1. Storage and Warehousing Techniques
Warehouse Management, 3rd edition by Gwynne Richards
Published November 2017 (Kogan Page)
Copyright D.G. Richards 2015

2. Performance Management
Section 13

3. Productivity Standards
Why do we need performance and productivity standards?
Discuss.
Copyright D.G. Richards 2015

4. Performance monitoring
“You cannot manage what you cannot measure”.
“What gets measured gets done!”
You need to monitor performance against the criteria that are important to your customers
You need to monitor performance against the criteria that are important to you (costs).
Copyright D.G. Richards 2015

5. What to measure against?
Historical data
Budget
Engineered standards
External standards and benchmarking
Rushton, Croucher and Baker (2010)
Copyright D.G. Richards 2015

6. Good practice in Performance Monitoring
Accuracy of data
Validity / completeness
Hierarchy of needs / targeting of correct audience
User ownership
Reactivity to changes in business activity
Timeliness
Ease of maintenance
Cost-effectiveness
Rushton, Croucher and Baker (2010)
Copyright D.G. Richards 2015

7. What are SMART KPIs S M A R T
Specific – Clear and concise
Measurable - £, Volume, time, units
Achievable – Goals can be met with effort
Relevant – Has to drive the business forward
Time-based – Deadlines set and committed to S M A R T
They also have to be aligned across departments
Also add Evaluate and Review to make them SMARTER
Copyright D.G. Richards 2015

8. Traditional warehouse productivity measures
CALCULATION
Labour hours
Labour hours used
Labour hours available x100
Warehouse cubic storage area
Space used
Space available x 100
MHE utilisation
MHE hours used
MHE hours available x 100
Picker utilisation
Actual case picks achieved
Expected case picks per picker x 100
Cost per activity
Actual cost
Expected (budgeted cost) x 100
Drawbacks
There can be significant variations in the no. and types of lines picked over different months – seasonality
Differences between fast and slow moving lines
Poor planning
Need to be as close to 100% as possible with one exception.
Copyright D.G. Richards 2015

9. Traditional warehouse benchmarks
MEASURE
CALCULATION
Orders per hour
Orders picked and packed
Total warehouse labour hours
Lines per hour
Lines picked and packed
Items per hour
Items picked and packed
Cost as a % of sales
Total warehousing costs
Total revenue
Cost per order
Total warehouse Cost
Total orders shipped
Drawbacks
There can be significant variations in the no. and types of lines picked over different months – seasonality
Differences between fast and slow moving lines
Poor planning
Copyright D.G. Richards 2015

10. Direct Labour Cost per Item
- 42%
Copyright D.G. Richards 2015

11. Productivity Examples
Copyright D.G. Richards 2015

12. Integrated Performance Models
Category
Target rating
Weight
Target
Score
Rating
Actual score
Customer service 5 40
200
120
Control systems 4 30
Inventory accuracy
150
Space utilisation 20 80 60
Labour productivity
100
Layout
Equipment methods 10 50
Equipment utilisation
Building facilities
Housekeeping/safety
TOTAL
950
800
Performance Index
84%
Customer questionnaires etc
Tomkins Associates 2002
Copyright D.G. Richards 2015

13. Order Fulfilment Measures
DEFINITION
CALCULATION
On-time delivery
Orders delivered as per customers’ requests
Total orders shipped on time
Total orders shipped
Order fill rate
Orders filled completely on first shipment
Orders filled completely
Order accuracy
Orders picked, packed and shipped perfectly
Orders shipped without errors
Line accuracy
Lines picked, packed and shipped perfectly
Lines shipped without errors
Total lines shipped
Order cycle time
Time from order placement to customer shipment
Actual ship date – customer order date
Perfect order completion
Orders delivered without changes, damages or invoice errors
Perfect delivery orders
Total orders
Copyright D.G. Richards 2015

14. The perfect order
On time in full, damage free and all the correct paperwork
Example:
On time 98%
In full 97%
Damage free 99.5%
Correct paperwork 91%
Perfect order % = 86.1%
Copyright D.G. Richards 2015

