Setting up a warehouse or fulfillment center for an eCommerce business doesn’t require a Ph.D. in logistics, but it does call for a bit of planning if you want your business to run smoothly. This post is your “ultimate guide” to doing just that.
Warehousing and shipping is a critical piece of your business as an eCommerce merchant. Timeliness and accuracy of orders affect customer satisfaction and set the rate of return (returns being wasted money, of course). Efficiency in putaway and storage affects the amount of square footage you need to lease, insure, and maintain. But none of this can happen if your warehouse has not been set up correctly, to begin with.
Over the years, we’ve identified these 12 steps that successful entrepreneurs take to set up efficient and effective eCommerce warehouses:
Determine the warehouse space needed
Good warehouse planning starts with the simple question: “How much warehouse space do I need?” A good starting point is to calculate how many pallets and cartons you plan on carrying at any one point and then multiplying by the footprint of your average pallet or carton.
It’s OK if this number far exceeds your total warehouse footprint. Remember, your storage space should be calculated in terms of cubic feet of space because you will likely be using storage and shelving systems to get the most out of your total space.
That said, we find that too many warehouses calculate only the storage space that they need, without adequately taking into account other warehouse operations. So, once you calculate the storage space you need, you’ll need to add in space for these other activities (with enough room for the people who will perform them, of course).
Consider that you will need to have adequate space for each of these stages:
- Receiving (including unloading, quality control checks, and labeling)
- Storage (plan on extra storage space to anticipate growth)
- Forward staging (incorporate space for at least one day’s worth of orders)
- Shipping (including not just pack and ship, but also quality control, labeling, and breaking down larger pallets)
- Extra area for returns and “dead” stock
- Depending on size, additional areas for whole staging, value-added processes, and so on
Choose the best layout for that space
Having the raw space for all of your warehouse activities is important, but so is the overall “flow” and layout of that space. Items should move through your warehouse in a single, continuous flow without the need to backtrack, and with a minimal crossing of paths.
At the same time, this flow should ensure that SKUs traveling through your warehouse do so in a way that mimics the order of activities necessary. For example, items that come into the warehouse should go through a process where they are unloaded, inspected, labeled, and then put into long-term storage.
What this ideal set-up is will differ depending on the size of your warehouse (which is why the previous step is to calculate your space requirements!), as well as a few other constraints. Here we’ve provided three ideal warehouse layouts accordingly:
- Small warehouse layout (~10,000 sqft.)
- Medium warehouse layout (~50,000 to 100,000 sqft.)
- Large warehouse layout (~100,000+ sqft.)
Choose the layout that works for your facility and use that as a guide through the setup process.
Create a labeling system
Paying a little attention to proper rack labeling and addressing will lead to big payoffs in picking time and overall warehouse efficiency. Think of it this way: Your warehouse layout is your roadmap, but your labeling system is the system of road signs that help your employees navigate it.
To create such a system, you need a systematic way to refer to locations in your warehouse. This is your system for label addresses. The ideal label address includes precise information that describes an item’s location, starting with the largest unit area to the smallest.
Think of it as a postal address, though in reverse: A postal address starts with the house (number), then proceeds to street, city, state, and, if necessary, country. Your label address has the same level of detail, but starting with the largest area (usually an aisle number) and proceeding on to the bay, level, and bin.
We present more details on the best way to create a labeling system here when you are ready to tackle this step.
Create a list of essential equipment needed
Warehouse equipment is essential—or not—depending on your products, your volume, and your business model. That said, most eCommerce warehouses and fulfillment centers have the same basic goals: Maximize space, increase efficiency in the flow of goods, improve visibility, and do it all in a way that’s safe for people and for your goods.
This leads us to four basic kinds of warehouse equipment, based on warehouse functions:
Storage. Storage equipment encompasses everything from large warehouse shelves and racks to small bins and drawers.
Material Handling Equipment. Material handling equipment is a broad category that includes transport equipment, unit load equipment, storage equipment, and positioning equipment.
