Our 11th annual study of distribution center metrics shows that where performance gains are concerned, the lowest achievers outshone their "best-in-class" peers this year.
While the economy continues to hobble along, distribution professionals are taking advantage of the lull to work out any kinks in their DC operations. That much was clear from the results of our 11th annual metrics survey, which showed continuous year-over-year improvements in performance across a majority of measures. What was interesting this year was that it wasn't necessarily the top-performing organizations that were making the gains. In many cases, it was the lowest-performing operations that recorded the greatest strides.
The annual research, launched via an online survey in early January, was conducted among DC Velocity readers and members of the Warehousing Education and Research Council (WERC). Respondents were asked what metrics they use and how well their organizations performed against 47 key DC and warehousing metrics in 2013. (For purposes of analysis, the measures have been grouped into five categories: customer, operational, financial, capacity/quality, and employee/safety.) More than 400 respondents participated in the study, which is jointly sponsored by DC Velocity and WERC with support from Kronos and Kenco Group.
The survey aims not only to determine which metrics are important to DC and warehousing professionals, but also to understand the underlying trends and changes in performance from year to year. In addition, the study provides valuable benchmarks against which managers can more accurately gauge their performance within the company and against their competitors. (The full survey results will be incorporated into a report by Tillman, Manrodt, and Williams and will be available at www.werc.org after the annual WERC conference in Chicago April 27-30.)
WHICH METRICS MATTER MOST?
When it comes to the performance metrics used by DC professionals, the survey once again showed that the top choices don't vary much from year to year. In fact, this year's list of the Top 12 metrics pretty much mirrors last year's list, with minor changes in the rankings. (See Exhibit 1.)
However, there's a longer-term trend taking shape here that's a little worrisome. Research has shown that companies that use a balanced set of measures—financial as well as customer-, employee-, and process-centric metrics—outperform those that use a more limited set of measures. Unfortunately, our research indicates that where the 12 most popular metrics are concerned, the mix has become less balanced over the years—a trend first noted in 2011. This year's study showed that nothing had changed on that front—in both the 2013 and 2014 surveys, nine of the Top 12 metrics were either customer or operational measures.
In fact, since 2011, there's been a marked shift toward the use of operations-focused metrics. (Operational metrics measure internal performance, such as order fill rates and lines received and put away per hour.) While those are undeniably important to DCs, companies should be aware that focusing too much of their attention on operations could lead to adverse effects in other areas, such as costs. For instance, an operation that's intent on achieving a 99-percent order fill rate might be tempted to expedite shipments. While that would go a long way toward keeping customers happy, such a move could send the cost per unit shipped through the roof.
HOLDING THEIR OWN—MOSTLY
As for how facilities are performing against those metrics, the news is generally good. The results from our 11th annual survey show continuous improvements in operational performance across a majority of measures when compared with the 2013 study.
However, there were also some disappointing findings. With three of the Top 12 metrics focused on supplier performance, we expected to see big gains here. But that didn't happen. Performance against supplier-related metrics has either slipped or remained flat. As for why that would be, we have some thoughts. Having spent the past seven years researching supplier and buyer relationships, we believe the root cause of the stagnant performance is "status quo" practices in supplier management. In particular, we think the problems can be traced to a lack of the kind of collaboration necessary to tackle the problems and issues that DCs and their suppliers face.
On a brighter note, "best-in-class" (top 20 percent) and "median" (middle 20 percent) performers showed improvement against more than 70 percent of the metrics. However, even that wasn't enough to earn them a place in the sun. It's the "major opportunity" performers that deserve a standing ovation this year. "Major opportunity" performers—those whose facilities' performance ranked in the bottom 20 percent of survey respondents, and therefore have the most to gain—improved and/or maintained performance against 86 percent of the metrics in this year's study. The biggest gains for that group came in financial and productivity-related measures.
The net result of these strides was to narrow the performance gap between themselves and the best-in-class performers. Exhibit 2 identifies the metrics against which "major opportunity" respondents showed the greatest gains over the 2013 study. As it turned out, when it came to the same four metrics, the best-in-class respondents showed only incremental improvements or actually saw performance slip, further eroding their lead.
FOR EVERY TO, THERE IS A FRO
Although we've come to expect overall performance improvements from year to year, it's important to note that those gains sometimes come at a cost. As companies focus in on a new area, it's all too easy to let performance in another area slide. If managers don't intervene, performance tends to erode ever so slowly over time. And in some cases, the slippage can be significant.
For that reason, the study also looked at areas where performance has slipped the most—the so-called "points of pain." As mentioned earlier, supplier-related metrics took a big hit this year, with performance against the majority of these measures either remaining largely unchanged or dropping. In fact, of all the metrics studied, performance against the "supplier orders received per hour" metric deteriorated the most, with performance by best-in-class respondents dropping over 60 percent from 2013 levels.
Other "points of pain" identified this year were annual workforce turnover, inventory shrinkage as a percentage of sales, and days of finished-goods inventory on hand. (See Exhibit 3.)
IT'S A TOSS-UP
Overall, it appears that while warehouses and DCs at all levels are making performance gains, the race to the top is getting tighter. The "major opportunity" respondents continue to make great strides in closing the performance gap. However, best-in-class respondents are still able to do a better job of managing drops in their performance compared with other respondents. Whether the momentum can be sustained or not, only time will tell.
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.