Warehouse management software

Warehouse Management Excellence Maximizing Resources and Efficiency

November 2010

Bob Heaney

Warehouse Management Excellence: Maximizing Resources and Efficiency

© 2010 Aberdeen Group. Telephone: 617 854 5200

Executive Summary Research Benchmark

Aberdeen’s Research Benchmarks provide an in-depth and comprehensive look into process, procedure, methodologies, and technologies with best practice identification and actionable recommendations

In today's environment a predominant pressure companies are experiencing is a need to reduce warehouse operating expenses while maximizing utilization of resources. In order to achieve this goal, companies are looking both to increase efficiency of software and automation across the entire distribution network and to improve alliances with outside parties to allow for better planning of physical space/locations and labor. In October and November, a survey was conducted involving 158 companies to understand their performance, current capabilities and use of enabling technologies, as well as their outlook for the future, in terms of potential investments and ROI expectations.

Best-in-Class Performance Aberdeen used the following three key performance criteria to distinguish Best-in-Class companies:

• 96% perfect order rate delivered to customers complete / on-time

• 4.7% decrease in warehouse labor costs per unit handled vs. last yr

• 3.6% decrease in actual warehouse operating cost vs. budget YTD

Competitive Maturity Assessment Survey results show that the firms enjoying Best-in-Class performance shared several common characteristics, including:

• Measurement of individual performance of indirect/other workers. The Best-in-Class are 3.5 times as likely as all others (the Industry Average and Laggard companies combined) to measure the individual performance of indirect workers (28% vs. 8%) and 3.5-times as likely to measure the value added worker activity (45% vs. 13%)

• Dynamic event driven activity. The Best-in-Class are 2.11 times as likely as all others to perform event management (automatically notifying appropriate personnel when certain warehousing events take place): 57% vs. 27%

Required Actions In addition to the specific recommendations in Chapter Three of this report, to achieve Best-in-Class performance, companies must:

• Assess the companies true (actual throughput and customer) operating requirements and capacity

• Determine the solution/investment choices that best serve the company and are consistent with ROI hurdles, and rank them

• Begin implementation, streamline to new processes, and develop labor management and training plans to equip the workforce

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Table of Contents Executive Summary....................................................................................................... 2

Best-in-Class Performance..................................................................................... 2 Competitive Maturity Assessment....................................................................... 2 Required Actions...................................................................................................... 2

Chapter One: Benchmarking the Best-in-Class.................................................... 4 Business Context ..................................................................................................... 4 Pressures Driving Renewed Focus on Warehouse Management................. 4 The Maturity Class Framework............................................................................ 6 The Best-in-Class PACE Model ............................................................................ 7 Best-in-Class Strategies........................................................................................... 8

Chapter Two: Benchmarking Requirements for Success.................................11 Competitive Assessment......................................................................................12

Chapter Three: Required Actions .........................................................................25 Laggard Steps to Success......................................................................................25 Industry Average Steps to Success ....................................................................25 Best-in-Class Steps to Success ............................................................................25

Appendix A: Research Methodology.....................................................................27 Appendix B: A Comparison of Material Handling Usage .................................29 Appendix C: Related Aberdeen Research ...........................................................30

Figures Figure 1: Top Pressures Driving a Focus on Warehouse Management........... 5 Figure 2: Top Actions to Improve Warehouse Management............................. 8

Tables Table 1: Top Performers Earn Best-in-Class Status.............................................. 6 Table 2: The Best-in-Class PACE Framework ....................................................... 7 Table 3: The Competitive Framework...................................................................13 Table 4: Automated Exchange of Data with Other Departments ..................16 Table 5: Individual Performance Measures and Performance Gaps ................18 Table 6: Technological Investment Hurdles and ROI Guidelines ....................20 Table 7: The PACE Framework Key ......................................................................28 Table 8: The Competitive Framework Key ..........................................................28 Table 9: The Relationship Between PACE and the Competitive Framework ...28 Table 10: Product Handling Equipment Usage Rates..........................................29 Table 11: Integrated Systems Usage Rates............................................................29



Chapter One: Benchmarking the Best-in-Class

Business Context Best-in-Class Results:

√ 2.3% decrease in inventory carrying costs versus 2.6% increase for Laggards

√ 100% of Best-in-Class companies improved warehouse labor costs per unit handled, year over year, versus only 57% of Laggards

