Peter Bradley is an award-winning career journalist with more than three decades of experience in both newspapers and national business magazines. His credentials include seven years as the transportation and supply chain editor at Purchasing Magazine and six years as the chief editor of Logistics Management.
An old business adage has it that you can't manage what you don't measure. The flip side of that might be, you can manage what you do measure, and, if the results of our annual survey of DC and warehouse metrics are any indication, you're likely to see performance improve as a result.
Trends in metrics use and DC performance were the subject of our sixth annual survey, an online study conducted earlier this year. Jointly sponsored by DC VELOCITY and the Warehousing Education and Research Council (WERC), the study was performed by Karl Manrodt, associate professor of logistics at Georgia Southern University, and Kate Vitasek, managing partner of consultancy Supply Chain Visions.
The 783 individuals participating in the study—with 684 responses actually used—graded the 2008 performance of their DCs and warehouses against 50 key operational metrics. Manrodt and Vitasek analyzed the results by industry, type of operation (pallet picking, partial pallet picking, fullcase picking, or broken-case picking), business strategy, type of customer served, and company size. What they found was that the use of metrics in the nation's DCs is on the rise. They also concluded that the growing use of metrics is leading to higher performance levels at the best companies and, oftentimes, among those trying to catch up.
Still, the researchers did not see performance improvements across the board. In some cases, those playing catch-up have actually fallen further behind the leaders than in the past, according to the survey."The gap continues between the good and the rest," says Vitasek. "For some of the metrics, the gap is actually widening, while some are narrowing."
Overall, Vitasek says she is heartened by the results. "We are seeing steady improvement in the performance of DC and warehousing performance across a wide variety of measures. The entire profession is lifting. When the gap between the median and best-practice companies narrows, that suggests everyone is getting it. It is really wonderful to watch it happen."
Which metrics matter most?
Despite the general upward trend, not all of the news this year was good. For example, the survey found that, when compared with last year's results, performance against some of the metrics deteriorated slightly. Whether that's due to the impact of a weak economy or a change in the survey participant mix from year to year, or whether it's because managers raise the performance bar upon seeing signs of improvement is uncertain, the researchers say.
As for the metrics themselves, the survey results showed that respondents still tended to favor the same basic metrics they've been using since the survey was launched. As in the past, "order picking accuracy" and "on-time shipments" topped the list of the most popular measures. (For a list of the 10 most commonly used metrics, see Exhibit 1.)
Manrodt and Vitasek grouped the metrics into several categories: customer service, operations (both outbound and inbound), financial, capacity and quality, and employee. (The classification is indicated for each of the top 10 metrics listed in Exhibit 1.) What's telling, they say, is that managers appear to rely heavily on operational metrics ("order fill rate," for example) or numbers derived from operational performance (like "order picking accuracy"). Only one of the top 10 metrics, "on time shipments," is a customer-facing measure, they found.
The not-quite-perfect order
That's not to say companies aren't keeping a close eye on customer service, however. The fact is, the majority are indeed tracking their operation's performance against the metrics most commonly associated with the "Perfect Order" and that are used to compute 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 company's score on the index, you simply take each of the four metrics and multiply them together. For example, a facility 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 (0.95 X 0.95 X 0.95 X 0.95).
Exhibit 2 shows the median and best-in-class scores for each of the four POI measures. The researchers chose to use the median score (the exact mid point of the range—the point above which half the values are higher and half lower) rather than the average because it is less likely to be skewed by statistical outliers—very high or very low numbers. "Best in class" is defined here as responses from the top 20 percent of companies— that is, those who are performing best against each of the metrics.
It's important to note that there are other ways to calculate the Perfect Order Index besides the method described above. For example, the Grocery Manufacturers Association and the Food Marketing Institute use a seven-element formula to calculate the Perfect Order Index. (The elements are percentage of cases shipped vs. cases ordered; percentage of on-time deliveries; percentage of data synchronized SKUs; order cycle time; percentage of unsaleables (damaged product); days of supply; and service at the shelf.) As part of their study, the researchers analyzed the survey responses using the GMA/FMI criteria. The results are shown in Exhibit 3. Given the low rates of usage for some of these metrics, however, the researchers urge readers to use the results in this table with caution.
