Tagged: warehouse

The Fulfillment Doctor–The Art of Data Conversion

Q: We are in the process of planning our file conversion as we implement our new catalog management system. Our vendor is telling us that they normally don’t write a file conversion program for most files. What’s your recommendation?

A: Today’s comprehensive order management system performs integrated functionality for order entry, customer service, order processing, warehousing, marketing and merchandising.

There are literally hundreds of tables and files in these systems that have to be converted or built from scratch manually. These range from promotional tables, shipping tables to the more complex customer files, item masters and purchase order files.

For smaller businesses, the better approach is to minimize the automated file conversion. For larger companies (meaning tens of thousands of customers and products) it will be a blend of build manually and program file conversation.

The reasons are:

  • Converting years of history often result in many file integrity problems because the data is not consistent over long periods of time. Needless to say it takes many more passes through the data and it may still not be totally corrected;
  • Conversion programs take time to write and test. Many of the new systems files and tables can be set up faster manually than writing programs and converting files;
  • Setting up files has also proven to be a good way of training departmental users in what the new system will require in terms of maintenance. It gives you familiarity with the new system at a detail level. If you attempted to convert all files the users will never understand early what the system requires.

For larger businesses, it may be more compelling to look at automating a larger share of the file conversion. But we would still advise that this should not be taken to extreme.

Some Guidelines:

  • Most companies under estimate the time required to develop specs, program and test file conversion and using copies of subsets of the live file in training.
  • Don’t try to machine convert too much data – too many years back. How much history do you need to convert?
  • Look at using your marketing service bureau to be a source of hygiened customer data. Get them involved with the file conversion early to see how they can assist you. If you use them, you’ll end up sending them the files once the conversion programs are tested, several days before the “go live”. This will assure that you’ll have an update, hygiene customer data file. Merge/purge to eliminate duplicates just before the conversion. Address correction and NCOA would be performed.
  • Take into account the data file problems that multiple years of data may have. System created problems, changes in coding of transactions or tables, etc.
  • Consider the amount of time required to make the file conversion during “go live”. Obviously, you don’t test with the live data file. Initially test with a copy of selected records from the files. Selected records which are illustrations of as many conditions as you can identify. Then, do a conversion volume test to see how long the actual file conversion will take. This is especially crucial with large files (e.g. customers and item master) being loaded to a relational data base.
  • Schedule sufficient time to humanly review data. Can’t look at every record but you need to sample the converted file sufficiently to know the file conversion programs are working correctly. The user departments should all be involved in reviewing samples in the files they use. If you only review a few accounts you are taking a high risk.
  • Plan out the final days of the conversion. There will be the need to begin the file conversion a few days in advance of the “go live” date. Most businesses can not shut down the business during the file conversion, so you need to figure out how to update the key files during the “go live”. How will you continue to process new customer orders and returns, add new products, etc.? Need to go back and update the files during the “go live”.
  • Can you keep your old system operational for some period of time to answer inquiries and compare records? Remember a very high percentage of inquiries and complaints happen in the first 90 to 120 days after the sale or return and then inquiries drop off quickly Does all customer data need to be on the new system back 10 years? But for the for marketing purposes we don’t want to lose customer purchase activity and promotional history.

File Build Versus Convert

In our consulting practice we look at each company’s file conversion and its file data objectively. But here are some generalizations about the types of files and whether should be built manually versus converted

These are the files that are typically file converted with programs customer files, item masters, customer order and return history, inventory files, purchase orders, subset of item master for WMS system, item locations, etc.

The majority of files and tables are set up manually by user departments. These include promotions, source codes, sales tax, shipping & handling, files which govern business rules (system control values which determine the functions of the system), open orders (keying the data gives you experience with order entry and all the order coding), general ledger chart of accounts, merchandise hierarchy ( div, dept, class, ) and employee files.

Types of files could go either way – build or convert – accounts receivables.

There are some types of files – like the historical promotions – that aren’t converted. The results may be sent to a data warehouse, spreadsheet or marketing data base.