√ 100% of Best-in-Class companies improved their actual warehouse operating cost versus budget, versus only 40% of Laggards

Research conducted in the midst of the recession found that 70% of respondents cited operating costs as a top-of-mind pressure related to warehouse and fulfillment operations (Labor Management: Instill Accuracy, Efficiency, and Productivity in the Warehouse and Retail Store, March 2010). Given the after-effects of the recession, how does a company with reductions in their workforce and operating budget address the current resurgence in shipment/product volume? Exploring new and more efficient WMS features and material handling process advancements is one avenue—but strict ROI thresholds need to be overcome. It is important to explore new systems and technologies; but, first, one should guarantee that they are optimizing their processes, improving the productivity of their people and their inventory/space investments, and leveraging the features and capabilities of their systems/technology to the fullest levels.

In our March study on labor management we also pointed out that labor is typically the single largest controllable expense in the warehouse at 35% of total operating expense. In that study Aberdeen pointed out that leading companies are focusing on resource utilization. Last July, our research on warehouse automation found that 52% of respondents planned to upgrade or enhance their existing WMS, while 23% planned to implement a new Warehouse Management System (WMS). With over 50% looking to get the most out of the WMS investments they already have, leading companies are looking to maximize the current systems and technologies they have in place with the end goal of getting more productivity out of their resources - people, inventory, and space. “Regarding the interface

between the ERP and the WMS, this was a key concern from the very beginning stages of the project. We didn’t allow data integration to derail the project; because we planned for it up front…we identified each interface point, along with the minimum number of data fields required to accomplish the process. We documented the format of each data transmission … and shared that information with the vendors we were evaluating.”

~ CIO, Midsized Wine and Sprits Distributor

Optimal use of the resources of space, people and technology are a main topic of interest on the minds of today’s supply chain managers, pushing them to improve their warehouse operations by increasing flexibility, realigning assets, and improving labor efficiency. Best-in-Class companies are increasing utilization of their resources and are leveraging both WMS and Labor Management System (LMS) software as well as automation solutions to improve the efficiency of their operations.

Pressures Driving Renewed Focus on Warehouse Management Under pressure to meet recessionary and hiring challenges, today's warehousing executives are working to contain the fundamental costs of doing business. At the same time, these executives are focusing their attention on both short and long term strategy. Through primary research involving 158 companies, this Aberdeen Group benchmark report takes a look at the other pressures being faced by warehousing and logistics organizations (they were asked to select the top three pressures), their plans for action, and the capabilities they feel are necessary for success in the future.


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Figure 1: Top Pressures Driving a Focus on Warehouse Management

28%

28%

29%

31%

35%

45%

0% 10% 20% 30% 40% 50%

Limited space or throughput capacity forwarehouses

Customer turn time requests (e.g., faster orderturn-around times, order adds)

Rising operating expenses

Need for better utilization of underutilized resources(e.g., people, technology, space)

Increased demand / supply fluctuations (e.g.,seasonality, promos, product introductions)

The need to support increased sales withoutincreasing staffing or space

Percentage of Respondents, n = 158

28%

28%

29%

31%

35%

45%

0% 10% 20% 30% 40% 50%

Limited space or throughput capacity forwarehouses

Customer turn time requests (e.g., faster orderturn-around times, order adds)

Rising operating expenses

Need for better utilization of underutilized resources(e.g., people, technology, space)

Increased demand / supply fluctuations (e.g.,seasonality, promos, product introductions)

The need to support increased sales withoutincreasing staffing or space

Percentage of Respondents, n = 158 Source: Aberdeen Group, November 2010

Among the companies surveyed, it's clear that the focus is on improving the efficiency and performance level of resources (on average, over 45% of respondents cite the need to support increased sales without adding labor/space resources) as the top pressure.

Consistent with the studies since 2007 and in the face of a return to sales volume growth, cost and resource management alone cannot be the singular focus of today's logistics leaders. Once again, the logistics executive is faced with balancing competing pressures; both cost/resources and increased service demands must be balanced in today's operating environment. In recognition of this balance warehouse managers must address growth and complexity with supply/demand fluctuations, seasonality and new product introductions (cited by 35%) listed as the second highest pressure.

