To hear their managers tell it, america's dcs are getting better all the time. Asked how well their DCs are doing today, respondents to our third annual metrics survey offered an upbeat picture of facilities where the commitment to service is strong, the operating stats are good looking, and performance is above average, to borrow a phrase from a popular public radio program.
The numbers appear to bear them out. The results of the study, which was conducted among members of the Warehousing Education and Research Council (WERC) and readers of DC VELOCITY, did indeed indicate improvement over the 2005 study's findings. When asked how their customers rated their DCs' performance in five key service areas—including percentage of "perfect" orders—respondents overwhelmingly reported that their clients thought they were doing an average or above average job.
But when we examined the data more closely, a somewhat different picture emerged. For example, we ran some calculations to see how closely respondents' perceptions matched their actual performance against the Perfect Order Index. The results showed that some of those "perfect orders" weren't so perfect after all.
DC performance was only one of many subjects covered in the 2006 survey, which was conducted by Georgia Southern University and Supply Chain Visions. The study also collected data on what activities DC managers measure and how they measure them, which we then analyzed by type of industry, supply chain structure, and overall corporate strategy. (Download a copy of the full results of the 2006 survey.)
Annual performance review
So how well are America's DCs performing these days? It appears that they're continuing to make strides. Operating statistics provided by the survey respondents confirmed that DC performance in 2006 compared favorably to 2005's. As Exhibit 1 shows, performance (as measured against 14 key metrics) either held steady or improved. In only one case (units picked per hour) did performance dip. More encouraging still, the areas where improvements were made all centered on customer service: percentage of orders shipped complete, average time from order placement to order shipment, fill rate per line, order fill rate, and order picking accuracy. But that's only part of the story. Comparing a DC's performance against benchmarks—whether industry averages or "best practices"—provides an incomplete picture of its service at best. The true test is how the customer perceives the service.
To learn as much as possible about how well DCs are serving their customers, we used two different data-gathering approaches—one direct and one not so direct. The first was to simply ask respondents how their customers rated their DCs' performance. To be precise, the survey asked them to indicate how their customers viewed their performance in five key customer-focused areas—fill rate, ontime delivery, percentage of orders shipped complete, percentage of accurate invoices, and percentage of perfect orders. The responses proved to be a model of consistency. In every case, close to 80 percent of the respondents said their customers considered their performance to be either "average" or "above average."
Statistically, of course, it's highly improbable that 80 percent are actually performing at an average or above-average level. But it's not impossible. It seems safe to assume that the study's respondent base—members of a professional association like WERC and/or regular readers of professional journals like DC VELOCITY—is skewed toward the highest-performing segment of the industry.
It's also possible, however, that some of the respondents have stumbled into what we call the 50-percent trap. To explain the 50-percent trap, we like to use the analogy of how parents interpret their children's grades.
When presented with an all-Bs report card, most parents assume that their offspring are average, if not above-average, students. But that's not a realistic assumption.
In any given class, 50 percent of all students perform at an above-average level and 50 percent below average. It's unlikely, however, that half the class is receiving As or Bs and the other half Cs or Fs; the grades are far more likely to be clustered in the middle. So while parents may think their B students are average, the reality is that the B, and particularly the B minus, students are actually performing well below the 50th percentile mark.
And so it may be with warehouse or DC performance. Managers may not be aware of it (or willing to admit it), but the fact remains that nationwide, 50 percent of all facilities— though perhaps not those represented in our survey—are performing below the midpoint level.
The POI doesn't lie
Recognizing that the respondents might have difficulty providing an objective assessment, we also tried a second, less direct, approach to determining how well DCs are serving their customers. Using the performance data respondents had provided, we calculated the respondents' compos- ite score on what's known as the Perfect Order Index (POI).
The Perfect Order Index is a widely recognized measure that incorporates four critical customer service elements: order completeness, timeliness, condition and documentation. In other words, to be considered perfect, an order must arrive complete, be delivered on time, arrive free of damage, and be accompanied by the correct invoice and other documentation.
To calculate a given company's score on the Perfect Order Index, you simply take those four metrics (expressed as percentages) and multiply them together. For instance, a supplier that ships 95 percent of its orders complete, 95 percent on time, 95 percent damage-free and with the correct documentation 95 percent of the time would earn a score of 81.5 percent (95 x 95 x 95 x 95).
