The faint rumbling sound coming from the nation's warehouses and distribution centers is no cause for alarm. Quite the opposite, in fact. If the results of our annual survey on DC performance are any indication, the rumblings you've been hearing are the sound of economic recovery—or to be precise, the sound of DCs throttling up their order fulfillment operations as sales began to pick up.
While there's always the risk that a ramp-up in volume will send performance into a tailspin, it appears that most DCs avoided that trap last year. Our eighth annual survey of key warehousing and DC metrics showed that most operations made slow but steady gains in performance.
Launched in 2004, the annual study tracks the metrics DC professionals are using to monitor their operations as well as changes and trends in overall performance against those metrics from year to year. The study also provides valuable benchmarks against which managers can more accurately gauge their operations' performance within the company and against their competitors.
This year's study, which was conducted among DC Velocity's readers and members of the Warehousing Education and Research Council (WERC), was carried out via an online survey in January. In all, 602 individuals filled out the questionnaire, of which 579 provided usable responses. Respondents were asked to identify the metrics they used as well as to grade their own facilities' performance in 2010 against 44 specific operational metrics. (For purposes of analysis, the measures have been grouped into five balanced sets: customer, operational, financial, capacity/quality, and employee.)
The research, which was jointly sponsored by DC Velocity and WERC with support from Ryder, was carried out by Georgia Southern University and the consultancy Supply Chain Visions. The full results will be available online at www.werc.org after the annual WERC conference, which takes place in Orlando, Fla., from May 15-18.
Which metrics matter most?
When it comes to the performance metrics used by DC professionals, the survey showed that the most popular measures don't vary much from year to year. The metrics that received the most mentions in this year's survey—on-time shipments, average warehouse capacity used, and order picking accuracy—have appeared on the top 12 list since the study was launched.
But that's not to say the situation has remained static. As Exhibit 1 shows, there has been some change in the list of top 12 metrics compared with the 2010 survey results. Why is that? This year we changed methodologies in calculating the top 12 list. To stay consistent with the new methodology, we recalculated prior years' top 12 lists. While we found that the choice of metrics remained largely unchanged, there were some shifts in the rankings.
It's important to note that decisions about which metrics an operation will use may be dictated by company policy and may not reflect the respondents' own opinions or preferences. For that reason, the survey included a question asking, "If you were the boss, what metrics would you use to run the DC or warehouse?"
Exhibit 1: The Top 12: The most commonly used DC metrics
Metric (by rank in 2011 survey)
and category
2010 rank
2009 rank
1. On time shipments (Customer)
1
1
2. Average warehouse capacity used (Capacity/Quality)
4
7
3. Order picking accuracy (Capacity/Quality)
2
3
4. Peak warehouse capacity used (Capacity/Quality)
9
*
5. Dock-to-stock cycle time, in hours (Operational)
6
6
6. Internal order cycle time (Customer)
10
8
7. Total order cycle time (Customer)
*
12
8. Lines picked and shipped per hour (Operational)
11
11
9. Lines received and put away per hour (Operational)
*
*
10. % of supplier orders received damage free (Operational)
*
10
11. Fill rate - line (Operational)
3
4
12. Annual workforce turnover (Employee)
8
*
* Did not appear in top 12
As it turned out, there were some disparities between the two sets of metrics. Although "on-time shipments" and "order picking accuracy" appeared on both lists, the respondents' top five picks included three measures that did not make the list of the most widely used metrics: "inventory count accuracy, by unit;" "inventory count accuracy, by location;" and "distribution costs as a percentage of sales." The fact that respondents chose a financial metric indicates that what we do in the DC—and how we do it—affects more than customer satisfaction; it also has an impact on the organization's bottom line.
Holding their own
As for how the nation's warehouses and DCs are performing against key metrics, the news is generally good. As noted above, the upswing in volume hasn't brought a halt to the improvement trend. In fact, the latest survey found that relative to last year's findings, respondents either maintained or improved their performance against 52 percent of the 44 metrics studied.
The news was even better among the top-performing companies, the 20 percent of respondents designated "best in class." A comparison with last year's findings showed that these companies either maintained or improved their performance against nearly seven out of 10 metrics.
Exhibit 2 identifies the metrics that saw the most improvement over last year across the entire respondent base. (When making comparisons from year to year, we have continued to use the median—the midpoint of all the responses—rather than the mean, or average, because it's less likely to be skewed by very high or low numbers.)