Continuous improvement?
One of the hopes of anyone conducting research over time is that trends will begin to emerge. And when the object of the study is business performance, the hope—if not the expectation—is that those trends will indicate improvement. In the case of this study, the results have largely been what the researchers had hoped—we have seen steady improvement in DC and warehousing performance across a wide variety of measures.
Whether this momentum can be sustained in a dismal economic climate, only time will tell. In the meantime, the researchers invite readers' comments, suggestions, and insights into the research and their own use of measures. They can be reached via the links at the bottom of this page.
about the study
The annual benchmarking study began in 2004 as a collaborative effort between DC VELOCITY and Georgia Southern University. The initial study focused on what metrics DCs were using rather than on how they performed against whatever measures they used. That study found that while there was no single set of universally accepted metrics, most respondents were using metrics from at least one of three broad categories: time-based measures, financial measures, and service quality measures.
In 2005, the Warehousing Education and Research Council and Supply Chain Visions joined the research effort. The survey shifted to a formal benchmarking study designed to provide data not just on what metrics were most widely used in warehouses and DCs, but also on performance against those metrics—data managers could then use to benchmark their own operations. That has remained the focus of the study ever since.
As for the 2009 survey, the respondents came from varying disciplines. Half identified themselves as working in manufacturing, 16 percent in third-party logistics services, 13 percent in retail, and the remainder in life sciences, transportation, and other segments. As for the types of operations represented, 39.7 percent said their operations performed broken-case picking, 27 percent full-case picking, 20.6 percent full-pallet picking, and 11.8 percent partial pallet picking.
The survey respondents also represented companies of various sizes: 31.5 percent said annual company revenues were under $100 million, 39.4 percent came from companies with revenues of $100 million to $1 billion, and the remaining 29.1 percent worked for companies with revenues exceeding $1 billion.
A more extensive report, written by researchers Karl Manrodt and Kate Vitasek, is available through WERC.
Congestion on U.S. highways is costing the trucking industry big, according to research from the American Transportation Research Institute (ATRI), released today.
The group found that traffic congestion on U.S. highways added $108.8 billion in costs to the trucking industry in 2022, a record high. The information comes from ATRI’s Cost of Congestion study, which is part of the organization’s ongoing highway performance measurement research.
Total hours of congestion fell slightly compared to 2021 due to softening freight market conditions, but the cost of operating a truck increased at a much higher rate, according to the research. As a result, the overall cost of congestion increased by 15% year-over-year—a level equivalent to more than 430,000 commercial truck drivers sitting idle for one work year and an average cost of $7,588 for every registered combination truck.
The analysis also identified metropolitan delays and related impacts, showing that the top 10 most-congested states each experienced added costs of more than $8 billion. That list was led by Texas, at $9.17 billion in added costs; California, at $8.77 billion; and Florida, $8.44 billion. Rounding out the top 10 list were New York, Georgia, New Jersey, Illinois, Pennsylvania, Louisiana, and Tennessee. Combined, the top 10 states account for more than half of the trucking industry’s congestion costs nationwide—52%, according to the research.
The metro areas with the highest congestion costs include New York City, $6.68 billion; Miami, $3.2 billion; and Chicago, $3.14 billion.
ATRI’s analysis also found that the trucking industry wasted more than 6.4 billion gallons of diesel fuel in 2022 due to congestion, resulting in additional fuel costs of $32.1 billion.
ATRI used a combination of data sources, including its truck GPS database and Operational Costs study benchmarks, to calculate the impacts of trucking delays on major U.S. roadways.
