Increasing Warehouse Efficiency Using Dynamics NAV: Maximize Pick Accuracy – Part 1
Total Cost of Quality
In previous blogs, we reviewed that there are three areas that can generate cost savings in your warehouse: Maximizing Storage Density, Minimizing Travel Time, and Maximizing Pick Accuracy. This blog focuses on the concept of Maximizing Pick Accuracy.
Maximizing pick accuracy can have a huge impact on your overall profitability. In writing this blog, I am reminded of the time I spent in a previous life studying Phillip Crosby’s book titled “Quality is Free.” This was required reading in our journey to Six Sigma. The book revolutionized my understanding of how to measure quality. The book defined the concept of Total Cost of Quality, which is defined by the total cost of everything you do all day. All of your company costs can be associated with one of four categories:
- Prevention Costs (time and costs spent preventing an error)
- Inspection Costs (time and costs spent checking to eliminate errors if they have occurred)
- Internal Error Costs (time and costs spent dealing with errors found internal to your company)
- External Error Costs (time and costs spent dealing with errors found by your customers).
If you track the time each person spends in these categories, you will find that your External Error Costs are exponentially more expensive than Prevention Costs. Simply put, if you have an error that gets to your customer, it will cost you substantially more than if you had spent a few seconds preventing the error from happening. In other words, maximizing pick accuracy from the get go, is essential.
Maximizing Pick Accuracy
Let’s review an example to understand why maximizing pick accuracy is so important. Let’s say you are in the retail world, and you are dealing with any of the biggest chains (sometimes referred to as big box stores). Your customer sends you an order, you enter it, ship it, but in doing so have picked and shipped a wrong item. Any of you that work with these large chains knows what happens next:
- They send the product back at your expense.
- They take a deduction for the inconvenience you have caused them. Sometimes they will take multiple deductions: shipped something not ordered, short shipped their order, handling fee, late delivery fee, etc.
- They call to complain.
- You have to create an authorization to return.
- You now have to process the return.
- You likely need to inspect and/or repair the item before you put it back on the shelf.
- You likely need to pick and expedite a replacement shipment for the item that was not shipped.
All of these costs are avoidable if you had picked the order correctly when you shipped it the first time.
The teachings of Total Cost of Quality is that you should reduce your time spent in external error, to:
- time spent finding the error before shipping it (Internal Error),
- time spent inspecting to make sure an error does not get passed on, and/or
- time preventing the error from happening in the first place.
So the goal is to find any error before the customer gets involved. Even better is to build in an inspection process to find the errors at processing time. Best of all, is to spend time preventing that error from happening in the first place. The next blog in this series will focus on preventing external errors to maximize pick accuracy. To ensure you receive the next installment, and all future updates on issues, topics, and helpful hints regarding Dynamics NAV, please subscribe to our blog.
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