How to Set Up an eCommerce Warehouse and Optimize Distribution Efficiency

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We usually talk about the front end side of things in E-commerce. These involve platforms, receiving orders, marketing, and different types of functionalities to increase conversion rates. The back end of eCommerce, however, involves warehousing operations, the supply chain, and logistics.

Optimizing Your Warehouse Setup

Choosing your warehouse setup and inventory management system means selecting tools fit for scalability. Businesses commonly make the mistake of simply Googling and choosing the first warehouse management system or expert that they see.

Barcode Scanners Best Practices (Scan Guns)

If you are shipping over 100 packages daily and growing, you should be using Scan Guns for your receiving POs as well as shipments to control inventory and minimize shipment errors.

At Optimum7, when we set this up, we focus on the lowest hanging fruit and automation rules that cover 90% of our shipments. For example, if 90% of my shipments weigh under 1 lb and ship USPS, I will automate and batch print that first. I will also place my best sellers as close to the shipping stations as possible.

If you want to use scan guns and batch print orders, you must implement automation rules. Under these rules, we tag any order that doesn’t follow a standard procedure with the tag called a “curveball”. All of our rules say if the order equals curveball then reject it. That gets you all your orders that are handled in a standard form to fall through and all the ones that are handled weird to go to a side chain.

The standard orders that are not curveballs get analyzed and sorted by price. SKUs that retail at less than $50 each go into one batch, while those that retail for other price ranges go into different batches.

When those orders are processed on the gun, nobody ever steps more than three feet between the next pick. As a result, you’re cross-picking. After doing one SKU with multiple items, and then we go to the more complex product arrangements.

Anyone can use a scan gun to identify and tag SKUs. You can get all those orders separated and you don’t need an operator with any experience or knowledge. This reduces the need to hire specialists in-house, which eliminates a potential increase in operating costs.

Since all the weights are already in, you don’t have to measure, weigh, or guess how they’re going to ship. Because if you shipped an SKU once then the data is collected. With multiple SKUs and items, the process gets more complex. With that said, broad estimates of weight and packing logistics can assist.

Don’t forget common sense when sorting by weight. If an SKU weighs over four pounds, it’s not going to fit in a flat rate envelope. Also at four pounds, the priority mail flat rate is a better deal. Any SKUs that weigh over four pounds will most likely get shipped by UPS ground.

These arrangements ensure we keep rush orders separate from ground ones. The rules for identifying curveballs help with that.

If the customer requests next-day air or three-day UPS, then we label them as curveballs under our criteria. We then create sorting labels for advanced operators, who will place the orders in a separate physical pick cart. The operators apply these labels and avoid mix-ups.

We also have five different pick carts based on order size. This helps scan gun operators move efficiently around a warehouse and organize various order fulfillment. The more orders you can get on a cart, the more efficient you’ll be able to roll through your warehouse.

On the packing slips, are you also printing the label since you’re letting your shipping platform grab the weights?

We’re printing the label and the packing slip as a 4″ x 6″. With that said, we got rid of paper packing slips because of the cost of paper for it and the label seemed too pricey. Another solution to reduce costs appeared.

There’s a back door to UPS to get labels. They won’t do this online but will by phone. Call them to order these labels.

Warehouse Setup And Logistics

We have clients who have three different warehouses. Despite the differences, we have to rotate based on the season because none of them are big enough to hold the amount of inventory required annually. Pick warehouses locations, select your overstock, and separate them out.

Take Fruit of the Loom as one example. They have a million -square foot facility there, with automated drop conveyors that go all around the warehouse. Since a smaller e-commerce business cannot use robots for shipments, there are minor optimizations that they can do to automate most of the shipment tasks.

At Optimum7, we consult clients on how they should set up their e-commerce warehouse operations and we assist them with floor plans, placing racks, ship stations, inventory management systems, shifts for the warehouse employees and more.

Skubana Vs. SkuVault And Other Inventory Management Options

We use a variety of inventory management systems. Skuvault and Skuabana are to name a few. We also use BigCommerce, Shopify, Magento, Volusion, 3DCart, Miva, and some other enterprise solutions as e-commerce systems.

If you are picking items manually because you found out that the scan guns are too slow for our processes and shipping demands, you are doing it WRONG! You MUST leverage scan guns. Manually picking items will only slow your operation down.

A system like SKUVault has several pain points. One, the application for a scan gun is flaky. The time it takes for one to navigate on a handheld scanner is inefficient and wasteful. But there’s no perfect inventory management system, most of them will need customization to your specific operation.

Where is the bottleneck with the scan guns?