There’s a photo from 1971 that John Kent, professor of supply chain management at the University of Arkansas, likes to show. It’s of a shaggy-haired 18-year-old named Glenn Cowan grinning at three-time world table tennis champion Zhuang Zedong, while holding a silk tapestry Zhuang had just given him. Cowan was a member of the U.S. table tennis team who participated in the 1971 World Table Tennis Championships in Nagoya, Japan. Story has it that one morning, he overslept and missed his bus to the tournament and had to hitch a ride with the Chinese national team and met and connected with Zhuang.
Cowan and Zhuang’s interaction led to an invitation for the U.S. team to visit China. At the time, the two countries were just beginning to emerge from a 20-year period of decidedly frosty relations, strict travel bans, and trade restrictions. The highly publicized trip signaled a willingness on both sides to renew relations and launched the term “pingpong diplomacy.”
Kent, who is a senior fellow at the George H. W. Bush Foundation for U.S.-China Relations, believes the photograph is a good reminder that some 50-odd years ago, the economies of the United States and China were not as tightly interwoven as they are today. At the time, the Nixon administration was looking to form closer political and economic ties between the two countries in hopes of reducing chances of future conflict (and to weaken alliances among Communist countries).
The signals coming out of Washington and Beijing are now, of course, much different than they were in the early 1970s. Instead of advocating for better relations, political rhetoric focuses on the need for the U.S. to “decouple” from China. Both Republicans and Democrats have warned that the U.S. economy is too dependent on goods manufactured in China. They see this dependency as a threat to economic strength, American jobs, supply chain resiliency, and national security.
Supply chain professionals, however, know that extricating ourselves from our reliance on Chinese manufacturing is easier said than done. Many pundits push for a “China + 1” strategy, where companies diversify their manufacturing and sourcing options beyond China. But in reality, that “plus one” is often a Chinese company operating in a different country or a non-Chinese manufacturer that is still heavily dependent on material or subcomponents made in China.
This is the problem when supply chain decisions are made on a global scale without input from supply chain professionals. In an article in the Arkansas Democrat-Gazette, Kent argues that, “The discussions on supply chains mainly take place between government officials who typically bring many other competing issues and agendas to the table. Corporate entities—the individuals and companies directly impacted by supply chains—tend to be under-represented in the conversation.”
Kent is a proponent of what he calls “supply chain diplomacy,” where experts from academia and industry from the U.S. and China work collaboratively to create better, more efficient global supply chains. Take, for example, the “Peace Beans” project that Kent is involved with. This project, jointly formed by Zhejiang University and the Bush China Foundation, proposes balancing supply chains by exporting soybeans from Arkansas to tofu producers in China’s Yunnan province, and, in return, importing coffee beans grown in Yunnan to coffee roasters in Arkansas. Kent believes the operation could even use the same transportation equipment.
The benefits of working collaboratively—instead of continuing to build friction in the supply chain through tariffs and adversarial relationships—are numerous, according to Kent and his colleagues. They believe it would be much better if the two major world economies worked together on issues like global inflation, climate change, and artificial intelligence.
And such relations could play a significant role in strengthening world peace, particularly in light of ongoing tensions over Taiwan. Because, as Kent writes, “The 19th-century idea that ‘When goods don’t cross borders, soldiers will’ is as true today as ever. Perhaps more so.”
Hyster-Yale Materials Handling today announced its plans to fulfill the domestic manufacturing requirements of the Build America, Buy America (BABA) Act for certain portions of its lineup of forklift trucks and container handling equipment.
That means the Greenville, North Carolina-based company now plans to expand its existing American manufacturing with a targeted set of high-capacity models, including electric options, that align with the needs of infrastructure projects subject to BABA requirements. The company’s plans include determining the optimal production location in the United States, strategically expanding sourcing agreements to meet local material requirements, and further developing electric power options for high-capacity equipment.
As a part of the 2021 Infrastructure Investment and Jobs Act, the BABA Act aims to increase the use of American-made materials in federally funded infrastructure projects across the U.S., Hyster-Yale says. It was enacted as part of a broader effort to boost domestic manufacturing and economic growth, and mandates that federal dollars allocated to infrastructure – such as roads, bridges, ports and public transit systems – must prioritize materials produced in the USA, including critical items like steel, iron and various construction materials.
