metrics, benchmarking & best practices

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Metrics, Benchmarking& Best Practices

Increasing DC Productivity & Efficiency

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• Why qualitative and quantitative benchmarking go hand‐in‐hand

• Critical warehouse metrics – WERC’s DC Measure Study. Where does your company stand?

• A step‐by‐step description of an approach to benchmarking.

• WERC’s Assessment Program

In this session…

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“If you can’t measure it, you can’t manage it.”

~ Peter Drucker

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“The process of improving performance by continuouslyidentifying, understanding, and adapting outstanding practices and processes found inside and outside the organization.

Benchmarking (seeks) to improve any given business process by exploiting "best practices" rather than merely measuring the best performance. Best practices are the cause of best performance. Studying best practices provides the greatest opportunity for gaining a strategic, operational, and financial advantage.”

The American Productivity and Quality Center (APQC)

Benchmarking is…

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Improve Bottom Line

Improve Metrics

Improve Processes

What we know…

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Financial Metrics

Source: 11h Annual DC Measures Study, 2014.

How do we know?

0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00%

Median

Best‐in‐Class

Distribution Costs as a Percent of Sales

Median Best‐in‐Class

>2%

4%

$0.00 $0.10 $0.20 $0.30 $0.40 $0.50 $0.60 $0.70 $0.80 $0.90

Median

Best‐in‐Class

Distribution Cost per Unit Shipped

> .30¢

.86¢

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Quantitative

Qualitative

Quantitative Benchmarking Data is Good… but it is not Good Enough

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Financial measures tend to be lagging indicators.

Leading Indicators (Performance Drivers) Lagging Indicators (Outcome)

Limitations of Traditional Financial Measures

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Leading Indicators…• On‐time Shipments• Lost Sales (Percent of SKUs Stocked Out)• Dock‐to‐Stock Cycle Time, in Hours• Order Fill Rate• Pallets Picked & Shipped per Hour• Distribution Costs per Unit Shipped• Peak Warehouse Capacity Used• Material Handling Damage• Percent of Orders with On‐time Delivery

There are hundreds of metrics referencedacross industry associations

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Research Team:Karl B. Manrodt, Ph.D. Professor, Georgia Southern University

Donnie Williams, Jr. Assistant Professor of Logistics, Georgia College and State University

Joe TillmanCTL Founder ‐ TSquared Logistics LLC

10

The WERC Research Team & Partners…

Research Sponsor:Research Partner:

Data Licensed By:

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Other10% C‐Level

5%Senior VP

14%

Director29%

Manager42%

Who is in WERC’s Study… Who’s reporting

This year’s combined survey had over 600 participants of which 424 provided usable responses

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Who is in WERC’s Study… To whom they report

Other, 8.0%C‐Level / Board of Directors,

32.0%

Senior VP, 33.0%

Director, 24.0%

Manager, 3.0%

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Who is in WERC’s Study… Breakdown by Industry

Wholesale Distribution, 3.7%

Utilities/Government, 1.8% Life Sciences ‐

Pharmaceuticals, 1.8%

Transportation Service Provider, 4.6%

Manufacturing, 32.1%Retail, 21.1%

Third Party Warehouse, 19.7%

Life Sciences ‐Medical Devices, 4.6%

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Who is in WERC’s Study… Nature of Work at the Facility

Majority (66.8%) focus on case picking vs. pallets

Type of Operation % ofTotal

% Casevs. Pallet

Broken Case Picking 37%66.8%

Full Case Picking 29.8%

Full Pallet Picking 12.9%33.2%

Partial Pallet Picking 20.1%

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Manufacturer Wholesaler/Distributor Retailer

18.6% 36.7% 22.3% 22.3%

End User/Consumer

Respondents serve customers across the supply chain

Who is in WERC’s Study… Primary Customer Served

www.werc.org0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0%

> $1 Billion

$100 Million to $1 Billion

< $100 Million

20142013

31.9%

37.4%

36.2%

34.8%

31.9%

27.7%

Who is in WERC’s Study… Demographics by Company Size

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Metric In Order of Popularity – 2014 2013 Rank 2012 Rank