So how did the respondents' DCs score on the Perfect Order Index? As Exhibit 2 shows, the composite results were a less-than-perfect 84.46 percent. What this means is that slightly more than 15 percent of all orders shipped are marred by some sort of failure.
What's "on time" anyway?
As for what accounts for those "failures," the survey data suggest that part of the problem may be confusion (or disagreement) among DCs and their customers about whether orders are "on time" or not. It may sound like a simple enough determination, but our survey indicates otherwise.
To begin with, there's the distinction between shipped on time and delivered on time. DCs are much more likely to interpret "on time" as meaning shipped on time than delivered on time. That stands to reason. It's far easier for a DC to document when an order leaves its dock than to obtain reliable data on when it's delivered.
Customers, however, look at it differently. They're not so much interested in when an order leaves the supplier's dock or what happens to it along the way as in when it arrives. For most customers, "on time" means delivered on time. But even if DCs could be persuaded to abandon the "ontime shipment" metric in favor of "on-time delivery," there's still another problem. Even the customers themselves don't agree on what constitutes an "on-time" delivery. Nearly 69 percent of the survey respondents reported that their various customers defined "on-time delivery" differently.
How much variation could there be? Quite a bit, it seems. As Exhibit 3 shows, customers define "on time" at least six dif- ferent ways. The majority of the respon- dents (63.1 percent) reported that their cus- tomers considered a shipment to be on time if it arrived on the requested or agreed-upon day. But other clients seem to be much more exacting. For example, for 26.9 percent, "on time" means delivery within 30 minutes of the appointed time. And for 4.3 percent, it means delivery within 15 minutes of the appointed time. Still others define "on time" as "No line down time" or "By 4: 00 p.m." All this variation may go a long way toward explaining why suppliers sometimes have difficulty delivering "on time."
Room for improvement
Overall, what we see from this survey is encouraging. It appears that more companies are concentrating on their performance against customer-focused metrics than in the past, and that their performance against those metrics is improving.
But the survey also indicates that some DCs, at least, may not be performing as well as they think they are. To those DCs, we recommend taking the following three steps to improve performance:
Broaden your perspective to include measures that are strategic/cross functional in nature and that focus on the customer's perception rather than your own internal measures.
Accept that no company can be "best" at all things. Almost everyone turns in "below average" performance in one area or another.
Make an honest attempt to assess your operations from the customer's point of view. Keep in mind that the "aver- age" performance you might have thought was a "B" is real- ly a "D."
Our second call to action is to urge industry groups to get involved. Associations can provide a valuable service to their members by working with their constituencies to gather and disseminate benchmark data.
In the meantime, we invite readers' comments, suggestions, and insights into the research and their own use of performance metrics. We can be reached by e-mail: Karl B. Manrodt at Kmanrodt@georgiasouthern.edu, Kate L. Vitasek at kate@scvisions.com.
a look at the survey respondents
Talk about a study in contrasts. Last year, 380 DC executives responded to our annual metrics survey. This year, the total was a whopping 900. Almost as soon as the survey invitations went out, replies began pouring in from DC executives across the country. The response was particularly strong among C-level executives. The percentage of top executives (senior vice presidents, CEOs, CFOs and presidents) participating in the survey soared to more than 27 this year, compared to 11.4 last year.
What accounted for the difference? The survey's length may have been a factor. Last year's questionnaire asked respondents to rate their DCs' performance against a set of 55 metrics. This year, we cut the number of metrics to a more manageable 35, and the response rate more than doubled. Coincidence? We think not.
As for the respondents themselves, they came from companies of all sizes across a wide range of industries. Exactly half said they worked in manufacturing/distribution. Just over a quarter (26 percent) came from the third-party warehousing industry, and 13 percent reported that they worked in the retail industry. The remainder were scattered across other sectors: carriers, utilities, life sciences and the government.
The survey also asked respondents to indicate their "location" in the supply chain—that is, whether their direct customers were end users, retailers, distributors/wholesalers, or manufacturers. As it turned out, most were either at or very close to the end of the chain. Roughly 60 percent indicated that their customers were either retailers or the products' end users. Some 20.1 percent reported that their primary customers were manufacturers, and the remaining 21.6 percent sold to distributors.
