No Desperate Measures

By Clifford F. Lynch

DC Velocity, January 2003

In 1610, Galileo Galilei said, “We must measure what can be measured, and make measurable what cannot be measured.”  Over the years, this statement has evolved to the more direct, often-quoted axiom, “You cannot manage what you cannot measure.” But today some 400 years later, distribution center managers still struggle with the premise.

Some DC operators have developed meaningful performance and productivity standards and metrics, but a surprising number have not.  There is no valid reason for not having a well-thought-out and meaningful measurement program in any DC.  Although literally hundreds of rules and suggestions for establishing metrics exist, the following four basic axioms will apply across all industries for either proprietary or contract operations:

1. The first axiom is the tried and true, “You can’t manage what you can’t measure.”  It is particularly applicable to warehousing.  If managers don’t know how the DC is performing against standards and benchmarks, they will be forced to make decisions in a vacuum.  In the case of service failures or cost overruns, there will be absolutely no way to identify, analyze, or solve the problems. 

2. Not mentioned nearly as often is the second part of Galileo’s admonition, “Make measurable what cannot be measured.”    In other words, the job is to identify activities within the warehouse in discrete segments against which you can establish measurable and achievable standards.  A common mistake is to establish standards that are so vague they are meaningless.

3. Measure only what is important and actionable.  One problem with measurement programs is that they often lead to “report abuse.”  Some managers become so fascinated by the reports themselves that they will insist on measuring the most meaningless activities.  If it does not have an impact on the operations, its cost or customer service, forget it.  Better still, examine whether the activity is necessary at all.

4. Finally, “Performance measurement must be balanced.”  Too many measurements can bury a warehouse operation in details and actually lead to diminished performance.  Too few, or too general, measurements make performance difficult to evaluate and manage.  Timing should be balanced, as well. Do not measure everything every day.

There are a number of areas in any DC that lend themselves to accurate and meaningful measurement.  Here’s a look at some of the most common measures:

• Order cycle time is simply the time elapsed between the time an order is received and the time it leaves the dock.  In a highly sophisticated order fulfillment operation, this time will be measured in hours; in other more relaxed environments, in days.
  

•  On-time performance will be a measurement of either on-time shipping or delivery, or both.
  

• Order fill rate represents the number of orders that were shipped complete as ordered, without any back ordering.
  

• Inventory variations can be determined by cycle and/or total counts and calculating the differences between physical and book records.  Consistent unfavorable variations here can be an indicator of other problems, such as orders shipped incorrectly or receipts not counted accurately
  

•  Probably the most important measurements in any warehouse will relate to productivity.  Some of the most common measurements are cases or unit loads per person-hour, orders per person-hour or order lines per person-hour.  Some warehouse managers measure only total productivity; i.e., for warehouse employees as a group.  I believe it is just as important to measure productivity of individuals, as well.  This can be a valuable tool in evaluating and rewarding personnel.

Whatever techniques are employed, good warehouse management requires good warehouse measurement.

Clifford F. Lynch is principal of C. F. Lynch & Associates, a provider of logistics management advisory services, and author of Logistics Outsourcing – A Management Guide.  He can be found at www.cflynch.com.