Packing and Shipping Equipment. This includes anything needed to assemble, package, and label orders to prepare them for shipping.Barcoding Equipment/Inventory Management Software. In today’s modern warehouse, these pieces of equipment deserve a category of their own. Barcoding equipment includes barcode readers, naturally, as well as printers, labels, and accompanying eCommerce software.
List out the equipment you anticipate needing in each category. Then, add to your layout where these pieces of equipment will be placed, used, and/or stored.
Find ways to automate repetitive processes
Automation is a surefire way to improve efficiency. Think about it: eCommerce has already made the browsing and buying process much more efficient through automation. Why not do the same for the other end, when products are processed and shipped?
Even better news: Automation does not have to be a complete change to your warehouse. In fact, the best automation centers around small investments in single-task machines.
- Bar-code scanners (mentioned above) can help streamline picking and eliminate cycle counts while improving accuracy.
- A conveyor belt can safely move heavy containers from one area to another, eliminating the need to carry stock and thus putting less strain on employees. If a conveyor belt is not feasible, lift-trucks and pallet jacks can make the job easier.
- A laser DIM-weight scanner can automatically calculate measurements of shipments to ensure accuracy and speed up the shipping process.
- Machines for mundane, repetitive tasks—for example, breaking down pallets or boxes—can save time and repetitive stress.
Optimize pick paths
Once you have established your layout, labeling system, and equipment, it’s time to think about the actual pick paths throughout the warehouse.
Gotcha! That sentence above is technically false because in doing the above, you are already thinking about pick paths, all the time. If you haven’t, it’s seriously time to reconsider your assumptions.
We’ve found that good warehouse management software is best at picking optimized pick paths for a warehouse (because of math). Still, there are some good rules of thumb to keep in mind, no matter if you are creating pick paths by hand or having a computer helps you:
- There are different order picking methods (wave picking, batch picking or zone picking); you should be up-to-speed on the differences so you can decide which one works best for your facility.
- Picking order should be linear, with warehouse employees completing their picking run at a location close to the final shipping area.
- Orders should be fulfilled in such a way that individual items in one area are picked before moving to the next area.
- Items that are often purchased together should be stored near each other.
Remember, if warehouse employees have to backtrack or are frequently crossing paths, you’ve done something wrong.
Establish Warehouse Guidelines
At this stage, it’s time to start drawing up some warehouse policies and guidelines for your workers. Proper pick paths is just the start: You’ll also need to consider safety procedures, workflow, and quality control/order accuracy.
Safety procedures. Now is the time to establish, in writing, the safety procedures employees will need to follow. You do not need to reinvent the wheel here: We highly recommend downloading OSHA’s Pocket Guide Worker Safety Series for warehousing and following its recommendations to the letter.
But don’t just stop with a booklet listing your policies. Put these policies into place, and then advertise them. For example, you should put signs in key locations to encourage workers to use proper safety equipment (gloves, back braces, hard hats, etc.).
Workflow. In an ideal world, the entire process from picking to packing to shipping would be part of a single, well-documented workflow. Much of this workflow will be dictated by your setup.
Some of it, however, will need to be determined by warehouse policies. For example, how often do pick waves occur? How much inventory needs to make it to forward staging, and how often? When should equipment be put away, and where? Try to see the workflow from your employees’ point of view, then minimize the uncertainty they might have surrounding any activity.
Quality control and accuracy. Establish guidelines for quality control at each stage of ordering. Start with receiving: What is considered an acceptable level of breakage before an order is returned? How will you ensure order accuracy? How will returns be processed?
Then move on to picking and forward staging: How will order accuracy be ensured? How is breakage and spoilage reported? Will each item be checked (inefficient) or will you use statistical checking?
Finally, there might need to be another level of QC at the shipping stage: Are all items present in the order? Are they packed appropriately? Does the address on the label match the address on the original order? Is the method of shipment (Ground, Air, etc.) accurate?
