Operations and Management: Adventures in Benchmarking

If you want to assess — and from there, improve — the efficiency of your distribution and call centers, you first need to calculate your own productivity metrics. And while that in and of itself may yield you enough data to help you streamline systems, ideally you should then compare the data with those of other companies.

Ron Spath, director of customer relations for Sidney NE-based outdoor gear cataloger Cabela’s, says that benchmarking can increase the accuracy of your orders, boost worker productivity, and improve service levels in the call center. Spath speaks from experience: Cabela’s participates in numerous industry “share groups” (see “Mom Was Right: It’s Nice to Share,” below), in which companies share operations metrics.

Getting started

How can benchmarking tangibly benefit your operations? First, let’s assume that you’ve already measured specific facets of your operational performance. These can range from the number of packages shipped within a given time period to the average number of SKUs picked per hour to the average number of calls handled per phone rep per hour.

For cooking tools cataloger/retailer Sur La Table, benchmarking “has given us the opportunity to pinpoint specific areas of improvement,” says director of logistics John Salvatore.

Seattle-based Sur La Table began benchmarking the performance of its distribution and call centers five years ago. In the course of chronicling shipping data, Salvatore noticed areas where costs had increased. “You are able to break down specific costs and see where you can improve,” he says.

Benchmarking your company’s performance over time is one way to find room for improvement. But you may be able to rev up even metrics that have held steady or improved over time.

Suppose it takes your customer service representatives 10 minutes on average to take an order from a customer. Now, by comparing your data with those of other mailers, you learn that CSRs at other catalogers average just five minutes an order. “That probably means your CSRs are taking too long to take the order,” says Glen Pirie, chief operating officer of Fargo, ND-based vitamins and supplements cataloger Swanson Health Products.

Don’t assume such is the case, however, Pirie adds. You’ve got to make sure that you’re comparing yourself with similar companies. If you sell high-end apparel or personal electronics, your CSRs would naturally spend more time on average per order than reps at companies that sell straightforward products such as books and videos.

Similarly, you’d probably like to have Coldwater Creek’s impressive 1% call abandonment rate. But the $400 million apparel marketer likely made a significant investment in technology to achieve the rate. If your annual sales are closer to $4 million than $400 million, you probably can’t consider such an investment. The moral: Benchmark yourself against companies of a similar size.

Putting the metrics to work

Cabela’s, which measures service levels across its five Nebraska call centers, pays keen attention to the average talk time of its CSRs. If the talk time is too high, Spath says, the company may consider adding more detail to the product descriptions in its catalogs.

Cabela’s also uses benchmarking data to reduce the number of telephone transfers between agents in the call center, a common customer turn-off. “What the data revealed,” Spath says, “is that not all CSRs can answer every single question posed to them, so we don’t strive for 100% in that area. But we have been able to cut down the amount of times we’ve transferred calls between agents significantly.”

When Swanson Health Products began measuring picking and packing data, the company learned that its staff picked an average of 600 SKUs an hour but packed only 310 SKUs in the same time, creating a bottleneck. To reduce the discrepancy in picking and packing efficiency, Pirie began having workers pick merchandise directly to the packing carton instead of to a container that would then be sent to packing — eliminating a step from the packing process.

And when the cataloger moved into a new facility this past August, Swanson used benchmark data to help map out the most efficient use of its new space. Thanks to benchmarking, Pirie says, the company has saved $88,000 a year on labor costs in the picking area alone.


Mom Was Right: It’s Nice to Share

You know that you should be benchmarking. But you don’t know where to get the data against which to compare your own operations. That’s where share groups can help. Simply put, share groups are informal forums in which companies share their business practices and benchmarks with other companies of similar size and volume.

Outdoor sporting gear cataloger/retailer Cabela’s has been participating in the Purdue University Center for Customer Driven Quality Share Group (www.cfs.purdue.edu/conscirt/quality) since the early 1990s. Signing on with the group “is one of the best things we’ve ever done,” enthuses Ron Spath, director of customer relations for Sidney NE-based Cabela’s. The Purdue group focuses on call center metrics.

Among other share groups of note:

  • Richmond, VA-based operations consultancy F. Curtis Barry & Co. (www.fcbco.com) sponsors confidential forums on performance measures, procedures, and technologies in warehousing and customer service. These include tours of participants’ facilities.

  • The eCommerce and Catalog Systems Forum (www.ecsforum.org) from Southhampton, PA-based Marketing Systems Analysis offers an exchange of information for information technology systems managers of direct commerce companies. The eCSForum also helps nontechnical professionals better understand technical issues.

  • The Warehousing Forum (www.spaidekuipers.com) provides just that: a forum for direct marketing distribution.

Potential Benchmarks for the DC and Call Center

Not sure exactly what you should be benchmarking, anyway? Consider the following:

  • Telephone expense per order
  • Credit processing costs per order
  • Occupancy costs per order
  • Cost per contact and cost per order
  • Average calls handled per hour
  • E-mails handled per hour
  • Mail/fax orders processed per hour
  • Hourly pay rate and benefit rates
  • Indirect and direct labor costs
  • Outside overflow service costs
  • Call abandonment rates
  • Average speed to answer the phonen
  • Average call length
  • Upsell success rates
  • Call-to-order ratio
  • Backorder and initial fill rates
  • Calls per CSR seat
  • Percent of net sales
  • Cost per order, per unit, per line, and per box
  • Departmental costs (receiving, put-away, replenishment, picking, packing, shipping, outbound quality control, special functions, returns)
  • Cost per order for packing materials
  • Fulfillment costs as a percent of net sales

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