In a previous post, I explained the processes core to any Order Fulfillment Operation. Then I discussed Fulfillment Center Metrics associated with those core Order Fulfillment processes. In today’s post, I’ll discuss the strategic direction those metrics should trend toward for success.
Using the crude [Better, Cheaper, Faster] scale, below is the Fulfillment Center Metric, its definition, and the direction it should trend towards for success.
| Success Direction | Metric | Definition |
|---|---|---|
| Better | Gross Margin | Revenue Minus Cost of Goods Sold |
| Better | Demand Forecast Accuracy | Average Time from Receipt of Product to Payment |
| Faster | Days Sales Outstanding | Average Collection period from invoice to cash receipt |
| Faster | Labor Productivity | Total Units Handled / Total Labor Hours |
| Cheaper | Cost/Pick | Line items pulled per month/compensation & benefits |
| Cheaper | Payroll to Net Sales | Compensation & Benefits/Revenue |
| Cheaper | Cost of Goods Sold | LIFO, FIFO, or Average |
| Cheaper | Total Cost of Procurement | Total impact on Cash Flow, COGS, Terms |
| Better | Supplier Quality | % Defects = Lines Rejected/Lines Received |
| Faster | Lead Time | Order-to-Receiving Time |
| Cheaper | Transportation Cost | [Inbound Freight Costs/Sales] + [Outbound Freight Costs/Sales] + [Liquidate Costs/Sales] |
| Better | Receiving Accuracy | % of Orders Received Accurately (count @ receiving, cycle count) |
| Faster | Supplier on-time | Purchase Order Receipt (PO) date-to-first receipt |
| Faster | Inventory Turns | # times inventory gets soled and reordered within 12 months or 12 month rolling COGS (LIFO, FIFO, or Aveage) / Average Inventory |
| Better | Inventory Accuracy | Actual versus Total – by Cycle Count |
| Better | Inventory On-Hand | # of Days Inventory Carried |
| Better | Warehouse Utilization (Pack Factor) | # of Bin Space Utilized / Total Available |
| Better | Perfect Order | An order that is complete, accurate, on time by order by line item |
| Better | On-time Delivery | First Customer Shipment to Expected Customer Date |
| Better | Adjustment Loss | Over a rolling time period less X days, reconcile “missing inventory” with “found inventory” for both virtual items and physical items |
As stated, the above metrics are not an exhaustive list of Fulfillment Center Metrics, but gives us a good start as to what those metrics ought to be and to which Warehouse processes they should be associated.
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This post was written by Pete Abilla | ||||
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{ 1 comment… read it below or add one }
Great list Pete – we use economic value added to maintain inventory levels at peak financial performance. EVA is the net operating income after taxes minus the cost of capital – it is the perfect metric to weigh the complex decisions involved with investing in inventory. Our inventory management software maximizes EVA while factoring in as many of the metrics above you highlighted and more. EVA is a great way to aggregate all the other factors.