Summary

Get with user management and get an early start on planning the conversion. Realistically, consider what it will take to convert files by program versus building them manually and giving the user departments more experience with the new system’s maintenance.

Curt Barry is president of F. Curtis Barry & Co., a fulfillment consulting company assisting multichannel businesses with order management and inventory management systems evaluation and implementation.


What Are Your Many Splendid Shipping Options?

In the next few weeks, all the major carriers will complete their 2008 pricing announcements. As we look at the future, it’s probably a good bet that these carriers’ rates aren’t going down any more than the cost of oil. So what’s the impact and action plan for your business? Given the size of the increases that have been announced so far, multichannel companies need to look at all the options open to them and develop short and long-term strategies to reduce the impact.

UPS has announced that they will be increasing Ground rates by 4.9% in 2008, which is equal to last year. (FedEx will most likely match the UPS Ground increase, but that information has not yet been released.) Under new rates, the Ground commercial zone 2, 1-lb. rate has increased 5.0% over last year—overall, a 16% increase over three years, from $3.62 in 2005 to $4.20 in 2008. For 1-70 lb. packages the average increase is 4.8%. However, if the majority of your shipments are in zones 4 or 5 –like many businesses are- the increase is about 5.16%. Depending on your warehouse location and the predominant zones in which you ship to customers, the impact could be more or less than this average. Meanwhile, the Ground residential minimum charge increased to $6.15, a combination of the base rate for zone 2 and the Ground residential surcharge. In a quick survey of shipping tables of 66 multichannel companies, we found that 71% of the tables were lower than this $6.15 minimum charge.

As AFMS Logistics Management Group’s Managing Director Rick Collins points out, “The announced rate increases of 4.9% for Ground and 6.9% for Air from FedEx and UPS masks the true impact for many shippers. The base rates may average the announced increases across the board; however higher zone express shippers could experience increases in the 9-10% range. Additionally, surcharges are increasing up to 20% in some cases. Surcharges for irregular and large packages are up 8.3% to 12.5%. Commercial remote add-ons are increasing 7.1% and residential fees are up 5.4% for Ground.”

All is not totally gloom. There was some good news on November 15, when the Postal Service Governors announced that future prices will be adjusted using new regulations issued by the Postal Regulatory Commission (PRC) on October 29. Consistent with the Postal Accountability and Enhancement Act of 2006, future price increases for mailing services will be capped at the rate of inflation. Said Postmaster General John E Potter, “This delivers one of the main goals of the new law for business mailers—a predictable price schedule.” The new pricing regulations give the Postal Service added flexibility for shipping services. “We intend to use this new flexibility to grow our competitive business,” said Potter, “offering volume discounts and contract pricing.”

Looking at the industry as a whole, however, Edward Wolfe, transportation stock analyst for Bear Stearns & Co., had this to say: “Our sense is FedEx is clearly trying to send a message of pricing strength to both its customers and to competitors UPS and DHL.”

I think we’ve gotten the message. Now we need to do everything we can to reduce freight costs.

With the continual increases in the cost of oil and shipping, we think that companies need to assess both short and longer-term strategies. Here are 15 short- and long-term options to investigate:

  1. Renegotiate your contract.
  2. Can you use USPS to your advantage?
  3. Are you using best-way rate shopping?
  4. Consider package weighing, and take out inserts when they push the package into a higher bracket.
  5. Can you leverage economies of scale using the same carriers for inbound and outbound freight?
  6. Investigate the economics of a second warehouse to reduce the distance and cost to ship to the customer.
  7. Reassess your shipping and handling table in light of the changes.
  8. If you’re going to use free shipping, re-assess the minimum dollar order value and its effects on your transportation costs. Should the minimum be increased?
  9. Review whether you should use by-item shipping charges in your web and catalog copy for heavy and oversize products.
  10. Can you make use of package consolidators and zone skipping?
  11. Assess your total operation and determine if other costs can be reduced to help offset these increases.
  12. Improve your inventory forecasting and systems to improve inventory position and decrease the cost of back orders; keep in mind the $6.15 Ground residential minimum charge.
  13. From marketing and merchandising perspectives, how can the average order value be increased so that shipping cost is not such a large percent of the average or small order?
  14. Review your policies for giving away free freight to return merchandise.
  15. Is it time to use an experienced transportation consulting company to help you get savings? Or are you big enough to hire an internal specialist to continually assess and hopefully lower your costs?

