Supply chain pressures are increasing everyday especially as customers want your product faster, cheaper and to their liking. Look at the choices they have – a gazillion e-commerce websites, traditional retail, B2B now entering direct to consumer, and more. Front office is doing everything to keep customers engaged and loyal, and one surefire way is by committing to, and delivering, product as ordered.
The onus is thus on Supply Chain Operations to ensure warehouse inventory is accurate, product readily available to pick & ship, and cycle time through the warehouse as short as it can be. This is assuming that the product quality is good and there is a reliable carrier for delivery.
Most of the warehouse directors or managers that I work with focus on operations cost, employee productivity and inventory accuracy, and they are measured on these metrics as well. However, one of the key things missing from these metrics or focus areas is the customer! While these supply chain operators would argue that the traditional focus areas are meant for the customers, I would argue, Not Really!
So let’s start simplifying things.
FIRST, change the focus from how well you can operate well to “how efficiently can you service the customers”.
A simple customer satisfaction equation looks something like this
fn[Product Quality, 1/(Cost), 1/(Time)] = Customer Satisfaction
Customers want good quality product for the lowest possible cost with the shortest delivery time. This ought to be the measure or focus for your warehouse operations as well. Again, in a simple fashion, this is how the above parameters become relevant for operations.
- Product Quality – ship product in good condition (no damages)
- Cost – you could help lower product cost by lowering operations cost
- Time – How fast you can ship the product from the time it is ordered. This is the biggest lever in your control
|Customer Satisfaction Measure||Warehouse Operations Relevance|
|Product Quality||Good to High Quality||Ship product in good condition (no damages)|
|Product Cost||Competitive or Lower||Lower operations cost would help lower product cost|
|Order to Delivery Time||As Fast as Possible||Reduce cycle time by shipping faster from warehouse|
This is fundamental change management. Start aligning your warehouse metrics and the mindset of your operators with the customer value drivers defined above. It may not be easy to change your personal metrics that easily but if you change the operational philosophy, you will see how quickly it would influence the higher-ups.
SECOND, work on your biggest lever – Time. To understand this better, let’s clarify a very common notion i.e. “People’s productivity normally implies product is moving faster”. Not true. It depends on how many steps are in the process and if you are measuring individual productivity or the productivity of the entire process.
For e.g. In a pick and ship operations, there are 4 key steps
- Planners release work to the floor
- Pickers pick product
- Packers pack product
- Shippers load and get it on the road
Total cycle time from the time warehouse receives the order, plans, picks and ships them = 3.5 hours
In most operations individual productivity is measured. While each of the 4 process steps could be 100% efficient, it does not mean your whole process was productive and cycle time to the customer was low.
Look at this example differently.
- Planners release work to the floor >> Wait time because operators are not available
- Pickers pick product >> Picker skips pick due to shortage >> Comes back to the pick when product is available
- >> Long queue for packing >> Packers pack product
- >> Shipping station backed up or truck is not available currently >> Shippers load and get it on the road
With each of the intermittent delays overall cycle time is 3 hours longer than what most operations would measure.
Do you think you serviced the customer efficiently? Only on quality but not on cost and time. Where’s the cost if people were 100% productive? It’s in the inventory sitting on the dock, in multiple trips of warehouse to pick product, and in wait time (if you believe time is money). Time impact is clearly evident, as individual productivity does not necessarily translate into speed of shipping product.
THIRD, start thinking in terms of system productivity. Begin with measuring your current cycle time and benchmark it against your own data. What were the factors or conditions for faster vs. longer shipping times? Identify a pattern of most common factors that could be addressed operationally and cycle time will at least become consistent if not start showing improvement.
Some simple ways to benchmark your own operations are:
1) Perform process studies during busy and slow times in any given day or week
2) Analyze samples of data from the process studies and look for patterns. E.g. is wait time from planner to picking consistent in fast and slow times? Are packers over loaded? Is high volume causing people to take short cuts and create new bottlenecks?
3) Analyze operational balance in the warehouse. E.g. could receiving dock to stock cycle time be impacting picking cycle time? Why is inventory not in pick location when picker gets there? Are planners releasing the right orders? What are the inputs and outputs of the whole system and constraints?
4) Address the obvious factors and perform the process studies again
5) Repeat steps 1 – 3 until you have exhausted operational improvement opportunities. There is a tipping point after which you need additional tools or help.
Finally, once you have changed people’s mindset and streamlined your operations as whole, then apply metrics to measure performance, this time differently. You could still keep individual productivity but under the umbrella of total system productivity.
There is more to simplifying things in your operations while handling complexity. However, start with the basic steps that are a foundation to larger changes. I will write more about this in coming months. Till then, Happy Simplifying!
Note: Above recommendations have been successfully implemented by my clients in Retail, Life Science and Energy industries, who saw a 12-20% reduction in distribution cycle time and 1-3% operating cost reduction in their warehouses.
Infographic at http://infogr.am/Simplifying-Warehouse-Productivity