For those in the process of scaling up your DTC via Shopify or otherwise, pick and fill rates usually rule the Key Performance Indicator boards. However, stepping back and analyzing your processes may be an effective way to identify inefficiencies. The questions below will help evaluate those processes and partnerships.
1. Is Your Outbound Packaging Aligned with your shipping, product, and consumer expectations?
o Between Amazon Non-Frustrating packaging or an overstated need to protect your product, packaging design can be overthought. An initial impulse may be to create a custom shipping box to reflect your branding and ensure your product arrives in perfect condition. Custom boxes not only carry high per piece costs, but also larger order quantities, resulting in high packaging inventory.
o Challenge the need for specialized packaging and calculate the ROI. A custom shipping box likely costs $1.00 versus a simpler bag at $.07. A simple test of shipping 100 shipments from your warehouse using bags to your company location can prove transportation damage as minimal. While boxes may still be needed for larger shipments, bags offer a significantly lower cost in materials and assembly.
2. What are the Major Pain Points for the Product Pickers and Packers?
o Listen to those picking and packing. Even if hired through a temp agency, gaining insight into their pain points and engaging them will likely provide meaningful information on opportunities to improve (carts, scanners, traffic paths, replenishment schedules, etc.).
3. Does Your 3PL Partner Charge by the Activity or By the Hour?
o If using a 3PL, check the contract to see if you’re paying by the hour or by the activity as this affects your cost management flexibility.
o An example of Activity based costing is $5.00 per pallet moved/loaded or $1.45 per item picked; basically, a flat fee per their activity along with likely a monthly rental fee per pallet location. The amount you pay scales up and down with your sales more directly, providing cost certainty.
o Hourly costs typically include a flat monthly fee for the management team (DC Manager, Production Manager, Logistics, etc. ) and then an hourly fee against the production team: the floor-pickers, loaders, quality management, etc. This will also scale up and down with your business and likely carries a rental fee per pallet.
The difference is that regardless of efficiencies, activity-based costs remain the same. If you analyzed your pick & pack paths and re-arranged your item location to reduce time to pick orders, you will still see the same picking and pallet movement costs. However, if you’re paying by the hour, those efficiency improvements are seen directly in your costs per month (and year). An activity-based cost might work as you’re looking to scale up your business while focusing on product attributes and website content. However, a review of your 3PL contract might be in order as your scale increases and in a position to pick some of these pennies (and dimes and quarters) off your distribution center floor.
If you’d like to learn more, contact Forsyth Advisors to see how we could help review and possibly scale up your Direct-to-Consumer costs.