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What is an Acceptable Order Accuracy Rate in the Warehouse?
Distributors can spend millions correcting fulfillment errors. They must decide on an acceptable error rate and apply lean principles to reach that goal.
By: QC Software
“Fulfillment errors hit the top and bottom lines. Product that is not shipped diminishes the top line because customers cannot be billed. The bottom line is impacted through additional transportation, storage, and handling costs. There is also the potential for lost revenue if customers decide to take their business elsewhere. Given the serious consequences, companies must decide how many fulfillment errors are acceptable,”
Is a 99.0% order accuracy rate acceptable?
An error rate of 1% may seem small, but consider the cumulative effect over a year’s time. If ABC Company ships 1,000 orders per day, assuming a 5 day work week, 260 work days per year, the yearly output is 260,000 orders with 2600 defects. If the average cost to correct an order is $200, ABC Company shipping 1,000 orders each day spends $520,000 for the year to correct mistakes. If they ship 5,000 orders per day, mistakes cost $2,600,000 per year. Shipping 20,000 orders each day cost over $10 million! A 1% error rate is too expensive and unsustainable for many distributors.
Using Six Sigma’s Lean and Agile principles, raising the accuracy rate to 99.5% reduces the errors by half. While this is an improvement, companies are still wasting a considerable amount of money. By applying Lean and Agile principles, many companies have succeeded in achieving accuracy rates of 99.8% or better.
It is impossible to completely eliminate errors. However, with proper planning and management, the distribution center can continue to contribute to the growth and profitability of a company. Food for thought.
For over eighteen years, QC Software has delivered the results that help companies succeed. Their leading-edge Tier-1 Warehouse Control System provides the flexibility, visibility, and control across warehouse operations that customers need to optimize resources and profitability. Through industry collaboration, customized training, and 24/7 support, QC Software ensures that each customer is fully leveraging their technology. In addition, QC Software helps customers develop a strategic focus to better manage new opportunities and future demands.