Big-Picture Benchmarks

Jan 01, 2004 10:30 PM  By

WHEN IT COMES TO BENCHMARKING, successful companies don’t let the numbers speak for themselves. These organizations look at the larger picture, comparing themselves both with companies of similar scope and size and internally, by looking at historical patterns. They use intelligent analysis to determine what the numbers really mean — and then make the changes needed to improve their performance. This month, five influential executives discuss the benchmarking assessments and strategies that work best for their firms.

  1. We measure pieces picked per man hour, pieces packed per man hour, packages packed per man hour, and packages loaded by man hour. Of these, our most useful metric is pieces packed per man hour, as that gives us a good measure of our labor productivity since we have numerous package sizes. This metric is useful because it gives us our cost efficiency and the tools to project future costs based on packages-to-be-shipped projections.

    We do not share our benchmarks with other companies, but use them rather as internal standards of comparison. These metrics apply only to frozen food; since we are working with frozen food, the length of time the product is in ambient temperature is critical. An increased packing rate shortens that time and improves product integrity.

    As a result of information yielded by our best benchmarks, we have tested various packing station formats and our metric has allowed us to make modifications to further improve productivity — in fact, we have decreased our packing labor by 7% based on the metric. During the past six years, these metrics have helped us to make improvements to the packing areas, which have, in turn, reduced our operating expenses, improved employee morale, and reduced our workman’s compensation claims.
    Ron Eike, Director of Operations
    Omaha Steaks
    Omaha, NE

  2. We take a holistic view of benchmarking. Intelligent benchmarking is possible as long as we compare ourselves with other companies that have a similar product line. We have to be careful about which metrics we use because our product line tends to be very different from other companies.’ If we compare pick per hour with another company, we have to make sure that the products they are picking have some similarity to what we’re picking. Also, because of the unusual size of our products, we tend to have less automation than other warehouses.

    Our three best benchmarks are warehouse labor expense as a percentage of sales, warehouse cost per order, and overall cost per order. We compare these financial ratios both with ourselves to check our progress over time, and with other companies.

    Our most successful benchmarking has come from live visits to warehouses. For example, many companies interpret orders picked per hour in different ways — some separate single and multi-line orders, while others don’t. Also, during a live visit, you can see how effective the layout of space is, the number and location of work queues, and personnel layout, or how closely workers are positioned to have access to the task at hand. Everyone has a pick-and-pack ratio, but how is it laid out? You can evaluate it in a subjective manner when you see it.

    Using what we learned from a live visit, we restructured our shelf layouts and created a quick-pick aisle from which we routinely pick 50%-60% of our goods needed in a day. It paid off — our in-house measurements increased productivity at least 20% as a result of the new layout.
    Ron Pegram, Operations Manager
    McFeely’s Square Drive Screws
    Lynchburg, VA

  3. It is impossible to say that any particular benchmark is the “best.” We have used facility performance benchmarks on a daily and weekly basis for about 17 years to track several factors, including service levels, accuracy, and costs. These benchmarks, which would apply for any warehouse or distribution center, all work together to ensure the best customer service at the lowest cost. In terms of material handling, however, cost per unit and accuracy are the most useful because they are the parameters that determine the overall effectiveness of the warehouse and distribution center. We have made software and hardware changes and increased our profitability as a result of improvements inspired by the benchmarks.
    Lillian Vernon, Founder
    Lillian Vernon Corporation
    Rye, NY

  4. Since no other company is exactly like us, when we benchmark we typically compare ourselves with ourselves and then try to improve the numbers. Also, since our level of technology is minimal, we use metrics that don’t require scanning or bar coding.

    One ratio we look at is the percentage of sales divided by pick, pack, and ship or the per-unit cost. We are currently at 2.1% sales to pick, pack at ship, or a unit cost of less than $1.00 out the door to pick, pack, and ship. We’re happy with the cost per package. We average 6-7 items per box, whereas many other catalogs average 1.3 lines per order. Another benchmark we find useful is to track the packing speed per hour. We have a target speed of 16-18 packages an hour, with an error rate of 0.3%. This has improved in recent years, most likely because we have many of our seasonal staff returning.

    One improvement we’ve made is to change the way we sort. We spent $6,000 to install new equipment that helps us to pick 15 orders per batch at a time and eliminate the step of resorting. This change has helped us reduce payroll as a percentage of sales by 18%. Next year, we’ll try to beat ourselves again.
    Liz Plotnick-Snay, Chief Operating Officer
    Gooseberry Patch
    Delaware, OH

  5. The best benchmarks and performance metrics are those which help Orvis achieve high service levels for its customers and superior financial performance. We use service and financial benchmarks for each processing area, and our best benchmarks include fulfillment costs as a percentage of sales, dock-to-stock speed, space utilization metrics, and speed of order fill. Many of these measurements have been used for more than ten years. We modify the desired standard or goal to support larger, company-wide goals and objectives. We then compare performance against goals, in many cases on a daily basis.

    We also share our benchmark data with other companies on a regular basis. Many of the financial benchmarking and performance tracking measurements have allowed us to consistently manage our operations costs.
    Andy Travers, Director of Operations
    Orvis
    Roanoke, VA