Warehouse performance improvement programs: What works best?
When it comes to boosting DC performance, are you better off focusing on process or technology? According to a recent study, the answer depends on whether you're a shipper or a 3PL.
It's the rare warehouse these days that hasn't engaged in some type of cost cutting or performance improvement program. Some have turned to technology in a bid to streamline operations. Others have taken the process route, putting programs like continuous improvement plans in place. Still others have changed up their personnel (for example, bringing in highly effective managers to run their facilities), pulled up stakes and moved to a location with lower labor costs or tax advantages, or in the case of shippers, outsourced their warehousing operations.
Which of these changes is likely to produce the biggest payoff? To find out, ARC partnered with DC Velocity and eft (eyefortransport) to conduct a study that asked this core question: "Over the last five years, what change led to the greatest improvement in distribution costs per unit shipped?" The survey was conducted among 150 valid respondents from a variety of sectors: 34 percent hailed from the wholesale business, 33.3 percent from third-party logistics service providers (3PLs), 14.7 percent from manufacturing, and 14.0 percent from retail. The remaining 4 percent fell into the "other" category. Slightly over half the facilities profiled in the study (54.3 percent) were located in North America, while the remainder were in Europe, the Middle East, Africa, Asia, and Latin America.
In considering the results that follow, readers should keep in mind that the benefits reflect what respondents identified as their "most effective" tactic for reducing costs over the past five years. The way this question is worded means that these are atypical results. These should not be considered the results the typical company would get from implementing technology or a process change program. Rather, this is an analysis comparing the relative benefits of highly successful technology projects to highly successful process programs.
DIFFERENT STROKES
So where have companies gotten the most bang for their buck when it comes to DC cost-cutting initiatives? As it turns out, the answer depends on whether the company is a shipper or a 3PL.
For the shippers who participated in the survey, technology projects proved to be the hands-down winner. Nearly half (48 percent) reported that their greatest improvements had come from a technology implementation (most commonly one involving warehouse software). Process was a distant second, cited by 25 percent of the shipper respondents. Trailing behind were outsourcing (14 percent), people (9 percent), and location (4 percent). (See Exhibit 1.)
It was a different story altogether with the 3PLs. Among these respondents, well over half (59.2 percent) credited process improvements with producing the best results.
As for why the 3PLs would choose process over technology, there are a number of good reasons for that, all relating to the nature of the business. For starters, there's the issue of payback. Third parties that run dedicated facilities for their clients often lease those warehouses for the length of a contract with a customer. Common lease lengths are three to four years. Problem is, the return on investment (ROI) for a technology project may well exceed that. For instance, some types of material handling equipment have historically had a payback period of four to five years. It's not hard to see why a 3PL would be reluctant to make that investment.
Further, bringing in technology isn't always an option for 3PLs. For instance, if a 3PL agrees to operate a warehouse that the shipper had built and staffed, the 3PL will inherit the technology already in place. So if the warehouse is already using, say, a warehouse management system (WMS), the 3PL won't have the opportunity to cut costs by introducing warehousing software.
Although technology projects may not be a slam dunk for 3PLs, process improvements are a natural. Large 3PLs report that continuous improvement programs tend to be high on potential customers' "want lists" and almost always appear on their requests for proposal (RFPs). These capabilities, according to one top 3PL executive, "are table stakes. You have to be able to show you possess a continuous improvement program to be in the game."
GETTING RESULTS
All this raises the obvious question, What kinds of results have these projects produced? To get an idea of the extent of the savings, the study asked, "How much have your distribution costs per unit shipped decreased based upon the implementation of [your] technology or process project? Please answer for the first full year after the shakeout period was completed."
As Exhibit 2 shows, both process changes and technology implementations produced solid results (the survey subsamples weren't large enough to provide solid data for the people, location, or outsourcing options). But it's worth noting that technology projects performed both better and worse than process projects—they were more likely to produce savings of 10 percent or more but also more likely to result in savings of 1 percent or less.
Interestingly, for both technology implementations and process programs, we found a correlation between results and warehouse complexity. The more complex the warehouse, as measured either by the value of goods shipped or the percentage of broken-case or full-case picking, the more likely respondents were to report that their project had resulted in distribution-cost-per-unit savings of greater than 8 percent.
As for the initiatives themselves, the most common technology projects were software implementations, rather than material handling equipment or other types of installations. Voice recognition and labor management system (LMS) implementations tended to produce bigger savings than warehouse management systems did. However, it's important to note that both voice and labor management systems are often built on a WMS platform and rely on that system to direct their operations. That is, without a WMS in place, it's much more difficult to implement voice and LMS technology, and more difficult to get stellar results from those implementations.
When it came to process programs, continuous improvement projects were the most common, representing more than two-thirds (67 percent) of all process initiatives.
