The ROI of voice picking

Transcription

1 The ROI of voice picking The financial benefits software intelligence that delivers

2 The ROI of voice picking The financial benefits A voice project comes alive when its financial business benefits can be clearly stated. To produce a solid business case replete with ROI, internal rate of return (IRR), payback period, net present value (NPV) and similar metrics one must first quantify the financial benefits that reduce existing hard-dollar costs in labor, operating expenses, materials, inventory and fixed assets. At Intelligrated, we help clients build this well-substantiated financial picture by creating a concrete foundation based upon a number of primary and secondary cost savings: Primary financial benefits Accuracy reduction in errors by providing a hands-free, eyes-up technology that keeps workers focus on the task at hand. There is no longer the distraction looking at a screen or a piece of paper to know where to go or what to pick next. The worker is directed via voice through the entire process, allowing them to be more alert and aware while performing any number of tasks. Productivity because workers are more focused on the task they re performing and because they re being directed by a voice and not having to stop or pause to look at a screen or a piece of paper, the worker is more fluid in his/her movements and able to move more efficiently throughout their day. Fewer steps to complete tasks throughout the day less fumbling or struggling with other forms of information reduces lost time leading to faster warehouse throughput. Secondary financial benefits Labor efficiency the use of voice and the subsequent increase in overall worker productivity leads to additional savings including, reduction in overtime, the need for fewer inspectors to check order accuracy, less reliance on temporary or seasonal staff, and the ability to cross-train employees to perform more voice-directed tasks. 2 The ROI of voice picking

3 Each of these topics is discussed, establishing the financial impacts derived from voice-enabling the warehouse. For most companies, only the Primary Benefits are necessary to state a positive business case, with the Secondary Benefits representing incremental upside and accelerated financial rewards. Using fewer benefits to state the case for voicedirected solutions makes the business case easier to understand (simplifying consensus) while setting a comfortable level of project expectations. However, today s supply chain leaders realize the potential impact of all warehouse voice benefits and have been accurately tracking their impact across all technology investments, and expecting their vendors to provide the same information. Safety the hands-free and eyes-up nature of voice creates a more alert and aware workforce, helping to decrease the chance for injury. This also leads to less damage and breakage, which can ultimately lead to other incidents or injuries. Regulatory achieve cost-effective compliance using voice for real-time material tracking and traceability, to comply with evolving government regulations without burdensome process or cost. Inventory and downstream savings reduced inventory holding costs are a direct result of the ability to create a more efficient fulfillment cycle from the receiving dock to the outbound shipment, reducing mis-picks and moving product at the right time to meet customer demand. Green savings from going paperless and reducing the reliance on labels can go a long way to reducing not only the cost of paper, but energy efficiency by using fewer printers and waste related to paper and other supplies. Voice solutions from Intelligrated typically provide paybacks in the 3-12 month range. While every company s situation is unique, the combination of innovative, affordable Intelligrated technology with rigorous financial analysis is a proven winner. The ROI of voice picking Picking is the most labor-intensive operation within the warehouse, making it one of the most popular supply chain processes to improve with voice technology. Much of the impact to the business comes from four key criteria: Reduced operational costs Increase workforce productivity Improved customer satisfaction Enhanced operational agility The majority of benefits for using voice-directed solutions in picking operations come from the hands-free, eyes-up nature of voice technology. 3 The ROI of voice picking

4 By using a headset instead of a screen or piece of paper, the worker is able to keep their eyes continuously on the task at hand. By being free of holding a keyboard, a scanner, or reaching for a piece of paper, both of hands can be used to carry out a range of tasks. Hard-dollar savings are typically derived from a number of areas, including but limited to: Accurately filling orders the first time Increasing picker efficiency (e.g., more lines picked per hour; less overtime) New hires training and onboarding (meeting productivity expectations faster) Reducing QA staffing (fewer audits required) Decreased staff churn Increased safety (lower insurance costs) Efficient regulatory compliance Inventory optimization (reduced holding costs) Fewer administrative, fixed asset and consumable overheads Real-time visibility and integration to business system decision-making This white paper focuses on the hard-dollar impacts of automating order fulfillment picking by voice. Improved operational accuracy When end-customers or stores receive orders with items missing, incorrect quantities, extra (unordered) items, damaged goods or incomplete/inaccurate paperwork; inefficiencies ripple throughout the supply chain. Labor and transportation costs increase, repeated pick and delivery activities interrupt and reduce productivity, order fulfillment falls behind schedule, and payments are slowed. The penalty for not getting the order right the first time is significant. Depending upon the value of goods and process costs, errors in the picking process can cost anywhere from $10 to $250 each. For sizable operations, this can translate into millions of dollars in hidden costs. Typical reductions in the number of errors, through the use of voice-direct picking: 50-90% Improvements for paper-based operations 1-15% Improvements for pick-to-light operations 8-25% Improvements for RF scanning operations 4 The ROI of voice picking

