They do exist: warehouses that have already achieved "operational excellence". These are warehouses that deliver excellent performance with over 99 percent perfect dispatches. Their employees are productive and motivated. They are flexible enough to anticipate every change in the market. They work closely with other departments in the company and with other links in the supply chain. They have a manager who exercises a great deal of influence on corporate strategy and is on good terms with colleagues from sales, production, purchasing and other departments.
Jeroen van den Berg
According to Dutch consultant Jeroen van den Berg, around seven percent of warehouses have achieved this status. This statistic is derived from his Warehouse Maturity Scan, which has now been completed by almost a thousand warehouses. The tool consists of an online questionnaire that companies can use to find out how their business scores in thirty specific aspects relating to warehousing.
Using the answers provided, the tool automatically estimates how much can be saved on costs. Van den Berg classifies warehouses with a savings potential of less than ten percent as mature. "This usually applies to the operational procedures of large producers or retailers; I’m thinking of Heineken, for example", explains Van den Berg, who has outlined how companies can achieve a state of maturity in his book Highly Competitive Warehouse Management.
Van den Berg is not surprised that it is precisely companies such as Heineken ( user of a WMS solution from Consafe Logistics) that perform so well in the field of warehousing. "The larger the operation, the higher are the benefits of operational excellence . There is a big difference between saving ten percent on one tonne or on ten million worth of logistics costs. In addition, the corporate culture in these kinds of companies is generally a bit more businesslike. They often make use of structured procedures and methods."
Research carried out in cooperation with VU University Amsterdam reveals that companies that implement best practices really do reap the rewards of doing so. "We have seen some very clear connections here. Mature warehouses score better in aspects such as delivery reliability, inventory reliability and cost."
Key performance indicators (KPI’s) are another driver. Companies that measure their performance and then respond to the results perform better. This is less obvious than it seems, says Van den Berg. "More than fifty percent of warehouses do not measure anything at all and those that do, do almost nothing with the information."
Those warehouses are constantly engaged in what Van den Berg calls "firefighting". The same issues crop up day after day and as soon as one problem has been solved, another will surface elsewhere. Warehouse managers spend all their time simply fighting the symptoms and never get around to looking for the underlying cause.
Warehouses in which managers are merely firefighting are in the phase that Van den Berg calls "reactive". "The people in these warehouses are doing their best, but they may not know exactly what they should or should not do. There are no clear agreements and there is little discipline. This has a great deal to do with a lack of leadership." Research reveals that over half of all warehouses are currently still in this phase.
Van den Berg calls the next phase "effective". Employees now have clear working methods and performance is measured. There is a structured system in place. In this phase, it is important to standardise processes, map costs, set clear objectives, measure performance, perform analyses and to give feedback. The company needs a robust warehouse management system (WMS) with which staff can work in real-time via barcode scanning or voice picking.
Too much customisation
The intelligence of a WMS only comes into play in the third "responsive" phase. "I visit a lot of warehouses where the operation is not running smoothly and everyone has placed their hope in a new WMS. They think that a new system will pick up on all the problems and ensure that absolutely nothing else can go wrong. However, it is obvious that these warehouses have never gone through the first two phases. IT cannot remedy mistakes and laziness on the warehouse floor, but leadership can", declares Van den Berg.
Warehouses that still try to operate in this way run a huge risk of ending up with a heavily-customised WMS that does not work well in practice. "If people are not motivated to work in a particular way, then they will not do so, even if a new WMS is implemented", says Van den Berg.
Understand how the operation is running
A WMS can make a significant contribution to improving performance in the warehouse. Van den Berg, who has been strengthening his knowledge of this subject since his doctoral studies at the University of Twente, describes his clear view of this. "An essential factor of any WMS is that it must be able to control performance on the warehouse floor. What tasks have what priority? Which employee is assigned which task? These are the kinds of questions you can let a WMS deal with." A WMS also has to provide a good understanding of how the operation is running. Van den Berg: "Is the operation running to schedule or not? Which department is under pressure and which has time to spare? Knowing this enables you to move employees between departments. In many warehouses, everyone carries out the same tasks day after day, although the workload may change every day."
Van den Berg strongly advises companies to use one employee as a warehouse planner. "This may not be appropriate for warehouses employing ten people, but will work well for warehouses with thirty or forty people. Many WMS suppliers still have some work to do in this respect. Their screens may well show the number of open order lines, but I also want to know how much work they will involve and what the deadlines are. Not every order line is the same as another."
Another focal point is how flexible the WMS is. How easy is it to create a new workflow for each product group, client or supplier? The incoming pallets from one supplier may be constantly monitored, whilst those of another may only be monitored at random. According to Van den Berg, each company should be able to define its own rules for monitoring.
A full partner
Warehouses with well-ordered processes and IT systems are faced with one final challenge: to become an equal partner within the company and the supply chain. Logistics is often treated as the runt of the litter by a lot of companies. Warehouses do everything asked of them assiduously, but without asking themselves if it is always the most useful thing they could be doing. Van den Berg calls this the "collaborative" phase. "This is where you work together with the other departments to see what is the best for the company and the supply chain. It is a role that not even large companies always manage to assume effectively. The head office determines what should happen, but this can often be somewhat removed from reality. This situation is difficult to remedy, and the same principle applies to logistics service providers. They need to have enough courage to flag up issues with their clients rather than agreeing to everything they want without demur."
An overview of the costs
A warehouse will only succeed in becoming an equal partner when its own affairs are in order. In this respect, having an overview of the costs is important. "Imagine that a customer orders 18 pieces, but there are 20 in each box. This will lead to relatively high costs because one whole box will still have to be opened. It would be a lot cheaper for the warehouse to dispatch a box of 20 pieces. A few changes in service provision can have an enormous impact on the costs."
Another example is the peaks at the end of a month or quarter due to special offers and sales bonuses. "Clarify how factors like these impact costs. Often these costs are not even accounted for", says Van den Berg.
At the end of the supply chain
Van den Berg observes that the drivers for achieving operational excellence become a lot more important for warehouses at the end of the supply chain than for those at the beginning. Research shows that warehouses belonging to retailers and online shops attain a better score than those belonging to manufacturers, for example. "Retailers require more complex logistics due to the large number of mixed pallets. They also have smaller profit margins, making it more important to pay attention to costs."
"Logistics service providers also attain a fairly high score, though still lower than the above group. They are dependent on the whims of their clients and often cannot afford to invest very much due to short-term contracts", says Van den Berg.
Keep on improving
Having achieved operational excellence, it will not do to rest on your laurels. Products, suppliers, customers and service level agreements are constantly changing. In addition, market developments such as the emergence of new distribution channels create diffuse and complex logistics processes. "You’re never there. If you’re in the top group, you can easily fall out of it again. You need to keep on improving", concludes Van den Berg.
Do the maturity check to find out what the current maturity-level of your warehouse is.
Jeroen van den Berg Consulting and Consafe Logistics will not share your details and/or results with any other party.