In terms of company size, the respondents' businesses turned out to be equally distributed among the survey's size categories. About onethird worked for businesses reporting annual sales of less than $100 million, about one-third reported that their companies' sales fell into the $100 million to $500 million range, and the remaining third reported sales in excess of $500 million.
Most of the apparel sold in North America is manufactured in Asia, meaning the finished goods travel long distances to reach end markets, with all the associated greenhouse gas emissions. On top of that, apparel manufacturing itself requires a significant amount of energy, water, and raw materials like cotton. Overall, the production of apparel is responsible for about 2% of the world’s total greenhouse gas emissions, according to a report titled
Taking Stock of Progress Against the Roadmap to Net Zeroby the Apparel Impact Institute. Founded in 2017, the Apparel Impact Institute is an organization dedicated to identifying, funding, and then scaling solutions aimed at reducing the carbon emissions and other environmental impacts of the apparel and textile industries.
The author of this annual study is researcher and consultant Michael Sadowski. He wrote the first report in 2021 as well as the latest edition, which was released earlier this year. Sadowski, who is also executive director of the environmental nonprofit
The Circulate Initiative, recently joined DC Velocity Group Editorial Director David Maloney on an episode of the “Logistics Matters” podcast to discuss the key findings of the research, what companies are doing to reduce emissions, and the progress they’ve made since the first report was issued.
A: While companies in the apparel industry can set their own sustainability targets, we realized there was a need to give them a blueprint for actually reducing emissions. And so, we produced the first report back in 2021, where we laid out the emissions from the sector, based on the best estimates [we could make using] data from various sources. It gives companies and the sector a blueprint for what we collectively need to do to drive toward the ambitious reduction [target] of staying within a 1.5 degrees Celsius pathway. That was the first report, and then we committed to refresh the analysis on an annual basis. The second report was published last year, and the third report came out in May of this year.
Q: What were some of the key findings of your research?
A: We found that about half of the emissions in the sector come from Tier Two, which is essentially textile production. That includes the knitting, weaving, dyeing, and finishing of fabric, which together account for over half of the total emissions. That was a really important finding, and it allows us to focus our attention on the interventions that can drive those emissions down.
Raw material production accounts for another quarter of emissions. That includes cotton farming, extracting gas and oil from the ground to make synthetics, and things like that. So we now have a really keen understanding of the source of our industry’s emissions.
Q: Your report mentions that the apparel industry is responsible for about 2% of global emissions. Is that an accurate statistic?
A: That’s our best estimate of the total emissions [generated by] the apparel sector. Some other reports on the industry have apparel at up to 8% of global emissions. And there is a commonly misquoted number in the media that it’s 10%. From my perspective, I think the best estimate is somewhere under 2%.
We know that globally, humankind needs to reduce emissions by roughly half by 2030 and reach net zero by 2050 to hit international goals. [Reaching that target will require the involvement of] every facet of the global economy and every aspect of the apparel sector—transportation, material production, manufacturing, cotton farming. Through our work and that of others, I think the apparel sector understands what has to happen. We have highlighted examples of how companies are taking action to reduce emissions in the roadmap reports.
Q: What are some of those actions the industry can take to reduce emissions?
A: I think one of the positive developments since we wrote the first report is that we’re seeing companies really focus on the most impactful areas. We see companies diving deep on thermal energy, for example. With respect to Tier Two, we [focus] a lot of attention on things like ocean freight versus air. There’s a rule of thumb I’ve heard that indicates air freight is about 10 times the cost [of ocean] and also produces 10 times more greenhouse gas emissions.
There is money available to invest in sustainability efforts. It’s really exciting to see the funding that’s coming through for AI [artificial intelligence] and to see that individual companies, such as H&M and Lululemon, are investing in real solutions in their supply chains. I think a lot of concrete actions are being taken.
And yet we know that reducing emissions by half on an absolute basis by 2030 is a monumental undertaking. So I don’t want to be overly optimistic, because I think we have a lot of work to do. But I do think we’ve got some amazing progress happening.
Q: You mentioned several companies that are starting to address their emissions. Is that a result of their being more aware of the emissions they generate? Have you seen progress made since the first report came out in 2021?
