A Tool to Help Warehouses Measure and Benchmark Performance

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A Tool to Help Warehouses Measure and Benchmark
Performance

• Andrew Johnson
• Keck Laboratory, Industrial and Systems
  Engineering Department
• Georgia Tech

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• Is your warehouse a top performer or in need of
  improvement? To know, you need a scoring method
  that supports a comparison of over time and
  between warehouses. This session presents a new
  assessment tool used by several hundred
  warehouses to determine how they compare with the
  best possible performance and to identify those
  factors affecting performance.

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Outline

• Background and motivation
• How iDEAs works
• What can be learned from using iDEAs?
• Data integrity

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How should performance of a warehouse be measured?
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Order Fulfillment Measures
But are these practical targets?
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Inventory Measures
In some cases, its not even clear what the ideal
target should be!
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Productivity Measures
How can we establish meaningful benchmarks?
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Data Provided by MHIA

• Logistics is 1 trillion, 8.7 of GDP,
  Declining from 9.5
• Transportation declining from 6 to 5.5 over the
  past three years
• Warehousing costs have been flat, at about 2.5
  of GDP, or 300 billion

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How can those potential savings be identified and
captured?
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Result

• The vast majority of these sites cannot justify
  on-site benchmarking studies and performance
  evaluation
• What the industry needs is a way to assess
  performance and identify Opportunities for
  Improvement that are fast, cheap, and effective
• What the industry needs is a scientific approach
  that is also practical

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Competition
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Collaboration
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It makes good economic sense to collaborate on
infrastructure standards that lift all boats
It also makes good economic sense to collaborate
on improving warehousing and distribution
infrastructure
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Old Way to Improve Warehousing
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New Way to Improve Warehousing
www.isye.gatech.edu/ideas
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iDEAs Model
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Some Terminology

• Input
• Resources used in the warehouse
• Output
• What the warehouse produces
• Single factor productivity metric (SFPM)
• One output divided by one input
• Efficiency
• Ratio of one SFPM to the best SFPM
• Technical efficiency
• level of your core competency

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Picking a Reference Point

• Best possible valuethe ideal
• Worst possible value
• Average value (over what set?)
• Last months (quarter, year) value
• Stretch goals
• Best practical value

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Warehouse Goal

• Meet required service levels at minimum cost
• Conventional warehouses are a cost center gt
  input minimization perspective
• Best financial performance gt best operational
  performance
• Our focus is on operational performance

Performance
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Why is Benchmarking Hard?

• Every warehouse in an industry segment is
  different
• Products and mix
• Cost structures
• Size and infrastructure
• Industry segments are different
• Change is constant
• Economic and market changes
• Seasonality
• Time and cost of focused benchmarking

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Industry Involvement
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What Do You Need to Use iDEAs?

• Internet connection
• Standard Browser
• Warehouse data

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http//www.isye.gatech.edu/ideas
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Process for Using iDEAs

• Create a user account
• Create a data record
• Input/Output data
• Warehouse practices/attributes data
• Run the analysis
• Score percentile
• Partial efficiency score
• Benchmark warehouse comparison

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Compare to other warehouses
All other warehouses All other warehouses in your
industry All other warehouses in your
company Your warehouse in the past
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DEA as a Method

• Data Envelopment Analysis (DEA) overcomes the
  limitations of single factor measures by
  considering all the relevant resource inputs and
  production outputs simultaneously.
• DEA allows one candidate warehouse to be
  compared to a composite consisting of a mixture
  of real warehouse data to construct a best
  practices operation.
• Best possible not average
• from data

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DEA Efficiency Production Frontier
Production/Output
Resource/Input
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DEA Efficiency Scores
System efficiency of warehouse B is the
ratio OA OB
Production/Output
A
B
O
Resource/Input
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Partial Efficiency
Lines picked
Partial productivity is the ratio of one output
to one input
Total labor hours
Partial efficiency is the ratio of your partial
productivity to the best partial productivity in
your peer group.
Lines picked
Your
Total labor hours
Lines picked
Best
Total labor hours
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Partial Efficiency (PE) Analysis

• PE can be decomposed into 7 multiplicative
  factors including DEA.
• Partial Efficiency
• Technical Efficiency
• ?Technical Change
• ?Scale Efficiency
• ?Input Slack Factor
• ?Input Substitution Factor
• ?Output Slack Factor
• ?Output Substitution Factor

?waste
?can be fixed, long term
?not a warehouse issue
?excessive resources
?wrong mix of resources
?overproduce some services
?wrong mix of services
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Efficiency Gap Analysis
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Seasonality Effect
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Inventory Turnover Effect
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Labor Turnover Effect
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Questions?

• http//www.isye.gatech.edu/ideas
• ideas_at_isye.gatech.edu