Performance Benchmarks

Jun 01, 2003 9:30 PM  By

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

  1. Validity Does the information captured accurately represent the process or activity being measured?
  2. Coverage Is the scope of the activity or process that the measurement covers appropriate for the target?
  3. Comparability Are the conditions of the current period similar to those of previous periods being measured?
  4. Completeness Has all the information been captured? Have you included the contributions of temporary, 3PL, or inter-departmental services?
  5. Accuracy Is the data an accurate representation of what has happened in the business?
  6. 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?
  7. 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

Primary Job Function
Total respondents = 178
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%