5 When orders are delivered correctly the first time, costs are avoided in many areas of the value chain, including administrative changes, re-picks, re-delivery and cost of lost sales. For a more comprehensive perspective on items which contribute to the per error cost, please refer to the section at the end of this document. Increased worker productivity Reducing errors Operational processes involving people are filled with bountiful opportunities for human error. Items can be picked from the wrong slot, in the wrong quantities, etc. Common order fulfillment errors include: Item not received (out-of-stock) Too few received (or delivered damaged) Too many: more items received than ordered Wrong item received (e.g., wrong version) Extra items (not on the PO) Proper quantity received but paperwork does not match Items not labeled correctly Paperwork not matching expectations Items not received within the committed time frame Companies use voice-directed picking because of its ability to greatly reduce such errors, resulting in order accuracy approaching 100% accuracy. By leveraging a voice-directed, hands-free/eyes-up technology, order error rate is typically reduced by 50-90%. Improving warehouse productivity results in companies being able to service increased product selection (growth in the number of SKUs) and higher order volumes without growing square footage or staffing. By combining hands-free picking operations with WMS (or similar) software, voice-directed picking productivity improvements can reach*: 10-35% for paper-based operations Up to 30% for pick-to-light operations 10-35% for RF scanning operations *Please note that every warehouse operation is unique in type of goods, number of SKUs, blend of fast/slow movers, size of inventory, density and related travel times, business processes, etc., so each company s experience can differ. Picker efficiency (measured in lines per hour) Real-time connectivity with warehouse workers provides the necessary visibility to optimize operations with warehouse management systems (WMS). Voice picking enhances WMS use in reducing order cycle times through new optimization strategies in warehouse layout and item selection (picking). For example, an operation performing discrete order picking might use voice technology to move to batch picking to multiple orders. 5 The ROI of voice picking

6 Effective designs reduce travel time between pick locations and the handling of exceptions (shorts, damage, etc.). A WMS capable of task-interleaving can permit a worker to perform multiple roles dynamically, based upon location, skills and current business priorities. For example, blending a cycle-counting task while performing a replenishment activity. Hands free Picker productivity is gained from the hands-free, eyes-up capability with voice-directed technology. Workers avoid the need to handle paper or devices multiple times during each pick, resulting in work being accomplished with fewer motions and steps. Environmental conditions also add to the difficulty in using technology in many warehouse processes, but more frequently in picking. For example, workers in cold storage wear gloves, making it hard to operate keyboards for data input. These same workers can easily use voice to enter data such as items picked and catch weights. Voice picking is typically well-suited to the following environmental situations: Protective clothing in use (gloves in cold storage, protective suits in chemical storage, etc.) Motorized equipment (e.g., both hands occupied when operating a lift truck) Climatic extremes (e.g., outdoor data collection during stormy weather) Special manufacturing processes (such as hazardous materials where worker concentration is paramount) Situations where both hands are required to safely move goods. Rapid new hire effectiveness Often staffed as an entry-level position, warehouse picking is subject to significant staff churn resulting in costly training and onboarding expenditures. Typically a warehouse sees rapid turnover in new hires, as workers (and the hiring company) frequently use a short assessment period to determine whether the work is a mutual fit. Prior to voice-directed picking, new workers are frequently brought up to speed by working alongside an experienced worker (with a slight detriment to the trainer s pick performance). It is not uncommon for it to take months for a new worker to know the layout, the products and optimized processes that result in meeting corporate productivity expectations. 6 The ROI of voice picking