Global Reach Drives Complexity:

√ 87% domestic shipping (intra-home country)

√ 85% domestic receiving (intra-home country)

√ 77% importing (receiving from other countries)

√ 70% exporting (shipping across country borders)

Percent of companies n=158

Indeed, cost and service-based pressures are not only rising but must be balanced across external factors. Two of these external factors are the increased levels of imports and exports being both received and shipped by the warehouse (see sidebar) and increased supply chain volatility (cited by 37% of companies in our study International Transportation: Optimize Cost and Service in a Global Market, July 2010).

Customer demands for high turn time performance (28% in Figure 1) and the increased customer demand for accurate delivery status and cost information is driving the need to ensure shipment integrity and enhance internal/external communications across the entire supply chain.

The key takeaway is that there is an optimal level of visibility, communication, and optimization that is required to balance all these competing pressures. As we shall see, this balance is critical. Today's leaders, more than ever, have mandates to reduce distribution costs while improving the frequency of delivery without diminishing the accuracy of shipments and customer service.


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The Maturity Class Framework Aberdeen used three key performance criteria in warehouse management to distinguish the Best-in-Class from Industry Average and Laggard organizations. Respondents were ranked according to three key performance criteria:

• Percentage of orders delivered from the warehouse on-time and complete to customer request

• Percentage change in warehouse labor costs per unit handled versus prior year actual

• Percentage of actual warehouse operating cost (year to date) performance versus Budget

Table 1: Top Performers Earn Best-in-Class Status

Type of Organization- Industry segment

√ 44% - Original manufacturer

√ 30% - Distributor /Wholesaler

√ 19% - 3PL

√ 15% - Other

√ 10% - Retailer

√ 10% - Freight Forwarder, Customs broker

√ 6% - Supplier Manufacturer / Supplier

Definition of Maturity Class Mean Class Performance

Best-in-Class: Top 20%

of aggregate performance scorers

Possessed a perfect order rate of 96% delivered to customer’s request Decreased their warehouse labor costs per unit handled, year over year, by 4.7% Decreased their actual warehouse operating cost versus budget by 3.6 % versus prior year

Industry Average: Middle 50% of aggregate

performance scorers

Possessed a perfect order rate of 94.94% delivered to customer’s request Decreased their warehouse labor costs per unit handled, year over year, by 1.2% Increased their actual warehouse operating cost versus budget by 2.0% versus prior year

Laggard: Bottom 30% of aggregate

performance scorers

Possessed a perfect order rate of 89.5% delivered to customer’s request Increased their warehouse labor costs per unit handled, year over year, by 3.8% Increased their actual warehouse operating cost versus budget by 3.9% versus prior year

Source: Aberdeen Group, November 2010

Driven by the pressures to improve cost/resource performance and service demands within the warehouse (Figure 1), companies across industry segments have embarked on aggressive cost/efficiency and service initiatives.

Best-in-Class companies (the top 20% of performers) have been best at balancing the competing pressures and have the following key advantages, based on the above metrics:

• Best-in-Class companies delivered a 4.7% decrease in warehouse labor costs per unit handled, year over year, versus a 3.8% increase for Laggards. This represents an 8.5 percentage point advantage for labor cost - the largest controllable warehouse




expense. As we shall see in further sections there is much to be learned by the Best-in-Class when it comes to labor productivity and labor management.

• Further evaluation of the perfect order rate metric reveals the following: both Best-in-Class and Industry Average companies, the service level of "perfect orders" (complete and on-time) averaged over 95%. With an average perfect order rate metric of 89.5%, only 23% of the Laggard companies were able to meet or exceed the same 95% level - a perfect order at least 95 out of 100 times. In today's customer-centric supply chain, 89 out of 100 complete and on-time shipments is not sustainable in most industry segments.

The Best-in-Class PACE Model Using transportation management to achieve corporate goals requires a combination of strategic actions, organizational capabilities, and enabling technologies that can be summarized as shown in Table 2.