15. Inventory Management Measures
DEFINITION
CALCULATION
Inventory Accuracy
Inventory quantity compared to system-reported quantity
Actual quantity by SKU
Reported quantity by SKU
Damaged Inventory
Damage measured as a % of inventory value/throughput
Total damage ($)
Total inventory or sales value
Days on Hand
Average sales days of inventory on hand based on historical sales
Average inventory value
Average daily sales (past month)
Storage Utilisation
Occupied locations as a % of total available locations
Average no. locations occupied
Total available locations
Dock to stock time
Average time from carrier arrival to available for picking
Average dock to stock hours per receipt
Inventory Visibility
Time from physical receipt to customer service notice of availability
Time of host system receipt data entry – time of physical receipt
Copyright D.G. Richards 2015

16. Top 10 WERC Metrics 2015 by importance plus the Perfect Order Index
Major opportunity
Typical
Median
Best in class
On-time shipments
<95.1%
≥98.2 and <99.4%
99%
≥99.875%
Internal order cycle time
>31.2 hours
≥8 and <18.8
10 hours
<3.8 hours
Total order cycle time
>72 hours
≥24 and <34.96 hours
24 hours
<7 hours
Dock to stock cycle time
>24 hours
≥4.5 and <8 hours
6.5 hours
<2 hours
Order pick accuracy
<98%
≥99 and <99.5%
≥99.84
Lines picked and shipped per hour
<14.36
≥25 and per hour
35 per hour
≥70.6 per hour
Supplier orders received damage free
<95%
≥98 and <99%
98%
≥99%
Average warehouse capacity used
<75%
≥80.8 and 88%
85%
≥92.8
Lines received and put-away per hour
<8.4 per hour
≥15 and <25 per hour
20 per hour
≥45.6
Back orders as a % of total orders
>10%
≥1.74 and <5%
2.4%
<0.05%
Perfect order index
<85.7%
≥95.1 and <98%
97.2%
≥99.13
Copyright D.G. Richards 2015

17. Measures that matter to senior management
Opportunity
Typical
Median
Best in class
Cost as a % of sales
>11.2%
≥3.68 and <6.6 5%
≤ 2.04%
Workforce turnover
>19.9%
≥4.4 and <10
5.%
<1%
Inventory days of supply
>90
≥30 and <55.8
39 days
<17 days
Inventory accuracy
<92%
≥97.12 and <99
98.4%
≥99.9%
OSHA Day count
0 days
≥13.4 and <151.6
77 days
>300 days
Productive hours to total hours
<75%
≥85 and <87
85%
92.5%
Copyright D.G. Richards 2015
WERC Watch Spring 2015

18. Exercise
What are the consequences of poor service in terms of sending either the wrong product or wrong quantity of product to a customer?
Copyright D.G. Richards 2015

19. Effects of sub-standard service
Finance department is affected by delayed payments and possible penalties
Inventory department has to provide extra stock cover
Sales department has to handle complaints and authorise returns
Transport department has to effect extra deliveries and collections
Warehouse has to re-pick, re-pack and duplicate activities
Returns procedure has to take place
Possible product disposal/write-off
Review of processes needs to take place
Potential additional training required
Loss of product if client retains over delivery of product
Potential loss of customer
Can effect other orders
Cost per item increases / Loss of profit
Environmental impact: Increase in emissions
Copyright D.G. Richards 2015

20. Cost of a warehouse error
Volume
Occurrence
Approx. cost per occurrence
Total cost
Despatch errors (96% accuracy)
50,000 orders
4.0% error rate
US$45
$90,000
Shrinkage/loss
$7,000,000 in stock
1.0%
0.1% x $7m
in inventory
$70,000
Data entry error
100,000 transactions 4%
$10 per entry
$40,000
Miss-placed product in warehouse
50,000 orders x 5 lines per order 2%
$2.50
Based on 10 minutes searching at $15 per hour
$12,500
Total
$212,500
Some writers suggest a pick error can cost up to $100 / Recent Honeywell report suggests £38
Copyright D.G. Richards 2015
(Adapted from Red Prairie 2010)

21. Customer service
Ensure KPI are aligned – customer’s perception could be totally different to yours
E.g. 100% despatch of what’s available from the warehouse doesn’t mean it’s what the customer ordered.
Despatch within 24 hours of the warehouse receiving the order from sales may not been 24 hour from receipt of order from the customer!
Copyright D.G. Richards 2015

22. Performance management
Regular operational meetings
Weekly, monthly, quarterly
Post results on Notice Boards
Team targets and achievements
Bonus schemes
Internal and external
Penalties
Gain share if outsourcing
Copyright D.G. Richards 2015

23. Communicating / Managing Performance
Unipart Communication Cells
Q uality
C ost
D elivery
P eople
Copyright D.G. Richards 2015