WERC/DC Velocity study: DC performance improved in 2009 despite downturn
Latest edition of "metrics" survey shows that even in the trough of a recession, distribution center and warehousing professionals continued to raise the bar on operating performance.
The good news may be that there is no news. Our seventh annual survey of key distribution center and warehousing metrics continues to show slow but steady improvement in operational performance. What makes that remarkable, though, is that the gains took place in the midst of the worst recession in memory.
As for how this year's findings stacked up against last year's, the latest survey found that companies either maintained or improved their performance against 35 of the 50 metrics studied (the researchers used median performance as the basis of comparison). And some of those gains were impressive indeed—the median numbers for several of the metrics tracked showed double-digit improvements in performance over the previous year. But the picture that emerged wasn't entirely rosy. With other metrics—particularly those relating to employment and inventory—there were signs that the recession had taken a toll. Yet even in those cases, the trend lines provided cause for optimism.
The research, conducted among DC VELOCITY's readers and members of the Warehousing Education and Research Council (WERC), was carried out via an online survey in early January 2010. A total of 639 individuals responded to the survey, of which 559 provided usable responses. Respondents were asked what metrics they used and how well their facilities performed in 2009.
The goal of the research, now in its seventh year, is to track which metrics are most important to DC and warehousing professionals and to shed some light on underlying trends and changes in performance from year to year. In addition, the study provides valuable benchmarks against which managers can gauge their own operations' performance within the company and against their competitors.
The study, conducted by Georgia Southern University and consultancy Supply Chain Visions, is jointly sponsored by DC VELOCITY and the Warehousing Education and Research Council (WERC), with support from Ryder and Manhattan Associates. The full results will be available in a report by Karl Manrodt and Kate Vitasek at www.werc.org after the annual WERC conference in Anaheim May 16-19.
Which metrics matter most?
What we have seen over the full course of the study is that when it comes to the metrics used in America's warehouses and DCs, the fundamentals don't change much. Survey participants still favor the same basic metrics they've been using since the study was launched in 2004. As Exhibit 1 shows, this year's Top 10 list of the most commonly used metrics tracked quite closely with last year's. In both surveys, "on-time shipments," "order picking accuracy," and "average warehouse capacity used" topped the list, although there were some variations in the rankings.
The Top 10 are only part of the story, however. Survey participants use a wide range of other metrics to assess their performance as well—metrics that encompass inbound operations, quality, financial performance, capacity, employees, outbound operations, and the customer.
But what if companies were limited to using just a handful of metrics to track their facilities' performance? In an effort to find out which metrics respondents considered most important, the survey asked which ones they'd choose if they could use only five metrics to manage their business. The top five responses were metrics that focused on cost, quality, and operations: distribution costs as a percentage of sales; distribution cost per unit; inventory count accuracy by units; inventory count accuracy by location; and lines picked and shipped per person hour. Given these economic times, it is not unexpected that the two most popular metrics would be cost driven, and that the next two would track internal operational performance. Clearly, what we do in the DC has an impact not just on customer service but on the organization's bottom line as well.
On the up and up
When it comes to how companies are performing against those metrics, the news is generally good. As noted above, the latest survey showed that performance against 70 percent of the metrics studied equaled or exceeded the previous year's levels. Although performance on a few of the metrics deteriorated slightly, the general trend was toward improvement.
Exhibit 2 identifies the metrics that saw the biggest performance improvements over the previous year. (When making comparisons from year to year, we have continued to use the median—rather than the mean, or average—because it's less likely to be skewed by very high or low numbers.)
All of the metrics listed in Exhibit 2 focus on a company's internal performance, which indicates that a lot of the respondents targeted their own operations in their efforts to cut costs and boost productivity this year. Of particular note is the improvement in the "annual workforce turnover" metric to 6.8 percent from 10.0 percent. Although we had expected to see improvement here, the extent of that improvement came as a surprise. This may be an indication that the worst of the workforce reductions are behind us and that employers have begun staffing up again.
It's interesting to note the improvement in performance against three metrics related to back orders and lost sales. While we were initially perplexed as to what was going on, we soon noticed that inventory levels in many DCs and warehouses had risen at the same time. That would help explain why companies were able to do a better job of filling orders completely. It is difficult for us to say what's behind the improvement—whether it's simply a blip on the radar caused by the sharp drop-off in sales or the genuine result of operational enhancements. As the economy begins its journey to recovery, we'll definitely keep an eye on inventory levels and back orders to see if the trend holds up over time.
Where are the points of pain?
As the song lyrics say, What goes up must come down. This applies to some of this year's metrics as well. Exhibit 3 highlights some of the operational points of pain—the metrics that saw the biggest performance declines this year.
