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Cliff Holste is Supply Chain Digest's Material Handling Editor. With more than 30 years experience in designing and implementing material handling and order picking systems in distribution, Holste has worked with dozens of large and smaller companies to improve distribution performance.

Logistics News

By Cliff Holste

November 14, 2012



Escalating Order Fulfillment Costs Driven by Higher Frequency of Small Orders

Can Automated Picking Solutions Bring Relief?


According to recent surveys, most consumer wholesale and retail operations are seeing a trend toward smaller customer order size while at the same time experiencing a significant increase in order frequency. This trend is forecasted to continue and with it businesses can expect to see a higher order fulfillment labor component.

Relative to B2C orders this trend is for the most part being driven by Internet and catalog purchasing. For chain store operations it appears that store managers, who no longer have sufficient space to accommodate the proliferation of products, are placing smaller orders more frequently. POS systems provide the ability to easily adjust and fine-tune reorder triggers.


Holste Says:

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A major component of an efficient supply chain is moving product with a minimum number of touches..
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With no, or extremely low, shipping charges, and very liberal return/exchange policies, consumers (especially when buying through a catalog or over the Internet) are not concerned (or burdened) with the frequency of their purchases. Aside from the obvious cost implications, this is considered a good thing by most businesses these days looking to take full advantage of promotional and impulse purchasing.

At the store level, managers are being forced to carry more products within the same sales space. The squeeze is on and becoming very obvious to in-store shoppers who must navigate narrower aisles and access more tightly packed shelves. This is as much a resource issue as well as a space issue. With reduced operating budgets, mangers don’t want store personal stuck in a constricted backroom doing operations that can be done more efficiently upstream in the supply chain.

The consequence at the DC of smaller more frequent orders can be huge. As an example, one VP of Operations described a situation where an existing customer ordered standard 12 packs last year, however this year all their orders are for 6 packs. This one simple change increases the case handling volume from 40,000 to 80,000 thereby increasing the logistics handling & shipping costs for both parties.

The trend also forces many DCs into more labor intensive discrete order piece picking methods where they had previously been able to take advantage of full case batch order picking and automated sorting system operations.

The Business Case for Picking Automation

A major component of an efficient supply chain is moving product with a minimum number of touches. Therefore, it makes good logistics sense to produce and package product at manufacturing plants so as to optimize the order fulfillment process.



For example: In a DC where two thirds or more of products purchased are in less-than-full-case quantities, those individual items must be picked and packed manually before they leave the DC. Producing smaller inter-pack quantities at manufacturing would greatly reduce the number of touches required to process orders at the DC. In fact, given the on-going advances in automated picking technologies, picking more inter-packs would enhance the justification for automation.

There is, of course, a large variety of automated picking solutions being offered by system providers.


The challenge is adopting the picking technology the best fits the business model. While the traditional batch picking and automated sorting model has worked well in the past, the trend toward smaller more frequent ordering pattern favors a discrete order picking model. This is the reason a growing number of companies are investing in the development and deployment of alternative automated discrete order picking solutions such as A-Frames, which have actually been available for quite some time but are now experiencing a renewed interest.

By applying emerging automated picking technologies with advanced software systems companies can achieve high levels of operational flexibility and productivity. By adopting automated picking solutions, the order fulfillment labor component is greatly reduced while the modularity and scalability of automated solutions lowers the initial cost and therefore, further enhances its appeal.

However, some caution must be taken here so as not to increase manual replenishment cost to the point where it may offset any real savings gained in automated picking.

Logistics companies who are seeing their per piece handling costs trending upward should take notice that a large variety of automated piece picking and case picking technologies will be on display at ProMat 2013 (Jan. 21 thru 24).


Final Thoughts

There is not much any individual company can do about trends in the marketplace that impact on their cost of doing business except to develop and deploy more cost effective solutions. As it relates to warehousing and distribution, emerging technologies such as automated picking and AGVs equipped with robotics and GPS vision guided systems are the most up-to-date developments to combat escalating order fulfillment cost.

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