1. On Time Shipments ‐ Customer 1 1

2. Internal Order Cycle Time – Customer 2 5

3. Total Order Cycle Time – Customer 4 6

4. Dock to Stock Cycle Time, in Hours ‐ Inbound Operations 3 4

5. Order Picking Accuracy – Quality 5 2

6. Lines Picked and Shipped per Hour – Outbound Operations 6 8

7. % of Supplier Orders Received Damage Free – Inbound Operations 8 12

8. Average Warehouse Capacity Used – Capacity 9 3

9. Peak Warehouse Capacity Used – Capacity 12 7

10. Lines Received and Put Away per Hour – Inbound Operations 7 11

11. Backorders as Percent of Total Orders – Customer Not in Top 12 Not in Top 12

12. % of Supplier Orders Rec. w/ Correct Documentation – Inbound Ops. 11 Not in Top 12

The most popular metrics are…

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And the metrics are…

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On Time Shipments (1)Customer Metrics

19

98.5% 98.5% 98.5%98.7%

99.0%

99.8% 99.8% 99.8% 99.8% 99.8%

97.5%

98.0%

98.5%

99.0%

99.5%

100.0%

2010 2011 2012 2013 2014


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Internal Order Cycle Time (2)Customer Metrics

20

24.0

12.0 13.016.0

12.0

8.2

2.2 3.0 4.0 3.40.0

5.0

10.0

15.0

20.0

25.0

30.0

2010 2011 2012 2013 2014


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© Supply Chain VisionsSource: WERC’s “Warehouse Manager’s

Guide to Benchmarking”, 2nd Edition (2010)

PlanStep 1: Set benchmarking priorities

Step 2: Identify the key processes to be assessed

Measure Step 3: Collect data ‐ operational and managerial

Compare

Step 4: Research and compare best‐in‐class performance to internal and external standards

Step 5: Identify gaps and reasons for low performance

Step 6: Develop an improvement roadmap and set priorities

Act Step 7: Close gaps and improve/refine processes

Seven Steps to “Successful Benchmarking”…

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Plan – Step 1: Set Benchmarking Priorities

The best place to start is with a vision statement and values.

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Consider narrowing down your list of what you would like to benchmark against

Plan – Step 2: Identify Key Processes

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Measure –Step 3: Collect Data – Operational & Managerial

• Yourself (other locations)• Customers• Formal benchmarking services• Industry Associations

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Trade AssociationsNetworks

Governments

Measure

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Compare QuantitativeStep 4: Research & Compare Best‐in‐Class Performance

2014 WERC DC Measure Report…

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Compare Qualitative

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An example of this…Receiving and Inspection – Process Benchmarks

ProcessGroup

Poor Practice

Inadequate Practice

Common Practice Good Practice Best Practice

InspectionNo inspection process at receipt

Insufficient inspection to identify non‐conforming product, essentially checking for damage only.

Sufficient inspection to identify non‐conforming product. Failing product is quarantined to prevent use

Sufficient inspection to identify non‐conforming product which is then quarantined to prevent use or referred to suppliers within a prescribed timeframe

Inspection process results in quarantine, immediate notification to suppliers & carriers and initiates return process

Cross Docking

No process to identify or expedite products

No cross docking processInformal expediting of products

Informal process with manual lists are kept to support cross docking of products needed for current orders and replenishment,

Formal but manual process for cross‐docking or immediate replenishment requirements for received product not in inventory but needed for current orders

System‐enabled alerts for incoming product’s immediate order requirements, creating a cross‐docking or immediate replenishment task upon receipt

29

Compare – Step 5: Identify Gaps

• Review Process Attributes and Score Each Process Group

• Scoring of the Receiving Inspection Process is Assessed as Inadequate Practice

With process standards you can rank selected processes against the standard and identify the process changes required to achieve the target

Source: WERC’s “Warehouse Manager’s Guide to Benchmarking”,

2nd Edition (2010)

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Compare Step 5: Identify Improvement RoadmapWarehouse & Fulfillment: Gap Analysis

