Potential Methods for Measuring Warehouse Performance - Coursework Example

Potential Methods for Measuring Warehouse Performance Performance measurement is fundamental for achievement of targets and ensuring that warehouse operations continuously improve to meet the vision of its customer base and organization. In today’s economy, the customer is always right as usually referred to as a dictator. With the prolific propagation of reviewing products and services via websites, it becomes more significant matching or even exceeding customer expectations in terms of quality of goods and services provided. One instance resulting to poor customer service can far outweigh the past and all times where supplies were delivered on time and thorough. It has become outdated when a company could take an order and quote to deliver after a month or two but today delivery is either the same day or in some cases the next day. This happens to keep your existing customer, which is far cheaper than finding a new one hence satisfying a current customer becomes paramount. Reichheld and Teal (2001) in a well-established research found , 5 percent customer retention can increase many companies profits by 25 to 95 percent, and cost of 6 to 7 times more for gaining a new customer than keeping an existing one. To ensure organizations maintain high performance in their operations that contribute to customer retention and satisfaction the idea of a warehouse has helped them to increase their accuracy, timeliness, customer is provided with the right product in the right condition and at the right time. This paper addresses the measures that enhance the performance of a warehouse. Performance and productivity of the warehouse is measured to ensure customer expectations and continuous improvement of the warehouse and avoid incurring additional costs and loss of customers. The suitability of any of the measures is governed by customer expectation, although they need to align to the company’s resources. Rushton, Croucher and Baker (2010), asserted that the method used should address both the cost of service provision and the level of customer service. Here, the areas measured within the warehouse are cost, flexibility, reliability, and asset utilization. There are a number of measures used nowadays in warehouses, which are based on productivity, cost performance measures, and those related space, labor, and equipment utilization. The space, labor, and equipment utilization Warehouse area utilization Most warehouse managers experience a big problem of inadequate space with many warehouses operating with about 20 percent of their available space at any time. Warehouses with high space utilizations result in high cost on employees for their production activities. Calculating area utilization starts simply by looking at floor space utilization by more realistically measuring the cubic capacity of the space of the warehouse. Alternatively, one can measure the number of pallet locations utilized against the total possible locations. The calculation is: (Space used × 100) ÷ Space available Taking an abstract example, space utilized = 756,000 pallets space occupied ÷ 100,000 pallet space available = 75.6 percent utilization. Where the warehouse constitute of different sections with some areas containing racks and floor storages then this require a number of calculations. It is worth to note that the space included in this calculation is only that for specific storage purposes excluding areas for value-adding services, dispatch, etc. Every warehouse would look into improving space utilization as its important goal, with the key purpose of this improvement of warehouse productivity, that include labor and space as to finding the best compromising of handling efficiency and storage utilization. Labor hour’s utilization The measurement looks at the labor hour’s utilization within the warehouse taking into account of the total labor hours available for laborers to work within that particular day, week, or even a single shift without including hours spent for breaks and lunch. The calculation involved is: (Labour hours used × 100) ÷ Labour Hours available. Material Handling Equipment (MHE) Utilization MHE are mechanical devices used for handling with greater ease and economical effectiveness. It refers to various materials handling equipment, which include shelf pickers, tractors, motorized pallet jacks, forklifts, and other expertized oriented industrial equipment powered by internal combustion engines or an electric motor. The measurement looks at the utilization of MHE hours within the warehouse based on the total number of hours the equipment are used by workers against MHE utilization hours available over a particular shift or day. The calculation is: (MHE hours used × 100) ÷ MHE hours available Cost performance The cost performance measures take the financial implications to calculate cost as a percentage of cost per order dispatched or sales. The calculations are as follows: Cost as percentage of sales (Total warehousing cost × 100) ÷ Total sales revenue Cost per order dispatched The calculation is: Total warehouse cost ÷ total number of orders shipped Performance cost measures need a careful handing as cheaper dispatched products from the warehouse can lead to a higher cost per order, which does not reflect into an increased cost in the warehouse rather a strategic decision resulting from the company. Productivity Measures Productivity refers to the measure of output from the process of production per unit of input i.e. it is a ratio of volume measure of output compared to the volume measure of input. The main objectives to measure productivity are the state of technology, efficiency in identifying change, real cost saving, and benchmarking production processes. The productivity measures are: Units picked per hour The calculation takes the number of units dispatched from the warehouse against the total working hours available. The units considered here can be a pallet, a carton, or individual item The calculation is: Units picked ÷ total hours available Dock-to-stock time This considers the time taken products takes to appear in the system from the time of arrival of the transport carrier on the receiving bay. Customer service measures Customer service is a priority and a company would aim to establish its customer service effectiveness because their lack of satisfaction means that they will not purchase from the organization. An organization can use a number of ways to establish this customer service. Order accuracy Every warehouse picking location or storage should provide a discrete identifier to ensure every inventory is in a discrete location. To track order accuracy levels, it becomes necessary keep a record of every picking employee on a regular basis. Whenever an error arises, take the name of the employee into a record, the type of error, and the location. The calculation is: (Orders picked and dispatched accurately × 100) ÷ Total orders received On-time shipments The calculation is: Orders delivered as per customers’ requests ÷ total orders received Successful Performance Measurement Models Which Can Be Used In Warehouse Environment Integrated performance model Integrated performance models consist of a mix customer perception and actual performance data. The organization compiles actual performance reports of the warehouse and data from their customers got by them sending questionnaires on a regular basis. As in the metrics for measuring performance below, several categories are given ratings and weights of