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Creating Performance Measures for Warehouses.pdf

Girish Vs
Girish Vs

The document discusses developing key performance indicators (KPIs) for warehouses. It states that warehouses account for 20% of logistics costs, so improving warehouse performance can significantly reduce costs. It also emphasizes that in order to manage performance, you must first measure it using metrics. The document then discusses best practices for developing useful KPIs, such as aligning them with business objectives, limiting their number, and ensuring they provide information to support decision-making and strategic goals. Developing the right KPIs can help managers evaluate how well operations match a company's overall strategy.

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1 Feature Creating Performance Measures for Warehouses Companies can gain cost advantage through logistics. Warehouse management is a possible source of cost improvements from logistics that companies could tap into during these disruptive times. The goal of this article is to bring out a few best practices used in warehouse performance measurement which lead to performance improvements. Editor SCMPro, Girish V S writes on creating performance measures for the warehouse. Firms in India have focused their energies in cost reduction in their manufacturing process. From Lean to Kaizen to TPS, they have employed the best practices in the manufacturing side. One area where they have not made any serious efforts are in the logistics sector. Anecdotal evidence suggests that we spend 13% of our GDP in logistics a far cry from the seven or eight percent in the developed world. Warehouse forms an important aspect of the logistics network. Studies in Europe reveal that warehouses were 20 percent of total logistics cost. And Warehouse performance improvement can play a major role in reducing logistics costs. However, the first step in performance improvement is measurement. The renowned Management Guru Peter Drucker once said If you cant measure it, you cant manage it. In other words, we need to establish a set of performance measures that will tell us how we are performing. The American Productivity and Quality Center defines benchmarking as The process of improving performance by continuously identifying, understanding, and adapting outstanding practices and processes found inside and outside the organization. Benchmarking (seeks) to improve any given business process by exploiting "best practices" rather than merely measuring the best performance. Best practices are the cause of best performance. Studying best practices provides the greatest opportunity for gaining a strategic, operational, and financial advantage." Warehouse performance measurement refers to the measurement of: optimal use of storage space, customer relations activity, quality level, assets usage, and costs. The traditional way to assess the performance of any function is to develop a few financial indicators. Unfortunately, financial indicators are a measure of the outcome in rupee terms and hence are lagging indicators. The need of the hour are a few leading indicators that go beyond the traditional cost measures. These leading indicators can be performance drivers. One of the buzz terms of the decade is KPI (Key Performance Indicator). Everyone agrees on the importance of KPIs since they are closely linked to the accomplishment of objectives and of the organizational strategic vision. They reflect the business goals and mission, and provide ways to measure the companys performance over time. The first step in defining a KPI is to identify the business goal the KPI should support. If your business goal is customer satisfaction, then cost to serve is not the best fit. There are a number of KPIs that are in use by Warehouse managers. SCOR model has a laundry list of more than 200 KPIs for a supply chain. And the problem starts here. There are examples of CEO boast they are monitoring over a 1000 KPIs. Unfortunately, the CEO forgets the most important word in KPI Key. Keeping the number of indicators to a reasonable limit will help the managers focus on the most relevant issues. A laundry list of KPIs is a one way street to confusion ad chaos. Managers should not go overboard in developing KPIs. Not every activity needs measuring since not every measurement brings useful information on the progress made. There are four critical reasons for developing KPIs: To check if the operations are aligned with the objectives;
2 Feature To gather the information necessary to improve the activity; To control and monitor the activities and the people performing them; To provide support for the reports going to external stakeholders (external reporting indicators). The biggest challenge to developing KPIs is to understand that to measure and then decide on the data that managers need to collect. Too much data will increase noise and too little not reveal the true picture. Collecting data just because it is interesting to know and not making use of it in the decision making process is just a waste of time and resources. KPQs must be derived from the organizational strategy; each strategic objective can be the source of one or more KPQs. For example, if the objective of your organization is to increase customer satisfaction, the inventory turn is just a metric, unless it impacts or can be correlated with the order fill rate. Performance indicators can provide information on what strategies bring success for the longrun. To be most useful, performance indicators must objective, uniform, and rigorous picture of reality. When deciding upon KPIs managers should start by considering the main objectives to be attained, then breaking it into subobjectives and only then trying to develop the KPI. Unfortunately, three practices derail the development of sound KPIs. One identifying easily measurable elements. Two, Collecting data on easy to count elements and three, ending up with a lot of irrelevant data. Consequently, the information provided by the KPIs is wrong or in the best case, partially relevant. The simplest way to design a KPI is by asking a question, a question that will elicit an answer about what is needed to be known, about the data that is necessary to be collected in order to assess progress. Such questions are called Key Performance Questions (KPQs). Key Performance Questions
3 Feature (KPQs). KPIs should always be correlated with KPQs in order to show more clearly, why the data collected is relevant. Developing key performance indicators (KPIs) represents one step closer to creating a framework within which managers can assess how close they are to aligning their operations with the strategic vision of the firm. They indicate the level of progress achieved, help shape organizational strategy, and are qualitative and quantitative expression of the execution of the strategy. Firms which do this diligently will see a reduction in their overall operational costs the holy grail of operations managers. Building reliable and appropiate measurement systems is one of the most difficult challenges in the performance evaluation process. But, if executed well will help management teams identify and build upon the elements that create competitive advantage and opportunities for better results. Blurb 1 Studies in Europe reveal that warehouses were 20 percent of total logistics cost Blurb 2 If your business goal is customer satisfaction, then cost to serve is not the best fit. Blurb 3 Performance indicators can provide information on what strategies bring success for the longrun Blurb 4 Developing key performance indicators (KPIs) represents one step closer to creating a framework within which managers can assess how close they are to aligning their operations with the strategic vision of the firm