ProcessRank

Gap Poor Practice1

Inadequate Practice2

Common Practice3

Good Practice4

Best Practice5

Receiving & Inspection

Material Handling & Putaway

Slotting

Storage & Inventory Control

Warehouse Management Systems

Shipping & Documentation

Picking & Packing

Load Consolidation & Shipping

Source: WERC’s “Warehouse Manager’s Guide to Benchmarking”, 2nd Edition (2010)

Warehouse & Fulfillment: Road Map Rating Tool

Process Strategic Impact Cost/Performance Impact Total Rating Gap



Slotting




Picking & Packing


Compare

High ImpactMedium Gap

Low Impact

High Gap

Low Gap

Highest Priorities in Red Secondary Priorities in GreenMedium Impact

6

6

4

5

5

2

6

4

Source: WERC’s “Warehouse Manager’s Guide to Benchmarking”, 2nd Edition (2010)

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CompareStep 6: Identify Improvement TargetsWarehouse & Fulfillment: Gap Review

ProcessRank

Gap Poor Practice1


Common Practice3

Good Practice4

Best Practice5



Slotting




Picking & Packing

Load Consolidation & ShippingSource: WERC’s “Warehouse Manager’s Guide to Benchmarking”, 2nd Edition (2010)

CompareStep 6: Identify Improvement Targets

Twelve Key Metrics Major Opportunity Disadvantage Typical Advantage Best in Class

Customer Metrics

On time shipments

Internal Order Cycle Time

Total Order Cycle Time

Operations Metrics

Dock to Stock Cycle Time, in Hours

Fill Rate ‐ Line

Lines Received and Put Away per Hour

Percent of Supplier Orders Received Damage Free

Lines Picked and Shipped Per Hour

Capacity and Quality Metrics

Average warehouse capacity used

Order Picking Accuracy

Peak Warehouse Capacity Used

Employee MetricsAnnual work force turnover

Productive hours to total hours

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Act – Step 7: Close Gaps

Warehouse & Fulfillment: Final Initiatives

ProcessRank

Gap Poor Practice1


Common Practice3

Good Practice4

Best Practice5



Slotting




Picking & Packing


Interim Target Highest Priorities in Red Secondary Priorities in Green

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Setting Targets

The half‐life theory suggests that an interim goal should be selected when there is a large gap to close

Half Life Theory

Act – Step 7: Close Gaps

Benchmark 98%

Interim Goal 95%

Current Performance 92%

Interim Target

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Benchmarking ChallengesA study by Penn State found several key challenges among companies trying to benchmark

• Accurate/comparable data is the biggest barrier• Implementing results• Comparable processes• Available resources• Standard definitions• Clear Goals for benchmarking• Willingness to share• Finding the right partner• Senior management support

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WERC’s Assessment & Certification Program

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ChallengesChallenges

Automation JustificationAutomation Justification

BottlenecksBottlenecks

Candid Employee Input

Candid Employee Input

Cutting CostCutting Cost

Improved Communication

Improved Communication

Improving ProductivityImproving Productivity

Increasing Quality

Increasing Quality

Space UtilizationSpace

Utilization

Customer RelationsCustomer Relations

What are our challenges?

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Doesn’t the industry already have this?... Publications

& White Papers

Consultants

Facility Tours

Trade Press Unbiased Assessment

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Compare Qualitative

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An example of this…Receiving and Inspection – Process Benchmarks

ProcessGroup

Poor Practice

Inadequate Practice

Common Practice Good Practice Best Practice

InspectionNo inspection process at receipt

Insufficient inspection to identify non‐conforming product, essentially checking for damage only.

