How Picking Errors Steal Your Money

Do you know how much picking errors cost your business?

According to the Swedish Trade federation, the cost of faulty picking per item is 1,850 SEK (€195).

But they’re wrong. The real figure is many times higher because 1,850 SEK only accounts for the direct costs – and there is so much money people don’t consider when analysing the effects of a simple picking fault.

Picking errors have far-reaching consequences…

At a recent Consafe Logistics user conference, we analysed the total cost of picking errors and found that a 0.2% difference in accuracy, the difference between companies that registered 0.72% picking faults contra 0.52% picking faults translated to a 5 million SEK (€500,000) greater loss.

One picking error results in a hassle-filled and expensive process for everyone involved. Here are typical scenarios:

You Your Customer
  • The Salesperson registers the customer complaint
  • The complaints department investigates
  • Warehouse sends new goods
  • Warehouse processes returned goods
  • Finance pays extra shipping costs
  • Finance issues the customer a credit note
  • Company loses revenue from overdue invoices
  • Complains to the salesperson
  • Deals with follow-up from the complaints and finance departments
  • Has to spend more getting an immediate replacement if they can’t wait for a replacement
  • Loses revenue because they’re unable to fulfil demand when needed
  • Has potential cash flow issues from their overdue invoices

Each of these points carries a direct cost and an opportunity cost for you and your customer.

…And they can cost you millions

Consider the customer experience outlined above. It doesn’t inspire feelings of satisfaction, does it?

In today’s connected world, picking errors cost your business in terms of loyalty, brand image and potential negative publicity, be it online or word of mouth. And these intangibles have a very real impact on your bottom line.

Let’s go back to our 5 Million SEK and where it came from:

Picking faults 0.72% 0.52%
Order lines per day 6,270 6,270
Order lines per month 131,670 131,670
Faults per year 11,340 8,316
Faults per day 45 33
Average cost 1,850 SEK 1,850 SEK
TOTAL COST 20,979,000 SEK 15,384,600 SEK


So how do you reduce picking errors?

Firstly, you need to have accurate measurement. Don’t just look at replacement and shipping costs – consider the entire chain.

Then start at inbound goods and work through to exit, analysing potential error points throughout your inbound and outbound flows.

At inbound, can you introduce scanning to improve processing through to put away and beyond? This gives you added traceability from the moment the product enters the warehouse.

For picking, what systems can you implement to boost accuracy? Consider voice control that guides workers on where to go and what to pick. Or RFID tags that enable you to track each item’s precise location in the warehouse.

Then you have your outbound flows. During packing, can you use smart scales to verify accuracy based on weight? And scanning on dispatch to provide a final check before exit.

When you take a holistic look at warehouse operations, you can perform an accurate cost/benefit analysis to make sure you’re investing in the right systems. This enables you to offer better service and more value to customers while protecting your business from the costly effects of a simple picking mistake.

 


Thord Sjölin is a Business Process Expert at Consafe Logistics
Joakim Gustafsson is Business Relations Manager at Consafe Logistics

 

2017-06-09T15:55:33+00:00 June 9th, 2017|Article, News|