The faint rumbling sound coming from the nation's warehouses and distribution centers is no cause for alarm. Quite the opposite, in fact. If the results of our annual survey on DC performance are any indication, the rumblings you've been hearing are the sound of economic recovery—or to be precise, the sound of DCs throttling up their order fulfillment operations as sales began to pick up.
While there's always the risk that a ramp-up in volume will send performance into a tailspin, it appears that most DCs avoided that trap last year. Our eighth annual survey of key warehousing and DC metrics showed that most operations made slow but steady gains in performance.
Launched in 2004, the annual study tracks the metrics DC professionals are using to monitor their operations as well as changes and trends in overall performance against those metrics from year to year. The study also provides valuable benchmarks against which managers can more accurately gauge their operations' performance within the company and against their competitors.
This year's study, which was conducted among DC Velocity's readers and members of the Warehousing Education and Research Council (WERC), was carried out via an online survey in January. In all, 602 individuals filled out the questionnaire, of which 579 provided usable responses. Respondents were asked to identify the metrics they used as well as to grade their own facilities' performance in 2010 against 44 specific operational metrics. (For purposes of analysis, the measures have been grouped into five balanced sets: customer, operational, financial, capacity/quality, and employee.)
The research, which was jointly sponsored by DC Velocity and WERC with support from Ryder, was carried out by Georgia Southern University and the consultancy Supply Chain Visions. The full results will be available online at www.werc.org after the annual WERC conference, which takes place in Orlando, Fla., from May 15-18.
Which metrics matter most?
When it comes to the performance metrics used by DC professionals, the survey showed that the most popular measures don't vary much from year to year. The metrics that received the most mentions in this year's survey—on-time shipments, average warehouse capacity used, and order picking accuracy—have appeared on the top 12 list since the study was launched.
But that's not to say the situation has remained static. As Exhibit 1 shows, there has been some change in the list of top 12 metrics compared with the 2010 survey results. Why is that? This year we changed methodologies in calculating the top 12 list. To stay consistent with the new methodology, we recalculated prior years' top 12 lists. While we found that the choice of metrics remained largely unchanged, there were some shifts in the rankings.
It's important to note that decisions about which metrics an operation will use may be dictated by company policy and may not reflect the respondents' own opinions or preferences. For that reason, the survey included a question asking, "If you were the boss, what metrics would you use to run the DC or warehouse?"
Exhibit 1: The Top 12: The most commonly used DC metrics
Metric (by rank in 2011 survey)
and category
2010 rank
2009 rank
1. On time shipments (Customer)
1
1
2. Average warehouse capacity used (Capacity/Quality)
4
7
3. Order picking accuracy (Capacity/Quality)
2
3
4. Peak warehouse capacity used (Capacity/Quality)
9
*
5. Dock-to-stock cycle time, in hours (Operational)
6
6
6. Internal order cycle time (Customer)
10
8
7. Total order cycle time (Customer)
*
12
8. Lines picked and shipped per hour (Operational)
11
11
9. Lines received and put away per hour (Operational)
*
*
10. % of supplier orders received damage free (Operational)
*
10
11. Fill rate - line (Operational)
3
4
12. Annual workforce turnover (Employee)
8
*
* Did not appear in top 12
As it turned out, there were some disparities between the two sets of metrics. Although "on-time shipments" and "order picking accuracy" appeared on both lists, the respondents' top five picks included three measures that did not make the list of the most widely used metrics: "inventory count accuracy, by unit;" "inventory count accuracy, by location;" and "distribution costs as a percentage of sales." The fact that respondents chose a financial metric indicates that what we do in the DC—and how we do it—affects more than customer satisfaction; it also has an impact on the organization's bottom line.
Holding their own
As for how the nation's warehouses and DCs are performing against key metrics, the news is generally good. As noted above, the upswing in volume hasn't brought a halt to the improvement trend. In fact, the latest survey found that relative to last year's findings, respondents either maintained or improved their performance against 52 percent of the 44 metrics studied.
The news was even better among the top-performing companies, the 20 percent of respondents designated "best in class." A comparison with last year's findings showed that these companies either maintained or improved their performance against nearly seven out of 10 metrics.
Exhibit 2 identifies the metrics that saw the most improvement over last year across the entire respondent base. (When making comparisons from year to year, we have continued to use the median—the midpoint of all the responses—rather than the mean, or average, because it's less likely to be skewed by very high or low numbers.)
Exhibit 2: Going up! Where DC performance improved
Metric
Major opportunity
Typical
Best in class
Median 2011
Median 2010
Internal order cycle time
> 36 hours
>= 8 and< 23.4 hours
< 2.2 hours
12 hours
24 hours
Dock-to-stock cycle time
> 18.7 hours
>= 4 and < 8.2 hours
< 2 hours
6 hours
9.1 hours
Pallets picked and shipped per person hour
< 7 per hour
>= 14.5 and < 20 per hour
>= 26.5 per hour
18.5 pallets
15 pallets
Supplier orders received per hour
< 1.5 orders
>= 3 and < 5 orders
>= 10 orders
4 orders
3 orders
Total order cycle time
> 72 hours
>= 15 and < 48 hours
< 4.5 hours
36 hours
48 hours
Days on hand - raw materials
> 66 days
>= 29 and < 45 days
< 15 days
30 days
39 days
Distribution costs as a % of sales
> 10.2%
>= 3.3 and < 6%
< 1.7%
4%
5%
Note: Survey responses have been divided into quintiles to make it easier for companies to see where they stand in comparison with other warehouses and DCs. For example, the "best in class" category represents the top 20 percent of respondents, while "major opportunity" represents the lowest 20 percent of respondents—or those who have the most to gain from performance improvements.