Sufficient inspection to identify non‐conforming product. Failing product is quarantined to prevent use

Sufficient inspection to identify non‐conforming product which is then quarantined to prevent use or referred to suppliers within a prescribed timeframe

Inspection process results in quarantine, immediate notification to suppliers & carriers and initiates return process

Cross Docking

No process to identify or expedite products

No cross docking processInformal expediting of products

Informal process with manual lists are kept to support cross docking of products needed for current orders and replenishment,

Formal but manual process for cross‐docking or immediate replenishment requirements for received product not in inventory but needed for current orders

System‐enabled alerts for incoming product’s immediate order requirements, creating a cross‐docking or immediate replenishment task upon receipt

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PlanStep 1: Set benchmarking priorities*

Step 2: Identify the key processes to be assessed*

Measure Step 3: Collect data ‐ operational and managerial*

Compare

Step 4: Research and compare best‐in‐class performance to internal and external standards*

Step 5: Identify gaps and reasons for low performance*

Step 6: Develop an improvement roadmap and set priorities*



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Application

Pre‐Audit Survey

Onsite Audit

Delivery of Results

Process Improvement Workshop

Rate, Rank & Plan

Assessment & CertificationProcess…

Pre‐Audit

Day 1Day 2

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Delivery of Results Process‐by‐Process review of the findings & observations. A review of the “3‐Wishes.”

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Comparable Base Scores Gap Analysis

Process Group Below Minimum

Needs Attention

Meets Standard

GoodPractice

Best Practice

Receiving & Inspection 13.0 25.5 38.0 48.3 58.5

Material Handling & Putaway 14.0 28.0 42.0 52.5 63.0

Slotting 9.0 18.0 27.0 33.8 40.5

Storage & Inventory Control 16.0 31.5 47.0 59.5 72.0

Picking & Packing 16.0 32.5 49.0 60.5 72.0Load Consolidation & Shipping 18.0 33.5 49.0 65.0 81.0Shipping Documentation 10.0 20.0 30.0 37.5 45.0

Warehouse Management System 18.0 33.0 48.0 64.5 81.0

Delivery of Results

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Process Improvement Workshop An overview of the 7 Step

Benchmarking & Road Mapping Model

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Rate, Rank & PlanOpportunities Resulting from Warehouse Audit Meetings

Item NumberRank or PriorityOpportunity NameDetailed Description of Opportunity

Describe Benefit of Taking Action

Describe Potential Risks

Potential Value:Direct SavingsOther Factors

Estimated Cost to ImplementTime Required to Implement

Strategic Value (1‐3)Cost Impact (!‐3)Perceived GAP (1‐5)Owners:Enablers

IndividualsProcessesTechnology

An exercise to rate and rank the potential improvements based on strategic importance, value and cost.

The creation of an action item list with assigned responsibilities for further research, development and implementation of improvements.

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PlanStep 1: Set benchmarking priorities

Step 2: Identify the key processes to be assessed

Measure Step 3: Collect data ‐ operational and managerial

Compare

Step 4: Research and compare best‐in‐class performance to internal and external standards

Step 5: Identify gaps and reasons for low performance

Step 6: Develop an improvement roadmap and set priorities



www.werc.org49

Benefits beyond what you can see…

Indentifying Process

DegradationMorale True

Comparative Differentiator Collaboration

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Who has it…

•APL Logistics (Colgate‐Palmolive Co.)*•Aquarius – Grupo SID (CP)*•Colgate‐Palmolive Co.(13)*•DHL (Unilever & CP)*•FCC Logistic – Spain (CP)*•FM Logistic – Poland (CP)*•Frode Laursen – Denmark (CP)*•GE Industrial*•Hunter Fan Company•Ingersoll Rand/Trane (2)•Kenco (Whirlpool)*

•LEGACY Supply Chain Services (GE Industrial)*•Nexus Distribution CDC•OHL (Starbucks Coffee Company*) (3)•Scholastic National Service Organization •Starbucks Coffee Company (5)*•Swagelok OFC Component Warehouse•Trojan Battery Company•Unilever*•Whirlpool (2)*•Zimag Logistics (CP)*

*Facility Certification pursued jointly by customer and logistics service provider

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Resources…

www.werc.org/metrics‐ The 2014 Conference Presentation‐ Link to the 2014 DC Measure Study

www.werc.org/facility_cert‐ Resources

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Michael Mikitka, CEOWarehousing Education & Research Council

P: 630.990.0001 / [email protected]

metrics, benchmarking & best practices

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