As for what might be behind the deteriorating performance, it's hard to say. One possibility is that the typical order profile has changed, with orders getting larger. If so, that would explain why performance against these particular metrics—which focus largely on speed—has declined.
Nonetheless, it appears that in most DC and warehouse operations, this year's theme song will be "Getting Better All the Time." Whether the momentum can be sustained or not—especially if orders outpace employment—only time will tell. But the lesson here is that standing still means losing ground to competitors.
About the authors: Karl Manrodt is an associate professor at Georgia Southern University. Kate Vitasek is the founder of the consulting firm Supply Chain Visions. Joseph Tillman is senior researcher and consultant for Supply Chain Visions.
Progress in generative AI (GenAI) is poised to impact business procurement processes through advancements in three areas—agentic reasoning, multimodality, and AI agents—according to Gartner Inc.
Those functions will redefine how procurement operates and significantly impact the agendas of chief procurement officers (CPOs). And 72% of procurement leaders are already prioritizing the integration of GenAI into their strategies, thus highlighting the recognition of its potential to drive significant improvements in efficiency and effectiveness, Gartner found in a survey conducted in July, 2024, with 258 global respondents.
Gartner defined the new functions as follows:
Agentic reasoning in GenAI allows for advanced decision-making processes that mimic human-like cognition. This capability will enable procurement functions to leverage GenAI to analyze complex scenarios and make informed decisions with greater accuracy and speed.
Multimodality refers to the ability of GenAI to process and integrate multiple forms of data, such as text, images, and audio. This will make GenAI more intuitively consumable to users and enhance procurement's ability to gather and analyze diverse information sources, leading to more comprehensive insights and better-informed strategies.
AI agents are autonomous systems that can perform tasks and make decisions on behalf of human operators. In procurement, these agents will automate procurement tasks and activities, freeing up human resources to focus on strategic initiatives, complex problem-solving and edge cases.
As CPOs look to maximize the value of GenAI in procurement, the study recommended three starting points: double down on data governance, develop and incorporate privacy standards into contracts, and increase procurement thresholds.
“These advancements will usher procurement into an era where the distance between ideas, insights, and actions will shorten rapidly,” Ryan Polk, senior director analyst in Gartner’s Supply Chain practice, said in a release. "Procurement leaders who build their foundation now through a focus on data quality, privacy and risk management have the potential to reap new levels of productivity and strategic value from the technology."
Businesses are cautiously optimistic as peak holiday shipping season draws near, with many anticipating year-over-year sales increases as they continue to battle challenging supply chain conditions.
That’s according to the DHL 2024 Peak Season Shipping Survey, released today by express shipping service provider DHL Express U.S. The company surveyed small and medium-sized enterprises (SMEs) to gauge their holiday business outlook compared to last year and found that a mix of optimism and “strategic caution” prevail ahead of this year’s peak.
Nearly half (48%) of the SMEs surveyed said they expect higher holiday sales compared to 2023, while 44% said they expect sales to remain on par with last year, and just 8% said they foresee a decline. Respondents said the main challenges to hitting those goals are supply chain problems (35%), inflation and fluctuating consumer demand (34%), staffing (16%), and inventory challenges (14%).
But respondents said they have strategies in place to tackle those issues. Many said they began preparing for holiday season earlier this year—with 45% saying they started planning in Q2 or earlier, up from 39% last year. Other strategies include expanding into international markets (35%) and leveraging holiday discounts (32%).
Sixty percent of respondents said they will prioritize personalized customer service as a way to enhance customer interactions and loyalty this year. Still others said they will invest in enhanced web and mobile experiences (23%) and eco-friendly practices (13%) to draw customers this holiday season.
That challenge is one of the reasons that fewer shoppers overall are satisfied with their shopping experiences lately, Lincolnshire, Illinois-based Zebra said in its “17th Annual Global Shopper Study.”th Annual Global Shopper Study.” While 85% of shoppers last year were satisfied with both the in-store and online experiences, only 81% in 2024 are satisfied with the in-store experience and just 79% with online shopping.
In response, most retailers (78%) say they are investing in technology tools that can help both frontline workers and those watching operations from behind the scenes to minimize theft and loss, Zebra said.
Just 38% of retailers currently use AI-based prescriptive analytics for loss prevention, but a much larger 50% say they plan to use it in the next 1-3 years. That was followed by self-checkout cameras and sensors (45%), computer vision (46%), and RFID tags and readers (42%) that are planned for use within the next three years, specifically for loss prevention.
Those strategies could help improve the brick and mortar shopping experience, since 78% of shoppers say it’s annoying when products are locked up or secured within cases. Adding to that frustration is that it’s hard to find an associate while shopping in stores these days, according to 70% of consumers. In response, some just walk out; one in five shoppers has left a store without getting what they needed because a retail associate wasn’t available to help, an increase over the past two years.
