benchmarking & best practices - increasing productivity & warehouse efficiency

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www.werc.org 1 Benchmarking & Best Practices Increasing Productivity & Warehouse Efficiency Consumer Goods Supply Chain Officer Summit 2012 Shanghai, China

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- Learn a step-by-step description of an ideal approach to benchmarking. - Why qualitative and quantitative benchmarking go hand-in-hand. - Steps to setting up a benchmarking program Presented by: Michael Mikitka, CEO, Warehousing Education & Research Council (WERC) November 28, 2012 - Consumer Goods Supply Chain Officer Summit 2012 - Shanghai Pudong, China

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Page 1: Benchmarking & Best Practices - Increasing Productivity & Warehouse Efficiency

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Benchmarking& Best Practices

Increasing Productivity & Warehouse Efficiency

Consumer Goods Supply Chain Officer Summit 2012Shanghai, China

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Learn a step‐by‐step description of an ideal approach to benchmarking.

• Why qualitative and quantitative benchmarking go hand‐in‐hand

• Steps to setting up a benchmarking program 

• Key benchmarking resources in the supply chain industry

In this session…

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“If you can’t measure it, you can’t manage it.”

~ Peter Drucker

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“The process of improving performance by continuouslyidentifying, understanding, and adapting outstanding practices and processes found inside and outside the organization.  

Benchmarking (seeks) to improve any given business process by exploiting "best practices" rather than merely measuring the best performance.  Best practices are the cause of best performance.  Studying best practices provides the greatest opportunity for gaining a strategic, operational, and financial advantage.” 

The American Productivity and Quality Center (APQC)

Benchmarking is…

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Improve Bottom Line

Improve Metrics

Improve Processes

What we know…

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Percentage of Company Revenue Spent on Distribution Activities

Source: 8th Annual DC Measures Study, 2011.

6.50%

4.40%

6%

3%

4.40%

1.80%

2.60%

2.46%

2%

1.46%

0.90%

0.72%

0% 1% 2% 3% 4% 5% 6% 7%

Manufacturing ‐ General

Wholesale Distribution

Third Party Warehouses

Life Sciences

Consumer Products

Retail

Best in Class Median

How do we know?

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Quantitative

Qualitative

Quantitative Benchmarking Data is Good… but it is not Good Enough

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Financial measures tend to be lagging indicators.

Leading Indicators (Performance Drivers) Lagging Indicators (Outcome)

Limitations of Traditional Financial Measures

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Leading Indicators…

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• On‐time Shipments• Perfect Order Completion• Dock‐to‐Stock Cycle Time, in Hours• Order Fill Rate• Pallets Picked & Shipped per Hour• Distribution Costs per Unit Shipped• Peak Warehouse Capacity Used• Material Handling Damage• Percent of Orders with On‐time Delivery

There are hundreds of metrics referencedacross industry associations 

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Metric In Order of Popularity – 2012 2011 Rank 2010 Rank

1. On Time Shipments ‐ Customer 1 1

2. Order Picking Accuracy – Quality  3 2

3. Average Warehouse Capacity Used – Capacity 2 4

4. Dock to Stock Cycle Time, in Hours ‐ Inbound Operations 5 6

5. Internal Order Cycle Time – Customer 6 10

6. Total Order Cycle Time – Customer  7 Not in Top 12

7. Peak Warehouse Capacity Used – Capacity 4 9

8. Lines Picked and Shipped per Hour – Outbound Operations 8 11

9. Annual Workforce Turnover – Employee 12 8

10. Fill Rate – Line – Outbound Operations  11 3

11. Lines Received and Put Away per Hour – Inbound Operations  9 Not in Top 12

12. Percent of Supplier Orders Received Damage Free – Inbound Operations  10 Not in Top 12 

The most popular metrics are…

Source: 9th Annual DC Measures Study, 2012.

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© Supply Chain Visions ‐ Source: WERC’s “Warehouse Manager’s Guide to Benchmarking”, 2nd Edition (2010)

PlanStep 1: Set benchmarking priorities

Step 2: Identify the key processes to be assessed

Measure Step 3: Collect data  ‐ operational and managerial

Compare

Step 4: Research and compare best‐in‐class performance to internal and external standards

Step 5: Identify gaps and reasons for low performance

Step 6: Develop an improvement roadmap and set        priorities

Act Step 7: Close gaps and improve/refine processes

Seven Steps to “Successful Benchmarking”…

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Plan – Step 1: Set Benchmarking Priorities

The best place to start is with a vision statement and values. 

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Consider narrowing down your list of what you would like to benchmark against

Plan – Step 2: Identify Key Processes

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Measure –Step 3: Collect Data – Operational & Managerial

• Yourself (other locations)• Customers• Formal benchmarking services• Industry Associations

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Trade AssociationsNetworks

Governments

Measure

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Compare QuantitativeStep 4: Research & Compare Best‐in‐Class Performance

2012 WERC DC Measure Report…

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Compare Qualitative

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Compare – Step 5: Identify Gaps

• Review Process Attributes and Score Each Process Group

• Scoring of the Receiving Inspection Process is Assessed as Inadequate Practice

With process standards you can rank selected processes against the standard and identify the process changes required to achieve the target

Source: WERC’s “Warehouse Manager’s Guide to Benchmarking”, 

2nd Edition (2010)

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Compare Step 5: Identify Improvement RoadmapWarehouse & Fulfillment: Gap Analysis

