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whwytriright 30 Controlling and Reducing Fulfi llment Costs
these is that they distort comparisons because of average Th e accompanying graph shows the breakdown of
package weight and distance. direct labor, indirect labor, occupancy and packing costs as
a percent of the Total Warehouse Cost Per Order for aver-
All these businesses have been
age company. It also points out the importance of focusing
1.5 and 2.5 items per order.
att ention on the management of the Direct Labor cost factor
in the warehouse.
COMPANY COMPANY ANNUAL ORDERS TOTAL WAREHOUSE
CODE COSTS PER ORDER
F. Curtis Barry & Company looks at industry wide
benchmarking numbers that represent an extensive range
A gifts 1,300,000 $9.40
of business types, sizes, productivity levels, and pay rates. Th e
B gifts 500,000 $8.30
overall average per cost per order is between $3.00 and $5.00
C hobby 500,000 $7.00
comprised of direct labor, indirect labor, occupancy and
D apparel 4,800,000 $5.80
packing costs.
E apparel 800,000 $5.80
In the table, Total Warehouse Cost per Order, the cost
F gifts 700,000 $5.60
per order at the low end of the table ($1.10 to $2.90) has a
G home 870,000 $5.40
high degree of automation implemented in the center. Th ere
H apparel 2,400,000 $5.20
are others above this level that also have automation but are
I hobby 200,000 $5.00
not as productive.
J apparel 700,000 $4.80
Additionally, it is interesting that order volume doesn’t
K gifts 250,000 $4.55
always translate to lower cost per order. Direct labor costs
L apparel 6,500,000 $4.30
range between $10.00 and $14.00 plus anywhere from 15%
M apparel 780,000 $3.45
to 30% benefi ts depending on the company.
N gifts 500,000 $3.20
Another variable in the costs are the facilities them-
O apparel 14,000,000 $2.90
selves. Some are very modern, air conditioned facilities and
Phard-1,700,000 $2.80
goods
highly automated; others are very basic.
Q gifts 5,000,000 $1.90
Management oft en wants to compare companies based
R apparel 3,400,000 $1.55
on percent to net sales. Percent to net sales can be a dangerous
S gifts 650,000 $1.45
measure to compare because of the wide range of average
order values in this industry. However, the average company
T apparel 5,200,000 $1.40
is in the range of 3% to 5% of net sales.
U gifts 3,000,000 $1.10
Using this range of values and determining where you fi t
Average $4.33
within this range can point out areas where you might want
Source: F. Curtis Barry & Company Benchmarking and ShareGroup data. The
illustration shows 20 direct companies back end fulfi llment expenses including to focus att ention. If you are approaching “Best in Class”
direct and indirect labor, occupancy, packing materials. All companies average
between 1.5 and 2.5 items per order. Total Warehouse Costs Per Order does not
numbers, you might want to consider investing your time
include shipping costs or any offset from shipping and processing revenue, which
would distort the cost per order. While external benchmarking will give you valu-
and att ention on other areas where that investment would
able insight into other’s practices, the best benchmark is against yourself.
yield a greater return on your investment. If you fi nd your-
self at the higher end of the range, there are possible cost
While external benchmarking will give you valuable insight
savings available.
into other businesses productivity and practices, it’s always
All of the variability in these external metrics doesn’t
best to develop work standards that apply to your business
make comparability invalid. You just have to get behind
type, product type, level of warehouse automation, labor rates,
the numbers and understand their basis. Additionally, by
etc. Th en benchmark against yourself – meaning to continu-
exchanging benchmarks and touring other’s facilities, you
ally compare your productivity against standard to your actual
learn a great deal about how others gain effi ciency, provide
performance by week, month, season and year.
customer service and apply best practices.
Continued On 34 whwytriright
32 May 2009
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