© 2011 Material Handling Industry®. Copyright claimed as to audiovisual works of seminar sessions and sound recordings of seminar sessions. All rights reserved.

Welcome to Session 205

Using Metrics to Drive Warehouse Performance Improvement

Sponsored by:Presented by:

John M. Hill

WE’VE HAD QUITE A RIDE!

2011 FORECAST: 11 to 12% GROWTH

READY FOR THE TURNAROUND?

NAVIGATING THE NAVIGATING THE SUPPLY CHAIN SUPPLY CHAIN

JUNGLEJUNGLE

WE’VE GOT THE TOOLS!

Supply Chain Execution Systems--- right time

Material Handling & Controls--- right condition

Network & Process Optimization--- right environment

Automatic ID & Data Capture--- right material

"Would you tell me please, which way I ought to go

from here?" "That depends a good deal on where you

want to get to," said the cat. "I don't much care

where," said Alice. "Then it doesn't matter which way

you go," said the cat.

HOW DO YOU GET THERE?

ROADMAP TO EXCELLENCE

Establish Target Performance MetricsProfile & Measure Current Performance

Map Processes, Material & Data Flows Define Trading Partner Needs

Identify Gaps & Opportunities

Launch InitiativePrepare Roadmap & Action PlanMatch Likely Costs & BenefitsPut a Value on Potential Incremental Gains

Define Structural & Functional NeedsExamine Alternatives to Close the Gaps

WHAT WOULD MOM SAY?

CONGESTIONDoes the facility resemble an LA freeway at rush hour? Are pickers delayed while waiting for others in the same area? How about slotting & activity scheduling? Spread the fast moversacross a wider pick front.CLEAN, WELL - LIGHTED SHIPAre work areas clean or cluttered? What about lighting?Are storage, staging & pick locations well & logically marked? What about the temperature? Too cold? Too hot?THE DIRTY FINGER TEST

While walking through the storage or picking areas closest to the shipping docks, drag a finger across the tops of the stored pallets, cases or items and check that finger every ten feet. The quicker it becomes dirty, the greater the problem with improper storage of slow moving materials.

WHAT WOULD MOM SAY?

GOLDEN ZONINGAre pick locations positioned at or near picker waist height? SKU profiling can help with deployment of fast movers in the “golden zone”. DOCKSDo you use proper dock plates, levelers, trailer wheel chocks & restraints that engage the impact guard on trailers to prevent movement? When lift trucks fall from docks, injuries can be serious & sometimes fatal. Don’t skimp on the busiest & most dangerous part of the warehouse! PEOPLEWhat’s the mood? Do managers know team members by name & greet them accordingly?Do workers receive regular feedback on targets & actual results?

WHAT WOULD MOM SAY?

HORSES FOR COURSESShould we go with an AS/RS or vertical or horizontal carousels?

Which conveyor / sortation systems should we consider?

What about robotic picking?

Can we use our ERP for warehouse management?

What about SaaS WMS?

Is RFID ready?

It’s critical that you take the time to describe the track & define performance requirements before picking the horses torun the race.

HORSES FOR COURSES

WHO PLAYS GOLF WITHOUT A SCORECARD?

PROFILINGFACILITY LAYOUT

• Size: Usable Sq. Feet, Height• Material & Data Flow Diagrams

MOVEMENT• Lift Trucks, Pallet Jacks• Conveyor, AGVs, Other

STORAGE LOCATIONS• Bulk, Pallet Rack & Flow Rack• Bins/Shelving• AS/RS, Mini-Load, Carousels

SYSTEMS• Types, Applications, Interfaces

PRODUCT PROFILE•Number of SKU’s•Classifications; e.g., Hazardous•ABC Percentages

CONSIDERATIONS•Shelf Life, Lot & Date Codes •Serial Numbers•Seasonal Issues, Other

DATA COLLECTION•Radio Data Terminals•Bar Code Scanners, RFID, Voice•Other Terminals