EFFECT ON CUSTOMER SERVICE
Of course, cost is not the only measure of a project's success. If cost savings come at the expense of service, it would be hard to argue that a project was truly successful. To get a better idea of how these technology and process projects had affected customer service, we asked respondents whether their programs had resulted in changes to on-time shipping performance. For purposes of the survey, we defined orders shipped "on time" as orders shipped at the planned time ("shipped" meaning off the dock and in transit).
As Exhibit 3 indicates, the respondents' improvement initiatives posed very little threat to service. Projects that improved companies' cost position usually improved their on-time shipping performance as well.
As for how the two main types of projects stacked up, once again, technology projects performed both better and worse than process projects—they were more likely to boost on-time shipping by over 5 percent and more likely to result in a drop in performance. None of the "process" respondents reported that service had deteriorated as a result of their project.
Based on improvements in on-time shipping, it's not surprising that high percentages of both technology and process respondents reported better performance against the "perfect order" metric: 75 percent and 66 percent, respectively. (To be considered "perfect," an order must arrive complete, be delivered on time, arrive free of damage, and be accompanied by the correct invoice and other documentation.) Similarly, 82 percent of process respondents and 64 percent of technology respondents reported improvements in order cycle time.
Another measure of customer service is lost sales due to stockouts in the warehouse. Forty percent of technology respondents and 44 percent of process respondents reported that their performance against this metric had improved as a result of their project.
Successful projects tend to be successful on multiple dimensions. Exhibit 4 indicates some of the other benefits respondents realized from their warehouse improvement programs. In many cases, technology projects and process projects produced essentially the same results. There were a few differences, however. For instance, technology projects substantially outperformed their process counterparts when it came to the warehouse's ability to implement other technologies in the future. For their part, process projects outperformed technology with respect to executive time devoted to overseeing warehousing and supplier relationships.
PAYBACK, STARTUP ISSUES, AND CONTINUOUS IMPROVEMENT
A payback period is a classic way to measure the success of a project (a payback period being the length of time required for a company to recoup its initial investment through cost savings). In this area, process clearly beat technology. With process programs, over 20 percent of respondents reported that they had been able to launch a program at minimal cost.
Of course, payback would logically be related to how a warehouse was performing before the technology or process program was introduced. If a warehouse is significantly underperforming, the greater the chances that a project will result in significant improvements.
Of the two groups, the process respondents were more likely to say their warehouses had been "significantly underperforming" before the project began; 20 percent of process respondents said that had been the case, compared with only 11 percent of technology respondents.
As for the startup process, ARC asked respondents whether they had experienced "significant issues" in launching the project or program. Not surprisingly, perhaps, software projects were more likely to be associated with startup glitches (60.7 percent) than process projects (56 percent) were. Technology projects based on the implementation of equipment—as opposed to software—created the fewest significant issues.
Another way to assess the success of a project is to determine whether it resulted in a one-time cost reduction or in ongoing distribution cost savings. In this area, process projects appeared to perform just slightly better than technology projects. That finding came as something of a surprise given that the most common type of process project was the implementation of a continuous improvement program and the whole point of these initiatives is to drive gains on an ongoing basis.
SUCCESS FACTORS
Finally, to gain some insight into what worked and what didn't when it came to implementing a warehouse improvement program, ARC asked respondents what factors had contributed to their project's success. With respect to technology projects, the respondents identified two factors as the most important: 1) the process changes the company put in place to support the technology, and 2) the training and culture-change program the company implemented to support the implementation.
As for the process projects, respondents said the biggest factor in a continuous improvement project's success was the company's culture—that is, whether it had already committed to a continuous improvement regimen. This should probably come as no surprise. When you talk to companies that are proud of their continuous improvement capabilities, they're sure to tell you that for them, operational excellence (OpX) is no "one and done" deal; it's something they've embedded into their culture.
Online merchants should consider seven key factors about American consumers in order to optimize their sales and operations this holiday season, according to a report from DHL eCommerce.
First, many of the most powerful sales platforms are marketplaces. With nearly universal appeal, 99% of U.S. shoppers buy from marketplaces, ranked in popularity from Amazon (92%) to Walmart (68%), eBay (47%), Temu (32%), Etsy (28%), and Shein (21%).
Second, they use them often, with 61% of American shoppers buying online at least once a week. Among the most popular items are online clothing and footwear (63%), followed by consumer electronics (33%) and health supplements (30%).
Third, delivery is a crucial aspect of making the sale. Fully 94% of U.S. shoppers say delivery options influence where they shop online, and 45% of consumers abandon their baskets if their preferred delivery option is not offered.
That finding meshes with another report released this week, as a white paper from FedEx Corp. and Morning Consult said that 75% of consumers prioritize free shipping over fast shipping. Over half of those surveyed (57%) prioritize free shipping when making an online purchase, even more than finding the best prices (54%). In fact, 81% of shoppers are willing to increase their spending to meet a retailer’s free shipping threshold, FedEx said.
In additional findings from DHL, the Weston, Florida-based company found:
43% of Americans have an online shopping subscription, with pet food subscriptions being particularly popular (44% compared to 25% globally). Social Media Influence:
61% of shoppers use social media for shopping inspiration, and 26% have made a purchase directly on a social platform.
