schedule deviation detection
• Finite short interval planning
• Management by exception
• Re-planning and rescheduling in real time
• Tracking control
• Visibility via real-time GUI
• No gap analysis
• Smooth material flow coordination
• Live feed back and status updates via pagers RDT’s and PDA’s
• Order picking
• TPS – Trolley Pick System
• CPS – Conveyor-linked pick system
• IPS – Integrated Pick System
• HPS – High dynamic pick system
• BPP – Batch Pick and Put
• BPS – Batch Pick and Sort
• Order Sequencing
• DSB – Dynamic Sequencing Buffer

Take note

Electronic order picking has the potential to be used as a monitoring system, not just a picking system. Order pickers should be clear as to the intended purpose and use of the system. If it is to be used for performance monitoring activities, then this should be done with union involvement and made explicit. Order pickers should know exactly when they will be monitored and any potential ramifications.

Targets set for order picking should be achievable.

Ideally, individual targets should be set that take account of individual differences that may have an effect on the ability to achieve targets. Feedback should be positive as well as negative and pickers should know if they/their team have met their target.

Conclusion:

Verify everything – Verify every step of the picking process. Checking will stop mistakes – preferably while the picker is still in front of the pick slot, where correction will cost you almost nothing. Scanning of slot ID bar code labels and product UPC codes, along with a blind entry of the quantity picked, will guarantee the right pick is made.

Touch items once – Touch each piece of product once only Once touched it should not require any other manual processing before putting in the vehicle.

• Minimise walking
• Use automated systems.
• 100 per cent product availability
• Do not waste time or effort picking items which are not there.
• 10 – 50 Rule (if 10 per cent of your items can completely satisfy 50 per cent of your orders, automate the process)
• Find another 20 per cent of your items that will satisfy an additional 30 per cent of orders. Automate this process .
• The remaining 20 per cent should be automated if the costs in doing so are reasonable.

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