What’s Included in Pick and Pack Fulfillment Costs
by Staci Americas on Nov 21, 2023 10:00:00 AM
When you partner with a fulfillment company, a great deal of work moves from your plate to their plate. But you’re footing the bill for those services and, therefore, should understand pick and pack fulfillment costs in order to assess the ROI of that relationship.
That said, pick and pack pricing can be a bit of a black box. In this article, we'll take a peek inside the box. We’ll examine the make-up of pick and pack fees and what they entail. By understanding these pricing details, you’ll be in a better position to assess how well your fulfillment provider is working to reduce your costs, particularly your labor costs.
What do pick and pack warehouse fees include?
The pick and pack process involves a series of actions that go well beyond just “picking” a product off a shelf and “packing” it in a box. These order fulfillment functions, include:
- Receiving and processing the order in the warehouse
- Preparing the picking sequence for the greatest efficiency
- Picking and scanning ordered items at the storage location
- Updating inventory in the system
- Taking items to the pack station and preparing the box/bag for packaging
- Inserting products and packaging materials
- Labeling the package, if this is not automated
- Inspecting the order prior to shipment for quality control – order accuracy, correct packaging, correct labeling
- Sealing the box and staging it for the parcel carrier
That’s a lot of steps. Fulfillment providers must account for all of them in their pricing for pick and pack fulfillment. Depending on your situation, pick and pack processes can be even more complicated and time-consuming. One example is kitting – the process of taking multiple SKUs and combining them into a single package to create a new SKU. Complex kits may involve up to 20 different products – a labor intensive task.
To cover costs, a fulfillment company must account for the time involved for each function. They should have a very good idea of how many seconds/minutes each function takes and be able to calculate total labor requirements based on these time standards.
Using your total order volume and the calculated labor to process an order, the fulfillment company will arrive at a set labor charge per order. Once the contract is executed, they will bill you according to the straightforward math of order and item quantities, and these rates will be set within the contract.
Managing your pick and pack costs
The three major components of pick and pack fulfillment costs are warehouse space, labor and parcel shipping. The biggest cost component is shipping, so you’ll want to do what you can to reduce parcel shipping costs. It can help to ship under your fulfillment partner’s parcel contract, since the 3PL can leverage its aggregate freight spend to secure lower rates.
In the warehouse, labor is your most significant cost, so you’ll want to work with a fulfillment partner that can control this aspect of pick and pack warehouse fees. To stay on top of these costs in an outsourced fulfillment model, here are some key questions you'll want to know about your pick and pack fulfillment partner:
Are they leveraging automation to improve pick efficiency and reduce labor costs?
There are many levels of automation, all the way up to fully automated warehouses where robots do the picking. Automation works best in situations with highly repeatable tasks. The extent of warehouse automation deployed will depend on a variety of factors, including volumes and order profile.
You want to make sure your provider is leveraging automation appropriate to your order volumes to keep pick and pack fulfillment costs low.
Low-level automation for any size operation
Some technology, like tape machines and box erectors, have a relatively low capital cost and deliver a quick ROI. Box erectors can reduce labor costs by 70%. Likewise, tape machines offer huge efficiency gains and avoid the awkward and often messy process of hand taping boxes.
If you ship in bags, an automatic labeling machine like the one pictured here, can result in a 2- to 3-fold productivity increase and a very rapid ROI – sometimes less than a year!
Tech-aided picking for higher volume operations
Higher-volume fulfillment operations are more likely to employ technology-aided picking processes that both control labor costs and increase accuracy, such as pick-to-light picking technology and voice picking.
Robot-powered picking for high-volume, high-turn fulfillment operations
Autonomous robots can double and triple throughput with the same number of people. In a manual environment, pickers can spend more than 50% of their time walking – as much as 8 miiles a day – between pack stations and the aisles where products are stored. Robots eliminate all that non-productive travel time and allow pickers to remain actively picking in one area. Robots bring orders to them and take the orders back to the pack station when picking is complete.
Bottom line: you want a fulfillment partner who is constantly performing critical assessments and suggesting these types of productivity drivers to you.
Do they have an RF-enabled warehouse management system (WMS)?
A full-featured WMS is pretty standard for top fulfillment companies, but there are still providers out there who work manually. A modern system is critical because it streamlines the picking process and greatly reduces your labor costs.
- The right system can combine multiple orders in a single “wave” that allows order pickers to go to one area of the warehouse to pick multiple orders, reducing travel time and maximizing efficiency.
- Data, such as order history and SKU information, can help fulfillment center operators organize their inventory to minimize space requirements and reduce travel time through the use of warehouse slotting. Smart slotting strategies include placing fast movers within easy reach, locating items that often ship together next to each other, balancing picking activity across multiple aisles to avoid congestion, and adjusting choice locations based on seasonally popular or promoted products.
- Scanning technology can record actions in real time and eliminate manual work.
- Data can be easily shared with other systems, including the customer and carrier partners.
- Most top fulfillment providers will offer a web view to the system, providing real-time inventory and order status.
Bottom line: an advanced warehouse management system is necessary to minimize your pick and pack fulfillment costs.
Do they use productivity standards?
For brands that rely on a 3PL for order fulfillment services, productivity standards in the warehouse play an important role in determining the labor portion of pick and pack fulfillment costs.
Some of the most common pick and pack productivity standards in a fulfillment warehouse include the number of pallets that can be put away each hour, the number of lines that can be picked per hour, the number of lines that can be packed per hour, and the time required to build a particular kit.
Poorly calibrated assumptions about productivity can lead to inaccurate pricing, so you want to make sure your fulfillment partner is accurately assessing and measuring productivity. Do they have engineered standards for how long certain processes should take? Have they established standards? Do they measure performance systemically? How do they address the low performers?
Fulfillment centers that establish productivity standards and stick to them will strengthen their operations in a variety of ways.
- Improved ability to plan labor requirements – the use of standards bring a higher level of insight into the productivity in a fulfillment center, helping to better plan workforce needs.
- Smart technology investments – without clear productivity guidelines, warehouses may inadvertently invest in technology they don’t need or miss the boat on technology they do need.
- Higher profits. This comes from an ability to handle the same volume of work with fewer people because of a better understanding of throughput potential.
How well do warehouse workers respond to having clear expectations for productivity? Remarkably well. Studies have shown that associates, once informed of a target, usually want to meet or beat it. That probably explains why facilities that establish and monitor pick and pack fulfillment productivity standards can usually increase productivity by 10–15%, depending on order volumes.
Do they retain their workers?
Retaining warehouse associates, especially in tight labor markets, is critically important to keeping pick and pack warehouse fees in line. In fact, there is nothing more crucial to limiting labor expenses than having a stable work team. Through our 30+ years of experience running fulfillment warehouses, we have determined that the estimated total cost of losing a productive associate is at least $10,000. In an industry where annual turnover of warehouse workers approaches 50%, Staci Americas has driven that number below 20%.
Why is excess turnover such a cost driver? Training and onboarding new workers takes time, resources and money. It takes many months for a new hire to reach a similar level of productivity vs. a more experienced associate. In a high-turnover environment, you need many more people for the same throughput.
Brands rarely ask fulfillment providers about their turnover rates. But maybe they should.
The Big Picture
You can think of pick and pack fulfillment costs like a parking meter – you only want to pay for the time you need. The right fulfillment partner will employ some of the technology and strategies we’ve outlined to minimize your pick and pack labor costs.
No Comments Yet
Let us know what you think