Chap6doc

Chapter 6: Warehouse Performance and Risks in Warehouse Management

Concepts, objectives, and roles of warehouse performance

 The warehouse is where the supply chain holds or stores goods.

 Term “Warehousing” is referred as transportation at zero miles per hour

 Warehousing provides time and place utility for raw materials, industrial goods, and finished
products, allowing firms to use customer service as a dynamic value-adding competitive tool.

 The continuous measurement of performance is obviously essential to monitor process

improvement. Warehouses need to operate within tight service and cost standards, and failure
to meet these standards can mean the difference between a successful and unsuccessful
business.

 It is therefore common to monitor a range

of performance metrics to ensure that the warehouse is operating effectively.
  Objectives of Efficient Warehouse Operations

• Provide timely customer service.

• Keep track of items so they can be found readily & correctly.

• Minimize the total physical effort & thus the cost of moving goods into & out of storage.

• Provide communication links with customers

 Warehouse performance measures are very critical for providing managers with a clear vision of
potential issues and opportunities for improvements.

 Metrics are tied directly to the business strategy and operation’s success drives the financial
reults of the organization.

 If warehouses are going to contribute to be a source for adding value to the supply chain then
they need to measure their performance with perfect metrics

Classification of warehouse performance

 Service levels:
– percentage of orders dispatched on time;
– percentage of orders fully satisfied (ie all order lines supplied);
– accuracy of order fill;
– stock availability in the warehouse;
– order lead time;
– returns and customer complaints.

 Operational efficiency:
– number of cases picked per person hour;
– number of order lines picked per person per hour;
– equipment uptime (eg. percentage hours equipment available, with no breakdowns or routine
maintenance).

 Cost efficiency:
– cost per case throughput;
– cost per pallet stored;
– conformance to budget (eg for staff costs, rent, equipment maintenance, packing
materials).
 Resource utilization:
– percentage pallet storage capacity used;
– number of hours per day that equipment is used (eg sorters or narrow-aisle trucks) although
note that high utilizations may prevent peak throughputs being achieved, so these measures
need to be interpreted with caution;
– number of standard hours worked.

 Stock integrity:
– percentage of locations with correct stock (ie in accordance with the computer records, as
measured during a physical stocktake);
– percentage of SKUs with correct stock;
– stock-turn (ie. annual throughput/average inventory level). This figure is also often represented
as the number of weeks of inventory held in the warehouse (ie. a stock turn of 10 equals 52/10
or 5.2 weeks of inventory in the warehouse)

 Cycle times:
– average number of hours between arrival of goods on site and put away to storage
location (ie available for replenishment or picking);
– average number of hours between customer order receipt and dispatch of goods.

 Safety:
– number of days without an accident;
– number of days safety training;
– adherence to safety audits and hazard monitoring.

 Personnel:
– number of days skill training;
– percentage of staff multi-skilled;
– absenteeism and sickness rates

 Environment:
– electricity and gas usage;
– water recycling;
– percentage of returned goods or packaging recycled.

 Warehouses may perform many different roles and therefore appropriate performance
measures need to be selected to monitor how well the warehouse is undertaking its specific
roles. These measures serve different purposes and therefore may be classified in different ways,
for example:
• Leading and lagging indicators: some indicators provide an early indication of trends
while others tend to lag behind. For example, a low level of equipment maintenance may lead to
poor equipment uptime, which may in turn impact on order cycle times, which may impact on
 on-time dispatches.
• Single and joint indicators: a common example of a joint indicator is on time in full
(OTIF) – explained in Chapter 3 – which combines measures of timely deliveries and order fill.
Joint measures can represent the overall situation much better but do not isolate the precise
causes of low performance.
• External and internal indicators: external indicators normally represent how a customer views
the operation, while internal indicators provide managers with detailed performance within the
warehouse.

It is important to understand the relationship between performance measures and to select

a range of indicators within an appropriate framework.

 Example of Warehouse Performance Benchmarking

 Order Fulfillment

 Inventory Management

 Warehouse Productivity

 Transportation Performance
Some examples of warehouse performance in warehouse management

Logistics companies for case study implementation and obersvation

Risks management in warehouse operation

Risk Management Process Framework

The daily management of a warehouse entails a series of risks to which both personnel and stocked
goods are exposed to on a daily basis. Knowing the main risks in warehouses and taking measures to
prevent them is essential to ensure the safety of workers and optimal maintenance of stock.

Benefits of Risk Management

• More efficient resource planning by making previously unforeseen costs visible

• Better tracking of project costs and more accurate estimates of return on investment

• Increased awareness of legal requirements

• Better prevention of physical injuries and illnesses

• Flexibility, rather than panic, when changes or challenges do arise

Risk Management Process: an ongoing process of identifying, treating, and then managing risks. Taking
the time to set up and implement a risk management process is like setting up a fire alarm–you hope it
never goes off, but you’re willing to deal with the minor inconvenience upfront in exchange for
protection down the road.

Identify Risks
Analyze the risk

 Once your team identifies possible problems, it's time to dig a little deeper.

 How likely are these risks to occur? And if they do occur, what will the ramifications be?

 During this step, your team will estimate the probability and fallout of each risk to decide where
to focus first. Factors such as potential financial loss to the organization, time lost, and severity
of impact all play a part in accurately analyzing each risk.
 By putting each risk under the microscope, you’ll also uncover any common issues across a
project and further refine the risk management process for future projects.

 Prioritize the risk

 Now prioritization begins. Rank each risk by factoring in both its likelihood of happening and its
potential effect on the project.

 This step gives you a holistic view of the project at hand and pinpoints where the team's focus
should lie.

 Most importantly, it’ll help you identify workable solutions for each risk. This way, the project
itself is not interrupted or delayed in significant ways during the treatment stage.

 Treat the risk

 Once the worst risks come to light, dispatch your treatment plan. While you can’t anticipate
every risk, the previous steps of your risk management process should have you set up for
success. Starting with the highest priority risk first, task your team with either solving or at least
mitigating the risk so that it’s no longer a threat to the project.

 Effectively treating and mitigating the risk also means using your team's resources efficiently
without derailing the project in the meantime. As time goes on and you build a larger database
of past projects and their risk logs, you can anticipate possible risks for a more proactive rather
than reactive approach for more effective treatment.