The application is not laid out correctly or efficiently. It’s basically an Android cell phone with a scan gun attached to the end of it.

Scan guns can work well depending on the batches that we break out and then presorting the orders. That way the guns work efficiently based on the workflow. We pick each order individually instead of using a master pick-list.

What are the other drawbacks?

Skuvault has been overselling inventory much to our consternation. This happens because of the frequency at which SkuVault updates with BigCommerce. If we have one item that’s selling out, it loses that data in between updates. This is a MAJOR issue with most inventory management systems. The integration for adding and removing quantities due to sales, multiple marketplaces, returns and more is not instant. There is usually a delay of 2-10 minutes with most inventory management systems when you sell an item. If you are working with smaller quantity items and you track quantities, this can become a nightmare.

Does any inventory management system allow you to assign 100% of the inventory to each channel as well so you have a buffer?

We either have to build a buffer of 1,000 in there and it pushes 1,000 quantity to BigCommerce or Shopify.

BigCommerce will not let you oversell.  Right now we put 1,000 plus in our inventory in there so we can always never oversell it and let the customer see that error. If we have a lightning sale, we sell more than we actually are logging back between the connection and BigCommerce’s SkuVault.

Is that a BigCommerce or SkuVault API limitation? Or is it neither?

The issue lies with SkuVault integration issues. They didn’t prioritize efficiency. That’s why you have those delays.

How long that delay is to give you a window?

The delay to equalize inventory takes up to five minutes. When you sell as many as ten products it hurts to lose that valuable time. With Skubana, they said their delay was two to three minutes.

Should you ship out of Skubana or using ShipStation?

We usually ship out of Skubana. ShipStation would be better because of our automation rules, but they don’t allow OR statements. Copying rules for different regions is time-consuming but there is no way to make a blanket statement to apply to different regions.

Skubana has some serious limitations as far as kits and bundles while working to fix that. They also had a problem with the way they calculated FIFO. Even though their developers are creating fixes, businesses need to implement workarounds to deal with these calculations.

In SkuVault they push a total inventory, BigCommerce versus this way it will not push that raw material quantity to BigCommerce. We manufacture batches on demand, kit, and bundle. Then we bag things into our retail packaging based on our raw materials.

With Skubana if you have the raw materials for product ABC and they make the bundle D then you have ample D in stock. They fail to track, however. If we ran out of stock of the bundle, the scan guns would just tell our guys to go pick the raw materials A, B, and C. It didn’t take into account that it’s a different package, different barcode, different all this stuff.

We created a virtual product that’s not pickable. This is called dash retail. Then we do this huge workaround with that to stop them from being picked. It stops them from showing up as in stock unless they’re actually assembled. Even if you went to Skubana you’re still going to have countless workaround problems.

The advantage to Skubana over SkuVault is it houses the possibility to actually be your order management system as well whereas SkuVault lends itself more for inventory management and that’s about it. We can do POs that pull from our blank goods and push them into products.

With distributors all over the country, we can connect to their APIs. That inventory can come into a product so that we can see the supply that’s available for us even in that.

Are there systems you do or don’t recommend?

We do not recommend ShipHero. We also can’t recommend NetSuite.

Consider Finale Inventory. We are concerned with how they store secondary locations because you want to have a pick location with about two weeks’ worth of inventory. Then you want to have a backup location with your actual pallets or large stock so our pickers aren’t digging through huge sections and walking long distances.

What do you not like about Skubana?

We have to do workarounds for kits and bundles. It doesn’t track our costs properly on them either. That’s an issue for getting budgets. The order bots are also a nightmare.

Skubana does some things pretty well but their deficiencies are visible. One of our employees added some products to our website that had a setup fee and she didn’t know how to set it up the right way. It came in from Shopify that there were 125 setup fees on that order. We sold them for a penny each because that’s the way it imported from the third-party application. Then she has the setup fees costs a good sold defaulted for our vendor who does the setup costs to 50 bucks apiece. It was actually 125,000 setup fees, something like that. It ended up being a $700,000 mistake in our analytics and Skubana says there’s no way after you ship a product to fix that. Now forever, our analytics are off by that month. If our team runs a report, we have a $700,000 mistake and they did it to another product to the same month Then have a million-dollar mistake in the reporting. That’s going to be on the books forever and they won’t let me remove it.

Skubana, as a result, is lacking in the customer service department. They don’t fix transactions or allow businesses to make corrections. The inflexibility can lead to gross miscalculations. That’s all on the computer for data collection and analysis.

Do you have insight when choosing the right warehouse management system?

