Our 11th annual study of distribution center metrics shows that where performance gains are concerned, the lowest achievers outshone their "best-in-class" peers this year.
While the economy continues to hobble along, distribution professionals are taking advantage of the lull to work out any kinks in their DC operations. That much was clear from the results of our 11th annual metrics survey, which showed continuous year-over-year improvements in performance across a majority of measures. What was interesting this year was that it wasn't necessarily the top-performing organizations that were making the gains. In many cases, it was the lowest-performing operations that recorded the greatest strides.
The annual research, launched via an online survey in early January, was conducted among DC Velocity readers and members of the Warehousing Education and Research Council (WERC). Respondents were asked what metrics they use and how well their organizations performed against 47 key DC and warehousing metrics in 2013. (For purposes of analysis, the measures have been grouped into five categories: customer, operational, financial, capacity/quality, and employee/safety.) More than 400 respondents participated in the study, which is jointly sponsored by DC Velocity and WERC with support from Kronos and Kenco Group.
The survey aims not only to determine which metrics are important to DC and warehousing professionals, but also to understand the underlying trends and changes in performance from year to year. In addition, the study provides valuable benchmarks against which managers can more accurately gauge their performance within the company and against their competitors. (The full survey results will be incorporated into a report by Tillman, Manrodt, and Williams and will be available at www.werc.org after the annual WERC conference in Chicago April 27-30.)
WHICH METRICS MATTER MOST?
When it comes to the performance metrics used by DC professionals, the survey once again showed that the top choices don't vary much from year to year. In fact, this year's list of the Top 12 metrics pretty much mirrors last year's list, with minor changes in the rankings. (See Exhibit 1.)
However, there's a longer-term trend taking shape here that's a little worrisome. Research has shown that companies that use a balanced set of measures—financial as well as customer-, employee-, and process-centric metrics—outperform those that use a more limited set of measures. Unfortunately, our research indicates that where the 12 most popular metrics are concerned, the mix has become less balanced over the years—a trend first noted in 2011. This year's study showed that nothing had changed on that front—in both the 2013 and 2014 surveys, nine of the Top 12 metrics were either customer or operational measures.
In fact, since 2011, there's been a marked shift toward the use of operations-focused metrics. (Operational metrics measure internal performance, such as order fill rates and lines received and put away per hour.) While those are undeniably important to DCs, companies should be aware that focusing too much of their attention on operations could lead to adverse effects in other areas, such as costs. For instance, an operation that's intent on achieving a 99-percent order fill rate might be tempted to expedite shipments. While that would go a long way toward keeping customers happy, such a move could send the cost per unit shipped through the roof.
HOLDING THEIR OWN—MOSTLY
As for how facilities are performing against those metrics, the news is generally good. The results from our 11th annual survey show continuous improvements in operational performance across a majority of measures when compared with the 2013 study.
However, there were also some disappointing findings. With three of the Top 12 metrics focused on supplier performance, we expected to see big gains here. But that didn't happen. Performance against supplier-related metrics has either slipped or remained flat. As for why that would be, we have some thoughts. Having spent the past seven years researching supplier and buyer relationships, we believe the root cause of the stagnant performance is "status quo" practices in supplier management. In particular, we think the problems can be traced to a lack of the kind of collaboration necessary to tackle the problems and issues that DCs and their suppliers face.
On a brighter note, "best-in-class" (top 20 percent) and "median" (middle 20 percent) performers showed improvement against more than 70 percent of the metrics. However, even that wasn't enough to earn them a place in the sun. It's the "major opportunity" performers that deserve a standing ovation this year. "Major opportunity" performers—those whose facilities' performance ranked in the bottom 20 percent of survey respondents, and therefore have the most to gain—improved and/or maintained performance against 86 percent of the metrics in this year's study. The biggest gains for that group came in financial and productivity-related measures.
The net result of these strides was to narrow the performance gap between themselves and the best-in-class performers. Exhibit 2 identifies the metrics against which "major opportunity" respondents showed the greatest gains over the 2013 study. As it turned out, when it came to the same four metrics, the best-in-class respondents showed only incremental improvements or actually saw performance slip, further eroding their lead.
FOR EVERY TO, THERE IS A FRO
Although we've come to expect overall performance improvements from year to year, it's important to note that those gains sometimes come at a cost. As companies focus in on a new area, it's all too easy to let performance in another area slide. If managers don't intervene, performance tends to erode ever so slowly over time. And in some cases, the slippage can be significant.
For that reason, the study also looked at areas where performance has slipped the most—the so-called "points of pain." As mentioned earlier, supplier-related metrics took a big hit this year, with performance against the majority of these measures either remaining largely unchanged or dropping. In fact, of all the metrics studied, performance against the "supplier orders received per hour" metric deteriorated the most, with performance by best-in-class respondents dropping over 60 percent from 2013 levels.
Other "points of pain" identified this year were annual workforce turnover, inventory shrinkage as a percentage of sales, and days of finished-goods inventory on hand. (See Exhibit 3.)
IT'S A TOSS-UP
Overall, it appears that while warehouses and DCs at all levels are making performance gains, the race to the top is getting tighter. The "major opportunity" respondents continue to make great strides in closing the performance gap. However, best-in-class respondents are still able to do a better job of managing drops in their performance compared with other respondents. Whether the momentum can be sustained or not, only time will tell.
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.