The Cost of a Mispick: Improve the Bottom Line by Reducing Errors

When a customer receives a shipment, they expect everything to be in order about their order. Consumers anticipate that their deliveries will contain all the items they ordered, in the right color, size, amount, etc. They expect that their orders will arrive on time and free of damage, and that the deliveries will also include the correct invoicing and documentation.

All of these customer expectations are essential benchmarks that many companies seek to achieve with the Perfect Order Metric. This KPI helps organizations measure their overall order accuracy, but as we’ll discuss later on, it’s very difficult to achieve 100 percent.

Thankfully, there are ways that organizations can reduce order errors and move closer to perfect order fulfillment.

Mispicks: More costly than many realize

In the order fulfillment industry, mispicks occasionally happen. While it is easy to write these errors off as simple mistakes, many organizations are discovering the hidden costs of dealing with incorrect items in orders and the investment required to address these inaccuracies.

According to an Intermec survey of 250 supply chain and distribution managers across the globe, warehouses and distribution centers are losing a staggering amount every year to mispicks. Researchers discovered that a single mispick costs an average of $22. While that doesn’t seem all that expensive, the cost quickly adds up: $390,000 annually for the typical business.

This is because 35 percent of facilities have continual mispick rates of 1 percent or more. Another 19 percent of facilities don’t even measure mispicks, meaning the state of inaccuracies within the industry could actually be a lot worse than these numbers suggest.

It’s important to note that $22 is just the average. Depending on the facility and the merchandise it deals with, mispicks could cost as much as $100 per incident.

What contributes to mispick costs?

There are numerous factors that play into the $22 to $100 cost of a single mispick. These include the following:

• Labor costs: When warehouse employees mispick, they cost their companies not only time and wasted effort. A company that deals with continual order errors might, for example, think it needs to increase its customer support staff to stem the tide of complaints, when really it needs to stop preventable mispicks from occurring. This drives up the costs of mispicks considerably, as the business must provide assistance for consumers to reach out, correct the issue and ensure they receive the right items.
• Customer impact: Businesses also lose money because of the effects incorrect orders have on customer loyalty, brand reputation and customer goodwill. A separate study from Voxware found that 73 percent of consumers who receive incorrect items are much less likely to do business with the organizations they received them from in the future.

Achieving the Perfect Order

According to the Intermec mispick study, 59 percent of warehouse and distribution managers surveyed were leveraging the Perfect Order Metric to identify areas in need of order accuracy improvements.

As Spend Matter contributor Pierre Mitchell explained, the Perfect Order Metric includes benchmarks for on-time delivery, quantity fill rate, quality fulfillment and documentation.

“The perfect order is a heavily logistics-oriented KPI, but it has a great deal of relevance to procurement, such as how to apply it to services,” Mitchell wrote. “[P]erfect order is a composite KPI that is very difficult to even get over 80 percent because of its multiplicative nature.”

One way for companies to boost order accuracy, particularly as it relates to order fill rate, is through the use of barcode scanning technology within the warehouse. These mobile management systems come with the benefit of handheld scanners and item tagging that can help ensure that the item picked from the shelf corresponds with the merchandise the consumer selected.

Using barcode scanning technology in the warehouse can help reduce order errors.

Barcode scanning for order accuracy

Best of all, a warehouse management system that includes barcode scanning doesn’t just reduce the number of order errors and help companies inch closer to achieving that Perfect Order Metric. This technology can also help boost the bottom line.

An increasing number of correct orders translates to less time warehouse employees spend addressing incorrectly shipped orders. What’s more, with fewer customers reaching out to customer service regarding incorrect orders, companies can save on labor costs in the warehouse and in the contact center. Consistently correct orders supported by barcode scanning technology can also increase customer loyalty and brand reputation, thereby further increasing the company’s overall profits.

Top-notch warehouse management: What to look for

When seeking picking solutions of this caliber, there are a few important elements to seek out:

• Mobile capabilities: The solutions that will drive the most value for businesses are those that enable the use of handheld wireless barcode scanners as well as those that can support the latest industry-standard mobile terminals.
• ERP integration: The ability to link the solution with the company’s ERP platform (such as Microsoft NAV) helps further streamline accurate warehouse management.
• Granular tracking: In addition to barcode scanning, a solution that can capture transaction lot and serial numbers is particularly beneficial.

Finally, it’s ideal when a warehouse management system can scan and match directly to sales and purchase documents, thereby ensuring order accuracy while reducing time-consuming, manual processes.

To find out more about how you can reduce order errors and mispicks and drive up your bottom line, check out Warehouse Insight from Insight Works.