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Creating Performance Measures for Warehouses.pdf

  • 1. 1 Feature Creating Performance Measures for Warehouses Companies can gain cost advantage through logistics. Warehouse management is a possible source of cost improvements from logistics that companies could tap into during these disruptive times. The goal of this article is to bring out a few best practices used in warehouse performance measurement which lead to performance improvements. Editor SCMPro, Girish V S writes on creating performance measures for the warehouse. Firms in India have focused their energies in cost reduction in their manufacturing process. From Lean to Kaizen to TPS, they have employed the best practices in the manufacturing side. One area where they have not made any serious efforts are in the logistics sector. Anecdotal evidence suggests that we spend 13% of our GDP in logistics a far cry from the seven or eight percent in the developed world. Warehouse forms an important aspect of the logistics network. Studies in Europe reveal that warehouses were 20 percent of total logistics cost. And Warehouse performance improvement can play a major role in reducing logistics costs. However, the first step in performance improvement is measurement. The renowned Management Guru Peter Drucker once said If you cant measure it, you cant manage it. In other words, we need to establish a set of performance measures that will tell us how we are performing. The American Productivity and Quality Center defines benchmarking as The process of improving performance by continuously identifying, understanding, and adapting outstanding practices and processes found inside and outside the organization. Benchmarking (seeks) to improve any given business process by exploiting "best practices" rather than merely measuring the best performance. Best practices are the cause of best performance. Studying best practices provides the greatest opportunity for gaining a strategic, operational, and financial advantage." Warehouse performance measurement refers to the measurement of: optimal use of storage space, customer relations activity, quality level, assets usage, and costs. The traditional way to assess the performance of any function is to develop a few financial indicators. Unfortunately, financial indicators are a measure of the outcome in rupee terms and hence are lagging indicators. The need of the hour are a few leading indicators that go beyond the traditional cost measures. These leading indicators can be performance drivers. One of the buzz terms of the decade is KPI (Key Performance Indicator). Everyone agrees on the importance of KPIs since they are closely linked to the accomplishment of objectives and of the organizational strategic vision. They reflect the business goals and mission, and provide ways to measure the companys performance over time. The first step in defining a KPI is to identify the business goal the KPI should support. If your business goal is customer satisfaction, then cost to serve is not the best fit. There are a number of KPIs that are in use by Warehouse managers. SCOR model has a laundry list of more than 200 KPIs for a supply chain. And the problem starts here. There are examples of CEO boast they are monitoring over a 1000 KPIs. Unfortunately, the CEO forgets the most important word in KPI Key. Keeping the number of indicators to a reasonable limit will help the managers focus on the most relevant issues. A laundry list of KPIs is a one way street to confusion ad chaos. Managers should not go overboard in developing KPIs. Not every activity needs measuring since not every measurement brings useful information on the progress made. There are four critical reasons for developing KPIs: To check if the operations are aligned with the objectives;
  • 2. 2 Feature To gather the information necessary to improve the activity; To control and monitor the activities and the people performing them; To provide support for the reports going to external stakeholders (external reporting indicators). The biggest challenge to developing KPIs is to understand that to measure and then decide on the data that managers need to collect. Too much data will increase noise and too little not reveal the true picture. Collecting data just because it is interesting to know and not making use of it in the decision making process is just a waste of time and resources. KPQs must be derived from the organizational strategy; each strategic objective can be the source of one or more KPQs. For example, if the objective of your organization is to increase customer satisfaction, the inventory turn is just a metric, unless it impacts or can be correlated with the order fill rate. Performance indicators can provide information on what strategies bring success for the longrun. To be most useful, performance indicators must objective, uniform, and rigorous picture of reality. When deciding upon KPIs managers should start by considering the main objectives to be attained, then breaking it into subobjectives and only then trying to develop the KPI. Unfortunately, three practices derail the development of sound KPIs. One identifying easily measurable elements. Two, Collecting data on easy to count elements and three, ending up with a lot of irrelevant data. Consequently, the information provided by the KPIs is wrong or in the best case, partially relevant. The simplest way to design a KPI is by asking a question, a question that will elicit an answer about what is needed to be known, about the data that is necessary to be collected in order to assess progress. Such questions are called Key Performance Questions (KPQs). Key Performance Questions
  • 3. 3 Feature (KPQs). KPIs should always be correlated with KPQs in order to show more clearly, why the data collected is relevant. Developing key performance indicators (KPIs) represents one step closer to creating a framework within which managers can assess how close they are to aligning their operations with the strategic vision of the firm. They indicate the level of progress achieved, help shape organizational strategy, and are qualitative and quantitative expression of the execution of the strategy. Firms which do this diligently will see a reduction in their overall operational costs the holy grail of operations managers. Building reliable and appropiate measurement systems is one of the most difficult challenges in the performance evaluation process. But, if executed well will help management teams identify and build upon the elements that create competitive advantage and opportunities for better results. Blurb 1 Studies in Europe reveal that warehouses were 20 percent of total logistics cost Blurb 2 If your business goal is customer satisfaction, then cost to serve is not the best fit. Blurb 3 Performance indicators can provide information on what strategies bring success for the longrun Blurb 4 Developing key performance indicators (KPIs) represents one step closer to creating a framework within which managers can assess how close they are to aligning their operations with the strategic vision of the firm