Every system is different. You have to look at the specific needs of your operation and pick one that works for you.

Setting Up an Optimized eCommerce Warehouse System

At Optimum7, we have clients who earn between eight to ten million dollars in revenue which means that they’re shipping on a daily basis anywhere from five hundred to ten thousand packages daily.

When you get to that kind of volume, you need more professional setup. If you go to Google and search for warehouse setup consultation, experts, or companies, you get many results for companies that offer these services. They know nothing, however, about your front end, technology, the source of orders, inventory management system.

Tell me about the issues that we’ve heard from clients that affect us while performing marketing or the front end technology.

Clients will decide which inventory management system to use or what warehouse management system to use without consulting an expert first. Without consulting someone who has set up a back end operation for an E-commerce store, they just go out and select the latest system from a vendor.

That affects scalability, so we are expected as Optimum7 to deal with technology or marketing issues and scale the business. Clients come to us and say, “We’re doing five million. We want to do ten million in two years. What do we need to do on the front end?”

We’ll improve the front end and in the back end, they will make cutbacks. If a client goes from 500 orders a day to 2000 orders a day, they’re going to have the following problems: They don’t have the warehouse set up, enough ship stations, rules, or automation to handle that kind of volume. They’re going to need 10 people in their warehouse to pick and ship these orders instead of two people because their system is not efficient. If you’re doing over $2 million in revenue, growing, and handling your own fulfillment, sooner or later you’re going to have this conversation on warehouse set up.

When it comes to a warehouse set up, the prepared space needs to receive our POS, your purchase orders from your suppliers, or from your manufacturers in a fashion where it’s optimized, and you have to have your locations and your racks in terms of your order volume. If you have 1000 products in stock and 20 bestsellers, make sure that those best sellers are as close to your ship station as possible.

We ask clients for a floor plan before they even start their warehouse or start managing their warehouse, to see their logistics. We will help them optimize this floor plan in a manner where it is directly related to their best sellers and the fastest most efficient way to pick and ship that product as soon as possible with the least amount of human involvement possible.

Using Data Collection For eCommerce Warehouse Optimization

We use several formulas and workflows for this. Other scaling E-commerce businesses, however, don’t have any idea on what they should do. Pick scan guns and the systems that you install in the warehouse. Establish the layout of the warehouse while deciding how you actually pick and ship these items.

Setting Up Automation Rules

You need to implement multiple rules to ensure automation is a success. For example, if 90% of your orders are less than one pound, set up rules for auto or batch printing. Why? If you’re not batch printing you’re wasting a lot of time.

Pros & Cons of Using Barcode Scanners in your Warehouse Operations

Without scan guns, your employees are going to make mistakes in terms of which product they’re picking. You’re going to get negative reviews. You will receive more customer support requests that decrease your profitability. Efficient warehouse, efficient operations, and shipping mean more profitability.

How do the systems relate to the warehouse operations and what kind of issues have we seen?

The biggest issue is the communication between these platforms. Choose one or the other, whether it’d be a channel manager or a warehouse inventory management system. They don’t get along very well with one another and won’t work together.

From an inventory management system, you want to streamline your inventory from your POS, push that data to your website when orders get placed, relay that information back to your inventory system, and then sell to any other third party marketplace. With both a channel manager and inventory management system, you essentially have two systems trying to do the same thing and it typically doesn’t end well.

One of the biggest issues for scaling businesses is the delay in reducing quantities and translating that information to different third parties. If you’re using one inventory management system, then you have custom orders.

All of this inventory needs to be allocated in an accurate manner. Unfortunately, there’s a delay of two minutes to five minutes with most inventory management systems.

If your volume is high and you have ten types of each product rather than hundreds and thousands, then you risk overselling. You run into a problem of not having it in stock or failing to display it properly. As much as you want to do this, the stocks are usually not real-time.

Everyone wants to have a real-time inventory management system. You know who has it? Amazon and Walmart do because they can invest millions of dollars into them. As a small business, you don’t have access to that technology.

Third-party integrations can fix these issues, add more functionality and technology at a lower cost, and build workflows around your operation. Suppose you sell apparel and have to customize 50% of the orders because you have to do embroidery. You require a different warehouse operation than if you sell a set product. That’s never going to be customized.

If you’re selling a customized product, regardless of what type of product it is, your warehouse operation needs to be at least ten times more efficient than those of an E-commerce store that is not selling a customized product. Prioritize high levels of technology and organization.

At Optimum7, we’ve consulted multiple companies around the warehouse set up and efficiency. If you have any questions, let us know. We’ll be happy to guide you in the right direction.

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