37% of Americans buy from online retailers in other countries, with 70% doing so at least once a month. Of the 49% of Americans who buy from abroad, most shop from China (64%), followed by the U.K. (29%), France (23%), Canada (15%), and Germany (13%).
While 58% of shoppers say sustainability is important, they are not necessarily willing to pay more for sustainable delivery options.
Schneider says its FreightPower platform now offers owner-operators significantly more access to Schneider’s range of freight options. That can help drivers to generate revenue and strengthen their business through: increased access to freight, high drop and hook rates of over 95% of loads, and a trip planning feature that calculates road miles.
“Collaborating with owner-operators is an important component in the success of our business and the reliable service we can provide customers, which is why the network has grown tremendously in the last 25 years,” Schneider Senior Vice President and General Manager of Truckload and Mexico John Bozec said in a release. "We want to invest in tools that support owner-operators in running and growing their businesses. With Schneider FreightPower, they gain access to better load management, increasing their productivity and revenue potential.”
Terms of the acquisition were not disclosed, but Mode Global said it will now assume Jillamy's comprehensive logistics and freight management solutions, while Jillamy's warehousing, packaging and fulfillment services remain unchanged. Under the agreement, Mode Global will gain more than 200 employees and add facilities in Pennsylvania, Arizona, Florida, Texas, Illinois, South Carolina, Maryland, and Ontario to its existing national footprint.
Chalfont, Pennsylvania-based Jillamy calls itself a 3PL provider with expertise in international freight, intermodal, less than truckload (LTL), consolidation, over the road truckload, partials, expedited, and air freight.
"We are excited to welcome the Jillamy freight team into the Mode Global family," Lance Malesh, Mode’s president and CEO, said in a release. "This acquisition represents a significant step forward in our growth strategy and aligns perfectly with Mode's strategic vision to expand our footprint, ensuring we remain at the forefront of the logistics industry. Joining forces with Jillamy enhances our service portfolio and provides our clients with more comprehensive and efficient logistics solutions."
In addition to its flagship Clorox bleach product, Oakland, California-based Clorox manages a diverse catalog of brands including Hidden Valley Ranch, Glad, Pine-Sol, Burt’s Bees, Kingsford, Scoop Away, Fresh Step, 409, Brita, Liquid Plumr, and Tilex.
British carbon emissions reduction platform provider M2030 is designed to help suppliers measure, manage and reduce carbon emissions. The new partnership aims to advance decarbonization throughout Clorox's value chain through the collection of emissions data, jointly identified and defined actions for reduction and continuous upskilling.
The program, which will record key figures on energy, will be gradually rolled out to several suppliers of the company's strategic raw materials and packaging, which collectively represents more than half of Clorox's scope 3 emissions.
M2030 enables suppliers to regularly track and share their progress with other customers using the M2030 platform. Suppliers will also be able to export relevant compatible data for submission to the Carbon Disclosure Project (CDP), a global disclosure system to manage environmental data.
"As part of Clorox's efforts to foster a cleaner world, we have a responsibility to ensure our suppliers are equipped with the capabilities necessary for forging their own sustainability journeys," said Niki King, Chief Sustainability Officer at The Clorox Company. "Climate action is a complex endeavor that requires companies to engage all parts of their supply chain in order to meaningfully reduce their environmental impact."
Supply chain risk analytics company Everstream Analytics has launched a product that can quantify the impact of leading climate indicators and project how identified risk will impact customer supply chains.
Expanding upon the weather and climate intelligence Everstream already provides, the new “Climate Risk Scores” tool enables clients to apply eight climate indicator risk projection scores to their facilities and supplier locations to forecast future climate risk and support business continuity.
The tool leverages data from the United Nations’ Intergovernmental Panel on Climate Change (IPCC) to project scores to varying locations using those eight category indicators: tropical cyclone, river flood, sea level rise, heat, fire weather, cold, drought and precipitation.
The Climate Risk Scores capability provides indicator risk projections for key natural disaster and weather risks into 2040, 2050 and 2100, offering several forecast scenarios at each juncture. The proactive planning tool can apply these insights to an organization’s systems via APIs, to directly incorporate climate projections and risk severity levels into your action systems for smarter decisions. Climate Risk scores offer insights into how these new operations may be affected, allowing organizations to make informed decisions and mitigate risks proactively.
“As temperatures and extreme weather events around the world continue to rise, businesses can no longer ignore the impact of climate change on their operations and suppliers,” Jon Davis, Chief Meteorologist at Everstream Analytics, said in a release. “We’ve consulted with the world’s largest brands on the top risk indicators impacting their operations, and we’re thrilled to bring this industry-first capability into Explore to automate access for all our clients. With pathways ranging from low to high impact, this capability further enables organizations to grasp the full spectrum of potential outcomes in real-time, make informed decisions and proactively mitigate risks.”