Ti’s consulting department is frequently asked about operational benchmarking and best practice in the warehouse. Although it might seem relatively straight forward to measure efficiencies and performance of warehouse activities against a peer group, the range of different benchmarks, their definitions and the difficulties involved in measuring them can prove to be a major challenge.
There are many good reasons why it is critical for warehousing operations managers to continuously measure performance and productivity. One of the key benefits is that it ensures that customer expectations are being met. Beyond this, metrics provide a baseline against which improvement targets can be set and progress measured. They also provide visibility for managers, allowing potential problems to be identified and addressed before they become critical.
Not all benchmarks are as important to each company or indeed to each department within a company. For example, retailers are more likely to have consumer/investor centric priorities which emphasize KPIs, such as on shelf availability of product or costs as a percentage of sales. 3PLs may be more interested in operational centric benchmarks such as percentage pick accuracy and units picked per man hour. Whereas a retailer could use the data generated to establish the cost to serve a particular retail format, such as e-commerce versus bricks and mortar, a 3PL may look at how it can drive down costs and at the same time achieve bonus payments or reduce penalties for lower than agreed service levels.
The importance of benchmarks will also vary depending on the internal department using them. For instance, ‘receiving’ will be measured on the reduction of dock to stock time; ‘customer service’ on reduction of order processing time and ‘picking’ on accuracy improvements and increased productivity.
WHAT ARE THE KEY BENCHMARKS?
The Warehouse Education and Research Council (WERC), a US based organization, undertakes a regular survey of the most widely used and important metrics. In 2018 the survey found that the top ten metrics were:
The wide-ranging categories used indicate that, contrary to many people’s perceptions, warehouse key performance indicators relate not just to operational functions such as time taken to put away goods on racking or the Dock to Stock Cycle Time. One of the features evident from this list is the number of employee metrics which make it into the Top Ten. This is perhaps a result of pressure on labour, and the resulting implications for workforce related costs.
USING BENCHMARKS EFFECTIVELY
Improving overall warehouse performance is not as simple as making each individual process more efficient, as, with all complex systems, focusing on separate processes without consideration to the system as a whole can be counterproductive or, at least, result in suboptimal outcomes. As Andrew Johnson of Texas A&M University comments, ‘If the results of analysis show some ratios indicate good performance while other indicate poor performance it is not clear if the warehouse as a whole is performing well. Further changes made to improve a single performance measure may have a detrimental effect on other ratios. A system of metrics should be used much more holistically to ascertain the efficiency and effectiveness of a distribution centre and ultimately how customer expectations can be met at the lowest possible cost.
One example he uses is very apposite to the trend towards automation in warehouses. He identifies that by substituting automation for labour, on some ratios it may seem as if a warehousing operation becomes more efficient, for example, ‘lines shipped per (labour) hour’. However, this does not take into account the capital which has been invested in the automation. Although, automation is assumed to lead to greater levels of efficiency, a more holistic approach is required to measure overall output, taking into account all the ‘inputs’ which go into a warehousing operation.
Used intelligently, the data generated by measuring key benchmarks can be used to balance the cost of serving a customer against the cost of providing the service. According to Rushton, Croucher and Baker in The Handbook of Logistics and Distribution Management (2010) the closer a provider comes to 100% customer service, i.e. on time and in full shipment, the more steeply the cost of providing the service grows. Improving service from 95% to 100% is far more costly than improving from 70% to 90%. Benchmarks should be used sensibly to support service improvements and the cost implications of these improvements understood by management and customers alike.
Benchmarking is a critical tool for managers to assess and improve warehouse operations although it should not be regarded as a panacea. A holistic approach is required to increasing overall warehousing performance as improving some metrics may have a negative impact on others. Investment in automation may improve efficiencies, but only at a cost, and for many companies there may be much easier, cheaper and faster ways to the same goal through analysing and implementing organizational and process improvements.
It can also be problematic to compare operations due to the diverse nature of customer requirements, product attributes and external factors such as real estate, labour costs, environmental or risk considerations. Alternative factor- rating methods may prove to be just as effective.
To summarize, used intelligently and with a set of achievable goals in mind, benchmarking of warehouse performance is a highly effective way to improve customer service, operational efficiencies and drive down unnecessary costs. Interpreting and acting on the results is key to this success.
Source: Transport Intelligence, April 18, 2019
Author(s): Ti Research Team
Ti’s Consulting Practice has many years’ experience of helping manufacturers, retailers and logistics companies with their warehouse and logistics operations, both in developed and emerging markets.
This Brief is an extract from a paper on benchmarking warehouse performance by Ti’s CEO John Manners-Bell, and Tony Walford and Zen Yaworsky, Senior Consultants at Ti. The paper is available exclusively to GSCi subscribers.
For more information on Ti Consulting or GSCi, contact Michael Clover, Ti’s Head of Commercial Development at [email protected]
