This article is by Alex Mills of ProSKU, a cloud-hosted warehouse stock management system with ecommerce capability.
Ecommerce has grown at an explosive rate in recent years, but we often overlook everything that has to happen behind the scenes to get all those orders to customers. Far from the glossy websites and mobile apps, order fulfillment warehouses are being built at an amazing pace to keep up with demand.
But a warehouse is just a building. A lot has to happen to turn that building into an efficient machine for receiving and storing products, then selecting the correct items quickly and accurately when a customer’s order is received.
Here are the answers to all the most important questions about warehouse management and ecommerce order fulfillment, from organizing warehouse space and receiving inventory through to order picking, packing and shipping strategies.
- What is warehouse management?
- How should I organize my ecommerce fulfillment warehouse?
- What is involved in receiving new stock in a fulfillment warehouse?
- What happens when an order is received?
- What is the best order picking method?
- How can I make the packing of orders as fast as possible?
- How can fulfillment accuracy be improved?
- Is it better to outsource fulfillment or do it in-house?
- What is a warehouse management system (WMS)?
- What other systems are relevant to ecommerce order fulfillment?
- How can I tell if my fulfillment operations are running smoothly?
What is warehouse management?
Warehouse management encompasses all of the activities involved in managing an operation where physical goods are stored. Whether you have a true warehouse or a small storage unit, the activities that take place will be similar, but on a different scale.
Firstly, all storage facilities need to receive and record goods coming into the building, with the data recorded varying depending on the nature of the products. Once received, goods must be stored in a suitable area. Ideally, their precise location will be recorded so they can be found again easily.
When goods are taken from storage, usually for a customer order, several processes need to take place before they can be shipped out. The first stage is picking – the removal of goods from their storage location. After that, depending on product and customer requirements, products may need to be assembled or consolidated with other goods. Then the order will be checked, packed, and labeled for dispatch.
So the process is simple, in essence. But there is still scope for mistakes to occur. This often happens when correct procedures are not adopted at the outset, or not properly maintained and adapted through growth phases. How successfully a warehouse is managed depends largely on the extent to which disciplined, structured practices are adhered to.
How should I organize my ecommerce fulfillment warehouse?
For many ecommerce companies, especially at the outset, it is difficult to plan effectively for the long term. Over time with growth and changes in products, customers and market conditions, you might need to change your warehouse management strategy. Companies are often constrained by how much warehouse space they have as well.
Nonetheless there are some basic steps which will help you to organize your warehouse. First you must determine how much you need to store. This is dictated by several factors including:
- Your stock turn – how quickly products move.
- Your supply chain lead time – how long it takes to replenish inventory.
- The product range and availability you want to offer your customers.
Once you have assessed this, and decided on the type and size of storage to use (racking etc.), you need to allow for sufficient space for people to go about their work safely and efficiently. This includes essential functions like receiving and shipping. It may also mean allowing space for packing stations, quarantining of returns, pre-processing of products and so on.
The key element in ecommerce fulfillment is speed. You must select and configure storage systems to allow the most efficient picking of orders for your particular product type. There are certain types of racking that would be wholly unsuited, for example, to the easy retrieval of clothing or shoes.
If your operation has a high volume of picking, you need to be sure there is ample room for pickers to operate in aisles, and that access to locations and products is clear.
You should also observe the “ABC” rules for product location. “A” class products, your fastest sellers, should always be placed in the most accessible locations, closest to the packing areas. This reduces picker walking distance and ensures efficient turnaround of potentially the majority of your shipments.
Slower-moving “B” and “C” products can be located further away, possibly in less accessible locations (e.g. on raised floors) to reflect their lower picking frequency.
What is involved in receiving new stock in a fulfillment warehouse?
Much of what is involved in receiving will depend on the type of product being received and, sometimes, its value. The first stage when goods arrive is to check that the delivery matches your expectations. If goods are palletized this may be an initial count before offloading, to ensure the products and quantities are correct. The delivery paperwork should also match your purchase order and the physical quantity received.
If goods cannot be identified on the vehicle, or if more rigorous checks are required, they should be offloaded to a receiving area for this to take place. For palletized products, this may be a simple check to confirm the correct number of cases.
For loose goods, however, it is essential to perform a full count of items before they are recorded and put away. For some products, it may be necessary to open a sample of cases to check that the correct items are contained and they match the stated quantity.
Once product and quantity checks are completed, the relevant data must be recorded. As a minimum this should be the product code (SKU), quantity received and possibly a status (sound, damaged etc.). But there could be much more:
- For manufactured products, you might record a batch code.
- For food products and cosmetics etc., it’s essential to log expiry dates.
- For high value items like white goods or electronics, serial numbers may need to be captured.
