The Real Cost of Shipping Errors

Gary Patterson, President of the 3PL Tagg Logistics said it best:

“Because it is the last link in the supply chain, and in many cases, the only direct contact with the end customers, the order fulfillment process can make or break your reputation as a customer-focused provider.” (quoted with permission)

Acceptable Error Rate

Mistakes happen. Is there an acceptable error rate? If so, what is it? There is no simple answer to this question. Approaching it from a slightly different vector: what is the cost of fulfillment errors?

One WMS company claims that the average industry picking error rate is between 1% and 3%. This sounds like a very low rate but let us go with it. At an average of 2%, the real monetary losses can be significant, and depend on several factors:

• The cost of fulfilling orders—done correctly or incorrectly, you pay people to assemble the shipment. This is a cost—even when the accuracy is 100%.
• Mistakes cause lost sales for a variety of reasons. A primary reason is unavailability of inventory. Secondary causes include customer dissatisfaction.
• The cost to return incorrect items or overages
• The cost to ship the right items which could be more than redundant if expedited shipping is required
• Chargebacks to cover extraordinary costs such as…
• Relabeling or repackaging
• Lost time

Business Hates Surprises and Uncertainty

The impact of these factors varies based on specific factors of the shipment:

• The retail value and supplier cost of shipment items
• The cost of shipment (volume, weight and delivery schedule)
• Contractual obligations, stipulations and penalties

An error can erode profit margin significantly. Businesses hate surprises and uncertainty: hype-sensitive, selfish customers, brief product “fashionability”, supply disruptions caused by natural disasters or political unrest, uncertain or changing international trade regulations and tariffs. Such surprises are largely uncontrollable—but fulfillment accuracy is almost completely within the control of any diligent organization. We don’t believe there is any acceptable error rate.

Overage Errors are Often Undetected

Although expensive to correct, wrong or missing items in a shipment are relatively easy to detect. More difficult are overages—not because they are harder to detect, but because they often go unreported.

Eliminating shipping errors can be inexpensive and highly effective. While automation claims to be the best solution, the payback can take years and they are not always 100% effective. Better tools in the hands of warehouse personnel is an effective and affordable solution that pays for itself many times over.

Better fulfillment utilizes a barcode matching system, making sure the barcode on the work order is identical to the barcode on the item. Programming the scanner to remember the barcode is quick and easy. A match or mismatch is instantly detected and reported. Such devices are small, rugged and inexpensive.

A full range of barcode match devices is available, from downloadable software and pre-packaged devices to customized systems that can use the captured data to print labels, populate report spreadsheets, and perform myriad specialized functions limited only by the specific needs and imagination of the user.

Comments are invited.