Of particular note are the improvements in average internal order cycle time and total order cycle time, both of which dropped by a whopping 12 hours compared with the two previous years. We believe these results speak to a greater sense of urgency among warehouse and DC managers to keep up with orders as activity picks up.
Another interesting finding is the shift in the status of the "dock-to-stock cycle time" metric, a measure of receiving and put-away efficiency. Last year, "dock to stock" performance was identified as one of the major pain points, with median performance slipping to 9.1 hours from eight hours the year before. This year, however, "dock-to-stock time" ranked among the "most improved" metrics, with the median cycle time shrinking to just six hours. It's not much of a stretch to conclude that the "dock to stock" improvement (which presumably helped ensure product was available to be picked) contributed to the impressive gains seen in both internal and total order cycle times.
Where are the points of pain?
Of course, every coin has its flip side, and this year's survey was no exception. Just as performance against several of the metrics showed noteworthy improvement over the previous year, performance in other areas deteriorated.
Exhibit 3 identifies the major points of pain—the metrics that saw the biggest performance declines. It's worth noting that three of the five "pain points" centered on internal operations, notably the pick and pack functions. Although we can only speculate as to the cause, one possibility is that the typical order profile has changed, with orders getting larger. If so, that might explain why performance dropped against those particular metrics, which focus largely on speed.
Exhibit 3: Points of pain: Where DC performance declined
Metric
Major opportunity
Typical
Best in class
Median 2011
Median 2010
Honeycomb %
< 14%
>= 39 and < 69.8%
>= 85%
50%
72%
Orders picked and shipped per hour
< 2 orders
>= 4.2 and < 9.5 orders
>= 29.8 orders
6 orders
8.5 orders
Lines picked and shipped per hour
< 13.6 lines
>= 25 and < 40.6 lines
>= 77.4 lines
30 lines
36.0 lines
Cases picked and shipped per hour
< 34.8 cases
>= 85.2 and < 144 cases
>= 280 cases
120 cases
142.5 cases
Days on hand finished-goods inventory
> 75.2 days
>= 30 and < 45 days
< 14.4 days
36.7 days
32 days
It's also worth pointing out that in some cases, performance slippage may not be a bad thing. Take the "honeycomb percentage" metric, which showed the biggest drop in performance relative to last year's survey.
Like "average warehouse capacity" and "peak warehouse capacity" (whose performance declined as well), "honeycomb percentage" is a measure of how fully space is being used within the warehouse or DC. And while it might appear that the objective here would be to get as close to 100 percent as possible, that's not necessarily the case. In fact, research has shown that the ideal "average warehouse capacity used" number may be closer to 80 percent, because it gives facilities the flexibility to respond quickly to changing economic conditions.
In any event, it appears that while there's been some slippage, performance in most warehouses and DCs could be fairly characterized as getting better all the time. The big question now is, can the momentum be sustained—especially if, as expected, orders grow faster than employment?
About the authors: Karl Manrodt is a professor at Georgia Southern University. Joseph Tillman is senior researcher and consultant for Supply Chain Visions. Kate Vitasek is founder of Supply Chain Visions.
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
Serious inland flooding and widespread power outages are likely to sweep across Florida and other Southeast states in coming days with the arrival of Hurricane Helene, which is now predicted to make landfall Thursday evening along Florida’s northwest coast as a major hurricane, according to the National Oceanic and Atmospheric Administration (NOAA).
While the most catastrophic landfall impact is expected in the sparsely-population Big Bend area of Florida, it’s not only sea-front cities that are at risk. Since Helene is an “unusually large storm,” its flooding, rainfall, and high winds won’t be limited only to the Gulf Coast, but are expected to travel hundreds of miles inland, the weather service said. Heavy rainfall is expected to begin in the region even before the storm comes ashore, and the wet conditions will continue to move northward into the southern Appalachians region through Friday, dumping storm total rainfall amounts of up to 18 inches. Specifically, the major flood risk includes the urban areas around Tallahassee, metro Atlanta, and western North Carolina.
In addition to its human toll, the storm could exert serious business impacts, according to the supply chain mapping and monitoring firm Resilinc. Those will be largely triggered by significant flooding, which could halt oil operations, force mandatory evacuations, restrict ports, and disrupt air traffic.
While the storm’s track is currently forecast to miss the critical ports of Miami and New Orleans, it could still hurt operations throughout the Southeast agricultural belt, which produces products like soybeans, cotton, peanuts, corn, and tobacco, according to Everstream Analytics.
That widespread footprint could also hinder supply chain and logistics flows along stretches of interstate highways I-10 and I-75 and on regional rail lines operated by Norfolk Southern and CSX. And Hurricane Helene could also likely impact business operations by unleashing power outages, deep flooding, and wind damage in northern Florida portions of Georgia, Everstream Analytics said.
Before the storm had even touched Florida soil, recovery efforts were already being launched by humanitarian aid group the American Logistics Aid Network (ALAN). In a statement on Wednesday, the group said it is urging residents in the storm's path across the Southeast to heed evacuation notices and safety advisories, and reminding members of the logistics community that their post-storm help could be needed soon. The group will continue to update its Disaster Micro-Site with Hurricane Helene resources and with requests for donated logistics assistance, most of which will start arriving within 24 to 72 hours after the storm’s initial landfall, ALAN said.