In essence, any data that you need quick access to while in storage, or that is needed when the product is sold or relocated, should be recorded.
Receiving is completed once the checking and recording processes are done. All that remains is for the goods to be placed in the correct location, according to your chosen storage strategy. The benefits of a “real-time” warehouse management system with the ability to scan and capture barcode data will make all of these processes more accurate and efficient.
What happens when an order is received?
The key goal in ecommerce fulfillment is efficiency: fast and effective procedures are essential in converting your customer’s order from wish to reality.
For most ecommerce operations, the time between receiving an order and shipping it out is quite short. Depending on which warehouse management system you use, an order could be converted to a “pick” instruction within minutes. This may take the form of a printed pick sheet, or the electronic equivalent on a mobile device.
However, much depends on individual company processes and the picking method used. In some businesses, efficiency dictates that orders are accumulated for a period of time before processing begins, to create combined pick instructions for orders of a similar type. This might involve consolidating orders with the same delivery date or time, or those for a specific delivery service, or even just according to the number of items they contain.
For most picking methods, a separate stage is usually required after picking to prepare orders for dispatch. Generally this is a packing stage where orders are checked for completeness, packaged appropriately and labeled for shipping. This stage requires picked orders to be easily identified, to verify their content and quantity, and is often done using barcodes and a suitable software system.
What is the best order picking method?
There are many factors involved here so it’s difficult to provide a definitive answer. The best picking method for you will be the one that suits your product profile, order volume, storage layout and available staff.
However, some form of grouped or “wave” picking will be the most efficient one to use in most fulfillment operations. This is where orders are grouped together by one or more criteria in order to create a “pick wave” which is “routed” to reduce travel and increase efficiency.
In ecommerce fulfillment, a form of wave picking called “cluster picking” is a method that offers many benefits. A cluster is a group of orders, selected by various criteria, which are picked together in a single exercise. Using a trolley and a separate container for each order, a picker visits storage locations in a logical route. At each location the products required for each order are picked, so that at the end of the route all of the items for the “clustered” orders have been collected.
Another highly effective strategy is the “bulk pick and sort” option. Again, selecting orders by a range of criteria, locations are visited in a routed sequence where the total quantity of items needed for the group of orders can be picked. In a separate “sort” stage the products are then arranged into individual orders. This can be done by assembling one order at a time, or multiple orders at the same time, or even by combining it with the order checking and packing process.
A particularly useful feature that some warehouse management systems provide is the facility to automate the selection and processing of sales orders. By creating a predefined “filter” based on specific criteria, the process of determining which orders to include in a pick wave can be fully automated. The system can then automatically release pick waves at timed intervals to suit delivery requirements and worker availability.
How can I make the packing of orders as fast as possible?
Most fulfillment operations use some form of packing area, a separate section to which picked orders are delivered, to be packed and prepared for dispatch.
Completing this activity as efficiently as possible comes down to the expertise and experience of the packing staff. However, their efficiency can be supported with secure manual practices, or a suitable software system.
When a picked order is delivered to a packing table it will usually need to be identified to determine the next steps. This will mean attaching paperwork or using a warehouse management system to provide instructions to the packer. With a software system, the order details can be accessed either by scanning a barcode on the attached paperwork, or by entering a reference number from the tote (or similar) in which the order is contained.
This provides the packer with access to the order packing and shipment details. Wherever possible the system should have default settings to minimize the input required to complete the pack actions and generate shipping labels, as required.
Another option to make the process faster is to combine the picking and packing functions together using the “cluster picking” method discussed earlier. Frequently also referred to as “pick and pack”, orders can be picked directly into their shipping carton. By using a “packing list” document or scanning a barcode, the order can be readily identified to allow pre-shipping actions to be performed.
How can fulfillment accuracy be improved?
To improve fulfillment accuracy, you must employ structured, disciplined procedures throughout your operation with built-in checks to ensure accuracy at each stage. It is not just about picking, but begins right at the start when goods are received.
Ensuring the correct location of goods is equally important as the accurate recording of product data. You cannot expect high fulfillment accuracy to come from an informal putaway strategy, where operatives place goods where they want to, or where they “think” they should go. You have to store goods in a disciplined way, and their location must be recorded.
This discipline in the receiving process is the foundation of accurate fulfillment. It means that you have goods stored with the correct data, in a place where you can find them quickly. This must be maintained, and any changes of data or location should be recorded. When you do that, the chances are that your pickers will visit the right location and pick the right goods, even without further checks.
However, this does not mean additional checks should be skipped entirely. To guarantee high accuracy, they should be built into your process. Pickers should confirm their location is correct, as well as the product, and the number of items being picked. Clearly these actions are easier using a warehouse management system with barcode scanning options. But the discipline is still important (and possible) if your operation is based entirely on paper.
