Warehouse and DC operational metrics – taking another look
This is a topic that I am always motivated to think about – at least twice a year. So, this is not my first pass at it. What motivates me the most is the "speed of change" we find ourselves in and the need to adopt the most useful metrics as a result. It’s not uncommon to drop some measurements and replace them with some that are more relevant in today’s changing business environment.
Operational metrics allow organizations to set and monitor benchmarks, facilitating the identification of areas that directly impact costs and customer satisfaction. The bottom line is: searching for and identifying areas for improvement.
Warehouse and logistics functions have typically been inundated with metrics and surely some are unique to each type of operation, requiring careful consideration of the ones which are essential. But, they usually begin with such performance factors as overtime, fulfillment speeds and accuracy rates.
So, it is important to prioritize a core set of metrics that align with cost and service level objectives; those that allow us to understand the trade-offs between desired operational execution, cost optimization, and service delivery.
Of course the first step is having access to accurate data on current operations. Without that data it is impossible to improve an operation that is not being measured.
Many companies are now realizing that their existing technology, including many with older or more traditional/early warehouse management systems – may not be capable of handling the agile requirements and the demand for real-time actionable data. Your WMS must be upgraded to capture and measure this. The quicker you can pivot and adjust processes to improve performance, the quicker you can take advantage of new improvement opportunities.
Once your metrics are identified, measurement must be done consistently and managed effectively.
Gartner, a research and advisory firm, has done a great service having recently reported on some of the top, and most commonly used, operational metrics to improve warehouse and DC performance.
They include:
1. Warehouse Capacity Utilization
2. Inventory Accuracy
3. Shipped Order Accuracy
4. Time From Dock to Stock
5. On Time, In Full
6. Order Processing Time
7. Inventory Shrinkage Rate
8. Order Fill Rate
9. Employee Turnover Rate
10. Warehouse and DC Cost As A Percentage of Sales
Taking a closer look, you’ll see that these can be assigned to categories such as:
1. Capacity
2. Process Quality
3. Completeness
4. Productivity/Timeliness
5. Cost
It’s a well-rounded group – and all are very important criteria in contributing to the “perfect order”, but initially some prioritization will be required.
In fact, I’d like to add-on a few of my own:**
1. Transaction cost per order line picked
2. Total lines per man-hour
3. Actual cost to deliver
**Note: The results of these 3 “add-on” metrics, above, can be very insightful. Also, they sometimes can be real “shockers” - to your own perceptions of reality. It’s why these 3 are the first group of metrics I request, from my clients, when opening a ‘warehouse improvement assessment’ engagement. It almost immediately helps develop a picture of the direction of further assessment needs and what the metric priorities should be. It won’t be the same for every operation.
From a project and improvement framework perspective, appropriate metrics implementation includes the following steps that should be demonstrated by operations management leadership:
1. Active Leadership: Define and prioritize your agenda and what you will measure at every metrics review meeting. Show your commitment to those metrics, monitor them personally, and provide goals guidance and support as well as foster a team performance culture.
2. Ownership: Conduct regular (meaning scheduled and consistent) metric review meetings that drive accountability. Have the owners of the metrics provide feedback and potential solutions. In particularly difficult situations, consider employing the “lean” tactic of “the 5 whys” (solving for root causes).
3. Colleague Engagement: Nurture a continuous improvement mindset. There’s always improvements to be made. Things change! Fully engage warehouse colleagues, who perform the work, during corrective action sessions. Full understanding of actual operations challenges and seeking improvement suggestions can deliver innovative results. Keeping the communications transparent fosters a sense of accountability with the team – motivating them toward achieving the desired objectives. It also fosters desired behavior and a mechanism to help employees be aware of how well they are meeting expectations.
4. Corrective Actions: Use timely and where possible real-time data. Again, this is another good juncture to utilize “the 5 whys” to identify the underlying causes. Develop a detailed action plan, the specific steps, timelines and resources required to take the necessary corrective actions. Keep track of progress and repeat the steps, reprioritizing as needed over time.
Caution: Assure that you don’t find yourself in endless discussion about the numbers, with no real actions, outcomes or impact on results. (It’s a situation I often witness.)
Surely, warehouse operations do encompass activities that are discreetly executed – but they are also interdependent in supporting overall efficient operations, Yes, it’s about receiving and put-away, cross-docking, picking, packing, custom value-added activities, shipping/dispatch, freight loading ,etc. – and potentially several other critical activities.
But the misalignment of metrics can lead to higher costs, reduced productivity - that negatively impacts customer satisfaction.
All good reasons to drive a prioritized ‘continuous improvement’ agenda. One that drives operational excellence!
Howard W. Coleman is principal of MCA Associates, a management consulting firm that works with wholesale distribution and manufacturing companies seeking and committed to operational excellence. Contact him at hcoleman@mcaassociates.com, 203-906-7268, or visit www.mcaassociates.com.
INDUSTRIAL SUPPLY MAGAZINE
The November/December issue of Industrial Supply magazine features an in-depth cover story about Kimball Midwest. Plus, we're featuring articles by contributing writers Dirk Beveridge, Frank Hurtte, and Mike Marks, as well as interviews with numerous product and distribution industry experts.