The survey also identified additional frustrations faced by retailers and associates:
challenges with offering easy options for click-and-collect or returns, despite high shopper demand for them
the struggle to confirm current inventory and pricing
lingering labor shortages and increasing loss incidents, even as shoppers return to stores
“Many retailers are laying the groundwork to build a modern store experience,” Matt Guiste, Global Retail Technology Strategist, Zebra Technologies, said in a release. “They are investing in mobile and intelligent automation technologies to help inform operational decisions and enable associates to do the things that keep shoppers happy.”
The survey was administered online by Azure Knowledge Corporation and included 4,200 adult shoppers (age 18+), decision-makers, and associates, who replied to questions about the topics of shopper experience, device and technology usage, and delivery and fulfillment in store and online.
An eight-year veteran of the Georgia company, Hakala will begin his new role on January 1, when the current CEO, Tero Peltomäki, will retire after a long and noteworthy career, continuing as a member of the board of directors, Cimcorp said.
According to Hakala, automation is an inevitable course in Cimcorp’s core sectors, and the company’s end-to-end capabilities will be crucial for clients’ success. In the past, both the tire and grocery retail industries have automated individual machines and parts of their operations. In recent years, automation has spread throughout the facilities, as companies want to be able to see their entire operation with one look, utilize analytics, optimize processes, and lead with data.
“Cimcorp has always grown by starting small in the new business segments. We’ve created one solution first, and as we’ve gained more knowledge of our clients’ challenges, we have been able to expand,” Hakala said in a release. “In every phase, we aim to bring our experience to the table and even challenge the client’s initial perspective. We are interested in what our client does and how it could be done better and more efficiently.”
Although many shoppers will
return to physical stores this holiday season, online shopping remains a driving force behind peak-season shipping challenges, especially when it comes to the last mile. Consumers still want fast, free shipping if they can get it—without any delays or disruptions to their holiday deliveries.
One disruptor that gets a lot of headlines this time of year is package theft—committed by so-called “porch pirates.” These are thieves who snatch parcels from front stairs, side porches, and driveways in neighborhoods across the country. The problem adds up to billions of dollars in stolen merchandise each year—not to mention headaches for shippers, parcel delivery companies, and, of course, consumers.
Given the scope of the problem, it’s no wonder online shoppers are worried about it—especially during holiday season. In its annual report on package theft trends, released in October, the
security-focused research and product review firm Security.org found that:
17% of Americans had a package stolen in the past three months, with the typical stolen parcel worth about $50. Some 44% said they’d had a package taken at some point in their life.
Package thieves poached more than $8 billion in merchandise over the past year.
18% of adults said they’d had a package stolen that contained a gift for someone else.
Ahead of the holiday season, 88% of adults said they were worried about theft of online purchases, with more than a quarter saying they were “extremely” or “very” concerned.
But it doesn’t have to be that way. There are some low-tech steps consumers can take to help guard against porch piracy along with some high-tech logistics-focused innovations in the pipeline that can protect deliveries in the last mile. First, some common-sense advice on avoiding package theft from the Security.org research:
Install a doorbell camera, which is a relatively low-cost deterrent.
Bring packages inside promptly or arrange to have them delivered to a secure location if no one will be at home.
Consider using click-and-collect options when possible.
If the retailer allows you to specify delivery-time windows, consider doing so to avoid having packages sit outside for extended periods.
These steps may sound basic, but they are by no means a given: Fewer than half of Americans consider the timing of deliveries, less than a third have a doorbell camera, and nearly one-fifth take no precautions to prevent package theft, according to the research.
Tech vendors are stepping up to help. One example is
Arrive AI, which develops smart mailboxes for last-mile delivery and pickup. The company says its Mailbox-as-a-Service (MaaS) platform will revolutionize the last mile by building a network of parcel-storage boxes that can be accessed by people, drones, or robots. In a nutshell: Packages are placed into a weatherproof box via drone, robot, driverless carrier, or traditional delivery method—and no one other than the rightful owner can access it.
Although the platform is still in development, the company already offers solutions for business clients looking to secure high-value deliveries and sensitive shipments. The health-care industry is one example: Arrive AI offers secure drone delivery of medical supplies, prescriptions, lab samples, and the like to hospitals and other health-care facilities. The platform provides real-time tracking, chain-of-custody controls, and theft-prevention features. Arrive is conducting short-term deployments between logistics companies and health-care partners now, according to a company spokesperson.
The MaaS solution has a pretty high cool factor. And the common-sense best practices just seem like solid advice. Maybe combining both is the key to a more secure last mile—during peak shipping season and throughout the year as well.