7 Steps to Self Assessment

How better benchmarking can maximize performance in your fulfillment center

April 2008 By Kate Vitasek

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Do you wonder how your fulfillment operation performs against others in your industry? Do you know which processes you’re handling well and those that need improvement? Or even which processes have the most impact on customer service levels? Or which of them lower warehousing and fulfillment costs while improving performance?

Benchmarking, the process fulfillment managers use to draw meaningful comparisons between their companies’ performances and industry standards, can provide answers to all these questions. First, consider the two types of benchmarking.

• Performance Benchmarking compares quantitative performance results, or metrics, to those of several different companies or to industry standards. Its objective is to identify areas for improvement.

• Process Benchmarking compares specific processes to best-in-class process attributes in a qualitative manner. Its objective is to improve specific processes and operations within the business.

Many companies rely solely on quantitative performance benchmarking or comparing metrics. But they never turn over the rock to learn what companies are doing to actually drive their results. Processes drive results, however, and performance benchmarking only identifies gaps in the desired result. In other words, process benchmarking diagnoses the root cause of the gaps so they can be treated.

Effective and Practical
Though outside consultants can help with benchmarking, many companies can self-assess their warehousing and fulfillment operations. Benchmarking your organization takes work, but it needn’t be overwhelming. Try these seven steps.

STEP 1: Set benchmarking priorities. The benchmarking process begins with the company’s strategic planning process. Aligning the fulfillment team’s objectives to company goals will likely make benchmarking successful and add value by focusing on issues that have the greatest impact on that strategy. Benchmarking projects won’t get the support needed from C-level executives if they don’t have a positive impact on the company’s goals.

STEP 2: Identify key processes. Focus on the processes that have the greatest impact on the company’s customers and the company itself. A simple four-quadrant matrix can help you identify benchmarking priorities. Benchmark those processes that have high costs or strategic impact on your company, and/or high impact on your customers so you're focused on high-value activities.

You can focus on processes that have lower impact, but their results won’t create optimal value from the investment driving those improvements.

STEP 3: Collect data. Comparing your company metrics to available best-in-class benchmarking data (quantitative benchmarking) will expose underperforming areas. Research of best-in-class performance may be interindustry or intraindustry, so your time required can vary widely.

Look to trade groups, such as the Warehousing Research and Education Council (WERC) and the American Productivity & Quality Center, both of which offer industry metrics to their members.

STEP 4: Identify the best-in-class. With good benchmarking, you translate the circumstances underlying
successful performance measures into your own environment. Now you benchmark qualitatively at the processes, subprocesses and process attributes to understand the successful environment.

Qualitative benchmarking data can be obtained from some industry trade groups. The Council of Supply Chain Management Professionals and WERC have guides that list processes and process attributes.

STEP 5: Identify gaps. Understand your performance gaps and the process gaps that have the greatest bottom-line impact.

Just as the warehouse prioritized processes to benchmark, it must also prioritize the process groups that should be improved. As tempting as it might be to improve all areas, focusing on too many things at once will end up prolonging the improvement initiatives to an unacceptable length, jeopardizing any productive returns.

Evaluate improvement priorities with a bubble chart. Compare the strategic importance (irrelevant, important, vital) to the cost/performance impact (low, moderate, high). Plot each process on a bubble graph (see below), where the size of the bubble designates the gap size.

Maintain processes with no competitive advantage to gain. Re-evaluate processes that don't support your goals but could help you gain an advantage.

STEP 6: Identify improvement targets. Now, with all the information you need to establish performance targets for those processes you’ll invest in improving, identify each targeted improvement. Not all processes need to be best-in-class. This collection of targets in all identified process areas becomes your long-term improvement road map.

Just as the company must prioritize the processes in which it will invest in improvement, it must also take special care to focus the level of improvement targeted.

It must establish targets that are reasonable to achieve. Therefore, it may need to establish achievable, near-term targets for selected focus areas.

STEP 7: Close gaps. With your long-term road map in place, now close the gaps. Spend your resources (human and financial) on the areas that’ll generate the greatest return.

These initiatives may represent a significant cross-functional, cross-regional effort. Any large project typically requires centralized project management and significant funding. But mind you, it’s well worth the effort.

Summary
By following these benchmarking steps, you’ll mark for improvement the processes that’ll have the most impact on the company. Those improvement targets will be both reasonable and realistic.

More Information
I recommend the following resources:
• Warehouse Managers Guide for Benchmarking - Unleashing Best Practices in Your Warehouse, WERC 2007
• Warehousing & Fulfillment Process Benchmark & Best Practice Guide, WERC 2007

Kate Vitasek is the founder and managing partner of Supply Chain Visions, a consulting firm that specializes in benchmarking and education. You can reach her at kate@SCVisions.com, Web site: SCVisions.com.

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