Uncommon measures

Nov 01, 2005 10:30 PM  By

Benchmarks are a longstanding staple of warehousing, used to measure everything from employee performance to daily shipments. But they’re not always standard, and much of their relevance depends on company size and the industry served, according to a comprehensive new report from the Warehousing Education and Research Council (WERC).

In a survey of 384 warehousing/distribution executives, WERC, along with researchers from Georgia Southern University and Bellevue, WA-based consulting firm Supply Chain Visions, asked questions about 55 measures commonly applied in distribution operations. Although there was agreement on what the most important measures were (examples include on-time shipments, order picking accuracy, and percentage of orders shipped complete), respondents were often fuzzy when it came to defining just what it was that they had measured.

For instance, the majority of companies said their customers defined “on-time delivery” differently. Nearly 60% of respondents noted that for their clients, the term simply meant delivery on the requested or agreed-upon day. But 40% reported that their customers expected delivery at an appointed time or within an hour of that time; within this group, a picky 4.5% defined on-time delivery as occurring within a 15-minute window of the appointed time. As the WERC analysts point out in their report, “this lack of agreed-upon standards and definitions goes a long way toward explaining why some suppliers have difficulty delivering ‘on time.’”

Notions of what constitutes a “perfect” order — another keystone of operational benchmarking — also vary. According to the report, the perfect order index (POI) measures an order’s success by evaluating whether it is delivered to the right place, at the right time, in defect-free condition, and with the correct documentation and price. But while 72% of the respondents said that the POI is an important measure, 59% did not use it. What’s more, they didn’t all define or calculate it the same way. The respondents who used the POI rated themselves as scoring more than 91% on the index, with a median response topping 96%. The WERC researchers, however, note that this overly high score could be the result of all four POI components being averaged together; when the individual components were examined, the score came out to a more realistic 85.5%.

Benchmarks differed considerably across industries, highlighting the importance of accurate definition of business objectives. For example, the pharmaceuticals and life-sciences sector was most likely to use order fill rate as a measure, whereas high-tech manufacturing/distribution was least likely to use it. The research team speculates that this could be because the two industries have widely disparate objectives regarding inventory and order management: One is concerned with small, broken-case shipments and high order volume, whereas the other focuses on raw material management and bulk shipments. Similarly, where a company falls in the supply chain determines what it measures. Assessment of distribution costs as a percentage of sales, for instance, happens most frequently when the customer is a manufacturer, and takes place least often when the client is a retail firm.

Most important DC measures

On-time shipments 94.0%
Inventory count accuracy (% by units) 88.6%
On-time receipts 74.5%
Percentage of orders shipped complete 74.4%
Percentage of overtime units 70.0%
Source: WERC
Note: Survey of 384 respondents