Why 3PL’s Should Pay Clients for Mispick Errors

Warehouses and 3PL’s will essentially flush half a million dollars down the drain this year due to mispicks, according to a Pcdata USA report by Intermec. The global logistics system says each mispick costs $22, but a DC Velocity report a few years back suggested that it could be as high as $33. And that mistake is costing 3PL’s more than just man hours: mispicks also reduce customer satisfaction and even drive customers to competitors.

Let’s break it down

With $500,000 worth of mispicks each year, costing anywhere from $22 to $33 a pick, that’s about 15,000 to 22,000 mispicks a year.

These tens of thousands of mispicks mean warehouses are going to be paying for:

Wasted man hours for the original wrong shipping and packaging, and reprocessing the correct product. An Intermec survey estimates that nearly 3,000 man hours are lost at distribution centers each year because of inefficient processes.
Reduced inventory because mispicked items are unsellable until they’re back in stock.
Original shipping, which has already been paid for and is money they can’t get back.
Increased customer support is likely needed when customers call to see why they got the wrong package, and then figure out how and when they’re going to get the right one.
Return shipping is now a burden because of the original mistake.
Return processing and restocking the mistake as it comes back into the warehouse.
Second fulfillment of the correct product.
Reshipment of the right product this time.

3PL’s should pay more for their mistakes

Yes, we’ve just explained all the added and expensive costs of mispicks. So why should 3PL’s shell out more money when they’ve made a mistake? Well, the 3PL has already cost its client time, money, and possibly customers — and we think they should be compensated.

Mispicks cost time

The 3PL isn’t the only one losing time by shipping the wrong product, reprocessing it back in, and then shipping out the right one. Its clients are losing time that could be used to sell more by having to explain why there’s a problem in the first place. And customers are losing time by not getting the product they ordered on time.

Mispicks cost cashflow

If inventory is an investment waiting to be turned into liquid cash, then a mispick delays the selling of that investment and the ability to reinvest the cash flow into core operations. It may not seem like a big deal for smaller items, but on a grand scale, when 15,000 to 22,000 “investments” are mismanaged, it can spell trouble.

Mispicks cost customers

When products don’t come on time at a rate of 15,000 to 20,000 a year, customer bases can slip because of unreliability. Mistakes like mispicks can also make a 3PL’s client look like it isn’t up to its competitors’ standards, leading to a poor reputation.

Mispicks cost trust

When a 3PL sends out a mispick they lose some of the trust they’ve built up with their client, and their clients customers. A client trusts that their 3PL is going to get the right product out the door on time, and their customers expect to get the right product at the very least.

The right 3PL won’t hesitate to make that commitment

Paying for a mispick will seem absurd to any 3PL that is one of the warehouses shipping out 15,000 to 20,000 mispicks a year. However, those with a good track record and the proper technology in place won’t hesitate to make this commitment.

According to the Pcdata USA report, only 52 percent of warehouses have a 97 percent pick accuracy or higher, which should make the spines of any ecommerce business owner shriek with terror. So if you’re shopping around for the right 3PL for your business, ask them about their picking technology, their accuracy, and if they’re willing to pay you for each mistake. These kinds of direct questions will give you a firsthand look into their process and how they’re willing to work with you.

Some of the best picking technologies and systems to look for when deciding on a 3PL:

Automated goods-to-person storage and retrieval systems (ASRS) like: horizontal carousels, vertical carousels, and vertical lift modules (VLMs). These systems bring the products right to the operator, which cuts out walking and searching for the product.
Blind double-checks like not telling the packers how many of each product should continue into the parcel. This means the packers have to scan each SKU individually to make sure the correct number is there.

A 3PL with the proper technology and picking system in place understands how important its client’s time, customers, and trust are. Even though they’ve put state-of-the-art technology in place to keep their picking accuracy up, they’re willing to compensate their clients for the times it’s slipped, or when something goes wrong, because mispicks cost more than just the bottom line.

Source: Red Stag Fulfillment, Mispick Effect – Extremely Worrisome Report