7 Intelligrated s approach accelerates the learning curve for new workers, achieving corporate production metrics within the first few hours or shifts of use. By focusing on the right combination of software and hardware technology, Intelligrated s unique approach to voice enabling warehouse processes helps drive even greater savings. New hires already know and are comfortable using the rugged smartphones featured in Intelligrated voice solutions. There is no time wasted on the longer learning curve associated with special purpose devices or handheld computers. Guided training is provided via 3-way conference calling, with local or remote trainers. The trainer is actively on the same transaction with the new worker, and is able to interactively model proper behavior, allowing the new hire to take over the transaction piece-by-piece. Since the Intelligrated solution is speaker-independent, either party may speak the necessary phrases to the WMS at any time, helping provide a more interactive and efficient learning process. Intelligrated voice solutions do not require use of a display, avoiding potential second language or reading skill issues. Users control when they wish to migrate from a novice prompt interface to normal or advanced modes. Users also choose the language in which to work. When changes in process are introduced, on-line audio tutorials can be used to run workers through samples of the new work scenarios. This innovative approach to how Intelligrated delivers voice solutions, including new innovations for training, enables new hires to work at 95% or better corporate efficiency from the get-go, and quickly exceed 100% of their target metrics. Seasonal labor or temporary workers If integral to your business or staffing requirements, the simplicity in adding new workers to an Intelligrated voice solution makes it easy to include temporary or seasonal workers within the automated voice-directed picking solution. A temporary resource can be brought up to speed the first day on the job, without sacrificing accuracy of work. Reduced overtime Improved picker efficiencies a greater number of line items being accomplished per worker, per hour reduce the exposure to (more expensive) overtime hours. Because of the ability for voice solutions to improve not just the average worker, but to bring up even the bottom performers, voice enablement can help provide greater flexibility when it comes to staffing your warehouse operations. Get in the zone Years of voice picking deployments has uncovered that worker behavior changes and actually enhances picking processes and leads to greater efficiencies. Observations reveal pickers who receive instructions via a headset get into a picking zone (a work rhythm), becoming less distracted, and thereby increasing their hourly output. Timely replenishment When integrated with other key applications like cycle counting and replenishment, voice directed picking enhances real-time replenishment notifications and 7 The ROI of of voice picking

8 subsequently reminds the pickers to return to unpicked items as they become available. This minimizes the need for backtracking at the end of a shift, or shipping incomplete orders and expediting additions/ missed items. Incentive programs Another positive factor influencing productivity is the enablement of incentive or bonus programs based upon personal production. With the real-time visibility voice-directed picking provides to individual performance, companies can track and reward each worker for performing at or above corporate metrics. At any time, pickers can simply ask for their current performance status, ensuring that they are aware of their own performance level. This drives improved efficiencies and decreases order-cycle time. Accuracy aids productivity Improvements in pick accuracy (as discussed above) provide tangential benefits to warehouse staffing levels and pick productivity. For example: Reducing auditing reduces labor costs With a significant improvement to pick accuracy, the number of order auditors people in a quality assurance (QA) role can be greatly reduced. The time each picker spends validating accuracy can become far more selective. Dedicated QA staff can be redeployed to other warehouse tasks. ASN privileges Increased pick accuracy is a key qualifier for participating in Advance Ship Notification programs. ASN programs include entitlements, which can result in downstream delivery efficiencies including: Dock door delivery prioritization ( go to the head of the line ) Drop and go without inbound delivery audit (or token audit only) These special privileges extended only to high accuracy suppliers can easily reduce delivery times by two-thirds, permitting each driver to execute more deliveries every day. On-time: fewer job interrupts Picking orders correctly the first time helps all orders stay on track for timely delivery. Companies with high accuracy avoid losing time repeating picking and re-shipping orders a second time. This avoids de-prioritizing existing pick work in order to correct prior errors through high priority replacement orders. 8 The ROI of voice picking

