Article Written By | Mark Lightbody, Partner
This is the second in a three-part series on Funding Growth: Mining for Gold Behind Your Buy Button. A quick recap on Part I: the Newmine team spends hundreds of hours working with retailers and brands each week. Our clients face real challenges and we are here to help our clients based on our knowledge and shared experiences. As discussed, we have developed this blog series with the intent to help our clients look within their own organization to find solutions to unlock substantial funding sources.
In Part I of this blog series we talked about looking inside your Outbound Shipping Costs. In Part II we will focus on another area that is just as important; Order Profiling – The Foundation of DC Efficiency.
Order Profiling is a holistic activity devoted to analyzing and understanding what your customers purchase and how it relates to distribution center operations and outbound shipping. It also entails the review of supply chain activities and timing. Most retailers have the raw data needed to perform this analysis. The trick is the organization of the complex data, from multiple systems, into meaningful insights that support interpretation and ACTION! This is KEY!
Labor cost in the distribution center is a major component of every retailers’ P&L. The split shipments and back-orders contribute negatively to overall order processing costs. It also impacts the outbound shipping costs.
All order processing metrics needed to be evaluated:
- UPH (Units Per Hour)
- CPU (Cost Per Unit)
- TNT (Time In Transit)
- Accuracy Goals- IC cycle counts, outbound and inbound accuracy
- UPO- (Units Per Outbound Order)
If you look deep inside your order profiling activity you might find:
- Issues throughout the supply chain. Evaluate the process of initial order placement continuing through stock placement. Issues within the supply chain could be causing delays and adding to split shipments.
- Split shipments could also be adding to distribution center labor and outbound costs as well as contributing to a higher returns rate.
If you take a closer look and make changes within your order profiling activity you could find significant ways to reduce your package to order ratio which would culminate in significant savings.
So, let’s summarize what we’ve learned:
- Look inside your distribution labor costs (supply chain).
- Take a closer look at outbound shipping (split shipments).
For one $200MM online retailer, the challenge they brought our team was to reduce the number of outbound packages. Our order profile analysis and recommendations reduced overall package to order ration from 1.2 to 1.1, which produced an annual savings of $900K. A significant amount to re-invest in their growth initiatives.
Where should we look next? Be sure to check out Part III of this series.