Early this year the well known research firm Aberdeen Group released an extensive report on the financial impact of improved warehouse management. Their findings were eye-opening, released in a report titled “On-Time and Under Budget: Maximizing Profits with Efficient Warehouse Management.” A firm named Ryzex has made the full report available and you can download it here.
Aberdeen researched 205 companies, looking at the impact of various competitive pressures on warehouse management – and what actions to take about them.
Anyone with a warehouse that is serious about reducing their costs of operations and improving their performance for the long run should either read the full report or, for the lazier among us, peruse the key conclusions in the series of posts we begin here today.
First, Aberdeen surveyed those 205 companies and got to the core of the matter:
Roughly three in four (73%) stated that their key pressure was “the need to decrease operating expenses.” This makes perfect sense today. If your revenues are flat, you look to ways to reduce expenses! A distant second (35%) said that “customer demand for faster turnaround time” was their top competitive pressure.
Aberdeen chose three warehouse performance metrics: picking accuracy (percent of orders picked with right items and quantities); inventory accuracy (percent of locations with accurate inventory and counts in the most recent cycle count or inventory); and performance against budget (difference between actual vs. budget costs).
Based on analysis, they defined three classes of companies:
The Best in Class were the top 20%. These had 99.94% picking accuracy and 99.88% inventory accuracy. Nearly perfect. This group averaged 96.95% on-time complete delivery.
The Industry Average was the middle 50%, with 98.83% picking and 97.54% inventory accuracy. This group averaged 94.92% on-time complete delivery.
The Laggards were the bottom 20%, with 91.87% picking and 87.6% inventory accuracy. This group averaged 88.43% on-time complete delivery. (Time to check your numbers?)
Next they calculated the error-correction costs of picking errors. The short version from the data is that it cost $11 to correct a picking error and $33 for a shipping error on a per piece basis. Those figures on a carton basis were $9 and $44. For a full pallet they were $14 and $59. In other words, the repercussive cost of making a picking mistake on a pallet was $14 and if you accidentally went so far as to ship it, the cost of that mistake averaged $59.
Now for the good stuff. When I read the Aberdeen data, I got to calculating. That was the Aha moment. I’ll share the bottom line results that warehouse improvement can make with a key conclusions and examples in the series of five posts that follows.
This is an eye-opener.