ACTIVITIESRECEIPTS / HOUR / DAY

• Trucks/Railcar/Other• Orders/Lines/Items• Pallets/Cartons/Rolls/Other

PICKS / HOUR / DAY• Orders/Lines/Items• Cartons/Pallets/Other

SHIPMENTS• Trucks/Rail/Courier/Other

RESOURCES• Supervisory• Receiving Operators• Pickers / Packers / Checkers• Replenishment Operators• Shipping Personnel• Inventory Control• Expeditors• Data Entry / Indirect• Other

PROFILING

Collect receipt, order & item history

Profile transaction volume by task type• Receipts by handling unit, material type• Orders by handling unit, ship method, client• SKU volume & daily activity by handling unit

Profile transaction volume by labor expended

Audit and validate results with users

PROFILING

CATEGORY # OF SKU’S TOTAL PIECES % OF SKU’S % PIECES SHIPPED

A+ 36 58,665 0.9% 10.1%A 822 397,758 20.7% 68.8%B 867 80,594 21.8% 13.9%C 869 31,973 21.9% 5.5%D 1381 9,021 34.7% 1.6%

TOTALS 3,975 578,011 100% 100%

ABC ANALYSIS

SKU’s (%)

A68%

B 14%

C 16% A+ 10%A+ 2%

Pieces (%)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0% 5% 11% 16% 21% 27% 32% 37% 43% 48% 53% 59% 64% 69% 75% 80% 85% 91% 96%

% of SKU's

% o

f Pie

ces

– Cum % Pieces

90% of Picking / 37% of SKUs

80% of Picking Activity / 22% of SKUs

Velocity Curve - Total PiecesACTIVITY PROFILE

10

20

30

40

50

60

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

LaborOrdersLines/Person/Hr

OrdersLines

Order Picking Productivity

January Through November

ACTIVITY PROFILE

Order Fill RatesOrder Cycle TimesLines & Orders/Person/HourErrorsDamageInventory AccuracyDays on HandCost / OrderCost as % of Saleses

ESTABLISH KPI’S

• Perfect Orders• On-Time Deliveries• Inventory Accuracy• Inventory Carrying Cost• Inventory Turns• Order Cycle Time• Order Entry Accuracy• Workforce Utilization• Shipping Accuracy• Order Fill Rate• Customer Satisfaction

• Perfect Orders• On-Time Deliveries• Inventory Accuracy• Inventory Carrying Cost• Inventory Turns• Order Cycle Time• Order Entry Accuracy• Workforce Utilization• Shipping Accuracy• Order Fill Rate• Customer Satisfaction

INTERNAL KPI'sINTERNAL KPI's• Profitability• Sales Volume• Growth Potential• Credit / Payment History• Shared Strategic Vision• Return Rate• Customer Viability• Order Frequency• Loyalty• Cost to Serve• Competitive Pressure• Hassle to Serve

• Profitability• Sales Volume• Growth Potential• Credit / Payment History• Shared Strategic Vision• Return Rate• Customer Viability• Order Frequency• Loyalty• Cost to Serve• Competitive Pressure• Hassle to Serve

