Consider the old adage attributed to management consultant Peter Drucker: “You can’t manage what you can’t measure.” That’s absolutely true when it comes to assessing operational performance in warehousing, distribution, and fulfillment — regardless of your industry or role within supply chain.
Manufacturers, wholesalers, distributors, and retailers can all benefit from establishing key performance indicators (KPIs) and measuring their internal functioning against them. Those metrics can effectively illuminate how successfully (or unsuccessfully) an operation is executing against its goals. They also help in benchmarking, or comparing, that performance against others in the same field and industry.
With the copious amounts of data generated by today’s operations, it’s easy to become lost within the flood of information. Let’s face it. Operations managers are busier than ever and facing tough challenges that show no sign of easing anytime soon. They’re struggling with ongoing staffing shortfalls, facing increasing customer demands for fast and free delivery, and drowning in a tsunami of received inventory as port congestion continues to ease. When you’re in the day-to-day trenches, it can be difficult to prioritize performance metrics over just getting stuff out the door.
Yet metrics and benchmarking are crucial to helping an operation identify processes for improvement. Those changes can yield greater efficiency, higher cost savings, better customer service, or reduced dependence on labor. That’s why it’s important to measure operational performance and compare it to others.
Figuring out What to Measure
Whatever the operation, the first step in determining what metrics to track is to identify the company’s overarching goals. The goals of the facility should align with that organizational strategy. Then, look at the data to determine which metrics will have the most impact in meeting those objectives. It’s not just about being introspective in finding data; it’s also about finding the right data to support what the overall operation is trying to accomplish.
In most e-commerce and distribution operations, managers look at order accuracy, fill rates, and on-time shipping. If orders are going out the door most of the time, and are mostly error-free, then that’s good enough performance, right? Maybe. If the company’s goal is to provide exceptional customer service, managers should take a more strategic approach. It’s important to get end customer feedback on what performance metrics are most important to them in order to identify the most impactful data to help an operation improve.
Third-party logistics (3PL) service providers offer a great example of tracking the metrics that matter the most to their customers. In fact, their customers typically specify baseline levels of performance in the contract. Not only do the metrics support agreed upon goals, but the measurements also often tie into incentive-based compensation rates.
In manufacturing, where just-in-time components and parts feed the assembly line, metrics track the amount of safety stock on hand in supermarket storage. This is where items are kitted together for delivery to a certain point in the production process. Speed of replenishment of this storage area from supplier deliveries, also called dock-to-stock cycle time, is important to track. Other metrics document on-time delivery and fill rates, as it is critical to keep the manufacturing line properly supplied to avoid downtime.
Turning Metrics into Improvements
Once an organization has determined which metrics to track, then gathered the data to measure performance, it’s time to compare the findings to both historic internal data and the performance of others. With the right metrics in place, it can help to assess and determine which areas would benefit from improvements to make a business as successful as it can be.
Armed with performance data, an operation can drill down and identify where within the process bottlenecks are occurring, or workflow isn’t as balanced as it should be. Often, managers know there is a problem somewhere, but haven’t been able to identify it. Taking the time to analyze the data can help to pinpoint a previously overlooked issue that, when corrected, can yield significant jumps in performance.
Further, tracking metrics helps operations managers secure funding for internal improvement projects. It’s much easier to cost-justify an investment in a new piece of equipment, method, or process that can increase efficiency by evaluating the data. For example, if erecting and packing shipping cartons by hand is a bottleneck — or, found to be an area where others in the industry perform better during benchmarking — that data can support an investigation into other solutions, such as investment in automated packaging equipment.
Companies struggling to convert their findings into actionable areas for improvement can engage an independent consultant to help. By conducting an operations assessment and embarking on a process improvement analysis, a qualified consulting practice can make recommendations to align system performance to improve metrics. For example, if fill rates and on-time completion measurements indicate problems with effectively addressing peak periods during the day or throughout the year, the consultant can offer options to better allocate workers and optimize order flow.
Where to Find Metrics and Benchmarking Guidance
The Warehousing Education and Research Council (WERC), which is now a part of MHI, has been the definitive source for warehousing performance metrics and benchmarking data over the past two decades. WERC offers a broad range of resources to help companies just starting their metrics journey, as well as those who are already measuring performance refine their practices.
The organization also researches and publishes the DC Measures Annual Survey and Report on Industry Metrics in the spring. It surveys warehouse operators to determine which of a list of 53 metrics are most frequently used. The report publishes those findings, as well as helps companies compare their own performance to that of others to help identify areas for improvement. I personally have used their research and best practice recommendations many times throughout my own career, including working with customers here at DCS.
Struggling to identify the metrics that will best help your operation benchmark and improve its performance? The DCS consulting team loves digging into data to help companies better align their operations with their strategic goals. Connect with us.
AUTHOR: John Knudsen, Project Director, email@example.com