Hyster-Yale’s footprint in the U.S. is spread across 10 locations, including three manufacturing facilities.
“Our leadership is fully invested in meeting the needs of businesses that require BABA-compliant material handling solutions,” Tony Salgado, Hyster-Yale’s chief operating officer, said in a release. “We are working to partner with our key domestic suppliers, as well as identifying how best to leverage our own American manufacturing footprint to deliver a competitive solution for our customers and stakeholders. But beyond mere compliance, and in line with the many areas of our business where we are evolving to better support our customers, our commitment remains steadfast. We are dedicated to delivering industry-leading standards in design, durability and performance — qualities that have become synonymous with our brands worldwide and that our customers have come to rely on and expect.”
In a separate move, the U.S. Environmental Protection Agency (EPA) also gave its approval for the state to advance its Heavy-Duty Omnibus Rule, which is crafted to significantly reduce smog-forming nitrogen oxide (NOx) emissions from new heavy-duty, diesel-powered trucks.
Both rules are intended to deliver health benefits to California citizens affected by vehicle pollution, according to the environmental group Earthjustice. If the state gets federal approval for the final steps to become law, the rules mean that cars on the road in California will largely be zero-emissions a generation from now in the 2050s, accounting for the average vehicle lifespan of vehicles with internal combustion engine (ICE) power sold before that 2035 date.
“This might read like checking a bureaucratic box, but EPA’s approval is a critical step forward in protecting our lungs from pollution and our wallets from the expenses of combustion fuels,” Paul Cort, director of Earthjustice’s Right To Zero campaign, said in a release. “The gradual shift in car sales to zero-emissions models will cut smog and household costs while growing California’s clean energy workforce. Cutting truck pollution will help clear our skies of smog. EPA should now approve the remaining authorization requests from California to allow the state to clean its air and protect its residents.”
However, the truck drivers' industry group Owner-Operator Independent Drivers Association (OOIDA) pushed back against the federal decision allowing the Omnibus Low-NOx rule to advance. "The Omnibus Low-NOx waiver for California calls into question the policymaking process under the Biden administration's EPA. Purposefully injecting uncertainty into a $588 billion American industry is bad for our economy and makes no meaningful progress towards purported environmental goals," (OOIDA) President Todd Spencer said in a release. "EPA's credibility outside of radical environmental circles would have been better served by working with regulated industries rather than ramming through last-minute special interest favors. We look forward to working with the Trump administration's EPA in good faith towards achievable environmental outcomes.”
Editor's note:This article was revised on December 18 to add reaction from OOIDA.
A Canadian startup that provides AI-powered logistics solutions has gained $5.5 million in seed funding to support its concept of creating a digital platform for global trade, according to Toronto-based Starboard.
The round was led by Eclipse, with participation from previous backers Garuda Ventures and Everywhere Ventures. The firm says it will use its new backing to expand its engineering team in Toronto and accelerate its AI-driven product development to simplify supply chain complexities.
According to Starboard, the logistics industry is under immense pressure to adapt to the growing complexity of global trade, which has hit recent hurdles such as the strike at U.S. east and gulf coast ports. That situation calls for innovative solutions to streamline operations and reduce costs for operators.
As a potential solution, Starboard offers its flagship product, which it defines as an AI-based transportation management system (TMS) and rate management system that helps mid-sized freight forwarders operate more efficiently and win more business. More broadly, Starboard says it is building the virtual infrastructure for global trade, allowing freight companies to leverage AI and machine learning to optimize operations such as processing shipments in real time, reconciling invoices, and following up on payments.
"This investment is a pivotal step in our mission to unlock the power of AI for our customers," said Sumeet Trehan, Co-Founder and CEO of Starboard. "Global trade has long been plagued by inefficiencies that drive up costs and reduce competitiveness. Our platform is designed to empower SMB freight forwarders—the backbone of more than $20 trillion in global trade and $1 trillion in logistics spend—with the tools they need to thrive in this complex ecosystem."