9 Staffing improvements and labor savings Reduced staff turnover Voice picking contributes to a reduction in staff churn and turnover in a number of ways: Increasing the productivity of more senior workers reduces the need for entry-level or inexperienced workers (where churn rates tend to be higher) Increasing the productivity of new hires improves their effectiveness (success) and thereby their impact on the business Workers see the company investing more strongly in them and have an increased sense of value The cool factor of using modern technology (which also reduces the attraction to jobs at other companies not using similar technologies) Non-native speaking workers use the voice system as a way to build language skills in the predominate local language, increasing promotion opportunities (and their overall value to the company) Incentive programs (as previously mentioned) where individual performance can be recognized and rewarded Simplified hiring Voice-directed solutions simplify hiring, as there is less emphasis required on spoken or written language skills. The multilingual capabilities of voice solutions enable workers to work in the dominant local language, or a non-native language/dialect. Intelligrated voice solutions offer the following multiligual capabilities: System speaks to workers in 46 languages/dialects in 85 different voices System understands workers in 68 different languages/dialects Improved safety and reduction in lost-time Safer work environment Hands-free and eyes-up technology increases worker safety by removing distractions (such as looking down at paper or a device screen) enabling workers to be more aware of their surrounding environment. Increased awareness leads to fewer injuries and deaths, stabilizes staffing predictability and reduces legal liabilities while over sufficient time lowering insurance costs. Most safety benefits are realized outside the initial project payback period, but have valuable business impact nonetheless. For example: Reduces worker injuries caused by moving goods: both hands are free to handle items and workers are more aware of their surroundings. [Note that using two hands has also showed a reduction in product damage. Worker awareness helps avoid injuries from lift trucks. (In the United States, OSHA reports that 95,000 injuries annually from accidents involving powered industrial trucks). 9 The ROI of voice picking

10 Heavy equipment and lift trucks can lead to major injuries and in some cases, even death. According to the US National Institute for Occupational Safety and Health (NIOSH), a person is killed once every three days in an accident involving a lift truck. This is traumatic to all involved, and has also resulted in $1-2 million Legal settlement. The reduction in injuries, repetitive stress claims, and accidents has a cumulative effect on the cost factors (rating basis) for insurance taxes such as Workman s Compensation rates. On top of contributing to other factors such as Green Initiatives, becoming a paperless operation removing paper clutter and debris creates a safer work environment. Note: With the introduction of headsets, companies should follow safety best-practices. This includes using single-ear headsets to maintain workers environmental awareness, ensure cables have quick disconnect capability, and issues each worker their own headset for good hygiene practices. Greater regulatory compliance Another form of safety is the tracking of products and their sources (frequently driven by public health safety regulations such as the US Bioterrorism Act of 2002). Recent examples of tainted foods and dangerous lead levels in toys has accelerated government involvement and increased the requirement for traceability. Industry organizations are also promoting similar safety initiatives, such as Produce Traceability Initiatives (PTI) using global data collection standards such as GS1. Voice solutions at times in collaboration with other data collection like RF scanning or Radio Frequency Identification (RFID) easily captures key tracking information (production batch, lot number, dates, serial numbers, etc.), enabling companies to be in compliance with a growing number of local, national and international regulatory requirements. Inventory optimization and downstream improvements Real-time visibility into product availability enables companies to optimize inventory levels, accurately know what is on-hand (and where), and to quickly trigger replenishment activities. Voice picking plays a valuable role in inventory optimization by: Interleaved or stand-alone cycle-counting providing frequent validation of actual inventory levels Tracking storage location moves or transfers (preventing goods from being lost ) Identifying low or out-of-stock situations and damaged goods, triggering timely replenishments - avoiding incomplete orders or unproductive wait times, preventing backtracking or later re-picks, and optimizing lift use Companies can leverage this information to reduce the level of warehouse safety stock, greatly reducing inventory holding costs. Staffing costs associated with periodic physical inventory counts may also be reduced, as existing staff can be equipped via voice to perform cycle counting while doing other tasks. If erroneous deliveries are being made to companyowned retail outlets, then the absence of expected items becomes lost company revenue. Items not present are items that are not sold to meet existing demand. If un-ordered items are received and sold at a special discount to avoid return costs margins are also negatively impacted. 10 The ROI of voice picking

