Mis-picks can easily cost eCommerce companies hundreds of thousands of dollars each year, if not millions. Nearly a decade ago, an Intermec and Pcdata survey found that each mis-pick costs a company $22, and other data estimated total annual losses at $400,000. Unfortunately, mis-pick costs haven’t gotten much better.
According to 2020 estimates, the average mis-pick now costs companies as much as $100. While the mis-pick rate in our industry is declining, thankfully, the volume of most companies has increased significantly. If your warehouse or 3PL has followed the industry average of inaccurate orders from 4% down to 2%, but you’ve more than doubled your orders since the early 2010s, you could be paying more for mis-picks today.
Here’s why we think that isn’t right.
This article was first published in May 2016. It was republished on May 26, 2021, and updated to reflect current industry research, data, and trends. For questions about this information or mis-picks in general, please contact us directly.
Your 3PL should pay you for mis-picks
Warehouses and 3PL’s are now flushing essentially half a million dollars down the drain each year. That cost grows as your company does better, either with more profitable products or as you increase order volume.
Mis-picks create a variety of costs. The 3PL or warehouse loses revenue from the order and must increase its labor use for the returns, reshipping, and more. 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 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?
Let’s break down the threat
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 22,000 mis-picks per year.
The good news is that your average warehouse or 3PL has cut their mis-pick rate in half since then. Let’s take the lower number and say this means a decline of 15,000 to 7,500 mis-picks per year. While that’s a significant decline, it likely doesn’t mean every business has reduced these costs.
That’s because the cost per mis-pick has ballooned to nearly $100. The lower rate of 7,500 mis-picks annually would still cost you closer to $750,000.
Expenses a mis-pick creates
Those thousands of mis-picks create a significant burden for your company and 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.
The true cost of mis-picks
No, this isn’t a Game of Thrones threat, but we at Red Stag Fulfillment 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.
Mis-picks 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 client (that’s you) loses time that could be used to sell more by having to explain why there’s a problem in the first place. And customers lose time by not getting the product they ordered on time.
Mis-picks cost you 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.
Mis-picks 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 mis-picks can also make a 3PL’s client look like it isn’t up to its competitors’ standards, leading to a poor reputation.
Mis-picks cost 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
Paying for a mis-pick will seem absurd to any 3PL that’s shipping out 7,500 to 15,000 mis-picks per client per year. However, 3PLs with a good track record and the proper technology in place won’t hesitate to make this commitment.
Mis-picks don’t need to happen at this rate. 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.
According to the latest data, 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
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.
These kinds of direct questions will give you a firsthand look into their process and how they’re willing to work with you.
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. As of 2021, our warehouse locations’ error rate is under 0.02%, meaning that a mistake occurs for one single order out of more than 5,000.
That’s 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.
After reading that, many people have questions about how the process works. Get your answers from one of our experts right now by contacting us here or calling 1-855-637-2830.