By Curt Barry
Many businesses are being asked to cut cost and save money within their current operations. And in today’s world market it is even more important than ever to find way to improve the company’s bottom line, many are being asked to reduce costs or better yet, increase productivity and efficiency and lower cost at the same time. Here are 11 cost saving ideas to consider.
INVENTORY
Backorders
One of the top customer inquiries and complaints is “Where is my backorder?” The backorder not only costs customer service the time to answer the inquiry, it also costs to ship the product once it arrives in the distribution center. With the cost of a backorder ranging from $7 to $12 per backordered unit of merchandise, it doesn’t take long for them to add up and those costs come right off the bottom line. Analyze backorders and improve the accuracy of inventory forecasting. The ROI occurs for a more advanced forecasting system in 12 to 18 months based on reduction in backorders and improved turnover. Customer order fill rate should be reviewed and improved without being out of stock or overstocked. Example of backorder costs: A typical catalog with a 20% backorder rate averaging two items per order processed 200,000 orders for a total of 400,000 units of merchandise. Calculated at 20%, 40,000 customer orders had backorders. Estimating backorder cost on the low end at $7.37 per order, the catalog will have to absorb $294,800 to make up for backorders.
CONTACT CENTER
Product training and Company Policy
Product training is becoming a complex undertaking as merchants are constantly searching for new product. With multi-title, multi-channel and a large breadth of SKU’s available, keeping agents informed of the latest product information is a challenge. Contact centers that provide regular product training through an established formal training program benefit when the customer places an order. Agents who are not well trained on the product will have to ask for assistance which can lengthen the call time. Large centers have a full time trainer. Public information shows that Cabela’s, the world’s largest outfitter, has 235,000 SKU’s online. Along with product training and product information, communicating important messages to agents is a must. Providing pop-up windows to agents at login time provides an effective communication tool to relay information on problem products and important company meetings. Using online features for customer company policies provides easy and fast access for agents.
Agent Scheduling
Scheduling agents in the customer contact center can be a very complex task. Contact centers do a good job setting a schedule based on projected call volumes and filling the schedule with available agents, but what happens afterwards? This is where a gap occurs between the schedule and what actually happened. Take time to review the original schedule against the actual volume of calls and agents that worked. This simple task will provide insight into effectiveness of the schedule. The ROI on scheduling software shows that those that have it see their costs lowered.
Call Monitoring
Monitoring agents and providing feedback on a regular basis is essential to maintaining optimum performance in the contact center. It also provides an opportunity for supervisors to hear what the customer is saying and how the agent interacts with the customer. The use of monitoring is helpful in determining agents strengths, weaknesses and overall efficiency. Monitoring feedback by the supervisor can be used for performance review to increase productivity. Monthly call monitoring by management and merchants is a great way to stay in tune with the customer.
Universal Agents
Universal agents, those that can answer order calls, respond to emails and handle customer service functions are an asset to your organization. These agents are capable of switching tasks as the workload requires maximizing their productivity. Utilizing universal agents, particularly at off-peak times, reduces the need for dedicated agents. A mix of universal and dedicated agents within the contact center provides a balanced workforce that reduces costs and increases efficiency. The use of universal agents makes it tough to track actual work performed and costs associated with each task for benchmarking purposes.
DISTRIBUTION
Slotting
An ongoing program of determining the correct picking slot locations is a must. Consideration should be given to product velocity (sales) and size (cube) in placing it in the pick line. Having as a goal the storage of at least one weeks average unit movement in the pick slot along with providing a variety of slot sizes should be a key focus.
Picking
As per Customer Review Center, there are many picking methodologies to choose from, batch picking, zone picking, pick and pass, pick to cart and pick to box just to name a few. By analyzing the type of product and the type of orders (single vs multi), the most efficient pick path processing can be created reducing travel time. Separating fast movers from slow movers and establishing a “Hot Pick” area for extremely fast movers should be considered. Picking rates range 115 to as high as 180 units per hour.
Packing
If you are not doing pick to box does your system have the capability to determine the box size for the packer? Is the pack station clean, neat and ergonomically setup? Is the appropriate dunnage inserted into each box? Where is the pack verify performed? These are just a few of the questions to look at when analyzing the pack area. Remember, presentation to the customer is as important as getting the shipment out of the door quickly. Packing rates average 35 to 40 per hour.
Inbound Freight
Inbound freight is one of the most overlooked areas for significant cost reduction in many companies. Multichannel companies often spend from 2% to 4% of gross sales on inbound freight. Most successful companies who have paid attention to inbound freight view inbound freight management as controlling inventory in transit. Since inventory is, in many cases, your largest asset, the management of this asset is critical to your business success. There is a growing trend to use freight collect rather than prepaid freight. Inbound freight should be bid out competitively often. Tracking inbound freight receipts and scheduling frees up the dockyard and provides the opportunity to schedule receiving personnel when needed.
Outbound Freight
One of the largest expense items that is always a primary target for cost reduction is outbound freight. With shipping carrier increases in the range of 3% to 5% annually, this is the first area to get questioned, “What can we do to reduce our shipping charges?” In a typical catalogue company, outbound freight ranges 8% to 12% of net sales. Competitively bid out outbound freight often to ensure the best pricing. Combining inbound and outbound freight with one carrier may produce savings. Many multi-channel companies use shipping and handling charges to offset the cost of outbound freight and package handling. Some have grown dangerously close to 20% of net sales.
Benchmarking – KPI’s
Benchmark, benchmark, benchmark. The best indication of how your operations is performing is through benchmarking. By developing a set of consistent and measurable Key Performance Indicators (KPI’s), you can measure your costs, productivity and efficiency. Once you’ve completed and analyzed your existing operation, you will want to compare yourself to accepted industry benchmarks. You want to avoid using general industry averages as those won’t be specific to your business in product type, size and customers. Many companies are utilizing management reporting online for critical KPI’s for contact center and fulfillment. You can’t improve activities which have not been measured.
