1. Best Practices Consortium
Supply Chain
Best Practices Consortium
Distribution Center Costs
and Performance Metrics
Executive Seminar
Track 2, Session E
September, 2006

2. Scope
This session will focus on the key aspects of distribution costs and performance measurement, as well as discuss what should be measured and methods used to measure.
Infrastructure Costs: How much investment is required to build and maintain effective networks and operations?
Operating Costs: What are the key ongoing costs to monitor operations, and what are others seeing?
Performance Tracking: What should be tracked and why?
Reporting Systems : What tools are necessary to get good numbers, and does it have to be system driven?

3. Monthly Expense Category
Operating Costs
Labor and facility costs are still the primary factors and the key areas of focus to measure and improve operations.
Monthly Expense Category
Best DC
Average
Network
Labor costs
$557
$2,374
Facility and utilities
$196
$889
Fixed material handling
$21
$98
Mobile material handling
$13
$103
Information technology
$20
$101
Other costs
$73
$351
Total
$880
$3,916

4. Monthly Expense Category
Operating Costs
Labor and facility costs are still the primary factors and the key areas of focus to measure and improve operations.
Monthly Expense Category
Best DC
Average
Network
Labor costs
$557
$2,374
Facility and utilities
$196
$889
Fixed material handling
$21
$98
Mobile material handling
$13
$103
Information technology
$20
$101
Other costs
$73
$351
Total
$880
$3,916

5. Investment Costs
The investment in DCs, equipment and systems is significant over time as operations grow and must be planned to meet long-term requirements and be flexible.

6. Investment Costs
Ongoing investment in DCs, equipment and systems is critical to keeping operations efficient and responsive to changes.

7. Where Are You Allocating Labor Hours?
In DCs, order picking still absorbs the most hours, but shipping, receiving and value-added services also require significant labor hours.
Job Function
Industry
Retail
Picking
24%
28%
Shipping
13%
11%
Receiving
10%
Value added activities 7%
Management labor costs 9%
Administrative labor costs 8%
Putaway 5%
Packing 6%
Replenishment
Cycle counting 3%
Quality inspection 2%
Total Percent of Hours
100%

8. Productivity Metrics
Nearly everyone is focused on the cost per line shipped, although the target improvement is very small (2.9% on average).
Associate safety is a priority and has received much focus as a significant improvement opportunity.
Interestingly, more best practice operations measure outbound versus inbound productivity, yet both are so closely tied together in today’s cross dock and flow through operations.

9. Inventory Metrics
72% of companies are tracking inventory accuracy, but surprisingly, the rate is just above 90.6% with the best companies in excess of 99%.
Storage utilization on average is below 80%, which indicates that storage is being used effectively but has room for improvement
As usual, inventory turn is a focus for improvement with most companies pushing for significant improvement.

10. Accuracy Metrics
For those tracking order line accuracy, the current rate is 99% plus while those tracking overall order accuracy currently sits at less. Does having one line on an order still make the order wrong in the customer’s perception?
Order fill rate is currently 91.7%. Are shorts being counted in order accuracy? If so, the customer still does not get what they wanted!
On-time delivery is often measured by operations as shipped on time. Does this mean that the 41% who use this measure are getting feedback from customers or basing it when it left the dock?

11. Your Expectations
What would you like to discuss or learn in this session?
What should be measured and tracked in your operation?
How should the metrics be established and tracked?
How easily can performance metrics be compared against other operations? What are the risks?
Are your operational costs in line with your business requirements and how do you know?
Are your ongoing investments in operations reasonable?
Other?

12. Potential Discussion Points
What metrics are you presently tracking? What value do you put on them?
What are the key areas and operations that others are measuring and using to improve operations?
What metrics should be reviewed daily, weekly, or monthly to best manage operations?
Are overall or individual metrics more critical to understanding your operational issues and improving performance?
What improvement goals should be expected for each area of operations? How can this be determined?

13. Potential Discussion Points (continued)
What is the best way to get real-time reports of daily performance metrics that can be acted upon?
Is measuring equipment as important as people in understanding performance. How are the two tied?
What are some of the best ways to leverage performance metrics that others have used?
When measuring order accuracy, what are the most important details to track?
What is the perfect order in your mind and how are you measuring it? Do your customers know this?
Where investments should be made to obtain the greatest payback in operations?

14. Important Takeaways
In most operations, performance metrics are discussed regularly. In most cases, metrics are either tracked for everything or for little to no areas. When thinking about what you should be measuring, it is important to understand what your operational success factors include. Think about:
What your customers care about – Customers want the right product when they expect it, in the right quantity and in good condition. They do not care how quickly you picked and packed it, but rather when it arrives.
Will changes in the process improve accuracy – Internally, what is the root cause of errors? Understand this and you will understand what to measure to improve accuracy.
Does it reduce costs and effort – If it involves one person doing work in an area, there will likely be little return on measuring performance. However, jobs with multiple operators performing at different levels are generally ripe for standardization and need to be measured.

15. Important Takeaways (continued)
How can the performance metric be used – If it tells you nothing that allows you to understand the operation and then improve performance, it has little value except as a reporting item.
Is there an easy way to obtain the information – Great effort is often applied to tracking performance metrics that are not fully acted upon. If it is critical to operations, apply effort to track it, but not more effort than the improvement opportunity might yield.
Who will use the information – Understanding who the metric is designed for is key in collecting and analyzing. Operators need daily feedback, while corporate only needs monthly or quarterly in most cases. This will define how much and how frequently different performance metric data needs to be collected, analyzed and reviewed.

16. Questions?

17. Benchmarking & Best Practices References
Information on DC costs and performance metrics can be found in the following references:
Reports and Analysis
Analytical Reports
DC configuration and Basic Operations
DC Operations Overview
Warehouse Management Systems
Executive Seminar Presentations
Distribution Center Configurations and Trends
Distribution Center Operations Practices
Distribution Center Slot Management Practices
Distribution Center Labor Management
Distribution Center Costs and Performance Metrics
Warehouse Management Systems - Current Practice and Trends
Outsourced Distribution Center Operations and Value Added Services
Note: Available for downloading at