Measure What Matters
Today’s warehouse managers often accrue massive amounts of performance data, but commonly find that little of it is truly applicable towards making productivity gains or improvements to customer service. Instead of becoming overwhelmed with more data, managers should identify and focus on the most useful metrics to gather, report and apply.
By using tools or modules often found in many of today’s leading warehouse management systems, key data is automatically captured over a specified time period (such as one month) and is displayed and reported as graphs and trends supported by the underlying data.This should make it easy to quickly identify problems - if the right things are being measured.
When taking on the task of implementing new measurement tools and best practices, consider starting first with what your customers care about most - the Perfect Order. Every warehouse strives for perfect orders in which customers consistently receive the right product, on time, undamaged, and with the correct documentation. With virtually error-free shipments, customer satisfaction increases and customer support costs decrease.
The Perfect Order is typically considered to be a calculation of the error-free rate of each stage of a purchase order. When a customer has a problem with an order received, they notify their distributor. The distributor then tracks the error with “reason codes” and assigns the reason codes to categories such as Warehouse Pick Accuracy, On Time Delivery, Invoice Accuracy etc. For example, Warehouse Pick Accuracy might have 5 errors out of 10,000 lines, therefore accuracy is 99.95%. If On Time Delivery is 99.2%, Invoice Accuracy is 96%, Shipped without Damage is 99% and Order Entry is 99.8%, then the total Perfect Order metric is 94.04%.
Several additional recommended metrics to consider when evaluating a warehouse’s order performance include:
Once these order metrics are well in place, consider key metrics for tracking and managing inventory. With the right inventory tools, distributors and wholesalers know at all times exactly what’s in the warehouse, where it’s located, and when it needs to be replenished. With greater inventory accuracy and control there is less overstock/deadstock, higher turnover, and better data for financial planning.
Key inventory measurements include:
The next recommended area of measurement, and the one that matters most to the CFO, is expense control. Specifically, this data looks at the total cost of the warehouse as a percent of company sales. Warehouse costs typically include direct and indirect labor, employee benefits, supplies, operating equipment and maintenance, rent, utilities, and depreciation.
Expense control also measures the cost of logistics (transportation) as a percent of sales, as well as sales and lines shipped per warehouse employee per hour.
Once enough warehouse transaction data points have been accrued, it is easy to establish some realistic productivity standards. Consider benchmarking the warehouse cost structure and productivity per person against other distributors. Or, benchmark against industry survey results such as the annual survey conducted by Georgia Southern University and the consultancy Supply Chain Visions.
As a practical matter though, measuring progress against the targets a warehouse manager has set for his/her own operation is most useful. This is because performance is dependant on a variety of unique factors. It varies depending on processes, specific customer expectations, type of items (weight and cube), automated material handling infrastructure, etc.
Over time, consider leveraging these key metrics by applying new variables. For example, a warehouse employee incentive might spark a dramatic improvement in the “perfect order” numbers. Chart the impact. And continue to seek only those key data points that truly demonstrate the contribution of the warehouse to the company.
About the Author
Eric Allais is the President and CEO of PathGuide Technologies, a leading provider of warehouse management solutions for wholesale and industrial distributors across North America. For more information visit www.pathguide.com.