A: Yes. When we published the first roadmap back in 2021, our statistics showed that only about 12 companies had met the criteria [for setting] science-based targets. In 2024, the number of apparel, textile, and footwear companies that have set targets or have commitments to set targets is close to 500. It’s an enormous increase. I think they see the urgency more than other sectors do.
We have companies that have been working at sustainability for quite a long time. I think the apparel sector has developed a keen understanding of the impacts of climate change. You can see the impacts of flooding, drought, heat, and other things happening in places like Bangladesh and Pakistan and India. If you’re a brand or a manufacturer and you have operations and supply chains in these places, I think you understand what the future will look like if we don’t significantly reduce emissions.
Q: There are different categories of emission levels, depending on the role within the supply chain. Scope 1 are “direct” emissions under the reporting company’s control. For apparel, this might be the production of raw materials or the manufacturing of the finished product. Scope 2 covers “indirect” emissions from purchased energy, such as electricity used in these processes. Scope 3 emissions are harder to track, as they include emissions from supply chain partners both upstream and downstream.
Now companies are finding there are legislative efforts around the world that could soon require them to track and report on all these emissions, including emissions produced by their partners’ supply chains. Does this mean that companies now need to be more aware of not only what greenhouse gas emissions they produce, but also what their partners produce?
A: That’s right. Just to put this into context, if you’re a brand like an Adidas or a Gap, you still have to consider the Scope 3 emissions. In particular, there are the so-called “purchased goods and services,” which refers to all of the embedded emissions in your products, from farming cotton to knitting yarn to making fabric. Those “purchased goods and services” generally account for well above 80% of the total emissions associated with a product. It’s by far the most significant portion of your emissions.
Leading companies have begun measuring and taking action on Scope 3 emissions because of regulatory developments in Europe and, to some extent now, in California. I do think this is just a further tailwind for the work that the industry is doing.
I also think it will definitely ratchet up the quality requirements of Scope 3 data, which is not yet where we’d all like it to be. Companies are working to improve that data, but I think the regulatory push will make the quality side increasingly important.
Q: Overall, do you think the work being done by the Apparel Impact Institute will help reduce greenhouse gas emissions within the industry?
A: When we started this back in 2020, we were at a place where companies were setting targets and knew their intended destination, but what they needed was a blueprint for how to get there. And so, the roadmap [provided] this blueprint and identified six key things that the sector needed to do—from using more sustainable materials to deploying renewable electricity in the supply chain.
Decarbonizing any sector, whether it’s transportation, chemicals, or automotive, requires investment. The Apparel Impact Institute is bringing collective investment, which is so critical. I’m really optimistic about what they’re doing. They have taken a data-driven, evidence-based approach, so they know where the emissions are and they know what the needed interventions are. And they’ve got the industry behind them in doing that.
The global air cargo market’s hot summer of double-digit demand growth continued in August with average spot rates showing their largest year-on-year jump with a 24% increase, according to the latest weekly analysis by Xeneta.
Xeneta cited two reasons to explain the increase. First, Global average air cargo spot rates reached $2.68 per kg in August due to continuing supply and demand imbalance. That came as August's global cargo supply grew at its slowest ratio in 2024 to-date at 2% year-on-year, while global cargo demand continued its double-digit growth, rising +11%.
The second reason for higher rates was an ocean-to-air shift in freight volumes due to Red Sea disruptions and e-commerce demand.
Those factors could soon be amplified as e-commerce shows continued strong growth approaching the hotly anticipated winter peak season. E-commerce and low-value goods exports from China in the first seven months of 2024 increased 30% year-on-year, including shipments to Europe and the US rising 38% and 30% growth respectively, Xeneta said.
“Typically, air cargo market performance in August tends to follow the July trend. But another month of double-digit demand growth and the strongest rate growths of the year means there was definitely no summer slack season in 2024,” Niall van de Wouw, Xeneta’s chief airfreight officer, said in a release.
“Rates we saw bottoming out in late July started picking up again in mid-August. This is too short a period to call a season. This has been a busy summer, and now we’re at the threshold of Q4, it will be interesting to see what will happen and if all the anticipation of a red-hot peak season materializes,” van de Wouw said.
The report cites data showing that there are approximately 1.7 million workers missing from the post-pandemic workforce and that 38% of small firms are unable to fill open positions. At the same time, the “skills gap” in the workforce is accelerating as automation and AI create significant shifts in how work is performed.