CUSTOMER KPI's CUSTOMER KPI's

ESTABLISH KPI’S

ORDER FULFILLMENT

On-Time Delivery Orders On-Time Total Orders Shipped % % $

Orders Filled CompleteTotal Orders ShippedOrder Fill Rate % % $

Error-Free Orders Total Orders ShippedOrder Accuracy % % $

Error-Free Lines Total Lines ShippedLine Accuracy % % $

Actual Ship Date MinusCustomer Order DateOrder Cycle Time Hrs Hrs $

Perfect Deliveries Total Orders Shipped

Perfect Order Completion % % $

MEASUREMEASURE CALCULATIONCALCULATION TODAYTODAY FUTUREFUTURE VALUEVALUE

Inventory AccuracyActual Qty per SKU

System Reported Qty % % $

Total Damage $$$Inventory Value (Cost)Damaged Inventory % % $

Avg. Occupied Sq. Ft. Total Storage CapacityStorage Utilization % % $

Total Dock to Stock HrsTotal ReceiptsDock to Stock Time Hrs Hrs $

Receipt Entry Time -Physical Receipt TimeInventory Visibility Hrs Hrs $

Avg. Month Inventory $Avg. Daily Sales/MonthDays On Hand Days Days $

MEASUREMEASURE CALCULATIONCALCULATION TODAYTODAY FUTUREFUTURE VALUEVALUE

INVENTORY MANAGEMENT

WAREHOUSE PERFORMANCE

Orders per Hour Orders Picked/PackedTotal Whse Labor Hrs

Total Warehouse CostTotal Orders Shipped

Lines per Hour

Items per Hour

Cost per Order

Cost as % of Sales

Ord/Hr

$/Order

% %

$

$

$

$

$

Ord/Hr

Lines/Hr

Items/HrItems/Hr

Lines/HrLines Picked/PackedTotal Whse Labor Hrs

Items Picked/PackedTotal Whse Labor Hrs

Total Warehouse CostTotal Orders Shipped

$/Order

MEASUREMEASURE CALCULATIONCALCULATION TODAYTODAY FUTUREFUTURE VALUEVALUE

METRICS TRADE-OFF’SMETRIC / IMPACT

Orders /Hour

On Time Delivery

Order Cycle Time

Order Accuracy Damage

Orders / Hour

On Time Delivery

Order Cycle Time

Order Accuracy

Damage

BENCHMARKING RESOURCES

The Extended Warehouse Benchmark Report

www.aberdeen.com

www2.isye.gatech.edu/ideas/System-Based Self-Assessment of Warehouse Operations

Multiple Process Standards & Metrics Reports, Annual State of Logistics Report

www.cscmp.org

www.establishinc.comCost, Service, Transportation Rate & 3PL Benchmarks

www.supplychainmetric.com

www.supplychainconsortium.comBenchmarking Services for Manufacturers, Distributors & Retailers

Improving Order Execution Performance: A Holistic View of Metrics Across Plant & Warehouse

www.mhia.org/search/Holistic+Metrics

A Comprehensive Look at Performance Metrics, Definitions & Calculations

Supply Chain Metric

Supply-Chain Benchmarking with SCOR and SCORmark

www.supply-chain.org

www.werc.orgMultiple Reports, Publications & Tools including Warehouse Manager’s Guide to Benchmarking

BENCHMARKING RESOURCES

MEASURE CALCULATION CURRENT TARGETOn-Time Delivery Total Orders On Time /

Total Orders Shipped 87% 95%

Order Accuracy Errorless Orders /Total Orders Shipped 92% 98%

Order Cycle Time Actual Ship Date -Customer Order Date 12 Hrs 8 Hrs

Inventory Accuracy Actual Qty. by SKU /Reported Qty. by SKU 96% 99%

Damaged Inventory Total Damage $$$ / Total Inventory Value .75% .50%

Days on Hand Avg. Inventory Value ($) /Average Daily Sales $ 50 Days 42 Days

Storage Utilization Avg. Inventory Sq. Ft. /Storage Capacity Sq. Ft. 78% 85%

Orders per Hour Orders Picked & Packed /Total Whse. Labor Hrs 15/Hr 20/Hr

Lines per Hour Total Lines Picked /Total Whse. Labor Hrs 40/Hr 54/Hr

Cost per Order Total Warehouse Costs / Total Orders $4.26 $3.62

Cost % of Sales Total Warehouse Costs / Total Revenue 3.1% 2.7%

ESTABLISH KPI TARGETS

YOU HAVE THE METRICS, NOW WHAT?

YOU HAVE THE METRICS, NOW WHAT?

THE BEST TECHNOLOGY INSTALLED IN

OPERATIONS WITH ILL-CONCEIVED MATERIAL FLOWS & PROCESSES

WILL ONLY ENABLE USERS TO DO THINGS

THE BEST TECHNOLOGY INSTALLED IN

OPERATIONS WITH ILL-CONCEIVED MATERIAL FLOWS & PROCESSES

WILL ONLY ENABLE USERS TO DO THINGSBADLY - - - FASTER!

MATERIAL

DATA

Receiving FlowReceiving Flow

Improve Space UtilizationReduce Travel TimesIncrease Pick Rates & ThroughputOptimize Replenishment ActivityReduce DamageImprove SafetySimplify Retail Restocking

Use order & SKU activity profiles to deploy or ‘slot’ inventory based upon

historical & anticipated volume.

