As an operations executive, you are responsible for not just one activity but several in your distribution or fulfillment operation. The areas you manage may include, among others, warehousing, material handling, call centers, customer service, returns processing — and any and all combinations thereof. Each area has different objectives and is measured differently. Therefore, it is challenging and often frustrating to obtain a “holistic” view of how the operation is doing. What indicators should you use? How do you account for “good” performance in one area and “bad” performance in another?
This is what we set out to gauge when O+F began to research how operations professionals measure facility performance in real life. One caveat is that it may often be difficult to determine who measures what in a distribution center. Because so many departments and activities contribute to the running of a facility, coming up with a uniform measurement system is almost impossible unless information is shared across departments and distributed in a format that is accessible to all the managers involved.
In our survey, the median number of facilities our respondents operate is one; the median square footage of that facility is 78,333; and the median number of SKUs is 7,916. Not surprisingly, today’s operations managers are adept at performing a variety of activities. The majority of respondents fulfill orders for several kinds of businesses or channels: catalog, brick-and-mortar retail, e-commerce, field sales, and wholesale distribution. Catalogs are the primary business for 35.4% of our respondents; 16.9% say they are retailers; 13.5% are distributors; and 13.4% are manufacturers or wholesalers. Nine percent of our respondents are third-party fulfillment service providers — a category not supplied as an answer choice, but indicated as “Other” by a significant number of respondents.
SHIPPING LEADS COST
The five warehouse measures used most often (mentioned by more than 70% of the respondents) are shipping and handling costs; direct labor fulfillment cost; labor hours to achieve output; customer complaints/inquiries; and output in terms of lines, cartons, and returns handled. Respondents place less emphasis on financial measures such as capital investment payback period (42.3%) and rate of return on investment (33.9%).
The majority of respondents operate a single call/contact center. More than 75% measure such conventional standards as call abandonment rate, ASA, average talk time, average time in queue, and absenteeism. Only a third measure the impact of phone and Web self-service on call centers; recent research has indicated that Internet-based options are more economical. Again, financial measures seem to be downplayed.
How often respondents evaluate facility performance varies widely: 21.3% measure more than once a week, while 34.3% measure weekly and 33.7% monthly.
The top five productivity boosters (cited by about 25% or more of the respondents) are training, facility expansion or modification, customer service, investment in material handling equipment, and rewards and incentives. The highest percentage of productivity improvement (35.5%) comes from technology such as warehouse management systems, order management systems, and other programs. Facility expansion or modification came in second (22.6%), followed by customer service (19.2%), material handling equipment (18.8%), and rewards and incentives (18.3%).
Nearly all of the respondents (96.1%) compare their performance measurements with internal historical data; only 46.6% compare their measurements with external, industry-wide standards.
Rama Ramaswami is editorial director of O+F.
PRIMARY BUSINESS
Total respondents = 178
| Percentage of Respondents | |
|---|---|
| Cataloger | 35.4% |
| Retailer | 16.9% |
| Distributor | 13.5% |
| 3PF | 9.0% |
| Manufacturer | 6.7% |
| Wholesaler | 6.7% |
| E-merchant | 1.1% |
| Other* | 10.1% |
| No answer | 0.6% |
| *Includes governmental, non-profit, and research organizations | |
TOP WAREHOUSE MEASURES
Total respondents = 168
| Percentage of Respondents | |
|---|---|
| Shipping and handling costs | 82.1% |
| Direct labor fulfillment cost | 77.4% |
| Labor hours to achieve output | 73.2% |
| Customer complaints/inquiries | 72.0% |
| Output (lines, cartons, returns handled) | 70.8% |
| Total operating cost as a % of net sales | 70.2% |
| Actual productivity level vs. goal | 69.6% |
| Inventory shrinkage | 69.0% |
| Shipment history | 68.5% |
| Absenteeism | 67.9% |
| Inventory turns | 67.9% |
| Note: Respondents with DCs; multiple answers | |
TOP PRODUCTIVITY BOOSTERS
Total respondents = 178
| Percentage of Respondents | |
|---|---|
| Training | 37.6% |
| Facility expansion/modification | 33.7% |
| Customer service | 25.3% |
| Material handling equipment | 24.7% |
| Rewards and incentives | 24.7% |
| Warehouse systems (WMS, OMS, TMS, etc.) | 21.9% |
| Packing equipment/materials | 18.5% |
| Contact center systems | 15.7% |
| Wages and salaries | 12.9% |
| Workforce management system | 9.0% |
| Note: Multiple answers | |
QUANTIFYING PRODUCTIVITY
| Improvement Obtained % | |
|---|---|
| Warehouse systems | 35.5% |
| Facility expansion/modification | 22.6% |
| Customer service | 19.2% |
| Material handling equipment | 18.8% |
| Rewards and incentives | 18.3% |
| Contact center systems | 17.0% |
| Training | 16.0% |
| Packing equipment/materials | 15.4% |
| Note: Summary of means; base = respondents with productivity enhancements |
|
Seven Principles of Measurement
- Validity Does the information captured accurately represent the process or activity being measured?
