The good news may be that there is no news. Our seventh annual survey of key distribution center and warehousing metrics continues to show slow but steady improvement in operational performance. What makes that remarkable, though, is that the gains took place in the midst of the worst recession in memory.
As for how this year's findings stacked up against last year's, the latest survey found that companies either maintained or improved their performance against 35 of the 50 metrics studied (the researchers used median performance as the basis of comparison). And some of those gains were impressive indeed—the median numbers for several of the metrics tracked showed double-digit improvements in performance over the previous year. But the picture that emerged wasn't entirely rosy. With other metrics—particularly those relating to employment and inventory—there were signs that the recession had taken a toll. Yet even in those cases, the trend lines provided cause for optimism.
The research, conducted among DC VELOCITY's readers and members of the Warehousing Education and Research Council (WERC), was carried out via an online survey in early January 2010. A total of 639 individuals responded to the survey, of which 559 provided usable responses. Respondents were asked what metrics they used and how well their facilities performed in 2009.
The goal of the research, now in its seventh year, is to track which metrics are most important to DC and warehousing professionals and to shed some light on underlying trends and changes in performance from year to year. In addition, the study provides valuable benchmarks against which managers can gauge their own operations' performance within the company and against their competitors.
The study, conducted by Georgia Southern University and consultancy Supply Chain Visions, is jointly sponsored by DC VELOCITY and the Warehousing Education and Research Council (WERC), with support from Ryder and Manhattan Associates. The full results will be available in a report by Karl Manrodt and Kate Vitasek at www.werc.org after the annual WERC conference in Anaheim May 16-19.
Which metrics matter most?
What we have seen over the full course of the study is that when it comes to the metrics used in America's warehouses and DCs, the fundamentals don't change much. Survey participants still favor the same basic metrics they've been using since the study was launched in 2004. As Exhibit 1 shows, this year's Top 10 list of the most commonly used metrics tracked quite closely with last year's. In both surveys, "on-time shipments," "order picking accuracy," and "average warehouse capacity used" topped the list, although there were some variations in the rankings.
The Top 10 are only part of the story, however. Survey participants use a wide range of other metrics to assess their performance as well—metrics that encompass inbound operations, quality, financial performance, capacity, employees, outbound operations, and the customer.
But what if companies were limited to using just a handful of metrics to track their facilities' performance? In an effort to find out which metrics respondents considered most important, the survey asked which ones they'd choose if they could use only five metrics to manage their business. The top five responses were metrics that focused on cost, quality, and operations: distribution costs as a percentage of sales; distribution cost per unit; inventory count accuracy by units; inventory count accuracy by location; and lines picked and shipped per person hour. Given these economic times, it is not unexpected that the two most popular metrics would be cost driven, and that the next two would track internal operational performance. Clearly, what we do in the DC has an impact not just on customer service but on the organization's bottom line as well.
On the up and up
When it comes to how companies are performing against those metrics, the news is generally good. As noted above, the latest survey showed that performance against 70 percent of the metrics studied equaled or exceeded the previous year's levels. Although performance on a few of the metrics deteriorated slightly, the general trend was toward improvement.
Exhibit 2 identifies the metrics that saw the biggest performance improvements over the previous year. (When making comparisons from year to year, we have continued to use the median—rather than the mean, or average—because it's less likely to be skewed by very high or low numbers.)
All of the metrics listed in Exhibit 2 focus on a company's internal performance, which indicates that a lot of the respondents targeted their own operations in their efforts to cut costs and boost productivity this year. Of particular note is the improvement in the "annual workforce turnover" metric to 6.8 percent from 10.0 percent. Although we had expected to see improvement here, the extent of that improvement came as a surprise. This may be an indication that the worst of the workforce reductions are behind us and that employers have begun staffing up again.
It's interesting to note the improvement in performance against three metrics related to back orders and lost sales. While we were initially perplexed as to what was going on, we soon noticed that inventory levels in many DCs and warehouses had risen at the same time. That would help explain why companies were able to do a better job of filling orders completely. It is difficult for us to say what's behind the improvement—whether it's simply a blip on the radar caused by the sharp drop-off in sales or the genuine result of operational enhancements. As the economy begins its journey to recovery, we'll definitely keep an eye on inventory levels and back orders to see if the trend holds up over time.
Where are the points of pain?
As the song lyrics say, What goes up must come down. This applies to some of this year's metrics as well. Exhibit 3 highlights some of the operational points of pain—the metrics that saw the biggest performance declines this year.
As for what might be behind the deteriorating performance, it's hard to say. One possibility is that the typical order profile has changed, with orders getting larger. If so, that would explain why performance against these particular metrics—which focus largely on speed—has declined.
Nonetheless, it appears that in most DC and warehouse operations, this year's theme song will be "Getting Better All the Time." Whether the momentum can be sustained or not—especially if orders outpace employment—only time will tell. But the lesson here is that standing still means losing ground to competitors.
About the authors: Karl Manrodt is an associate professor at Georgia Southern University. Kate Vitasek is the founder of the consulting firm Supply Chain Visions. Joseph Tillman is senior researcher and consultant for Supply Chain Visions.
The authors welcome readers' comments, suggestions, and insights into the research and their own use of metrics. They can be reached by e-mail: Karl Manrodt at firstname.lastname@example.org, Joe Tillman at email@example.com, and Kate Vitasek at Kate@SCVisions.com.