Logistics Optimization

In this article, I have collected what I think is most important about the order flow to the customer. This is based on experiences from the development of several e-commerce sites. See this as tips and advice along the way, but everything must be adapted to your business and your type of goods.

Different solutions for managing the flow of goods behind an e-commerce site are often suitable in different phases of an e-commerce site's development. It depends a lot on the volume you have and the type of goods you handle. The larger the volumes, the higher the demands normally placed on the flow of goods. Other important factors are the number of orders per day and the number of goods per order.

If you are in the investigation and analysis phase before starting e-commerce, it is often difficult to know the parameters above and therefore you have to work with forecasts. It is usually better to build the solution for a larger flow than what will actually be, otherwise the risk is that you will not be able to handle the situation if you exceed your forecasts. However, it is not good to over-inflate the forecast and try to build the “ultimate” solution right away. The reason is that this can easily become too rigid for a small business, without benefiting from the volume benefits that the solution has. There is also a risk of optimizing things that do not need to be optimized. Important parameters for a volume forecast are:

1. Number of SKUs (Physical unique products that are active in the system)
2. Number of PCS (Number of copies in stock)
3. Number of customer orders / week
4. Number of SKUs / customer order
5. Number of PCS / customer order
6. Number of customer orders / day at peaks
7. SKUs in stock
8. SKUs that are made to order
9. SKUs that require work, e.g. weighing and measuring

In simple terms, you can say that 1, 2, 7 and 8 control how large the stock must be. If the ratio between 8 and 7 is high, this means that a large part of the range must be ordered from the supplier and stored in order to be able to deliver a customer order. This entails quite a lot of work in addition to the actual picking and packing of customer orders. Therefore, consider the time for this handling. The handling time also needs to be taken into account for point 9. Points 3, 4, 5 and 6 are described in more detail in the paragraph below.

Pick and pack

Normally, the nature of customer orders varies most between B2B and B2C. B2B usually has orders with many order lines and a lower number of orders per day, while B2C usually has the opposite. If your forecast is a few dozen orders per day with about ten order lines per order, a very simple process where each order is handled one by one will probably go a long way. As the expected number of orders increases, streamlining the pick and pack process will become increasingly important and will be able to increase the profitability of the business. If you continue to look at orders with about ten order lines, it is appropriate to really start thinking about the process when you reach 50-100 orders per day. Over 500 orders per day, a very developed process is required. Below is the most important thing in an efficient process for larger volumes and fast deliveries. The list is prioritized, so the top should be implemented first and the bottom later.

1. Products should be located in storage locations that are in the system. You should not pick by item number, but have location codes that reflect how the warehouse is built. Products are then placed in one or more locations and picking lists are made based on the locations.
2. Picking lists should list what is to be picked in order of movement. This means that there is a clear route for a picking round and that you never have to go back to pick something up.
3. A picking list should be a collection of several customer orders, which should also be in order of movement.
4. It is then necessary to adapt picking carts so that it is easy to keep track of which goods belong to which order.
5. Divide picking and packing into two different steps, where packing clearly takes place when picking is complete.

Create a good structure for what is packed for which forwarder so that it is quick and easy to get the day's order ready before the respective forwarder comes to pick up the package.

If each order has a lot of order lines, the need for multiple order picking is reduced, as it is probably not possible to pick many orders at once anyway. However, on B2C sites, it is not uncommon for 15-20 orders to be picked in one round.

In addition to the points above, there are a number of other optimizations that can be made. Some examples are:

• Optimize goods with a high picking frequency to the most quickly picked warehouse locations.
• Introduce buffer locations to picking locations so that it is possible to replenish the picking location from the buffer location when the balance at the picking location starts to get low.
• Optimize how products are located in relation to each other. Similar products should be spread out to reduce incorrect picking. It is better to mix different colors next to each other than to mix different sizes; it is easier to quickly distinguish between red and green than size 38 and 40.

Manage discrepancies

Introduce good routines for how discrepancies should be handled, here are some common cases:

• If the actual balance is lower than the balance in the system or if an item is defective and this means that the order cannot be picked in its entirety.
• Decide early on how backorders should be handled and whether they should be handled equally across the entire range. In some industries, there is no possibility of replenishment from the supplier, which means that you want to avoid receiving orders for items that are not available at all. This model places some demands on the solution in order to effectively prevent more copies from being sold in any channel than are available. If you instead have items that can be delivered again from the supplier, it is more a question of balancing shipping costs and customer service for when backordering of missing items should be done in order to have what is available delivered and then at a later time deliver the remaining items.
• Many payment methods are divided into a reservation when placing an order and the money being deducted when delivery occurs. This makes it important to have a process in place to stop the delivery of an order if the money cannot be withdrawn when the order is fully packed and ready for delivery.
• For payment methods that are advance payments, such as bank direct, it is important to correct the debited amount against what was actually delivered in the event that some goods could not be delivered. However, this is not as time-critical and can therefore also be done after the order itself has left the warehouse.

In addition to this, there are a variety of ways to streamline other parts of the logistics for an e-commerce site such as deliveries, replenishment, complaints and returns. Always try to optimize the different flows so that they fit the business's ambitions to grow stronger in the market.