Much more than a storage facility, today’s distribution centre performs a dynamic role in the distribution network, serving as a base for value-adding services, an inventory management facility, and an interchange between line-haul, route-trade and last-mile distribution.
Of course this also means that distribution centre performance is a crucial component in successful supply chain strategy execution. Distribution centre KPIs therefore, must be focused on cost and quality, and designed to accurately track and measure the performance of critical processes.
Two Key Focal Points for Distribution Centre KPIs
If you’re new to a career involving distribution centre management or expect DC performance to be your focus at some point in the future, this short guide will help familiarise you with two of the most important distribution centre processes, and their measurement.
To drive lower costs and better quality of service in a distribution centre, there’s nothing more important than keeping track of on-time and in-full shipments. Let’s start by looking at timeliness in the distribution centre—a vital contribution to customer service and supply chain cost.
The On-time Imperative
After shipments leave your distribution centre, your organisation may or may not have control of what happens en route. However, DC operators are responsible for timely dispatch, which in most cases will ensure customer deliveries are received on time.
Distribution centre KPIs must therefore be in place to monitor on-time dispatch. While the need to highlight late departures might be readily apparent, it’s almost as important to monitor for premature loading, especially since this can be a cause of late departures.
Issues can arise when loading priorities are not well-managed, resulting in the early completion of some loads at the expense of other, time-critical shipments. To guard against such issues, distribution centre KPIs should be developed to highlight not only a particular service exception, but also the probable causes behind it.
Picking Accuracy Impacts Costs and Quality
As you may already know, “on-time” fulfillment KPIs typically go hand in hand with those that measure “in-full”. In the distribution centre, order picking is probably the greatest contributing factor to accurate order fulfillment.
In monitoring a picking operation, it’s important to remember that KPIs often drive behaviour. A productivity-focused measurement for instance (like a KPI for picking rates) can inadvertently encourage pickers to prioritise speed over accuracy.
In order to counter this possibility, a quality-focused KPI should also be in place to avoid over-picking (which can result in inventory shrinkage) or under-picking, which leads to customers inconvenienced by “short” deliveries.
Of course you can employ personnel in the warehouse to check orders after picking and to correct errors. However this can become expensive (in terms of labour cost) if metrics don’t call pickers’ attention to quality as well as the speed and volume of their work.
Further Your Education in Distribution Centre KPIs and Performance
If you’re ever tasked with achieving lower costs and better service from a distribution operation, knowledge of distribution centre KPIs and process improvement will be an essential weapon in your managerial armoury. Picking accuracy and the ability to get shipments away on time are only a part of it, albeit an important one.
The Supply Chain Leaders Academy can deliver the knowledge you need to approach distribution centre process improvement and measurement in a pragmatic, realistic way.
To learn why our SCLA program is so popular with members, regardless of their existing supply chain experience and education, stop by at the FAQ page on our website or contact us with any burning questions you may have.
If you’re already a Supply Chain Leaders Academy member, make sure you check out e-Class numbers 14, 15, 16, 41, 48, and 88 for some in-depth insight into distribution centre operations, supply chain cost reduction, and the use of key performance indicators.