Measuring warehouse performance: What does good look like?
Maintaining a smooth-running distribution center is like managing a finely-tuned machine. For supply chain executives, driving consistent productivity and efficiency (which often translates into increased revenue and profit and enhanced customer engagement) is a matter of careful monitoring and measurement, root cause analysis and continuous improvement.
It begins by understanding the two aspects of changeable performance: productivity and efficiency. While these two terms are often used interchangeably, they are in fact very different elements that share a connection in the quest for optimal performance.
Measuring these key performance indicators should occur around processes that are standardized. That is, every resource in an operation is performing the same steps. With that in mind, managers should be able to quantify, or at least ‘get a feel for’, what a resource should accomplish in a given time period.
Armed with that information, you can begin to evaluate both efficiency and productivity.
Efficiency is the ability to produce within a given process with a minimum of wasted time and effort. To get a good handle on how efficiently your operation runs, start by identifying resources performing greater than the standard and develop a relative efficiency rating that can be applied across the board. When dealing with a specific operation and set of resources, this calculation can be turned into a value statement, for example:
- The standard for packing a single SKU apparel order is 63 pieces per hour
- John averages 68 pieces per hour
- Robin averages 59 pieces per hour
Translating the above productivity into an efficiency calculation (E=P/S), where E= efficiency, S= standard and P= performance, you see that John is working at 8 percent higher than standard and Robin at 7 percent less than standard.
Productivity, or how much a resource or team generates as an outcome of a given warehouse process, is best measured in multiple ways. For example, you might measure an employee bagging and packing apparel simply on number of pieces shipped. And if you did, you’d probably miss things. Additional measures like number of boxes and bags used, packslips printed, pick errors identified, etc. will give you a better picture of true productivity.
When productivity either falls below 80 percent of expectations or rises to more than 110 percent, you should immediately take notice. While individual and team performance can be diagnosed fairly easily with critical thinking and supervisory observation and intervention, warehousing contains other measures that point to the overall performance of a facility. Getting a handle on overall performance requires understanding of the lifecycle of goods in your warehouse and how each process interacts.
When you discover something out of the ordinary, look for the most obvious cause first. For example, let’s use average order cycle time – the measure of time it takes for an order to be assigned for picking through to shipping. To identify possible causes, work backwards: start with how long an order should be on a conveyor before being shipped, and how quickly shipment folks are processing. Ask yourself the following questions:
- Is there a specific type of order that requires unique processing?
- Has that type of order remained the same as a percentage of overall orders?
- Have there been any equipment outages?
- Are there new shipping associates?
If shipping functions remain the same, move back in the process chain to picking. Ask the same questions. Is the item in a pickable location when needed? Somewhere in that process, something changed and investigation and observation of not just the data, but also the physical process should reveal the issue.
So, what to do once you’ve identified an unexpected result, either positive or negative? There are two paths here: accept and incorporate an improvement or understand and mitigate a problem. If the unexpected measures are positive, understand why they happened. If root cause(s) can be quantified, adopted, and even reproduced across other operations, you have a significant opportunity to drive better performance. Where unexpected or untypical conditions lessen productivity measures, understanding and mitigation are the keys. Be creative and seek changes that can be accepted by management and your employees.