Order Fulfillment and Distribution Center Metrics

In a previous post on Fulfillment Operations, I discussed the processes core to most Warehouse Operations. We also discussed where you should build your warehouse. In this post, I discuss – generally – the metrics associated with those processes.

There are at least 3 critical items that allow you to reduce costs and increase service level in warehousing:

Tight and Necessary Warehousing Processes
What Warehouse Metrics do you have in place to help you determine if your processes are going well or not.
You warehouse location is optimal in the first place to meet service level commitments.
These together will help you reduce costs in your warehouse.

Previously, we discussed the major process paths common to most Distribution Centers such as: Purchasing, Receiving, Inventory Management, Order Management or Order Fulfillment, and Shipping. As with most business processes, there are metrics associated with those process paths. You know those massive Amazon Distribution Centers? Inside those are actually very complex processes that need to be measured.

Here are just some:

Metric	Definition
Gross Margin	Revenue Minus Cost of Goods Sold
Demand Forecast Accuracy	Average Time from Receipt of Product to Payment
Days Sales Outstanding	Average Collection period from invoice to cash receipt
Labor Productivity	Total Units Handled / Total Labor Hours
Cost/Pick	Line items pulled per month/compensation & benefits
Payroll to Net Sales	Compensation & Benefits/Revenue
Cost of Goods Sold	LIFO, FIFO, or Average
Total Cost of Procurement	Total impact on Cash Flow, COGS, Terms
Supplier Quality	% Defects = Lines Rejected/Lines Received
Lead Time	Order-to-Receiving Time
Transportation Cost	[Inbound Freight Costs/Sales] + [Outbound Freight Costs/Sales] + [Liquidate Costs/Sales]
Receiving Accuracy	% of Orders Received Accurately (count @ receiving, cycle count)
Supplier on-time	Purchase Order Receipt (PO) date-to-first receipt
Inventory Turns	# times inventory gets soled and reordered within 12 months or 12 month rolling COGS (LIFO, FIFO, or Average) / Average Inventory
Inventory Accuracy	Actual versus Total – by Cycle Count
Inventory On-Hand	# of Days Inventory Carried
Warehouse Utilization (Pack Factor)	# of Bin Space Utilized / Total Available
Perfect Order	An order that is complete, accurate, on time by order by line item
On-time Delivery	First Customer Shipment to Expected Customer Date
Adjustment Loss	Over a rolling time period less X days, reconcile “missing inventory” with “found inventory” for both virtual items and physical items

The list above is by no means an exhaustive list of Distribution Center metrics, but gives us a sense of the metrics associated with the process paths core to any Warehouse Operation.

In the next post, we’ll discuss the success as it relates to the directional trajectory of the metrics.