We live in an always-on, digital world where people have come to expect instant satisfaction. As a result, operations directors face increasing pressure to streamline processes to keep their warehouses functioning at the highest level of efficiency. But it’s not always about working faster or harder. After all, if an airline pilot gets on the intercom and says, “We’re lost, but we’re making good time,” you wouldn’t be impressed with his efficiency. So, how can you develop the warehousing processes that will lead to true efficiency?
Optimizing for the Challenges of 2016
The Annual Warehouse and Distribution Center (DC) Operations Survey, conducted in partnership by Logistics Management and St. Onge Co., collects responses from manufacturers, distributors, third-party logistics providers and retailers to uncover opportunities and threats across the industry. Don Derewecki, a senior consultant with St. Onge, said that the 2015 numbers indicate a positive outlook, despite the challenges of e-commerce and the “I want it now” culture that has led to faster delivery demands, increased volumes, higher inventory turns and more SKUs than ever before. The biggest issues?
- 43 percent said insufficient space
- 39 percent cited an inability to attract and keep qualified workers
- 34 percent mentioned outdated storage, picking or materials handling equipment
- 32 percent lack adequate information systems support
Derewecki notes, “The encouraging thing is that companies are getting things done by employing more technology. Today’s operations are well beyond the simple manual environments that many industry veterans started out with.” The survey also uncovered a rise in the use of third-party logistics providers (3PLs), enabling companies to enter new regions and gain market share, quickly and cost effectively.
The Operations Metrics You Should Track
Given this dynamic, competitive environment, it’s more important than ever to leverage warehousing metrics to optimize operations for success. Factors ranging from staffing and scheduling to warehouse space and shipping logistics all influence the efficiency — or inefficiency — of warehouse operations. At the end of last year, a CamCode blog tapped operations management experts for their own tips on warehouse productivity. Weighing on the discussion was Hannah Lincoln, an operations management expert from itas. Her advice? Track and communicate key performance indicators (KPIs) effectively. To do that, she suggests that you select a limited number of metrics that can be quickly and easily measured for two reasons:
- Too many metrics make it impossible to really drive warehousing process improvements because no one can keep track of them all.
- If it takes a week to tease out the insights from the data, you can’t adjust processes quickly enough to have a positive impact.
Lincoln also recommends keeping everyone informed on the metrics you’re tracking and where you’re at in terms of goals. By being completely transparent about these KPIs, you improve your chances of success. “By giving them [your workforce] real-time, up-to-date information, you will find that you maintain high productivity levels because they can self-monitor their own performance,” says Lincoln.
So, what metrics should you be looking at first? We’ve divided them into four key management areas: resources, inventory, cost and operations.
Rely on Smart Resource Management
Metrics 1 & 2: Productivity and Turnover Rate
Why these two metrics first? First of all, they go hand-in-hand. You can’t expect high productivity if you’re constantly training new replacements for more experienced workers who leave. And one way to positively impact both of these metrics is to keep your workforce engaged. Joseph Flahiff, author of Being Agile in a Waterfall World: A Practical Guide for Complex Organizations, told CamCode that, “Staff, generally, have already bought into their own ideas, and they’re more likely to be excited about ideas that they’ve come up with. It will not only improve the warehouse flow and productivity, but it will improve their overall motivation and engagement. Lack of engagement is the #1 reason people quit their jobs. So get them engaged by asking them how to improve. It is a double win.”
Implement Proactive Inventory Management
Metrics 3 & 4: Inventory on Hand and Inventory Flow
A post on the Chartered Institute of Procurement & Supply (CIPS) blog suggests that two of the metrics that matter most in optimizing your warehouse address inventory management. Just as manufacturers have benefited from lean processes that eliminate waste, reduce overstocking of raw materials and allow for just-in-time delivery of finished products, warehouse operations can benefit from lean inventory management. This is especially true because according to the Logistics Management survey, the average number of SKUs grew by 18.5 percent between 2014 and 2015. You’re likely dealing with smaller unit loads, more SKUs and greater complexity in replenishing stock. To work lean, you need easy-to-access metrics to track inventory on hand and the flow of inventory in and out of your facility. E-commerce has changed the game: everyone expects their order to arrive in 2 days, so you need to have a good handle on inventory at all time.
When you can’t deliver, customer satisfaction plummets, and in an age where customer experience is everything, warehousing operations can quickly become a scapegoat. In fact, the blog says, “An overstocked warehouse leads to misplaced product in unusual slots and lost costs. Similarly, an understocked warehouse results in delayed shipments, irate customers, and poor company performance.” Lean is in high demand, and tracking inventory on hand and inventory flow can help you achieve it.
Focus on Cost Management
Metrics 5 & 6: Order Fill Rate and Lost Sales
When it comes to cost management, your order fill rates and lost sales are important metrics to watch. These metrics facilitate lean inventory management, and they also keep you tuned in to potential productivity short-comings. Even if you elect to use a third-party fulfillment service, you’ll want to stay on top of these metrics. Third-party fulfillment offers advantages, as an article on MultiChannel Merchant points out, “Using a 3PF partner means capital isn’t tied up in new facilities and systems. For smaller companies 3PF lets management concentrate on marketing and merchandising functions essential to sustain growth.” In fact, given the problems many companies experience with maintaining adequate staffing, taking advantage of third-party partners can give your order fill rates a boost.
Fine-Tune Operations Management
Metric 7 – Pick-n-Pack Efficiency
Operations management offers a large field of contenders, but this final element has the greatest potential to impact efficiency, productivity and costs. For many companies, the picking process represents as much as half of the operating cost of the warehouse. Moreover, pick-n-pack is one aspect that is entirely under your control when it comes to having a positive impact on your customers. You can’t control the weather or the traffic or any number of factors that happen outside your warehouse doors, but you can track the efficiency of the picking process that takes place under your roof.
By keeping an eye on these warehousing metrics, you can map out an error-resistant fulfillment process that moves from order to delivery as efficiently as possible. That, in turn, will help to drive customer satisfaction and loyalty to fuel growth. Sure, you may need to expand your warehousing space, but that’s a good problem to have, given the alternatives.