11 Going green Voice-directed technology can even help enable more paperless operations which can lead to: Reduction in fixed assets Reduction in material costs Less support staff time and costs Voice technology enables work to be accomplished with fewer workers. This can reduce the capital requirements for lift trucks and related fixed assets which support picking operations. Optimized routing of lifts further reduces the replacement cycle for consumables such as batteries and propane. Voice can also remove the need to print orders, reducing consumables (paper reams, toner, drums, etc.) and the need to replace printers as frequently. Migrating to paperless operations (save for labels) also reduces administrative staff time. No longer does the office staff need to spend hours creating and distributing paper orders, or subsequently keying in pick confirmations, pick amendments and order details like catch weights. Improved operational agility Today s consumers have increasing expectations and this has tremendous impact on the warehouse. As consumers desire more choice, the number of products (SKUs) increases. As customers product loyalty becomes more transient, slotting for high-movers versus slow movers is ever-changing. To meet such demanding supply chain dynamics, companies increasingly invest in advanced warehouse optimization software. These systems guide the best placement of goods given current demand, provide the most efficient picking routes and pick strategies, handle replenishment and inventory control, and interleave staff tasks. 11 The ROI of voice picking

12 Voice technology has a key role in these advanced strategies, providing real-time visibility and voice direction to workers across the warehouse. As operational strategies change, much of it is transparent to workers as they merely continue to respond to voice directions. For example, a worker may be unaware that pick strategies have shifted from batch to zone picking. Their work remains constant - they hear where they are to go and pick the items as directed. This transparency suits the dynamic nature of warehouse operations by allowing managers to better: Change pick strategies Change SKU locations Introduce new SKUs When companies want to introduce new processes to workers, the Intelligrated voice picking solution simplifies training and provides ever greater flexibility to not only extend voice to improve operations, but extend bottom-line savings. Summary A range of financial analysis methods can be run on a voice project. The most popular and most effective include: Breakeven on year 1 investment (in months) Return on investment (ROI) Net present value (NPV), at a given discount rate Internal rate of return (IRR) Project income statement (accrual basis) Project cash flow statement (excluding depreciation) Payback example As pointed out in the Introduction, most business cases are stated using the fewest number of benefits necessary. This approach is popular as it sets very achievable expectations and makes the project story easy to understand and support. Voice-directed picking is no different. Most business cases are built solely on three Primary Benefits, as illustrated by: Using Primary Benefits Only Savings Fewer ship errors $450,000/yr Faster picking $850,000/yr Fewer checkers $200,000/yr Annual Benefit $1,500,000/yr Monthly Benefit $125,000 Year 1 Cost $475,000 Breakeven 3.8 months Not only is this a simpler case to state, but contains the bulk of the financial benefits. Examining the contributions of secondary areas in comparison, holding costs constant, shows that the breakeven impact is incremental and not as impactful (or as often quantifiable) as with the primary benefits: Primary Benefits Savings Percent of ROI Fewer ship errors $450,000/yr 24% Faster picking $850,000/yr 45% Fewer checkers $200,000/yr 11% Secondary Benefits Effective new hires $75,000/yr 4% Faster deliveries $210,000/yr 11% Reduced OT $45,000/yr 3% Reduced inventory $35,000/yr 2% Insurance $2,000/yr 0% Annual Benefit $1,867,000/yr 100% Monthly Benefit $155,583 Year 1 Cost $475,000 Breakeven 3.1 months 12 The ROI of voice picking

13 Typically, all are built upon real-world quantification of each voice benefit (those discussed in this paper). It s important to identify the method that not only best fits your corporate requirements, but also allows you to track the necessary metrics to truly determine the success of your implementation. With the availability of more applications using voice, companies can realize more incremental gains in ROI and quicker payback. Interleaving operations and expanding across the warehouse is just one of the intangible benefits of utilizing voice technology in more and more applications. Being able to track accurate inventory location and levels at any point in time fully drives velocity and efficiency in your fulfillment process and aligns your operations with your customer demand, without sacrificing service levels. Voice has proven its value and over-delivered in its results time and time again. The time to invest in voice technology to improve your bottom-line is here. A best-practice to keep in mind Build the business case for voice-directed picking on fewer (primary) cost justifications, which are sufficient to make a simple yet compelling financial case. Track both primary and secondary benefits following deployment, to enjoy an upside and an even faster path to investment payback. Innovative, with the most forwardlooking technologies While this white paper has been narrowly focused on the use of voice for picking, you should not think of limiting the technology to just warehouse tasks inside the four walls. Blend Voice with scanning, lights, keyboard/display, RFID, RTLS, and GPS. Voice solutions provide value to mobile employees whenever handsfree operation proves advantageous over other user interface methodologies, including: Receiving The accuracy of the receiving process is increased as the receiver focuses on one thing: receiving the product. The rate of receiving also increases as the receiver is not interrupted with stopand-start steps in the process. Put-away Can be automated to meet the specific needs of the WMS and match the demands of each environment. Using voice provides advantages and benefits, regardless of whether an operator is performing driver- or system-directed put away. 13 The ROI of voice picking

