This is why most of your SKUs may NOT be handled in the most productive way.

Now, first, let me qualify the 40% statistic, because I know what you’re thinking.  How can we know this?

Well, the short answer is that, before implementing skustream, whether it’s a single site implementation or a network roll-out, we always complete what we call a strategic opportunity assessment (SOA).

If you want the full story behind why a strategic opportunity assessment is so important, even if you weren’t planning on investing in new technology in the near-term, I’d encourage you to click here and bookmark the page for later.

The full list of benefits aside, one of the most important and telling insights that a supply chain executive will get from an SOA report is the “Optimization Level” of the operation.  Remember, our SOAs are done with real operational data – at the item level – so, even though the final report is only a snapshot of analysis from a specific period of time, it provides a very detailed slotting assessment of how many items are currently stored within their most productive slot type.  This assessment is then encapsulated in a simple, fundamental metric: Optimization Level percentage.

So, when we say that the vast majority of operations are consistently running at 40% optimized – most without even knowing – we’re talking from experience.

As our SOA reports also quantify the financial impact that the sub-optimally slotted items have on an operation, I can confidently tell you that if you’re operating at 40% optimized, your level of annualized financial waste could be in the mid 6 figures… per facility! Surprising, right?

Well, what if I told you that it’s not THAT surprising.   Let’s look at the numbers.

Now, I know it may seem like you’re making 13.6 million decisions a day between your inbox, meetings and even what you’re going to have for lunch, but really think about that for a second.  

13.6 million decisions per day in order to properly optimize productivity and capacity utilization.

Without the right tools at your disposal, it truly is impossible.  

And we’re not just exaggerating to make a point.  Let me explain.

SKU Variety

Our case study used a very conservative number of 10,000 active SKUs.   Of course, the higher number of active SKUs, the more new and existing items will require slotting each and every day.  And that’s not all.  The more SKUs you have on hand, the more likely you’re going to be dealing with the effects of seasonality and a wide variety of item characteristics.  Lastly, the more SKUs you have, the longer your tail of pesky slow-moving items generally is, and we all know the importance of slotting those items appropriately.

Item Considerations

In a case pick environment, no slotting strategy is without its item-level considerations, though these strategies do vary quite a bit in terms of the priority level of each of these considerations – retail merchandisers and food safety managers know what I’m talking about.  At the end of the day, most environments, at the very least, will consider weight, crushability, vendor pallet configuration, packaging type, allergens, hazardous materials, and even retail store planograms.

If item considerations are not taken into account or are overlooked (perhaps even unknowingly) it can result in product damage, unsteady pallets, low selection and forklift productivity and it can even cause serious safety concerns when it comes to food allergen compliance, handling of hazardous / flammable materials and selection personnel handling heavy cases from non-ergonomic positions.

Activity Variables

It doesn’t stop there.  Item activity also needs to be considered.  Granted, unless you’re in an unusually seasonal operation, most of your items are not going to be overly volatile in terms of shipping volume; however, only a small portion of them have to be in order to wreak havoc on operational efficiency, especially if your operation employs a fast/slow slotting concept with a specialized strategy surrounding how overly fast and overly slow items are handled.  Remember, your inventory control team is not just having to consider activity variables alone, they are considering activity variables in addition to item-level considerations.  After all, there’s no sense in moving a fast-moving item to a larger pick slot (cutting replenishment tasks) if the item is going to get crushed on the pallet every time it’s picked.   And, if you think, bringing more product on the floor is the answer, think again.  Over 50% of your direct labor cost is order selection, and a large part of that is selection travel.  The more unnecessary large slots you have, the further your order selectors will have to travel each and every order.

Exhausted yet?  Let’s continue.

Material Handling Systems

Moving beyond item characteristics and activity variables, if that wasn’t enough, your users still have to evaluate where an item should and can be stored. In an empty facility, this isn’t too bad, but I think we can all agree that this is never the case.  Capacity constraints are one of the most common complaints among warehouse and distribution professionals.  Most operations have multiple slot type options – some big, some small, some palletized, some non-palletized – and that’s not even including automated modules.  Let me tell you, if you want to see a return on that new pick module, you better make sure you’re using it with the right items.  Have you ever noticed layers being removed from an inbound pallet for no good reason on the dock or are you seeing an increase in replenishment tasks for specific items?  If you’re smiling right now as you read this, you get the point.

Selection / Storage Zones

Now, as if those irritating capacity constraints weren’t enough, your inventory control personnel don’t just have to isolate the best material handling option, they have to isolate the best material handling option within the designated system pick break.  These pick breaks usually are usually put together to keep certain products together (or apart), ensuring pallet stability, separating fast/slow items, segregating customer types (or customers), etc.   In a case pick environment (even if you’re not in a highly complex product environment like grocery, pharmaceuticals, or electronic components (to name a few examples), your inventory control personnel are on the hook to ensure products are stored within the designated racks.  What if I also told you that not only the count of items within a specific system pick break but also the velocity of those items had a very big impact on both selection productivity and dock productivity? 

Consider this example of a poorly managed fast/slow slotting concept.  By the way, this is a very common problem among operations without a fulfillment optimization system.  A fast/slow (or high/low hit rate) slotting concept relies on items being slotted appropriately based on velocity, obviously.  If there is no consistent detection method, slow items find their way into the fast-moving zone and fast-moving items find their way into the slow-moving zone.  A single high-hit item (appearing on the majority of outbound orders) slotted within a low-hit area is capable of wiping out the benefits of a fast/slow slotting concept singlehandedly.

So, with all of these variables to consider for each and every item, each and every day, it’s easier to believe that only 40% of your active items are being handled in the most efficient and productive way, leaving a significant amount of money on the table and not in your annual budget where it belongs.

If this article resonated, I would encourage you to read more about skustream, our fulfillment optimization system, and consider a strategic opportunity assessment as a potential next step in your journey to finally break free of the status quo and eradicate waste once and for all.

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