“Everyone is entitled to opinions. But, without convincing data, my opinion wins” (Many a CEO)
This Blog’s Theory: Picking-costs for popular, small-dollar SKUs is a huge, profit-improvement opportunity.
My Convincing Data v Yours:
- A distribution chain subscribes to Waypoint Analytics’ service for profit analytics: at the SKU/line-item level.
- The chain looked at their biggest warehouse’s activity (no direct or indirect shipments).
- Total picks for 2019: 77.6K on approximately 8000 active SKUs (1 pick or more)
- SKUs ranked by picks. The top 20 most-picked SKUs had (772 picks down to 262) a sub-total of 8181. Over 10% of all picks on just ¼ % of all SKUs
- The average Gross Profit Dollars per pick (GP$s/pick) – for the top 20 – ranged from a low of $.13 to $16.34: all unprofitable. (The breakeven for a profit for all SKUs was around $29 in GP/pick).
- Most net-profitable SKUs all had healthy GP$s/pick. Only 22% of SKUs were net-profitable yielding $750K in profit to pay for the 78% that are losers.
- The bottom 10% of biggest losing SKUs (which included the top 20 most picked) lost in total: ($651K).
Solutions For High-Pick, Small-Dollar SKUs?
Amazon (with the lowest, GP$/pick breakeven in the world) calls these SKUs:“CRaP (Can’t Realize a Profit). To reduce losses: AMZ cranks prices on onesies to encourage you to buy bigger bundles. For example: 18, private-label, AA batteries v. 4 of a brand name. And, AMZ labels many as “add on items” to encourage: factories to bundle more units together to escape the “add on” status. And, for us to add more lines per order to build total GP$s per order to cover the fixed cost of delivery.
There are other generic plays that all distributors can do for CRaP SKUs. These are detailed in my webinar series. (Specifically #4 – of 12 ).
Some distributors are also using collaborative robots (cobots). Put all highest-picked, small stuff in one tight area with a dedicated picker. Then, add 3 to 7 Locus Robotics’ cobots per picker for an instant 200 to 400% reduction in cost per pick. The picker picks, the cobots do the traveling.
If you could cut the losses on small picks from ($651K) to hypothetically ($150K) isn’t that worth looking into?
Your Alternative Data-Free Belief?
Many believe they can always take one more (small) order or pick without any incremental costs. Do you have the statistical evidence for your operational beliefs?