APICS Magazine recently published an article titled “A Failure to Communicate” by Ron Crabtree, an author of five books on operational excellence. In it, Crabtree points out a variety of both leading and trailing indicators that, when analyzed correctly and acted upon, can yield considerable improvements in a company’s fulfillment performance out of the warehouse. The points and conclusions we’ve drawn from his article are worth sharing… and will, we believe, be of value to anyone seeking to improve warehouse performance.
In the article, the author breaks down a variety of common performance metrics used in warehousing and distribution operations. Most warehouse performance indicators tend to be of the “trailing” nature. That is, they reflect, usually from a financial performance perspective, what has already happened in the warehouse. Trailing indicators include:
- Hours worked (and hours worked per unit)
- Invoice lines shipped per hour
- Parts and Labor cost per line
But what if you could use your trailing (or financial) indicators as a springboard to improving warehouse performance by analyzing key “leading” indicators? These would be the data you need to improve future performance.
Crabtree relates the experience of a retail-level consumer goods fulfillment center that was using cost per line shipped and percentage of returns as its key metrics of financial success. But returns were unacceptably high, and a quick analysis determined this was the result of the wrong items being shipped in the first place. This resulted in still greater costs being incurred because the company was performing a 100% audit on outbound containers to seek out the problem’s source.
Crabtree’s consultants decided to examine the underlying causes, which turned out to revolve around issues with the handheld units and location labeling. It turned out that the warehouse was handling 25,000 different items, about double what it was sized to do. As a result, goods were crammed into every nook and cranny. Partly due to the excess in items stocked, bar code labeling had deteriorated over time, and upon review it was determined that handhelds were failing far too often. The combination was stressing the system to the point of having financial (i.e., “trailing indicator”) impact on the company.
But by looking at the more “leading” indicators (such as handheld reliability, location accuracy, and quantity on hand accuracy), the team could find the root causes and begin to identify solutions. In this case, those turned out to include creating baseline measurements for scanners by utilizing some trusted quality measures — taught by APICS — including TPM (total productive maintenance) and OEE (overall equipment effectiveness) principles.
By instituting rolling audits of unreadable locations, and a maintenance strategy based on a well-known quality and lean tool known as the Five Ss, the company brought their warehouse issues under control, resulting in a 20% reduction in cost per order line (a financial, or “trailing” indicator) and a 75% drop in wrong items shipped – needless to say, a huge money saver overall.
By utilizing these TPM and OEE indicators, “a meaningful set of metrics that directly attached the root causes for bad picking” was created, notes Crabtree. This in turn improved workforce morale and accountability, and as the metrics went down, it served as an early warning that cost and accuracy issues were looming.
Hence, by identifying and acting upon the key “leading” indicators, the financial (“trailing”) indicators were brought into line, to the improvement of not just the warehouse’s lot, but the company’s financials as a whole.