Home' MHD Supply Chain Solutions : MHD Jan-Feb 2015 Contents According to a recent NAB survey,
Australia's online retail spending
increased by 6.4% to $15bn p.a. in
2014 and represents 6.6 % of traditional retail
spending. The Australian Bureau of Statistics
estimates that more than half of this online
spending goes on imports from overseas.
In order to remain viable in competing against
overseas suppliers, it is important that Australian
retailers are able to provide high service levels
and a competitive and rewarding brand experi-
ence for their online customers. Once an effective
website to enable online business has been estab-
lished, the next challenge is the fast and efficient
fulfilment of orders from a distribution centre.
This article seeks to highlight the challenges
that online orders present to distribution centre
managers and sets out a range of solutions and
options to productively deal with them.
Why is fulfilling online
orders so challenging?
Online businesses are often characterised by
many, if not all, of the following:
• Many small orders.
• High number of SKU.
• High percentage of returns.
• Special packing requirements.
• Fast response time requirements.
Why do these issues make online order fulfil-
ment more challenging than, for example, store
1. Many small orders
In terms of picking productivity, picking small
orders is generally less efficient than picking
large orders. This is because the travel distance
between picks tends to be greater for small
orders than for large orders. For example,
unless a special technique such as batching
or goods-to-person is applied, picking 10,000
two-line orders will take on average significantly
more effort than picking 100 orders with 200
lines. In both cases the total task is 20,000
order lines, but the smaller orders will be less
efficient to pick.
2. High number of SKU
In many online businesses (but not all), a key
driver for success is the range of products that
can be purchased through the online channel.
If a high number of SKU are stocked in the dis-
tribution centre, this will exacerbate the inherent
inefficiency of manually picking a large number
of small orders, by further increasing the travel
distance between picks. If particular SKU are
brought in from third parties, the incoming
products must be sorted to order. Because the
number of daily orders is typically very high, this
is not a trivial task.
3. High percentage of returns
A key incentive for customers to buy over the
internet when they cannot physically see, touch,
taste or try a product is the ability to easily
return the product if it turns out to be some-
thing other than what they expected. While this
approach provides a key benefit to the customer
and is often a prerequisite for online buyers, it
can create major headaches for the distribution
centre. The receipt, identification, evaluation,
sorting, repacking, restocking and crediting of
returns can be both labour and space intensive.
4. Special packing requirements
Because online orders are typically small, they
are often despatched in post packs, satchels
or small cartons. While picking directly into the
despatch unit provides 'one-touch' efficiency,
this is often not practical with small online
orders, and therefore a separate packing facility
is required. Moreover, many online suppliers
offer special services such as gift wrapping or
personalised messages to be included with the
product. These additional touches, while import-
ant for the 'customer experience', come at a
cost to efficiency.
5. Fast response time requirement
In this case, response time refers to the time
between receiving an order from a customer
and despatching it from the distribution
centre. A key differentiator for online
suppliers is often speed of delivery, with the
benchmarks in this respect becoming ever
more demanding. While techniques such as
batching small orders together can certainly
increase picking efficiency, which is discussed
below, the creation of large batches can also
reduce order response times, and may be
incompatible with operations where same-day
despatch times are required or where a
multitude of cut-off times need to be applied
to suit different courier services.
How can these challenges
be dealt with effectively?
1. Batch orders together
One of the simplest ways to compensate for the
inefficiencies of picking small orders is to batch
them together for the purposes of picking. Of
course, the items will then need to be sorted
back into separate orders again, but there are
several techniques to do this, which are dis-
While most modern warehouse management
systems have functionality for batching orders
together, there are still many factors to be con-
sidered in determining the optimal batching
strategy. For example, should all items of the
same SKU be batched together, or should
multiple orders containing different SKU be
batched together? What should the size of the
A. Batch by SKU
Batching by SKU means that orders are batched
together such that, during the picking of that
batch, each SKU location is visited only once.
This provides an enormous boost to picking
productivity by maximising the quantity per pick
and, assuming the SKU to be picked are sorted
by location, minimising the travel time between
picks. The larger the batch, the greater the gain
in picking efficiency. Typically a picker can take
a trolley or dolly with several empty tote bins
and move from one pick location to the next,
scanning for accuracy and filling each tote to
maximum capacity as they go.
EFFICIENT FULFILMENT OF
ONLINE ORDERS IN THE
MHD SUPPLY CHAIN SOLUTIONS --- JANUARY / FEBRUARY 2015
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