Metrics to track and manage distribution center performance need to be meaningful, actionable and objective in order to have any impact or relevance, attendees were told at Parcel Forum 2016.
“When the director of ecommerce says, here’s my sales bump for next year, I should be able to take his sales number, dump it against my metrics, and automatically create a budget for next year,” said Douglas Smith, vice president of direct-to-consumer operations for Boot Barn, as an example of how metrics are actionable.
Providing another example, Smith gave a scenario where a company opened up selling on a couple of marketplaces, which caused an increase in labor costs as well as fulfillment costs as a percentage of sales.
“If an item is selling on Amazon for $4.14 but costs $4.80 to ship, and the difference isn’t being made up in volume, we can run an analysis to see that it’s selling below its true cost,” Smith said. “That analysis starts with DC metrics, which are then communicated to the buying team and the head of ecommerce. They say, it’s a great idea but we need to filter is. So we come up with minimum selling prices in the marketplace.”
Having the right metrics in place can also help a DC team isolate things like shipping as a percentage of net sales going up as sales rise, allowing a company to correct the imbalance, Smith said.
“DC metrics have to support financial targets,” Smith said. “If you tell your CFO that you’ll be able to ship all orders at 13.7% of net sales, the company is depending on you to make it happen. You can’t randomly go into the budget process.”
If your company doesn’t have a good metrics program, Smith said, “The most important thing is to do something, even if it’s just looking at net sales per month and labor costs and supply costs. As you get more comfortable, start digging so you can know what to ask for.”
Tracking, measuring and reporting metrics should not be overly burdensome, Smith said, to the point where it’s taking away from other critical tasks.
“You shouldn’t spend your day or your team’s day, on it,” he said. “It should not be a life-sucking data crunching exercise. If you saddle people with daily metrics, they can’t be on the floor, managing or being strategic. And if it doesn’t affect profitability or the morale of employees, what’s the point?”
The frequency of tracking and reporting of metrics varies by level, Smith said. For instance, he recommended following individual productivity metrics daily, weekly, monthly and year to date. For departmental measurements, he suggested weekly, monthly and year to date reporting. Overall DC-wide metrics should be reported weekly, monthly, quarterly and year to date. For executives, it should be limited to monthly, quarterly and year to date.
“You should limit what goes to the executive team, and keep it concise and accurate,” Smith said. “It should have simple a format for them to understand. Always add commentary and don’t ever send out a report blind. Number one, they’re not going to read it or understand it. If they see an issue in the metrics and you don’t identify what it is, they will assume you’re doing nothing and come help you.”
Two other tips from Smith: Choose metrics that drive financial performance and impact the customer experience; and create all inclusive metrics that can be easily adjusted for cross-organizational comparison.