Exhibit 2: Going up! Where DC performance improved
Metric
Major opportunity
Typical
Best in class
Median 2011
Median 2010
Internal order cycle time
> 36 hours
>= 8 and< 23.4 hours
< 2.2 hours
12 hours
24 hours
Dock-to-stock cycle time
> 18.7 hours
>= 4 and < 8.2 hours
< 2 hours
6 hours
9.1 hours
Pallets picked and shipped per person hour
< 7 per hour
>= 14.5 and < 20 per hour
>= 26.5 per hour
18.5 pallets
15 pallets
Supplier orders received per hour
< 1.5 orders
>= 3 and < 5 orders
>= 10 orders
4 orders
3 orders
Total order cycle time
> 72 hours
>= 15 and < 48 hours
< 4.5 hours
36 hours
48 hours
Days on hand - raw materials
> 66 days
>= 29 and < 45 days
< 15 days
30 days
39 days
Distribution costs as a % of sales
> 10.2%
>= 3.3 and < 6%
< 1.7%
4%
5%
Note: Survey responses have been divided into quintiles to make it easier for companies to see where they stand in comparison with other warehouses and DCs. For example, the "best in class" category represents the top 20 percent of respondents, while "major opportunity" represents the lowest 20 percent of respondents—or those who have the most to gain from performance improvements.
Of particular note are the improvements in average internal order cycle time and total order cycle time, both of which dropped by a whopping 12 hours compared with the two previous years. We believe these results speak to a greater sense of urgency among warehouse and DC managers to keep up with orders as activity picks up.
Another interesting finding is the shift in the status of the "dock-to-stock cycle time" metric, a measure of receiving and put-away efficiency. Last year, "dock to stock" performance was identified as one of the major pain points, with median performance slipping to 9.1 hours from eight hours the year before. This year, however, "dock-to-stock time" ranked among the "most improved" metrics, with the median cycle time shrinking to just six hours. It's not much of a stretch to conclude that the "dock to stock" improvement (which presumably helped ensure product was available to be picked) contributed to the impressive gains seen in both internal and total order cycle times.
Where are the points of pain?
Of course, every coin has its flip side, and this year's survey was no exception. Just as performance against several of the metrics showed noteworthy improvement over the previous year, performance in other areas deteriorated.
Exhibit 3 identifies the major points of pain—the metrics that saw the biggest performance declines. It's worth noting that three of the five "pain points" centered on internal operations, notably the pick and pack functions. Although we can only speculate as to the cause, one possibility is that the typical order profile has changed, with orders getting larger. If so, that might explain why performance dropped against those particular metrics, which focus largely on speed.
Exhibit 3: Points of pain: Where DC performance declined
Metric
Major opportunity
Typical
Best in class
Median 2011
Median 2010
Honeycomb %
< 14%
>= 39 and < 69.8%
>= 85%
50%
72%
Orders picked and shipped per hour
< 2 orders
>= 4.2 and < 9.5 orders
>= 29.8 orders
6 orders
8.5 orders
Lines picked and shipped per hour
< 13.6 lines
>= 25 and < 40.6 lines
>= 77.4 lines
30 lines
36.0 lines
Cases picked and shipped per hour
< 34.8 cases
>= 85.2 and < 144 cases
>= 280 cases
120 cases
142.5 cases
Days on hand finished-goods inventory
> 75.2 days
>= 30 and < 45 days
< 14.4 days
36.7 days
32 days
It's also worth pointing out that in some cases, performance slippage may not be a bad thing. Take the "honeycomb percentage" metric, which showed the biggest drop in performance relative to last year's survey.
Like "average warehouse capacity" and "peak warehouse capacity" (whose performance declined as well), "honeycomb percentage" is a measure of how fully space is being used within the warehouse or DC. And while it might appear that the objective here would be to get as close to 100 percent as possible, that's not necessarily the case. In fact, research has shown that the ideal "average warehouse capacity used" number may be closer to 80 percent, because it gives facilities the flexibility to respond quickly to changing economic conditions.
In any event, it appears that while there's been some slippage, performance in most warehouses and DCs could be fairly characterized as getting better all the time. The big question now is, can the momentum be sustained—especially if, as expected, orders grow faster than employment?
About the authors: Karl Manrodt is a professor at Georgia Southern University. Joseph Tillman is senior researcher and consultant for Supply Chain Visions. Kate Vitasek is founder of Supply Chain Visions.
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."