Give Your DC a Look-see

Getting your distribution center ready for the next peak season is in some ways a matter of recognizing that what doesn’t kill us makes us stronger. To put it another way, now’s the time to learn from your mistakes and begin to formulate a plan for the next holiday season.

Employees know best

Start your fact-finding mission by asking your employees for input on last year — the good and the bad. Consider challenging each work area to identify five positive accomplishments and five areas for improvement. Don’t forget to include your support staff — employees in human resources, training, information technology, inventory control, and maintenance. If you want to know how to improve packing productivity, ask your packers. Problems with receiving? Ask your receivers.

Gather all the input, and sit down with your managers to review accomplishments and ideas for improvement. While not all of the ideas may be actionable, management’s job is to listen to the employees and be on the lookout for opportunities to make improvements. Be careful not to allow shortcuts that sacrifice safety or quality.

To recognize last year’s accomplishments, consider holding a meeting to celebrate your successes. Call out individuals and departments that played key roles in your overall success. Celebrate and have fun; thank everyone involved, but also challenge them to be even better this year, outlining some of the opportunities for improvement that have been identified. Reassure your employees that management will provide the tools needed to be even more successful.

The key to making improvements is not for everyone to work harder; it’s for everyone to work smarter. Long hours and hard work may generate short-term gains and may be needed to meet holiday season peaks but cannot be sustained in the long term. Smartness is the key.

Count on improvement

Many fulfillment centers struggle during the peak holiday season with inventory accuracy and, subsequently, backorders. This is a huge problem for customer service and leads to increased fulfillment center costs. While it is impossible to eliminate all warehouse backorders, the best operations measure their backorder frequency, report daily, and establish goals for inventory accuracy.

Warehouse backorders are usually measured as a percentage of total units picked. If you don’t already have a goal, set your sight on 99.95% in-stock, or 0.05% warehouse backorders. If your operation is running 2% or more warehouse backorders you probably had a tough holiday season and need to take immediate action.

Start by taking a quality physical inventory. Then implement policies and procedures that stress accuracy and establish a year-round cycle counting program. The best operations dedicate year-round staff to maintaining inventory accuracy. Are you dedicating enough resources to maintaining accurate inventories and keeping backorders under control? In addition to measuring backorders, every fulfillment center should measure and report individual employee productivity on a regular basis. Employees need clear expectations, standards to meet, and management support. Improvements in this area can pay huge dividends, with productivity gains of as much as 30%.

A good work measurement system will provide a framework for continuous productivity improvement, but it must be updated regularly to reflect changing practices and procedures. Standards should be developed and tested with employee input. Even the best-engineered standards will fail if employees and front-line supervisors fail to accept them.

Yogi Berra once said, “If you don’t know where you’re going you won’t know when you get there.” Would you captain a ship without a compass and charts to show your current location and plan your journey? Of course not — but why do many fulfillment center managers run their operations without key performance indicators (KPIs)?

Industry-leading companies define a set of operational KPIs that meet their service and financial goals. They report such metrics in a daily scorecard that is used not only to measure performance but also to plan future operations. Here are some examples of actionable KPIs:

My advice to fulfillment center managers: Learn from your mistakes; listen to your employees; work smarter; keep your inventory accurate; establish work standards; use KPIs; and start planning for the 2007 holiday now.

Jeff Kline is founder/president of Memphis-based operations consultancy Kline Management Consulting.

Service Financial
% on time shipping $ cost/order shipped
returns backlog cost/unit processed (all depts.)
% warehouse backorders % of work standard (all depts.)
receiving backlog by date ratio of direct vs. indirect labor
shipping backlog overtime hours by dept.
% of units on QC hold # temporary employees by dept.

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