Measuring Success in the Warehouse
Each year the Warehousing Education and Research Council (WERC) conducts the DC Measures study to provide clarity to organizations who are looking for trends in operational performance. The recently-reported results for this were somewhat surprising to WERC experts who commented on the report.
Respondents were asked to indicate the overall business strategy for their business unit or division with respect to cost leadership, customer service, innovation, or being all things to all people. Cost leadership has maintained a steady pace over the years, while product and market innovation continues course corrections as it decreases this year from 11.9 percent in 2016 to 7.6 percent in 2017, a decline of 36 percent.
The best strategy in 2016 was customer service, with 53.6 percent of respondents. Mix: being all things to all people lost another 12 percent from last year. WERC commentators say that once the economy stabilizes and begins to improve more companies will focus their attention back to being all things to all people.
Respondents were also asked about their operational management strategy with respect to outsourcing. Over 62 percent said their global, domestic, and regional operations were managed internally while 22.7 percent said they were manged by a third party and 15 percent reported a mix of the two.
This year’s most frequently employed metrics for warehouse management were average warehouse capacity, order-picking accuracy, and on-time shipments. On-time shipments usually holds the top spot in this category, but now has fallen to third place. Five new measures made the list this year: part-time workforce to total workforce, overtime hours to total hours, contract employees to total workforce, and inventory count accuracy by location.
“Considering the changing demographics of the study,” WERC commented, “a shift from manufacturers representing the largest industry to retail, these changes should not come as a surprise.”
Among the forces driving change, according to the WERC commentators, were that retailers are struggling with maintaining sufficient inventory levels to meet consumer demand. The Panama expansion allows container ships to move at a slower speed due to the increased cargo each ship carries. That means “transit times from manufacturers in China to retailers in the US will be increased” and that requires better use of space within the warehouse and “possibly increasing inventory being held closer to use.”
The holiday shopping season is longer. “With the longer promotional period ramping up for the traditional holiday period,” says WERC, “many retailers need more space to hold inventory for longer periods of time.”
“Order-picking accuracy makes sense as being more important than on-time when end-consumers are the final link in the chain.” Over one-third of the study respondents serve end-consumers. Free shipping is more important for ecommerce consumers than having the order the next day. That means there is greater flexibility in delivery time, and order accuracy becomes of paramount importance.
When to rank the importance of people, process, or technology for their facility, 62 percent of respondents ranked people as primary importance. WERC has found “firms that focus on people are more likely to have an agile workforce and can respond more quickly to changing market conditions, can rapidly acquire new skills to handle process changes, work more effectively cross-functionally and have an easier time transitioning among projects.”
Those companies also invest more time into their employees and employ a higher percentage of full-time employees, but report that firm profitability is lower. “Companies that focus on people tend to think more strategically about their workforce,” according to WERC. “They are more interested in the future potential of their candidates than they are the short-term gains. These companies build strong connections with their employees, which translates into greater loyalty.”
A subject for future research: the study found that companies employing workforce management technology have a higher annual workforce turnover rate.