September 28, 2016
Our travels throughout 2016 have been more diverse than ever—a smorgasbord of learning due to the digital revolution currently underway. An area that caught the attention of Q5 in our travels is fulfillment centers. Sometimes these are dedicated buildings or parts of warehouses converted for the needs of fulfillment. The fulfillment sector has been and continues to be an excellent add-on to existing packaging companies. They provide an obvious advantage for clients in dealing with the packaging provider, removing an additional supplier from the value stream.
Unfortunately, having seen numerous facilities over the years, many companies think that fulfillment is an area with Rubbermaid tables for towers of pallets with corrugated on the top for a work surface. Heavy engineering tables are also not optimal due to their difficulty to move because they lack wheels, resulting in the requirement of forklifts to move them. Worse still, small teams push them around the floor in an attempt to get them close to where they are needed. Some facilities have moved to roller conveyors. Narrow, cheap roller conveyors that sit on the floor make it difficult to move or clean at the end of a job when undertaking line clearance or end-of-shift cleanup.
We also observe glue bottles resting on product and people looking around for them. Time is money, as they say, and fulfillment items are high-margin products. What is the true cost per minute of looking for glue? The glue station is a barrel on its side with corrugated sheets on the floor to make cleanup quick. One has to ask, “Why is there glue on the floor?”
Other common observations are:
- The floor manager of the area seems to work like a circus master, training new people in the work area and correcting noncompliance work—an endless task.
- In most centers, partially built work is everywhere.
- Line startup is slow, and work after lunch and breaks starts sporadically because people are not on station together.
- It’s difficult to know how many people are on the line at any one time or how many people you need before you start work.
Due to the nature of fulfillment and its changing needs, this is an area that must be set up for flexibility and speed. If, when complicated jobs come in, you simply throw additional people at the job, then this area is not set up for optimal workflow.
Now, as this work has been historically very profitable and remains so today, most facilities don’t allocate enough resources and time improving these areas. This scenario is typical within packaging until the sector becomes a commodity. When that happens, margins are eroded, and then we look to decrease costs. If we examined the work today and made huge improvements, then we could, as it is said in the film Die Hard, “be sitting on a beach earning 20 percent.”
Fulfillment is not a commodity, but rather a catalyst. Change is coming to this area, and I believe the catalyst is going to be titled 3PL—third-party logistics.
3PLs hire the same people you do and use similar resources such as conveyors and tables, but they have something that the packaging companies do not that is hard and expensive to do well in packaging: tracking infrastructure
3PLs are logistical specialists that are looking for ways a company can branch out for additional revenue. This goal is executed through the means of fulfillment. These 3PL companies set themselves up similarly to what we have in most packaging facilities—just a little better. 3PLs hire the same people you do and use similar resources such as conveyors and tables, but they have something that the packaging companies do not that is hard and expensive to do well in packaging: tracking infrastructure.
Their specialty is to track multiple items in the workflow, perfect for bringing visibility of multiple items together for fulfillment. Their main advantage is that they are going to produce data of the fulfillment status daily or by the hour. This transparency of data is very attractive for customers. Allowing them to see the status of fulfillment is very powerful. This one fact alone is what 3PLs are doing to move the needle of the world of fulfillment.
What does that mean for packing companies? Competition that is going to be difficult to compete with—additional competition not just from packaging companies, but now also from logistical companies. So, if you have a fulfillment center, get good and do it quickly—this is the best strategy you have to stave off the dynamics of 3PL.
Les Pickering is co-founder of Quadrant 5 Consulting, based in San Francisco. Les can be reached at 415-988-0000 or leslie.pickering@quadrant5.com. Follow him on Twitter @Q5cLP.
