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From SCDigest's On-Target E-Magazine

- Aug. 20, 2013 -

Supply Chain News: New Voice Value Calculator for E-Fulfillment

Enables Potential Voice Users to Gauge Impact from Voice Deployment on E-Commerce Costs and Profitability


 SCDigest Editorial Staff

Voice technology in distribution continues to be hot - now a mainstream solution used in thousands of DCs.

SCDigest Says:

That, however, represents a relative improvement in profits of 31.7% - enough to get any executive's attention. Where else is a single initiative likely to create that level of profitability increase?
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Voice is also gaining a lot of traction specifically in e-fulfillment operations. The reasons for that should be clear: many e-commerce operations are barely in the black or even losing money - sometimes big money. Voice can often help at least partially reverse that tide.

Even, for examples, struggles with making a profit most quarters, losing $7 million in Q2 of this year, as an example. While most traditional retailers do not yet break out e-commerce results, word on the street is that many of them continue to operate in the red.

e-fulfillment costs are a big reason for that challenge. As shown in the chart below, perhaps somewhat surprisingly fulfillment costs have been rising steadily at Amazon, from 8.2% of sales in 2010 to 10.2% in 2012 - and these costs do not including shipping costs. Every percent rise in those costs takes a percentage point off the bottom line.

But the hands and eye-free nature of Voice technology can often substantially improve DC productivity - 15% or more in many if not most cases.

This is especially true for e-fulfillment, because by definition the DC order profile for e-commerce is heavily if not completely tilted towards "eaches" picking, which is the most expensive kind of picking in terms of cost per unit by a wide margin versus case or pallet picking. Order accuracy also plays a key role in Voice adoption.

SCDigest editor Dan Gilmore and Jay Armant, VP of product management at Voice solution provider Vocollect, recently talked about the drivers and benefits of Voice in e-fulfillment in this recent Supply Chain Thought Leaders video: Role of Voice in Reducing e-Fulfillment Costs.


Amazon's E-Fulfillment Costs Continue to Rise


As part of that discussion, SCDigest has developed a new calculator to estimate the potential impact of Voice on e-fulfillment costs and e-commerce profitability

(Distribution/Materials Handling Story Continues Below )


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The simple, free and downloadable spreadsheet asks users to fill in some data relative to fulfillment costs as a percent of sales, percent of labor as percent of fulfillment costs, anf the expected reduction in labor costs as a percent from adopting Voice.

New Voice Value Calculator for E-Fuflillment



Companies are also asked to enter their current level of e-commerce profitability - or loss - as a percent of revenue.

From there, the calculator will compute the percent reduction in total fulfillment costs, the improvements in profitability in terms of percentage point changes and also in percentage terms (two different things).

In the default example in the calculator, for instance, the data works out like this:

• E-fulfillment costs as a percent of sales: 11%

• Labor as a percent of fulfillment costs: 48%

• Expected labor productivity improvement from Voice: 15%

• Current e-commerce profit margin: 2.5%

With these numbers:

• Total fulfillment costs drop 7.2%, to 10.2% versus 11% before

• Net profits would improve by .8%, from 2.5% to 3.3%, in absolute terms

That, however, represents a relative improvement in profits of 31.7% - enough to get any executive's attention. Where else is a single initiative likely to create that level of profitability increase?

"The great thing about this tool is that a potential Voice user can play around with the numbers to see the sensitivities," said Gilmore, who developed the tool. "So, what if for some reason you only achieve a 10% productivity gain - do the numbers still look good in terms of impact? I suspect usually so, but these are the kinds of what ifs you can perform with this simple tool."

Gilmore added that "Of course Voice can drive a lot of value in almost every sector, but we thought it would be good to develop a tool that focused specifically on e-fulfillment, given the heavy focus there now and the challenging profitability landscape."

The spreadsheet can be download here with log in or new registration: Calculator to Estimate the Potential Impact of Voice on E-Fulfillment Costs and E-Commerce Profitability.

Did you try the calculator? Let us know your thoughts at the Feedback section below.

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