Contract renegotiation is your #1 weapon. How much can be saved will depend on a number of factors: how well prepared you are in terms of knowing your package shipping profile; knowledge of carrier pricing and what can be discounted and negotiated; the 70+ accessorial charges and how they make up your total costs, etc. An increase in the carrier’s list rates does not necessarily translate to higher shipping costs. Bear Stearns’ Wolfe says, “At this point, we continue to expect the market, not announced large rate increases, to determine the direction of pricing.” “The market” means competitive bidding and your ability to negotiate. Another factor to consider is how important your account is to the depot or hub. We’ve learned that sometimes smaller accounts are much more important than management might realize, given the outbound volume.

The most nimble multichannel companies will determine how to offset these foreboding continual increases. We believe it will take all the weapons—both short-term tactics and longer-term strategies—to keep profitability from eroding.

This very special article has been provided by Mr. Curt Barr.  He is the president of F. Curtis Barry & Company, a multichannel operations and warehouse consulting company. Helping you understand how to reduce freight costs is just one of the ways they can help your multichannel business.

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Conducting a Beloved Post Season Audit on Your Fulfillment Operations

Although the 2007 holiday season hasn’t ended yet for many multichannel merchants, many of our clients are already preparing for holiday 2008. You should, too, by conducting a post-season audit. This process enables you to challenge your group to find ways to reduce costs and at the same time get critical data and observations to be used for the next holiday season.

In this article we will cover both the basics of performing a post-season audit as a base line for process improvement and cost reduction, as well as discuss the major potential cost reduction areas of the distribution center.

The first step in the audit is to form a post-season review team, which should include fulfillment supervisors and some key personnel in the DC. The team’s observations of what went right, what was marginal, and what needs to be fixed before next year should include finding answers to these questions:

  • What was the labor cost per order shipped during the increased staffing period of your holiday season, vs. your balance-of-year average cost per order shipped? This identifies how effectively you used the temporary holiday labor and how it performed.
  • What was the cost of training the seasonal labor force? Were they brought in at the right time for sufficient training and to match volume surges, or were they on the payroll too early?
  • What was the found error rate and subsequent rework required? Are they higher than normal? Why did they increase?
  • Did you use your experienced associates to pick and teach seasonal temps to pack? You should: It is easier and faster to teach packing than to teach picking, and if you use your experienced people to pick, your error rate should be lower.
  • Did you cross-train all regular associates to pack during the course of the year? Were they available to fill in for peaks after performing such tasks as receiving, put away, administrative/clerical, etc.? This enables you to hold down the number of seasonal temps required.
  • What was the rate of overtime during the holiday season versus the balance of the year? Also calculate labor man-hours per order shipped during the holiday season vs. the balance-of-year average. Low wages paid to temps may drive down the cost per order, but man hours used will identify your true performance.
  • What was the turnover rate for seasonal employees and for what reasons? How many rehires did you have to make, adding to training cost and putting inexperienced people to work? Too frequently, inexperienced and insufficiently trained people make little contribution and drive up costs.
  • Were there any issues with shortages of supplies? Why?
  • How did holiday volume perform to the sales forecast? A post-season audit is critical to understanding DC management’s responsiveness.
  • How did the DC perform daily against order volume? Did the facility fall behind scheduled shipments? How far behind by day? What was the order carryover identified as both orders and a percent carryover by day?
  • Did your carriers perform? Were their pickups on schedule?
  • Were there any bottlenecks in the flow of work? Why did they occur and how can they be averted next year?
  • What was your post-holiday season rate of returns? What were the reasons for returns, which were DC related (i.e. picking error, broken in transit, etc)? What was the turn around period between receiving the return and processing refund or exchanges? Any areas or bottlenecks in the returns process that need to be corrected? Was there sufficient receiving space? Did it infringe on outbound space?

