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:
|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.
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