- Coverage Is the scope of the activity or process that the measurement covers appropriate for the target?
- Comparability Are the conditions of the current period similar to those of previous periods being measured?
- Completeness Has all the information been captured? Have you included the contributions of temporary, 3PL, or inter-departmental services?
- Accuracy Is the data an accurate representation of what has happened in the business?
- Usefulness Does this measurement improve the operation’s ability to serve customers, add value, or better deploy assets? Is the measurement available in time to be useful?
- Cost-effectiveness Is the cost incurred to obtain the information worth the effort?
Sources: Ron Hounsell, Tom Zosel Associates; Council of Logistics Management
TOP CONTACT CENTER MEASURES
Total respondents = 153
| Percentage of Respondents | |
|---|---|
| Call abandonment rate | 80.4% |
| Average speed of answer | 79.7% |
| Average talk time | 77.1% |
| Average time in queue | 75.8% |
| Absenteeism | 75.2% |
| Actual productivity level vs. goal | 62.1% |
| Labor hours to achieve output | 53.6% |
| Output (inquiries processed) | 51.0% |
| Avg. order total per agent ($ or items) | 49.7% |
| Turnover | 49.0% |
| Note: Respondents with contact centers; multiple answers | |
FREQUENCY OF MEASURES
Total respondents = 178
| Percentage of Respondents | |
|---|---|
| More than once a week | 21.3% |
| Weekly | 34.3% |
| Monthly | 33.7% |
| Quarterly | 5.6% |
| Annually | 3.9% |
| Other* | 1.1% |
| *Includes combination of daily and monthly | |
Methodology
On Feb. 18, 2003, Primedia Business Marketing Research e-mailed a 14-question survey to 3,203 O+F subscribers selected on an nth name basis. Respondents were offered a chance to be entered into a drawing for one of four $50 Amazon.com gift certificates. A second e-mail was sent on Feb. 24 and a third on March 10. By March 13, 178 usable surveys were received, for a response rate of 7.7%. Means and medians were calculated according to standard statistical practices. Results were reported in three categories: companies with annual sales under $10 million, between $10 million and $49.9 million, and $50 million or more.
Of the responding companies, 21.3% sell under $10 million in merchandise annually; 35.4%, $10 million to $49.9 million; and 43.3%, $50 million or more. Twenty-seven percent of the respondents are in corporate management; 25.3% are in operations management; 11.8% are fulfillment managers; and 7.9% are warehouse managers. The remaining respondents include executives who manage call centers, IT, facilities, e-commerce, finance, and human resources.
Our survey was based on measures developed by Ron Hounsell, vice president of software solutions at Tom Zosel Associates, a distribution and logistics consulting firm based in Long Grove, IL. Using standards published by the Council of Logistics Management, Hounsell developed an assessment tool that can be applied across the board to measure cost, quality, time, and use of resources, as well as the performance of functional areas such as sales, purchasing, order fulfillment, inventory management, and customer service. Primedia Business research manager Rick Lowe conducted the research and analyzed the data for this report. For more information, contact Hounsell at (847) 540-6543. To purchase a copy of the complete study, visit www.opsandfulfillment.com.
— RR
| Operations | 25.3% |
| Fulfillment | 11.8% |
| Warehouse | 7.9% |
| Contact/call center | 6.7% |
| Customer service | 5.1% |
| IT | 3.4% |
| Facilities | 2.8% |
| Financial | 2.8% |
| Online/e-commerce | 1.1% |
| Other | 6.2% |