Meaningful direct comparisons between retailers are difficult to make. Most retailers should track productivity trends in their own operation.
Whoever made the statement “Benchmarking is the process of trying to find a business that is worse than yours,” shared the same concerns about warehouse and delivery productivity as many in our industry. If you are in charge of operations and your focus is on product quality, service, productivity, capacity and backlog, then having the right statistics can make a huge impact on your business.
The most frequent operations management question asked by furniture retailers is, “What should my warehouse and delivery costs be as a percentage of sales?” Answering this question is less difficult than responding to my grandchild’s bedtime query (at end of this article), but is still, challenging.
Warehouse costs for any specific piece of merchandise relate to the cube of the item, its susceptibility to damage, its placement in floor or rack storage, the distance it travels, material handling technology employed and of course, labor rates and their direct productivity. The actual cost of the item doesn’t matter. In plain English, the cost to store and retrieve either a $499 sofa or a $999 sofa is the same if both have similar dimensions and handling characteristics.
Meaningful direct comparisons between individual retailers are difficult to make and require careful judgment. Let’s compare, for example, two nationally known gallery stores, one in New England and another in the Southeast. Both sell primarily upholstery.
The furniture is much smaller scale in the New England operation, its customers live closer to the store and traffic congestion is severe. Smaller trucks are necessary due to low bridge overpasses and truck restrictions.
The home furnishings retailer located in the Southeast sells the same brands at similar price points but has to pay about $2,000 per truck for access decals to deliver to gated communities within the market area. This retailer is able to use bigger trucks but customers live farther from the store. Reduced congestion results in capacity for several more deliveries each day.
At first glance, one would think the New England deliveries are more costly, but they aren’t. While their operating cost comparisons are interesting, both retailers should be spending more time looking at their own operations to find meaningful measurements that can be used for continuous improvement.
Large chains that have very similar distribution centers, geographic distribution, product lines and labor costs will be able to make meaningful inter company comparisons. Other retailers should, however, focus on comparing their own results each month to prior months and the prior year. Trend lines can be very useful. Most retailers don’t employ an adequate number of people to accurately break out labor costs for receiving, warehousing, pull, and prep before delivery. If you have a sophisticated bar code system you can track many activities. Most readers won’t have that luxury. Even so, total summary labor figures are adequate for good decision making.
Here is a list of the Top 10 performance measures that have proven to be useful in many home furnishings operations. If you know of other measurements that might prove useful to our retail readers, send them to FURNITURE WORLD’s editorial department. Contact information can be found at the end of this article.
TOP TEN LIST
1. Total Labor Warehouse Hours: Measure the total labor warehouse hours for all warehouse personnel from janitor to manager. Divide this number into the sum of pieces received plus pieces shipped. The statistic is measured in pieces per man hour, and is possibly the most significant overall productivity indicator.
2. Total Cost of Labor: Measure the total cost of all warehouse labor, including benefits. Calculate this as a percentage of the cost of goods received plus the cost of goods shipped. The statistic is quoted as the percentage of cost of goods handled. This has been an eye opener to retailers who switched to lower priced imported case goods.
3. Perfect Deliveries: Measure the percentage of perfect deliveries. For simplicity, this figure includes the initial delivery and any service call within a week for anything that should have been caught prior to the merchandise leaving the warehouse. It does not include customer complaints relating to style, comfort, etc. Benchmark retailers have less than 3% and the national average is about 5-8% but there are much higher service call ratios in our industry.
4. Number and Percentage of Service Calls: Measure the number of service calls and percentage of calls out of total deliveries. Also keep track of the reasons service was necessary and the percentage that resolved the problem with a single call. This is an early warning system for factory defects and deficiencies in warehouse and delivery.
5. Inbound Damage By Vendor: Measure the inbound damage by vendor and steps taken by the supplier (or trucker) to resolve the issue. Talk with your reps about problems before talking about new purchases. Take them out to the warehouse to see the problems.
6. Workplace Safety: Measure the safety of your workplace. The most common way is to count days or staff hours without a lost time accident. Workers compensation is truly a controllable cost.
7. Inventory Accuracy: Measure the accuracy of your inventory measurement systems. Remember to add the overages and shortages together to get the total variance. Relate it to both dollar value and percentage of accurate sku’s.
8. Return To Vendor: Measure the amount of non saleable merchandise and return to vendor. Develop an action plan to resolve issues relating to problems with quality or inaccuracy. If 5% of your inventory is non saleable, it is likely that an equal amount of saleable merchandise is also tied up (matching love seat or ottoman, etc).
9. Turnaround Time: Track the turnaround time on customer service calls and in-shop repair of customer owned merchandise. When people have a problem, the longer they wait, the worse it gets.
10. Overtime: Measure overtime. Some overtime is beneficial but excessive overtime is an indication of poor staffing decisions. Measure overtime as percent of total labor and total dollars.
Walk The Warehouse
Even if you have a sophisticated reporting system, don’t forget the most basic management tool of all. Walking the warehouse, observing first hand its pace, and talking with the people who ultimately make your business successful.
Now that I have tried to explain some of the nuances of warehouse and delivery productivity, can you help me respond to my grandson’s question? At bedtime he sleepily asked when it would be tomorrow. When he woke up next morning he asked if it was tomorrow yet and was puzzled as to why it wasn’t tomorrow yet. Happy Holidays!
Daniel Bolger of The Bolger Group helps companies achieve improved transportation, warehousing and logistics. Questions can be directed to Mr. Bolger care of FURNITURE WORLD at firstname.lastname@example.org.