I don’t think I was the first naïve owner of a fledgling multi-channel brand to think that fulfilment was not a core part of my business. Surely it was the clever creative, the inspired range selection and the hard-nosed marketing that would make or break my company – rather than a straightforward commodity service like fulfilment?
Of course it’s blindingly obvious now, with the benefit of 20:20 hindsight and a career strewn with the wreckage of lessons learned the hard way. Fulfilment is as fundamental as your product range. Get it wrong at your peril. At worst, your hard-won customers will haemorrhage away at a rate at which you’d give your eye-teeth to recruit them. At best, your inefficiencies will erode your bottom line leaving you scratching your head and contemplating how you are ever going to make a decent profit.
So if fulfillment is so critical, why do we afford it so little management time and strategic input? Few MD’s park their desks in the distribution centre, and most would admit to spending less time there than they know they should. After all, it can be cold, a bit dusty, and the tea invariably leaves a nasty tannin aftertaste! Perhaps this all contributes to what the process analysts would call “paradigm blindness” – a self-assured view that “the way we do it here is the best way because we’re unique and it’s the way we have always done it”. How many times do you hear people say that “if it ain’t broke – don’t fix it”? It’s not generally a good answer – and too much laissez-faire can result in too little savoir-faire at the top of your organisation.
This same “paradigm blindness” is quite possibly the impetus that the business analysts needed to invent the notion of benchmarking back in the early 1990’s. Benchmarking is a business tool that is at once a common understanding of performance and a stimulus to change existing practices or adopt new ones in order to improve that performance. In simple terms, it’s the creation of standards (KPI’s) against which performance can be measured. Extend the notion to collaborative benchmarking and you might attain a measure of a specific competitor’s performance or even industry-wide performance – against which you can measure the relative performance of your own company. More on collaborative benchmarking later!
At this point it’s worth reiterating the position from which I write this. My experience is not that of a business analyst or a logistics expert, but merely that of the generalist owner-manager of a B2C multi-channel SME: if you like a Jack-of-all-trades who is focused merely on the daily challenge of planning and prioritising the efforts of the business. My focus is on the internal benchmarking of performance to assist with this business planning and prioritisation.
So who else can benefit from performance benchmarking in the distribution centre? The rest of my team will have varying priorities which all need to be considered as part of the benchmarking process. For example, the Marketing Director will be concerned with measuring performance against the service claims he liberally dispenses in an effort to win and keep those precious customers. How quickly do we deliver? How accurately do we pick orders? How well do we package a parcel and how long do we take to process a return?
On the other hand, the Finance Director will be pre-occupied with ensuring costs are constrained with predetermined budgets, identifying opportunities to increase efficiency, and generating enough empirical evidence to support his budget for next year. The Fulfilment Manager will be interested in measuring the cost and efficiency of his team, and planning properly for the peaks and troughs in his workflow. The Contact Centre need to accurately set customers’ expectations in terms of delivery and returns processing, and take comfort in a downward trend in those little mistakes that can cause big customer service headaches.
In a large business, the infrastructure and systems is likely to already exist to provide the business data required to benchmark your fulfilment operation. However, if you’re a fast-growing SME like so many of the niche businesses in the multi-channel sector, you’ve probably had to make it up on the hoof, or rely on your 3rd party provider to crunch the numbers in a reliable and consistent manner. And this consistency really is crucial when it comes to the measurement of your KPI’s. In my view, if you can’t define exactly how a KPI is measured, you shouldn’t be taking it at face value. Furthermore, if your distribution centre KPI’s take more than 30 minutes a week to produce, they’re either too complicated for your business, or you need to invest in some means of easily producing the data.
So what really matters? You can ask a roomful of multi-channel experts and you’ll almost certainly get a handful of common answers as well as a clutch of interesting ideas that stem from different businesses having different needs. Here’s a short selection of favourites from various sources:
1. Total fulfilment costs as a % of invoiced sales.
It’s about as basic a measure of fulfilment efficiency as you can get – but could you say what’s included in your calculation (returns, fixed costs, management costs?) and are you measuring consistently?
2. Returns processing time.
For me this is a great indicator of an efficient operation. Measure the average time in days that it takes to process a return. If your organisation prides itself on service, you won’t find a heap of returns hidden in a dark corner of the warehouse awaiting processing.
3. Average cost to pick, pack and despatch an order.
A fundamental measure that everyone in your team should be aware of – and a number that highlights painfully the horrible impact on the bottom line of backorders.
4. Average delivery cost per despatch.
It’s the number that tells you whether you’re using the right combination of delivery options, and how much your free delivery promotions are costing the company.
5. Average time to pick an order.
This is really about where you keep your fastest moving items and how good you are at monitoring it. It’s common for 80% of orders to be picked from 20% of locations – and incredibly, your team can spend up to 50% of their time travelling to and from picking locations. That can add up to a lot of time.
6. Orders awaiting despatch.
It’s simple, easy to measure consistently, and an invaluable reflection on your demand forecasting and resource planning. It’s also interesting to express this measure as a % of total orders and aggregate it over a week.
7. Employee turnover
Some studies have indicated that 40% of employees are considering changing job and many would do so for only a marginal increase in their hourly rate. Recruitment costs money and it can take months to bring a new team member up to full speed. There’s certainly more than a little truth in the saying that “employees don’t leave bad companies, they leave bad managers”.
There are some obvious measures that I’ve not mentioned such as Fill Rate, Backorder Rate, Despatches per Order and so on. There’s not doubt that they are also crucial metrics but I’ve not included them in this shortlist as they do not solely reflect on the performance of the distribution centre.
Internal benchmarking of your fulfilment operation can provide universally understood measurements of performance and indicate important trends that enable your team to identify areas and opportunities for saving money, adding value, planning resources or evaluating 3rd party outsourcing options. Don’t underestimate the importance of anecdotal evidence too, but the numbers don’t lie providing the methodology is understood and the measurement is consistent.
Finally, I mentioned that I would return to the notion of collaborative benchmarking and here’s a gauntlet I’d like to throw down for the Catalogue Exchange. The multi-channel retail sector is an unusually co-operative place to work and we are fortunate enough to finally have a truly representative trade association that is committed to sharing information and supporting new and growing businesses. How about some true collaborative benchmarking across the sector, not solely restricted to fulfilment but across the board, supported and managed by the Catalogue Exchange? Such data would provide a priceless resource that would not only help new businesses focus on developing in the right direction, but perhaps save a few of the many casualties our sector seems to suffer.
© Murray Kenneth 2009
First published in Catalogue & e-Business
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