DC Velocity - April 2010

picked and shipped per person hour. Given these economic times, it is not unexpected that the two most popular metrics would be cost driven, and that the next two would track internal operational performance. Clearly, what we do in the DC has an impact not just on customer service but on the organization’s bottom line as well.

On the up and up

When it comes to how companies are performing against those metrics, the news is generally good. As noted above, the latest survey showed that performance against 70 percent of the metrics studied equaled or exceeded the previous year’s levels. Although performance on a few of the metrics deteriorated slightly, the general trend was toward improvement.

Exhibit 2 identifies the metrics that saw the biggest performance improvements over the previous year. (When making comparisons from year to year, we have continued to use the median—rather than the mean, or average—because it’s less likely to be skewed by very high or low numbers.)

All of the metrics listed in Exhibit 2 focus on a company’s internal performance, which indicates that a lot of the respondents targeted their own operations in their efforts to cut costs and boost efficiency this year. Of particular note is the improvement in the “annual workforce turnover” metric to 6. 8 percent from 10.0 percent. Although we had expected to see improvement here, the extent of that improvement came as a surprise. This may be an indication that the worst of the workforce reductions are behind us and that employers have begun staffing up again.

It’s interesting to note the improvement in performance
against three metrics related to back orders and lost sales.
While we were initially perplexed as to what was going on
here, we soon noticed that inventory levels in many DCs
and warehouses had risen at the same time. That would
help explain why companies were able to do a better job of
filling orders completely. It is difficult for us to say what’s
behind the improvement—whether it’s simply a blip on
the radar caused by the sharp drop-off in sales or the gen-
uine result of operational enhancements. As the economy
begins its journey to recovery, we’ll defi-
nitely keep an eye on inventory levels and
back orders to see if the trend holds up
over time.

Where are the points of pain?

As the song lyrics say, What goes up must come down. This applies to some of this year’s metrics as well. Exhibit 3 highlights some of the operational points of pain— the metrics that saw the biggest performance declines this year.

As for what might be behind the deteriorating performance, it’s hard to say. One possibility is that the typical order profile has changed, with orders getting larger. If so, that would explain why performance against these particular metrics—which focus largely on speed—has declined.

Nonetheless, it appears that in most DC and warehouse operations, this year’s theme song will be “Getting Better All the Time.” Whether the momentum can be sustained or not—especially if orders outpace employment—only time will tell. But the lesson here is that standing still means losing ground to competitors. ;

About the authors: Karl Manrodt is an associate professor at Georgia Southern University. Kate Vitasek is the founder of the consulting firm Supply Chain Visions. Joseph Tillman is senior researcher and consultant for Supply Chain Visions.

The authors welcome readers’ comments, suggestions, and insights into the research and their own use of metrics. They can be reached by e-mail: Karl Manrodt at kmanrodt@georgia-southern.edu, Joe Tillman at joseph_tillman@scvisions.com, and Kate Vitasek at Kate@SCVisions.com.

EXHIBIT 3

points of pain: where DC performance declined

Metric
Lines picked and shipped per hour
Orders picked and shipped per hour
Dock-to-stock cycle time, in hours
Distribution costs as a of COGS
(cost of goods sold)
Days on hand - raw materials