Lastly, the packing stage provides a further option to check orders before dispatch. You may choose this as an extra measure, or instead of making checks at picking. Again, the use of a system with barcode scanning support is a major help.
Is it better to outsource fulfillment or do it in-house?
This is a question many ecommerce entrepreneurs will have pondered at some stage. The simplicity of keeping everything in house during your early business growth seems logical. Everything is kept firmly under your own control. You can safeguard your brand reputation from end to end, and avoid eroding vital profit margins on sales.
But with increasing order volumes the picture changes. The scale of the warehouse management and logistics function in your business starts to become significant in terms of the staff costs, responsibilities and headaches. This can start to become a distraction from focusing on your core business – the things you do best – and an unwanted extra burden in an area where you are not an expert. At this point, with your profits increasing, the benefits offered by outsourcing may become more attractive.
The advantages offered by Amazon FBA are well known, and the choice, chiefly about cost, is relatively easy to make. Evaluating a third-party fulfillment partner (3PL) to handle the whole of your logistics may be less straightforward. However, the attractions include access to greater levels of experience and expertise, and the potential for lower storage and handling costs. Significant benefits may also be gained from:
- Better shipping rates.
- Handling of export documentation.
- Broader geographic coverage.
But perhaps the most important benefit is the liberation of your own staff from the hassle and responsibility of running an ecommerce fulfillment warehouse.
Weighing against these benefits are some potential disadvantages. The impact on your margins is usually the first consideration, followed by the risk of reputational damage should your chosen partner underperform. In addition, if your business operates in a volatile market segment, long term contracts should be carefully assessed.
What is a warehouse management system (WMS)?
A warehouse management system (WMS) is primarily designed to manage a storage space and the activities that take place in it. It is based on a core feature, often called a “warehouse map”, which is set up to replicate your own storage area and configuration. Another feature, the product database, maintains extensive details of every product you hold. With the addition of accurate stock quantities, you have a system that provides both stock control and location management.
A warehouse management system provides a set of structured procedures for performing routine warehouse activities. These are designed in such a way to minimize error while still allowing flexibility to handle common exceptions and deal with adjustments. The range of functions in a particular system will vary, but should include, at a minimum, processes to receive, put away, move or transfer internally, adjust, pick orders and dispatch.
A WMS is able to receive a sales order, typically by direct integration to ecommerce platforms and other order sources, but it is not the same as an order management system (OMS). However, a WMS may allow extensive manipulation of its order processing features to facilitate the efficient use of resources within a warehouse.
When orders are picked using a WMS, documentation including pick lists and dispatch notes can be generated, in addition to creating shipping labels through direct carrier integration or via a separate shipping system.
Many warehouse management systems can print paper instructions, but considerable extra benefits can be gained using a “real time” solution based on mobile devices, especially for movement accuracy and validity of data. Most WMS will usually provide extensive reporting features, supplying data on stock and activity, both in real-time and on an historic basis.
What other systems are relevant to ecommerce order fulfillment?
Strictly from the point of view of “fulfillment,” the key aspects are the management of orders, stock and shipping. For an online seller there are good reasons why an order management system (OMS) may be needed, but often these relate more to sales than fulfillment. A multi-channel order management system gives a seller access to multiple online sales channels, presenting a single view of customers and orders.
It is important to differentiate between stock management using an OMS, and warehouse management. There can be overlaps, but the former tends to be concerned with stock quantities, whereas the latter also covers the broader management of a warehousing operation. A third-party fulfillment specialist would not generally need an OMS, but a solution which integrates to online channels is a definite requirement.
For either sellers or third-party fulfillment companies, the automation of the shipping aspects of fulfillment is essential to achieve efficiency as well as economy. Many order management systems provide direct integration to shipping carrier systems to generate labels and tracking data. For sellers without an OMS, or users of a WMS, the availability of “aggregator” carrier management systems provides the easiest and most economic route to integration with a wide range of carriers.
How can I tell if my fulfillment operations are running smoothly?
Ultimately, getting orders to your customers on time and in full is the truest measure. But achieving that with the least number of staff required, and using the minimal amount of space should be your goal. In that way, your warehouse management and logistics function will be as lean and economical as possible, ensuring the margins on the products you sell are kept healthy.
It is not always easy to determine whether your operation is efficient in a situation where things feel like they are running smoothly, and customers are not complaining. But this is where a warehouse management system (WMS) can come into its own. A WMS helps you work efficiently, and identify weak processes more easily. It also provides a system to record and report on all your warehouse-related data accurately.
Only by having good data can you discover the true picture of how your fulfillment operations are running. To quote a familiar maxim: if you can’t measure it, you can’t improve it!
This article was by Alex Mills of ProSKU, a cloud-hosted warehouse stock management system with ecommerce capability.