Use order & SKU activity profiles to deploy or ‘slot’ inventory based upon

historical & anticipated volume.

01 0402 0301 0402 03

{GoldenZone

REFINE INFRASTRUCTURE

SOLUTIONSBring location to operatorBring location to operatorUse WMS, lights, RFID or voiceUse WMS, lights, RFID or voiceSequence via WMSSequence via WMSAssess alternate storage modesAssess alternate storage modesBar code, voice or RFIDBar code, voice or RFIDPrepackage or weighPrepackage or weighDynamic via WMSDynamic via WMSSpread fast moversSpread fast moversWMS task management WMS task management

ISSUESTravel between locationsLocation searchingPick tour set-upCase & item pickingChecking & verifyingCountingReplenishmentCongestionOperator idle time

INFORMATION SYSTEMSREFINE INFRASTRUCTURE

SYNCHRONIZE MATERIAL & DATA FLOW

WE’VE GOT THE TOOLS!MULTI-MODAL SOLUTIONS

WE’VE GOT THE TOOLS!WMS manage

inventory, space, equipment & labor in

real time to optimize the flow of materials & data

from receiving & putaway to light assembly, order

picking, value-added processing & shipment.

MeasureMeasure CalculationCalculation CurrentCurrent TargetTarget ValueValueOn-Time Delivery Total Orders On Time /

Total Orders Shipped 87% 95% $250,000

Order Accuracy Errorless Orders /Total Orders Shipped 92% 98% See above

Order Cycle Time Actual Ship Date -Customer Order Date 12 Hrs 8 Hrs $100,000

Inventory Accuracy Actual Qty. by SKU /Reported Qty. by SKU 96% 99% See above

Damaged Inventory Total Damage $$$ / Total Inventory Value .75% .50% $100,000

Days on Hand Avg. Inventory Value ($) /Average Daily Sales $ 50 Days 42 Days $1 Million

Storage Utilization Avg. Inventory Sq. Ft. /Storage Capacity Sq. Ft. 78% 85% $100,000

Orders per Hour Orders Picked & Packed /Total Whse. Labor Hrs 15/Hr 20/Hr $864,000

Lines per Hour Total Lines Picked /Total Whse. Labor Hrs 40/Hr 54/Hr See above

Cost per Order Total Warehouse Costs / Total Orders 4.26 $3.62 See above

Cost % of Sales Total Warehouse Costs / Total Revenue 3.1% 2.7% See above

Annual SavingsAnnual Savings $2.4 Million$2.4 MillionProbable CostProbable Cost $1.8 Million$1.8 Million

USE KPI’S TO DEVELOP YOUR ROI

RETURN ON ASSETS IMPACT

3535

4545100100

1515

2020

1515

88

22

2525

5555 55

100100

100100

5050

5%5%

22

10%10%

2525

Return onAssets

Sales

COGS

Variable Expense

Fixed Expense

Inventory

Receivables

Other

50%50%

2525

Gross Margin

Expenses

Taxes

Current Assets

Fixed Assets

Net Profit /

Sales

Sales /

Total Assets

Asset Turnover

Net ProfitMargin

X

Improved fill, increased sales

10% cut in transportation & outside warehousing costs

7% Inventory reduction

46.3546.35100 + 3100 + 3

56.6556.65

103103

103103

5.6755.6755.6755.5%5.5%5.5%

11.3%11.3%

2.062.06

35351515

33.533.513.513.5

6.4256.4256.24%6.24%

12.5%12.5%

+45%14.5%14.5%

7.17.17.16.9%6.9%6.9%

18.6

1424

33.533.533.5

49

2.1

6.436.436.436.24%6.24%6.24%

32.1

7.1257.1256.9%6.9%

Warehousing is like riding a bicycle –

keep moving forward or you’ll fall

down!

Warehousing is like riding a bicycle –

keep moving forward or you’ll fall

down!

© 2010 TranSystems. All rights reserved.

For More Information:

Speaker: jmhill@transystems.com

Home Page: www.transystems.com

PROMAT Booth 2043

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