14 Replenishment Workers focus on the timely moves of pallets or cases being dispensed, as well as the location where the work is being done. Voice enables multi-tasking so the worker can carry out the replenishment and confirm the activity all at the same time. This results in better performance and real-time data collection while increasing task accuracy. Cycle-counting (inventory) Whether it s integrated as part of the picking process in order to update low quantity items, or as an ad-hoc or standalone application that helps maintain more accurate inventory levels, cycle-counting is one application that has hard and soft payback benefits. Inventory no longer requires bodies and days to get counts; now you can have real-time updates every day to ensure you warehouse is moving at top speed. Temporary moves Moving product from a reserve location to a pick slot or from a storage location to a reserve location may be necessary to increase operational efficiency. The workers need to know where the product is moving from, how much needs to be moved, and where it s being moved. This can be easily managed with voice and provide real-time updates to pickers without creating skips or mis-picks. Packing By voice-enabling specific instructions or priorities for packing, the process can be integrated directly into the selection and delivery process in order to maximize worker efficiency and keep the orders moving from start to finish. Staging/loading Another peripheral application for voice that can help to utilize worker efficiency in the warehouse. Providing voice direction to lift drivers to stack and stage lanes as part of the inbound/ outbound side of fulfillment can help minimize errors and stops and starts due to reading screens. Direct loading can also be managed by voice, for operations desiring to skip staging. Cross-docking Moving products from the dock to the point of activity (e.g., piece putting) is critical to sustaining the flow of product through the warehouse and out to the customer. Integral activities that are powered by voice can help keep up with the needs and schedules of the outbound processes while helping drive worker efficiency and productivity. As with put away, cross-docking can help get the right products in place for the next step of the fulfillment process; helping better utilize your operators who can now do more in less time. Returns An integral part of many warehouses, managing returns can be a labor intensive and slow process. With voice, quickly breaking down, assessing, and delivering returns to the right step of the process can help to quickly update critical system information and reduce the cost of handling returns to help margins on those products. Value-added services Quickly incorporate valueadded services like tagging or labeling into your picking process or fulfillment process to maximize efficiency and keep up with order velocity. Create more consistent processes, eliminating the stops and starts and removing non-value add touches. Time & attendance Help improve your employee morale and eliminate time consuming start and end of shift operations; voice enable time and attendance as part of voice experience and get faster, more accurate data in real-time. 14 The ROI of voice picking

15 Determining the cost of an error No two companies determine the cost of an error or the definition of an error in the same way. Some need to retrieve, inspect and re-inventory improperly delivered items where others may simply write-off the incorrectly delivered goods. Some are sensitive to the cost of downstream lost sales, as deliveries are being made to company-owned retail outlets. Others calculate their costs per order (per delivery) instead of accuracy per line item. The following information illustrates examples of frequently reported expense categories. While not exhaustive, they serve as a good model of cost areas relating to order errors that can add-up and account for large buckets of operating costs if not tracked or improved. Many of these directly impact the workers using the voice systems and can more easily be measured. Some are upstream or downstream impacts that can provide additional savings opportunities but may not be as easy to track. Nonetheless, they are all examples of the further impact of voice across the enterprise. Administration costs Time is spent working with clients, validating errors and determining the proper course of correction Time spent re-issuing orders to correct errors Time spent adjusting existing invoices, issuing credits and documenting account actions Time spent administering the return material authorization (RMA) process Warehouse costs Time spent re-picking an order Time spent re-packing an order Transportation costs Time spent re-delivering an order Time spent collecting RMA items Return freight expenses for RMA returns, as applicable More warehouse costs Receive returned items, updating RMA information Inspecting returned items and deciding re-inventory status Put-away (return to inventory) Update inventory information Lost margin and revenue Lost profitability from selling mis-delivered items at an unusually deep discount Lost sales downstream at company retail outlets, due to lack of product 15 ROIWP Intelligrated. All rights reserved.