The road to developing a successful metrics, measurement and benchmarking program starts very much like any successful plan in that it has to have a champion. A metrics program champion needs to be a senior level person within an organization, such as a VP distribution. In addition to the champion, larger organizations will benefit from having co-champions (e.g. warehouse manager and key supervisors). Initially, the program should be developed and driven from the top. As the development progresses, it is important to achieve multilevel ownership, bringing others into the mix for their input.
The champion and his core team first need to determine what to measure, and this is where the challenge can begin to feel overwhelming. Following are a few tips to make this challenge a little more manageable:
Don’t worry about the data sources (yet). This should come after the best metrics have been determined, or else decisions can be tainted (e.g. measuring what is easiest to obtain, rather than what is most meaningful).
Start small. Starting big often times leads to delay, confusion and lack of direction.
Document a structure and development metrics categories for measurement, ensuring a balance between types and levels of metrics.
For example, many companies measure quality by lines, rather than orders. If a company ships 10 orders with 100 lines, and ships a single order with one mistake (e.g. one less unit than ordered), then they are achieving 99% line accuracy, but only 90% order accuracy. If order accuracy is important to the customer base, which it typically is, a distributor would be misled in believing they had 99% accuracy by using the line calculation.
Another example is the highly seasonal business that only measures distribution costs as a percentage of sales. Over the year they see wide fluctuations due to varying sales revenues, while fixed costs (e.g. building, equipment, etc.) remain stable. Though this is a meaningful financial metric, a highly seasonal business will also benefit from measuring distribution labor costs as a percentage of sales and inventory carrying costs as a percentage of sales. The percentages for these metrics should not fluctuate as dramatically over the year, as distributors correctly adjust labor and inventory by season.
Once the goals are in place and the metrics are being measured, they must be communicated and analyzed, with the end goal being action for improvement. Metrics are typically best communicated through reports, and they must remain easy to understand by all. It is important to communicate these reports to all personnel within the distribution operation, and posting specific results in specific process areas where all will see them is a good method. Higher-level metrics will want to be use up upstream as well.
Ultimately, measuring KPIs will flush out specific areas for improvement that will require root cause analysis to develop the solution. It is important to track not only the metric results, but also the improvements (as this is what pays for all of your efforts). Benchmarking internally is a proven method of measurement and can be at the person level (comparing one person to another doing the same process), process level (comparing same processes on different shifts) and company level (comparing DC’s).
Dan Graville is vice president of material handling and supply chain service provider Fortna.