Best-of-Breed Warehouse Performance

Dr Vijay Sangam, 09:33, 10 Sep 2010

Some time ago, we have reviewed the Warehouse KPIs and it time now to review the best-of-breed performance in order to bench mark the warehouse performance.  The data source is from DC Measure 2010, by Karl B. Manrodt, PhD and Kate L. Vitasek, published by WERC 2010.

The respondents were drawn from large corporations, medium size organizations and small industries.  The classification was based on company’s turnover.  The first group (31.9%) turnover is over 1 Billion US $, the second group (30%) consists of companies with turnover between 100 Million and 1 Billion US $ and the third group (38.15%) consists of companies below 100 Million US $.  In my opinion the grouping is balanced.

Some of the vital Key Measures:

If we review the top 10 metrics used by the companies (listed below) one can clearly understand how the focus has shifted to warehouse activities in order to improve overall supply chain efficiency.  All the below mentioned top 10 supply chain measures used by the survey participants are pointing towards operational efficiency.  It is a foregone conclusion that if we improve the efficiency/ productivity / cycle time, the overall operations cost would become efficient.

I have been monitoring the key measures for the last five years and I will highlight the improvement or decline in the performance level.  For the purpose of this article, I would be focussing on best-in-class performance, median performance, and the worst performance.  The logic is to understand the best performance and facilitate benchmarking.  The median performance will act as guidance for companies who cannot perform at the best-in-class rate and would continue to focus on improvement using median performance as a guide.  The worst performance is again used as an indicator for recognizing unacceptable performance.

I have divided the measures into five categories based on the nature and characteristics of the activity, the first one focuses on operations management, the second one deals with Inventory Management, the third one concentrates on Order Management, the forth one aims at Cost Management efficiencies, and the fifth one highlights Resources Management efficiency.

Operations Management:

I have included receiving, put-away, pick-n-pack and shipping activities.  In my opinion, Damage free receipts, Order pick accuracy, Cases and Pallets picking rate, complete order shipment and Damage free shipments indicate the operations management efficiency.

Please click the above graphic to magnify the image.

When we compare with 2009 best-in-class performance; dock-to-stock cycle time (23.33%) and cases picked and shipped per hour (12.11%) registered improvement in performance.  We have seen negligible efficiency improvement in handling material without damages.  We have seen decreased productivity levels in orders and pallets picked in an hour.

Inventory Management:

Inventory efficiency is the key indicator for Supply Chain efficiency, Inventory Shrinkage, Inventory in days of supply and Raw material and finished goods inventory on hand in days are considered as critical measures.  It is necessary to understand the difference between Inventory in days of supply and raw material and finished goods inventory on hand in days. Inventory in days of supply is calculated as shown below:

= Current (at the end of year/period) inventory value/ Total value of cost of goods sold.

Inventory in days of supply (13.64%) and Raw material in days (12.5%) shown improvement in 2010 compared 2009 results and this could be considered as tight inventory management as focus is to reduce inventory in the supply pipe.  We have seen 12.86% additional finished a goods carrying which is not in line with above two inventory performance indicators, this could also indicate lacklustre demand patterns noticed in the retail industry which could have caused additional inventory carrying.  Considerable (60%) improvement was noticed in case of product damages in the median group.

Order and Cost Management:

Order fill rate, Lost Sales, Distribution cost to sales are the key performance indicators in this segment.

Lost sales % and back order % has shown tremendous improvement in the best-in-class group.  This is an indication of supply efficiency.  As we all know both these performance indicators are interlinked.  The distribution cost has gone up by 20%, which could be due to low sales volume in $ and fixed warehouse costs.  Whereas the distribution cost per unit shipped has improved by up 94%, this is an indication of increase in number of units shipped but the sales value decreased; this could mean increased product discounts.  There was no increase in distribution cost in median group.  However, in-line with best-in-class results, we could notice improvement in cost of units shipped indicating increase in volume of units shipped.

Resources Management:

This is my favorite segment.  I strongly believe that time related positioning of resources is logistics management and logistics is part of supply chain.  Any improvement in this segment, I believe will have a direct impact on supply chain efficiency.  Warehouse Capacity utilization is an indication of business efficiency.  Equipment utilization and Human Resources turnover indicates how well warehouse operations are managed.  Last but not least workforce productivity is the proof of happy workforce.  In my opinion, happy workforce will contribute high productivity.  In order to achieve this both workers and management are equally responsible.  I am sure by this time you would have understood why this segment is my favourite.

Honey Comb %: Actual cube utilization/Total warehouse cube positions available.

All in all we have seen improvement in all performance measures.  There is a slight (3.16%) dip in the workforce productivity.  However, HR turnover has shown some great improvement. These two measures analysed together reflect the impact of financial recession.  We have seen salary cuts and uncertain job market.  I believe these two factors could have influenced these performance indicators.  However, we could see improvement in case of productivity levels in median group to an extent of 2.35%.  Any improvement in productivity irrespective of the quantum is always welcome and it is a good sign.

I would like to emphasize once again that warehouse operation is the key to the success of any supply chain.  Unless product moves seamlessly within supply chain, no supply chain would be successful.  This is a great job by the authors; I look forward to reviewing 2011 performance.

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