Table 2: The Best-in-Class PACE Framework

Pressures Actions Capabilities Enablers The need to support increased sales without increasing staffing or space - 43% Need for better utilization of underutilized resources (e.g., people, technology, space) - 43%

Better integrate order and operating delivery flows (e.g., integrate OMS, WMS, LMS, TMS more flexibly) - 54% Improve labor efficiency and workforce productivity by reassessing management software, reorganization of warehouse resources - 39% Increase visibility (inbound through outbound) into inventory and order status. - 39% Improve throughput through systems or automation (e.g., batch to real-time, paper to paperless, dynamic order picking) - 36% Realign / consolidate products across our facilities - 32%

Know the contents of every bin in the warehouse in real time - 87% Confirm transactions with automatic data capture (bar-coding, speech, RFID) - 83% Central direction of processes in the warehouse (as opposed to letting operators plan and direct their own work) - 80% Zone Picking (Multiple persons pick portions of the same order) - 75% Receive goods without using paper documents - 60% Labor / Task Management (tracking actual time to complete tasks against a system-calculated time) - 58% Preplanned cartonization and picking instructions - 57% Event Management (automatically notifying appropriate personnel when certain warehousing events take place) - 57% One or more VP level positions active in WMS and automation implementations - 50%

Use barcode technology (i.e., linear, 2D barcode, or direct part marking) - 93% Commercially developed Warehouse Management Software (WMS) - 80% Ruggedized Mobile Computers (forklift mounted or handheld) - 64% Conveyor-based picking systems - 53% Labor Management Software - 52% Automated shipping sortation - 47% Distributed Order Management Software - 44% Cartonization Software - 31% Speech-based warehousing - 16%




Best-in-Class Strategies It is important to note the differences and similarities between the strategic actions taken by the Best-in-Class and all other companies (Industry Average and Laggards combined). Companies were asked to select their top two actions (Figure 2).

Figure 2: Top Actions to Improve Warehouse Management

33%

18%

28%

18%

46%

32%

21%

32%

36%

39%

39%

54%

0% 20% 40% 60%

Improve perfect order rate by improving pick accuracyand on-time shipment

Realign / consolidate products across our facilities

Improve throughput through systems or automation(e.g., batch to realtime, paper to paperless, dynamic

picking)

Increase visibility (inbound through outbound) intoinventory and order status

Improve labor efficiency and workforce productivity byreassessing management software, reorganization of

warehouse resources

Better integrate order and operating delivery flows (e.g.,integrate OMS, WMS, LMS, TMS more flexibly)


Best-in-ClassAll Others33%

18%

28%

18%

46%

32%

21%

32%

36%

39%

39%

54%

0% 20% 40% 60%

Improve perfect order rate by improving pick accuracyand on-time shipment

Realign / consolidate products across our facilities

Improve throughput through systems or automation(e.g., batch to realtime, paper to paperless, dynamic

picking)

Increase visibility (inbound through outbound) intoinventory and order status

Improve labor efficiency and workforce productivity byreassessing management software, reorganization of

warehouse resources

Better integrate order and operating delivery flows (e.g.,integrate OMS, WMS, LMS, TMS more flexibly)


Best-in-ClassAll Others


When it comes to warehouse resource management it is important to synchronize warehouse activities to order requirements. Fifty-four percent (54%) of the Best-in-Class and 32% of all others are seeking to better integrate order and operating delivery flows (to integrate OMS and, WMS, LMS, TMS more flexibly). The ability to gain early visibility to orders and volumes can greatly assist in resource and labor planning and allocation. Companies that have advanced visibility to orders and workloads can more easily flex their full and part-time staffs across the peaks and valleys that occur across the day, the shift, or the week. It is integration to upstream and downstream processes that is critical to a smooth workforce operating plan.

Having advanced customer order visibility is one aspect, but having the software and tools at your disposal to more efficiently and effectively realign those labor resources is what can lead to improved labor efficiency and workforce productivity. Overall there is a high level of focus (ranging from 39% to 46%) to utilize management software such as LMS and resource tracking or allocation planning tools to improve efficiency.

The ability to respond to the customer order can be improved when the warehouse has a better visibility into inventory regardless of location. Items that are in the receiving trailer or planned to be received from an inbound




supplier can be critical aspects in satisfying certain customer orders. Thirty-nine percent (39%) of the Best-in-Class are focusing on increasing such visibility and this is one important aspect to obtain a perfect order rate of 97% and above. The last item in Figure 2 further underscores the importance of the perfect order rate. Companies in the Industry Average and Laggard categories recognize their need to improve on this metric (cited by 33% of all others), yet only 18% are placing focus on the "inbound- to-outbound visibility to inventory and order" capability and, particularly, in the case of Laggard companies this compromises their ability to improve perfect order rates (currently they achieve only a 89.5% rate).

