benchmarking & best practices - increasing productivity & warehouse efficiency
DESCRIPTION
- 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, ChinaTRANSCRIPT
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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)
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
Michael Mikitka, CEOWarehousing Education & Research Council
P: 630.990.0001 / [email protected]
Presentation Information: www.werc.org/cgsco2012