Establish policies now for quality control and order accuracy, because these will form the core of your employee training.
Train your staff
Training is not just about imparting knowledge. It’s mainly about giving your employees key skills they will need to work quickly and efficiently. Resources spent on training will pay for themselves over time in speed, efficiency, fewer mistakes, and a safer work environment.
Get the right warehouse management software
It’s one thing for a warehouse that has been around for 50 years to still cling to their spreadsheets, paper order forms, and other old ways of doing things. But when it comes to setting up a new warehouse? There’s no excuse for not having a modern warehouse management system.
There are many offerings in this category, at many different price points, and with different capabilities. (Cards on the table: Infoplus Warehouse Manager is one of these, as we pride ourselves on a scalable system at a reasonable price!) But here are some basics you should definitely look for:
- Inbound receiving and inventory control (“door-to-door”)
- Pick/Pack/Ship workflow management (with directed, optimized workflows and schedule plans)
- User-defined reports (reflecting your own KPIs)
- Key alerts
- Easy integration through APIs
Integrate your systems
The Integration allows diverse business systems to share data seamlessly, opening up a number of opportunities for cutting costs, increasing efficiency, and reducing errors.
What kinds of systems need to be integrated? Consider integrating your WMS with
- Channel software/shopping cart software/POS
- Shipping scheduling software
- Accounting systems
- Ordering systems
- Existing ERP solutions
That’s potentially a lot of integration. We discuss the benefits of each in our white paper, “5 Exciting Ways Software Integration is Revolutionizing Logistics,” which readers are encouraged to download (no sign-up required).
We also suggest checking out our learning epic “APIs 101,” which both makes the business case for using APIs for integration and explains how to do this according to best practices.
Define KPIs and set up data collection
Setting up a warehouse is one thing; knowing that you’ve set it up in the most optimal way possible is quite another. This is where having the right warehouse metrics and KPIs (Key Performance Indicators) comes in. KPIs help to identify bottlenecks, plan out warehouse operations, and measure overall customer satisfaction (which highly correlates with repeat purchases).
There are at least 20 KPIs you should consider tracking for optimal warehouse management, and a good warehouse management solution should be able to gather all of these easily. Just to give you a flavor, here are four you should start with:
- Inventory turnover. The frequency with which you sell out your entire inventory (or a given volume of inventory).
- Order lead time. The total time it takes to fulfill an order, including picking, packing, and shipping.
- Rate of return(s). The frequency with which items are returned. Customer service should also record the reasons for return, as this will suggest where problems might live: receiving, picking, quality control, etc.
- Transportation cost per package. The total cost to move an SKU or order, including the cost of labor, handling equipment, and safety equipment, etc. Usually given in dollars (cents) per 10 feet of movement. This metric makes it obvious how important an efficient warehouse layout with good pick path is!
- Learn from Mistakes—Yours and Others
It’s rare to have an eCommerce warehouse setup that is perfect from the start. And even if it does start out perfectly, things change. New products, new technologies, and new business models mean that what worked a few years ago might not be optimal today.
As you make mistakes (or change direction), be honest about them and try to learn from them. Almost every successful business person has said that one of the keys to his or her success was “failing fast” and learning from those mistakes.
But you can do one better, too. You can learn from the wisdom of others. We noticed a need for this when we started selling our warehouse management software. Customers had all sorts of questions and requests for help getting their eCommerce storage and logistics set up appropriately. There was such a demand for this kind of “hands-on” service that we started offering consulting and training as their own services.
Or, you can just read up on all of the tragic mistakes we’ve seen others make when trying to set up a warehouse themselves, without considering all of the above. Luckily, the people who have reached out to us have been able to correct these mistakes...but there are plenty of other warehouse managers out there still making them.
Please don’t let that be you! If you want to chat about your set-up and needs before diving in, just reach out. We promise, no cheesy sales pitches. We’ll just get a feel for your situation and see how we can help out.