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  Distribution and Materials Handling Focus: Our Weekly Feature Article on Topics Related to Distribution Management and Material Handling Strategies and Technologies  
 
 
  -June 3, 2008 -  

Logistics News: Digging Through the WERC Distribution Metrics Study for 2008

 
 

Distribution Performance Continues to Hold or Improve Across Most Key Metrics; Raw Materials Inventories Appear to Skyrocket

 
     
 

SCDigest Editorial Staff

SCDigest Says:
Small absolute differences can actually be quite important. For example, the 2.4% difference in order picking accuracy between general manufacturing (97%) and retail (99.4%) actually would represent a large cost difference resulting from picking errors, and probably does represent the result of a different level of focus on this problem between the two sectors.

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The Warehouse Education and Research Council (WERC) recently released its “DC Measures for 2008” - the annual report compiled by Dr. Karl Manrodt of Georgia Southern University and Kate Vitasek, Managing Partner at Supply Chain Visions and an SCDigest columnist.

This is the fifth such report, based this year on survey responses from almost 700 respondents, relatively evenly split between larger, medium and smaller companies. New this year also was collaboration between WERC, the Material Handling Institute of America (MHIA) and the Manufacturing Enterprise Solutions Association (MESA) to standardize various metric definitions.

Highlights from the report were recently released by Manrodt and Vitasek. The full report can be accessed or purchased at the WERC web site.

Most Common Metrics

This metrics study is really focused at a distribution center level, not the broader supply chain. With that in mind, the most commonly used DC metrics are listed below, with the percentage of respondents using each metric:

  • On-Time Shipments: 88%
  • Order Picking Accuracy: 75%
  • Annual Workforce Turnover: 70%
  • Fill Rates – Line Item Level: 69%
  • Fill Rates – Order Level: 69%
  • Peak DC Capacity Used: 64%
  • Average DC Capacity Used: 63%
  • Inventory Capacity by Dollars/Units: 62%
  • Dock-to-Stock Cycle Time: 61%
  • Distribution Costs as Percent of Sales: 60%

The one big change in the list was the turnover metric, which rose from 8th place in 2007 to 3rd in 2008, as companies are obviously increasingly concerned with DC labor issues.

(Distribution and Materials Handling Article - Continued Below)

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Comparison Across Industries

For most metrics tracked in the report, such as on-time delivery percentage, inventory accuracy, picking accuracy, and order fill rates, there were relatively small differences in median performance levels between industries. Even so, small absolute differences can actually be quite important. For example, the 2.4% difference in order picking accuracy between general manufacturing (97%) and retail (99.4%) actually would represent a large cost difference resulting from picking errors, and probably does represent the result of a different level of focus on this problem between the two sectors.

A couple of other areas stand out. As shown in the graphic below, for example, the annual associate turnover in retail distribution, at 18%, was well above most other sectors. 3PLs seemed to rate their performance higher than all other industries in almost every category. Whether this is reality, a desire to look good on the part of the respondents, or differing views on how the metric should be calculated is not clear.

Source: WERC/Manrodt and Vitasek

Some Metrics Show Consistent Improvement

What we found perhaps most interesting was the list of metrics for which performance had changed the most over the past three years. Most of these changed for the better – for example, the percent of back orders as a percent of total orders dropped from a median of 5% in 2005 to just 1.9% in 2008.

Lines picked and shipped per person hour rose from a median of 21 in 2005 to 35.3 in 2008, while cases picked per hour went from 110 to 120 over the same time. The percent of orders shipped complete rose from a median of 96% to 98% in 2008, which sounds high to us but that’s what the data says.

One metric that declined substantially was “Days on Hand of Raw Materials,” which the study data found rose from a median of 20 days in 2005 to an incredible 61.9 days in 2008. Manrodt and Vitasek attribute the change to the fact that “more and more companies are acquiring their materials overseas. Unless the company is shipping by air, they are likely to see an increase of 4 weeks (30 days) of incremental inventory because of product being held in inventory as it is transported over the water.”

True, but the level of increase from 2005 to 2008 still seems abnormally large. There may have been some other issue with how respondents answered the question, though the data was really consistent for high performing companies too, where Days on Hand rose from 10 to 20 over the same period. We wonder if it could simply be an issue of the respondent – distribution managers may not have a clear view of manufacturing inventories.

In looking at the data, Manrodt and Vitasek note that “There has been marked improvement in companies’ ability to deliver with regard to the Perfect Order. And executives are supporting measurement as a key practice in most organizations. Lastly, leading industries such as grocery retailers are beginning to think outside the box and begin to institute a number of cross organizational metrics to better measure overall performance versus company silo performance.”

More on that last point soon.

What’s your reaction to the 2008 DC Metrics data? Could raw materials inventories have really increased that much due to offshoring? What metrics are missing that should be there for the top 10 most used metrics? Let us know your thoughts at the Feedback button below.

 
     
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