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February 3, 2023

9 Essential Steps to Setting Up Your E-Commerce Warehouse

Setting up an efficient e-commerce warehouse and fulfillment center is getting much more complex with the rise in omnichannel. eCommerce warehouses must be flexible than ever in order to meet the customers' expectations and rising demand.

Warehousing and shipping is a critical piece of your business as an eCommerce merchant. While setting up an e-commerce warehousing and order fulfillment center for your eCommerce business doesn’t require a Ph.D. in logistics, it does call for a bit of planning if you want your business to run smoothly.

This post is your guide to doing just that. Let's take a look at the nine steps to setting up your warehouse.

1. 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 multiply that number by the footprint of your average pallet or carton.

It’s okay 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. Too often warehouses calculate only the storage space that they need, without adequately taking into account other warehouse operations.

Once you calculate the storage space you need, consider that you will need to have adequate space for each of these stages:

  • Receiving (including unloading, quality control checks, and labeling areas)
  • Storage
  • Growth
  • Forward staging (incorporate space for at least one day’s worth of orders)
  • Shipping quality control
  • Pallet breakdown areas
  • Extra area for returns and “dead” stock
  • Depending on size, additional areas for whole staging, value-added processes, and so on

2. Determine your essential equipment

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 equipment: 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 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.

3. Find ways to automate repetitive processes

Automation is a surefire way to improve efficiency. eCommerce has already made the browsing and buying process much more efficient through automation. Why not do the same for your warehouse when products are processed and shipped?

Automation doesn't have to be a complete change to your warehouse. In fact, the best automation centers around small investments in single-task machines. Take the following as examples:

  • Bar-code scanners 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.
  • 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 prevent repetitive stress for your employees.

4. 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.

A good warehouse management software (WMS) is superior at picking optimized pick paths for a warehouse instead of doing it manually. 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 help you:

  • Stay up to speed on the different order picking methods to understand which one works best for your facility.
  • Ensure your picking order is linear, with warehouse employees completing their picking run at a location close to the final shipping area.
  • Fulfill your orders in such a way that individual items in one area are picked before moving to the next area.
  • Store items that are often purchased together near each other.

Remember, if warehouse employees have to backtrack or are frequently crossing paths, you’ve done something wrong.

5. Establish warehouse guidelines

At this stage, it’s time to start drawing up some warehouse policies and guidelines for your workers. Proper pick paths are just the start; you’ll also need to consider safety procedures, workflow, and quality control/order accuracy.

Safety procedures: Be sure 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 ensure your staff has proper training on them. You can even go as far as to advertise these regulations. One easy way to do this is by putting 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.

6. 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 WMS.

There are many offerings in this category, at many different price points, and with different capabilities. 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
  • Scalability

7. Integrate your systems

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 new 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. 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.

8. Define KPIs and set up data collection

Monitoring your warehouse metrics and KPIs help 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 a good pick path is!

9. Learn from mistakes

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 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! Want to chat about your setup and needs before diving in? Simply  reach out to our team. We promise, no cheesy sales pitches. Materialogic is committed to working with you to determine the best logistics management plan for your organization.

This article was originally published on our sister site Infoplus.

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