Mis-picks can easily cost eCommerce companies hundreds of thousands of dollars each quarter. If your error rate is above the industry average (about 2% to 3%), then you likely face millions of dollars in lost revenue each year. That’s a huge problem.
Nearly a decade ago, an Intermec and Pcdata survey found that each mis-pick costs a company $22, with total annual losses at around $500,000. However, study updates in 2020 show that the average cost of a mis-pick has risen to $100. While the mis-pick rate in our industry is declining, thankfully, the volume of most companies has increased significantly.
That means each mis-pick is costing you more and you’re likely experiencing more mis-picks each year.
Even if you’ve kept up with the declining error rate, say down from 4% in 2010 to 2% now, simply doubling your orders means you’re losing more money. We don’t think any eCommerce business should put up with that terrible picking accuracy rate. Here’s our take on picking errors and why your customers should never get an incorrect item sent from your distribution center.
What is a mis-pick?
In the logistics space, a mis-pick happens when a warehouse employee who is gathering items for an order makes a mistake and picks an incorrect item off of the shelf. This can be human-error when they grab the wrong item or the fault of warehouse management software that prints an order incorrectly.
We call the process of getting the right items together for your customers’ orders, “order picking.” The number of times your fulfillment team, or an outsourced partner like Red Stag Fulfillment, gets an order out the door correctly, divided by the total numbers of orders sent, is the picking accuracy. Red Stag promises a 100% rate, and we think that’s something you should expect from any partner.
Outside of the warehouse, you’ll likely hear the term mispick used for an error in textiles. When there is a defect, especially in woven items, they’ll be called mispicks because of mistakes during the creation process. It’s likely there’s some shared etymology here.
Your 3PL should pay you for all mis-picks
Warehouses and 3PLs are essentially half a million dollars down the drain each year when they let mis-picks reach the industry average.
The threat to you is that as your orders (and order values) grow, mis-picks occur more and cost you more. The better you do, the greater your risk. And with customers getting more willing to return items and ask for replacements, often at two-day shipping speeds and costs, the more it’ll hit your balance sheet.
Mis-picks create a variety of costs across warehouse and operational processes. Here are a few:
- The warehouse loses revenue from the order and must increase its labor use for the returns, reshipping, and more. If you outsource fulfillment, a low-quality 3PL may pass some of these costs on to you.
- Your business suffers because customers aren’t getting what they ordered. That reduces customer satisfaction, and a complex replacement process can drive them to competitors.
- You’re paying for more shipping as products are returned and the a replacement is sent. This can easily eat away your entire profit margin because that’s three shipping costs for a single order.
- You’re also forced to tie up more revenue in inventory and may lose some product value outright, especially if the goods delivered aren’t returnable.
We don’t think your business should pay for a 3PL’s mis-picks. It’s not your mistake, so shouldn’t you be made whole?
Mis-pick costs and threats
As we’ve noted, mis-picks are likely getting more expensive for your operations, especially compared to the early 2010s. The original research we looked at from 2013 noted mis-pick costs ranged from $22 to $33 per pick and a total cost of roughly $500,000 annually. That averages out to between 15,000 and 22,700 mis-picks per year and generally represents a 4% error rate.
The good news is that warehouses, on average, have cut their mis-pick rate in half. So you’re only facing a mis-pick on 2 out of every 100 orders. But increased inventory, shipping, freight, and warehousing costs have ballooned the cost-per-mis-pick up to $100. So if your business didn’t grow at all, a 2% rate would still cost you between $750,000 and and $1,135,000 due to mistakes on between 7,500 and 11,300 orders.
However, if you doubled your sales volume over the past decade, you would double the number of mis-picks too. So, you’d increase back to the 15,000 to 22,700 mis-picks we started with, while costs rose dramatically to $1.5 million to $2.27 million.
Why are mis-picks so expensive?
Those thousands of mis-picks create a significant burden for your company and your warehouse, whether you run it or outsource to a 3PL. Some of the most common costs mis-picks create include:
- Wasted labor for the original wrong shipping and packaging, plus reprocessing the correct product. Some projections put this as high as 3,000 hours of labor due to errors and inefficient processes.
- Reduced inventory because mis-picked items are unsellable until they’re back in stock.
- Original shipping, which has already been paid for, is money you can’t get back.
- Customer support demands increase as people report and work to resolve incorrect orders.
- Return shipping is now a burden because of the original mistake.
- Return processing and restocking the mistake can slow down other order fulfillment.
- Costs of the second fulfillment of the correct product, including shipping, packaging, and time.
Deeper troubles of mis-picks
We at Red Stag think that 3PLs like us should pay for the mistakes we make. It isn’t your fault, and you’ve got added work to keep the customer happy. So, you should be made whole.
Some issues that mis-picks cause are harder to quantify in dollars. There are some threats to your time, patience, and sanity involved with mis-picks, whether they happen at your facility or at a partner’s.
Mis-picks cost executive 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. You lose time because your customer service agents have to explain the error and resolve it. Finance teams need to spend time determining how much these mistakes will cost you and if your business needs to adapt.
High mis-pick rates do real-time damage to a brand and are about more than incorrect items or the wrong quantity. Red Stag was created because our founders experienced such high mis-pick rates with a partner that it put their business at risk. We work to eliminate that threat from all of our partners’ businesses.
Mis-picks disrupt cash flow
If inventory is an investment waiting to be turned into liquid cash, then a mis-pick 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 a partner mismanages 7,500 to 15,000 “investments,” it can spell trouble. Cutting into your cashflow makes it more difficult to restock, move freight, and take other actions in your supply chain. It impacts the entire bottom line of your organization.
Mis-picks put customers at risk
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 mis-picks can also make a 3PL’s client look like it isn’t up to its competitors’ standards, leading to a poor reputation.
How many times are you willing to buy from a company that sends the wrong items?
Mis-picks harm supply chain trust
When a 3PL sends out a mis-pick, they lose some of the trust they’ve built up with their client and the client’s customers. You trust that your 3PL will get the right product out the door on time, and your customers expect to get the right product at the very least.
How RSF responds to mis-picks
The average fulfillment company mis-picks and sends 2% of all orders out incorrectly. For you, that means the fantastic milestone of landing 1,000,000 sales this year would come with 20,000 inaccuracies. It’s enough to make the spines of any eCommerce business owner shriek with terror
Mis-picks don’t need to happen at “industry average” rates. Red stag Fulfillment has an error rate of less than 0.02%. That means we get just 1 out of more than 5,000 orders wrong. When fill your 1 million orders, that’s roughly 200 mistakes. And we make you whole for every single issue.
So when you’re shopping for the right 3PL partner, ask them about their picking technology, their accuracy, and if they’re willing to pay you for each mistake. Direct questions about leading technology will help you understand their process and how they work with you. Two things to consider are the use of:
- Automated goods-to-person storage and retrieval systems (ASRS). These systems include carousels and vertical lift modules that bring products right to the picker, eliminating searching around the warehouse.
- Blind double-checks, such as not telling the packers how many of each product to include before they start packing. This means the packers must scan each SKU individually to ensure the correct count.
You should be paid and protected
In a perfect world, every customer gets exactly what they order and are always happy and ready to buy again. While we can’t promise all of that, Red Stag Fulfillment does our best to ensure that every order goes out accurately and on time.
We get it right more than 99% of the time, which is close to perfect but not quite. So, we fix our mistakes too. If an order is shipped out incorrectly, we fix it. Not only are the correct items sent to your customer, but you don’t pay for that shipment, and we pay you $50 for the inconvenience.