importance [CITATION Rus10 \l 1033 ]. Then a target score is produced by multiplying the category rate and the weight. According to a survey taken from the customers on actual performance, an actual rating is given that in turn when multiplied with the weight, produce the actual score. The performance of each area category is highlighted with, red, amber, or green (RAG) model depending on the level of performance, whereby the company provides a performance index as a benchmark for each category. The areas that underperform are indicated with red against the actual score whereby the red areas indicate need for attention. As seen from this metric performance, for a perfect order completion has a rating of 5 out of 5 that has the highest weighting of 50 and as a result gives a target score of 250. The organization chooses the categories in accordance of its vision and need to be specific, measurable, achievable, realistic, and timely (SMART). When designing any performance measurement, one has to ensure that measure aligns fully with the company customers’ expectations and requirement i.e. twenty four hour dispatch from order receipt at the warehouse may differ with the 24-hour from the order placement. Hundred percent of available product for dispatch at the warehouse at time may differ from the quantities that a customer has ordered. Again, orders could delay in customer services. The Integrated Performance Metric Benchmarking Benchmarking is a process of comparison of a business performance metrics and processes to the industry’s best practice from other industries. Dimensions of measure are typically those of cost, quality, and time. In this process, the management identity’s best-in-class operation or high performance within the company compares with other best performing firms where similar process exists or those in the same industry, and try to learn that what allows their achievement of those high levels of performance. Benchmarking enable the firm to first its own performance, its best practices and any shortcomings. It helps discover other efficient of practices from others improving its processes and identify performance targets that demonstrate achievable. Discovery of their best practices enable them to manage change [ CITATION Gam07 \l 1033 ]. The process allows initiator firm to realize their competitive position when they compare their services and products with those of target firms. Utilizing the benchmarking tool, the firm team is able to compare its own in-house operation with those of their third-party logistics (3PL) providers. It is important to note that, although benchmarking has proven valuable for large firms and organizations for relatively sometime until of late some doubts exist as to its suitability for smaller and medium enterprises. However, its rise has become a common method to optimizing of production processes by comparison of certain aspects of a firm with its competitors in the same industry. Benchmarking also faces its challenges with inability to define appropriate benchmarking partners and topics, to come up with concrete measure to interpret statistical data, and to gather and evaluate statistically data characteristics. The technique seems a simple process from a conceptual point of view, but in practice, it involves a number of different approaches and models for assessing the performance of the company. Benchmarking can be performed both externally and externally. For an external benchmarking, one has to make a careful choice of the partner. Industry specific benchmarking surveys provide performance measurements to avoid these pitfalls but as a performance measurement, the process should only be considered once there exist an intimate knowledge of one own. Secondly, the processes chosen for benchmarking should sufficient potential for improvement. The benchmarking principles of are confidentiality, value, collaboration, reputation, openness, honesty, value, and flexibility. Many firms will reluctantly share information with their competitors. However, for the production of meaningful results, openness and honesty are paramount. One way of ensuring anonymity and confidentiality is to make use of a third party as a group for benchmarking, a university, or a consultancy. In the performance, metric below the firm benchmarked each of its distribution centers A, B and C. the centers all work towards a similar target and their results brought together on the same chart. This performance metric considers five major areas made up from 19 individual measures. The firm uses RAG model for signifying areas that require attention. The Benchmarking model Balanced card The method of balance scorecard, developed by Kaplan and Norton (1996) is applied into today business field as a method for recording performance. The scorecard takes a number of dimensions into its consideration, which include customer satisfaction, finance, staff development, internal process, and innovation. The Balance Scorecard Each dimension of measure will have a target and an objective, which are measured against an actual performance. For a third-party logistics warehouse, introduction of a balanced scorecard approach would result in a motivated team of workers, increased customer satisfaction, better production processes, and improved communication within the firm. In the process of preparing a balanced scorecard for measuring 3PL warehouse, all the warehouse operations would contribute to the overall company scorecard [ CITATION Fre01 \l 1033 ]. The company’s scorecard should have sections for customer service, training, processes, and finance, where by all of can be integrated within the company to other departments. In the performance below demonstrates eight metrics with a cross section across accuracy, productivity, inventory measures, and utilization. The Balance Scorecard Performance Metrics Discussion Measuring performance is a key part of efficiently, and effectively managing an organization and its operations. When properly undertaken and implements, the performance measurements provide managers with accurate and timely data information for many duties. To ensure the measurements provide reliable information, they need to be aligned to strategic vision of the company and SMART. An important point to take note of here is the traditional key performance indicators (KPIs) report on the status of a step in a process or operation at a particular point of time. The indicators applied in a metrics of measure should determine those factors of the organization that will lead its ability to prevail [ CITATION Rus10 \l 1033 ]. As indicators provide a platform for comparing performance over time, their application should consider the rapid changes in situations and targets, thus the measures need to adjust in unison with the changes in the environment. Several performance measures are in use today related to warehouse operations. These measuring performances require use of statistical data modeling to determine results. However, it becomes necessary to note that only measures that include areas important to the firm and its customers should find application. It becomes irrelevant to measure for the sake of it, as data collected is important only when analyzed and can provide useful information to effect a change. Bibliography CITATION Rus10 \l 1033 : , (Rushton, Croucher, & Baker, 2010), CITATION Gam07 \l 1033 : , (Gamble, Strickland, & Thompson, 2007), CITATION Fre01 \l 1033 : , (Reichheld & Teal, 2001), CITATION Rus10 \l 1033 : , (Rushton, Croucher, & Baker, 2010), Read More