To help answer these questions, use departmental reports throughout the center. These include transaction volume reports for orders received, picked, shipped, manifested, returns, back orders processed; service levels achieved (standard or plan and actual) payroll and productivity reports (budgeted and actual); DC inventory control reports about inventory adjustments, products not found in picking process, error reporting, etc.

Implementing Changes in Your Distribution Center

With the peak volume of the holiday season over, you should have just about finished your post-season audit of your operation. As we discussed previously, this will give you a good idea of how and where you can reduce and control expenses in your distribution center.

Now it’s time to implement some changes. Where should you start?  Here’s a checklist of some steps to take.

  • Bring your workforce down to the size required for your post-holiday business forecast. Nothing increases costs more than excess people on the payroll—and by attempting to manage hours with too large a staff, you’ll wind up sending employees home early multiple days per week, running the risk of losing key associates who can’t afford to work less than 40 hours.This is also a great time to evaluate all employees and retain the workers who performed best. Frequently you’ll find gems in the seasonal staff who are better than some of your regular associates. So bite the bullet, make the difficult decisions, and reduce staff quickly.

  • Perform inventory consolidation in your storage area, both to organize storage and create space for new product arrivals. Consolidating inventory now will save inbound labor dollars later, as well as ease and expedite the ability to locate product.

  • Assure your key performance metrics are in place for pick, pack, ship, replenish, receive and put away. Be certain you are generating reporting on all the key indices which will help you manage expenses, including labor hours and dollars (regular and premium) measured against volumes received and shipped (units, lines, orders, boxes).

  • Reconfigure your slotting and pick locations to reduce travel time to a minimum.  Relocate items appropriately to slow moving or to fast moving picks to create efficiency.  Remove seasonal items from the pick line so you are not walking by them each day.

  • If you didn’t cross-train all regular associates to pack last year, begin now for next year and continue cross-training throughout the year. Be sure any new employees retained from the seasonal worker ranks are fully trained and performing to standard. Training for seasonal associates is often quick, so if you are retaining people, make sure they are properly trained to be successful.

  • Develop a fulfillment to-do list from your post-season audit. Assign responsibilities and follow up to assure the tasks are being performed.If you have never developed goals and objectives for your operation and your fulfillment staff, this is the perfect time to start. Goals and objectives or key performance indicators are the most objective method of evaluating individual performance.  Successful accomplishment of goals and objectives adds to the profitability of the company.

  • Create your fulfillment budget for the next fiscal year. Remember that an effective budget reflects improvement in performance and reduction of expense to enable the company to offer wage increases where appropriate.

  • Review transportation contracts. When shipping volume is down, every penny of cost becomes critical. Knowledgeable review of both inbound and outbound transportation contracts and costs can typically yield savings up to 20%.

  • Consult with your supply vendors for packaging, corrugated, styrofoam, etc. Are you able to return overstock for credit? Again, every penny saved during slow periods is important.

  • Determine if this is the time for experienced help to assist you in reconfiguring the warehouse. There are many ways to improve layout within your current walls to expand capacity and improve efficiency.Along those lines, are your systems generating the necessary results in the required time periods, or is your fulfillment center losing efficiency because your systems are unable to perform?  This is a great time to develop a systems requirement document identifying your needs for growth and for performance.

  • Conduct objective individual performance evaluations for your salaried staff. Objective and honest evaluations of individual performance are the building blocks of great teams.

And finally, the only good thing about slow volume is that it affords you the opportunity to evaluate past performance failures and to implement change for future performance successes.

Curt Barry is president of F. Curtis Barry & Company, a multichannel operations and warehouse consulting company with expertise in multichannel systems, warehouse, call center, inventory management, and benchmarking; Learn a whole lot more online at: http://www.fcbco.com