ProcessRank

Gap Poor Practice1

Inadequate Practice2

Common Practice3

Good Practice4

Best Practice5

Receiving & Inspection

Material Handling & Putaway

Slotting

Storage & Inventory Control

Warehouse Management Systems

Shipping & Documentation

Picking & Packing

Load Consolidation & Shipping

Source: WERC’s “Warehouse Manager’s Guide to Benchmarking”, 2nd Edition (2010)

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Warehouse & Fulfillment: Road Map Rating Tool

Process Strategic Impact Cost/Performance Impact Total Rating Gap

Receiving & Inspection

Material Handling & Putaway

Slotting

Storage & Inventory Control

Warehouse Management Systems

Shipping & Documentation

Picking & Packing

Load Consolidation & Shipping

Compare

High ImpactMedium Gap

Low Impact

High Gap

Low Gap

Highest Priorities in Red Secondary Priorities in GreenMedium Impact

6

6

4

5

5

2

6

4

Source: WERC’s “Warehouse Manager’s Guide to Benchmarking”, 2nd Edition (2010)

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CompareStep 6: Identify Improvement TargetsWarehouse & Fulfillment:  Gap Review

ProcessRank

Gap Poor Practice1

Inadequate Practice2

Common Practice3

Good Practice4

Best Practice5

Receiving & Inspection

Material Handling & Putaway

Slotting

Storage & Inventory Control

Warehouse Management Systems

Shipping & Documentation

Picking & Packing

Load Consolidation & Shipping

Source: WERC’s “Warehouse Manager’s Guide to Benchmarking”, 2nd Edition (2010)

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CompareStep 6: Identify Improvement Targets

Twelve Key Metrics Major Opportunity Disadvantage Typical Advantage Best in Class

Customer Metrics

On time shipments

Internal Order Cycle Time

Total Order Cycle Time

Operations Metrics

Dock to Stock Cycle Time, in Hours 

Fill Rate ‐ Line

Lines Received and Put Away per Hour

Percent of Supplier Orders Received Damage Free

Lines Picked and Shipped Per Hour  

Capacity and Quality Metrics

Average warehouse capacity used   

Order Picking Accuracy

Peak Warehouse Capacity Used

Employee MetricsAnnual work force turnover 

Productive hours to total hours   

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Act – Step 7: Close Gaps

Warehouse & Fulfillment: Final Initiatives

ProcessRank

Gap Poor Practice1

Inadequate Practice2

Common Practice3

Good Practice4

Best Practice5

Receiving & Inspection

Material Handling & Putaway

Slotting

Storage & Inventory Control

Warehouse Management Systems

Shipping & Documentation

Picking & Packing

Load Consolidation & Shipping

Interim TargetHighest Priorities in Red

Secondary Priorities in Green

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Setting Targets

The half‐life theory suggests that an interim goal should be selected when there is a large gap to close

Half Life Theory

Act – Step 7: Close Gaps

Benchmark 98%

Interim Goal  95%

Current Performance  92%

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Interim Target

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Benchmarking ChallengesA study by Penn State found several key challenges among companies trying to benchmark

• Accurate/comparable data is the biggest barrier• Implementing results• Comparable processes• Available resources• Standard definitions• Clear Goals for benchmarking• Willingness to share• Finding the right partner• Senior management support

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Best‐in‐Class Companies Are Like DecathletesTop ranking athletes across a set of events will:

• Accumulate the most points among all events• Win some events, but not all• Know their own strengths and weaknesses• Know the strengths and weaknesses of competitors• Focus training first on events that match their relative strengths & events which 

they feel they can or must win• Spend remainder of training time and energy on the remaining events to assure 

they are minimally competitive in all events

Best‐in‐ClassCompanies

Decathletes

Top ranking companies across a process will:• Beat competitors in most areas, not all• Not be best‐in‐class in every performance category, but will win in areas that 

match their strategies and priorities• Know their own competencies, strengths, and weaknesses• Likewise, know the same about their competitors• Spend most of their resources in those areas which in which they must excel (in 

accordance with competitive knowledge, customer and stakeholder requirements, and business strategies)

• Minimally competitive in every performance category

Source:  Performance Measurement Group

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Attributes of Good Performance MeasuresA Good Measure DescriptionMeasure only what is important

The measure focuses on key aspects of process performance

Can be collected economically

Processes and activities are designed to easily capture the relevant information

Is Visible The measure and its causal effects are readily available to everyone who is measured

Is quantitative The measure provides an objective value of performance

Is easy to understand The measure conveys at a glance what it is measuring and how it is derived

Beginner Mistakes: Companies starting to use metrics may leave out one or more of these attributes

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Attributes of Good Performance Measures

A Good Measure Description

Is Process Orientated The measure makes the proper trade‐offs among utilization, productivity and performance

Is defined and mutuallyunderstood

The measure has been defined and mutually understood by all key parties (internal and external)

Facilitates Trust The measure validates the participation among various parties and discourages “game playing”

Is Usable The measure is used to show progress and not data that is collected; Indicates performance versus data

More Advanced Mistakes: Failure to consider all of the above attributes will prevent a company from gaining success

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Going Back to School on MetricsGrammar, Math & History rule when it comes to setting up metrics!

Grammar… • What is the DEFINITION of your metric?  

Do the Math…• A metric that does not require math is 

probably just data

Know your History… Past Present Future

Back to School on Metricswww.dcvelocity.com/print/article/20100915back_to_school_on_metrics/

GrammarMathHistory

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Michael Mikitka, CEOWarehousing Education & Research Council

P: 630.990.0001 / [email protected]

Presentation Information: www.werc.org/cgsco2012