That information comes from the “2024 Labor Day Report” released by Littler’s Workplace Policy Institute (WPI), the firm’s government relations and public policy arm.
“We continue to see a labor shortage and an urgent need to upskill the current workforce to adapt to the new world of work,” said Michael Lotito, Littler shareholder and co-chair of WPI. “As corporate executives and business leaders look to the future, they are focused on realizing the many benefits of AI to streamline operations and guide strategic decision-making, while cultivating a talent pipeline that can support this growth.”
But while the need is clear, solutions may be complicated by public policy changes such as the upcoming U.S. general election and the proliferation of employment-related legislation at the state and local levels amid Congressional gridlock.
“We are heading into a contentious election that has already proven to be unpredictable and is poised to create even more uncertainty for employers, no matter the outcome,” Shannon Meade, WPI’s executive director, said in a release. “At the same time, the growing patchwork of state and local requirements across the U.S. is exacerbating compliance challenges for companies. That, coupled with looming changes following several Supreme Court decisions that have the potential to upend rulemaking, gives C-suite executives much to contend with in planning their workforce-related strategies.”
Stax Engineering, the venture-backed startup that provides smokestack emissions reduction services for maritime ships, will service all vessels from Toyota Motor North America Inc. visiting the Toyota Berth at the Port of Long Beach, according to a new five-year deal announced today.
Beginning in 2025 to coincide with new California Air Resources Board (CARB) standards, STAX will become the first and only emissions control provider to service roll-on/roll-off (ro-ros) vessels in the state of California, the company said.
Stax has rapidly grown since its launch in the first quarter of this year, supported in part by a $40 million funding round from investors, announced in July. It now holds exclusive service agreements at California ports including Los Angeles, Long Beach, Hueneme, Benicia, Richmond, and Oakland. The firm has also partnered with individual companies like NYK Line, Hyundai GLOVIS, Equilon Enterprises LLC d/b/a Shell Oil Products US (Shell), and now Toyota.
Stax says it offers an alternative to shore power with land- and barge-based, mobile emissions capture and control technology for shipping terminal and fleet operators without the need for retrofits.
In the case of this latest deal, the Toyota Long Beach Vehicle Distribution Center imports about 200,000 vehicles each year on ro-ro vessels. Stax will keep those ships green with its flexible exhaust capture system, which attaches to all vessel classes without modification to remove 99% of emitted particulate matter (PM) and 95% of emitted oxides of nitrogen (NOx). Over the lifetime of this new agreement with Toyota, Stax estimated the service will account for approximately 3,700 hours and more than 47 tons of emissions controlled.
“We set out to provide an emissions capture and control solution that was reliable, easily accessible, and cost-effective. As we begin to service Toyota, we’re confident that we can meet the needs of the full breadth of the maritime industry, furthering our impact on the local air quality, public health, and environment,” Mike Walker, CEO of Stax, said in a release. “Continuing to establish strong partnerships will help build momentum for and trust in our technology as we expand beyond the state of California.”
That result showed that driver wages across the industry continue to increase post-pandemic, despite a challenging freight market for motor carriers. The data comes from ATA’s “Driver Compensation Study,” which asked 120 fleets, more than 150,000 employee drivers, and 14,000 independent contractors about their wage and benefit information.
Drilling into specific categories, linehaul less-than-truckload (LTL) drivers earned a median annual amount of $94,525 in 2023, while local LTL drivers earned a median of $80,680. The median annual compensation for drivers at private carriers has risen 12% since 2021, reaching $95,114 in 2023. And leased-on independent contractors for truckload carriers were paid an annual median amount of $186,016 in 2023.
The results also showed how the demographics of the industry are changing, as carriers offered smaller referral and fewer sign-on bonuses for new drivers in 2023 compared to 2021 but more frequently offered tenure bonuses to their current drivers and with a greater median value.
"While our last study, conducted in 2021, illustrated how drivers benefitted from the strongest freight environment in a generation, this latest report shows professional drivers' earnings are still rising—even in a weaker freight economy," ATA Chief Economist Bob Costello said in a release. "By offering greater tenure bonuses to their current driver force, many fleets appear to be shifting their workforce priorities from recruitment to retention."