Overall, the focus on integration, productivity and throughput within the warehouse are similar between the Best-in-Class and all others, but the enterprise's ability to balance workload demands, gain visibility to inbound and outbound flows and ultimately deliver perfect orders vary markedly in relation to the people, process and technology a given company has in place. This will be further discussed in Chapter Two.

Labor and Labor Productivity Is Key

Over 70% of the companies in this study report that they are tracking events at the employee level. But only about half of these are taking this process to the full labor management step of correlating this data to a standard or plan. Only 37% report that they have labor / task management (tracking actual time to complete tasks against a system-calculated time).

To illustrate the scope of the labor management issue let's look to the logistics functions involved with performance management from the study. Functional areas where LMS is used include:

• 45% - distribution centers • 16% - manufacturing • 11% - transportation • 7% - retail store operations • 5% - break bulk , flowthru or transload facility • 13% - not using, but planning to use

Today's warehouse environment is clouded with an array of functional areas to manage, imbalances of volumes and staffing mix, and capacity restrictions of process and equipment – which all hamper the ability of the workforce to be efficient and productive. To correct this, recommendations include:

• Warehouse capacity must be assessed. Improve the overall labor efficiencies under constrained operating budgets, balancing part-time and full-time labor, and maximizing people/process/technology in both the peaks and valleys of the business - this requires an assessment of each distribution points specific space/labor capacities and requirements.

continued



Labor and Labor Productivity Is Key

• Technological investment hurdles and ROI guidelines. What are the various cost/benefit tradeoffs one must examine in their warehouse and fulfillment operations? Beyond the ROI guidelines for solution selection (found in Table 6) an assessment is needed to define the scope and scale of internal capacity. If internal capacity is constrained look to the use of overflow and 3PL facilities to handle capacity constraints in labor, inventory, and space and balance all options against each other.

A key step in mitigating capacity and meeting ROI hurdles is in maximizing labor allocation and productivity. Overall about 70% of all companies are using, or planning to use labor management solutions (only 31% indicated they are not using or planning to use one) and about half of the companies use labor management solutions in more than one functional area within their enterprise. This complicates the evaluation of an LMS (or a module from a WMS that has labor management capabilities) and also makes the process of selection more difficult. But, with the added difficulty there is generally added opportunity. As illustrated in the case study about Engineered Standards midway through Chapter Two, the rigor required yields its own rewards.



Chapter Two: Benchmarking Requirements for Success

The right combination of people, process, and technology, and their level of adoption and integration will now be compared to the overall excellence an enterprise exhibits in its warehouse management. Through process excellence and internal and external integration, Best-in-Class companies have leveraged advanced inbound to outbound visibility, workday and workload-balancing, and workforce planning and optimization tools to achieve superior results.

Case Study — Specialty Retailer Installs Workforce Performance Software and Adds Pick-to-Light

For the company’s direct to consumer distribution centers this multi-billion dollar specialty retailer runs two facilities of 1,000,000 square feet combined, primarily serving it's seven internet/catalog sites throughout the US. Running one shift during non-peak seasons and ramping up to three shifts during peak periods the two facilities process upwards of 45,000 outbound orders per day and about seven million cartons per year. The DCs utilize a WMS/LMS and a Workforce Performance Management (WPM) system to direct activities across a series of picking modules and conveyors for outbound order consolidation, and makes heavy use of automation and inventory activity tracking. In addition to standard inbound and outbound operations, the direct-to-consumer facilities also handle value added services, where up to 1,000 associates perform gift wrapping and other personalization services.

Like many other companies, the e-commerce business of this retailer is facing pressure to increase order volume and complexity and reduce customer order turn-around times. This effort must be balanced, however, against a need to support sales without increasing staffing or space. To further compound these challenges, the company also faces proliferation of SKUs – calling for an approach that can process an expanding item base of over 25,000 items more quickly, utilizing only the existing space and labor pool.

Recent improvement initiatives have addressed both the software and hardware sides of the warehouse, according to Jim Dillard, General Manager, Engineering and Projects, at the retailer. “In terms of hardware, most changes revolve around the upgrade of RF devices and the elimination of paper to move to real-time pick-to-light systems within picking, packing and personalization. The new system dynamically releases orders according to peak times and the number of associates on the floor, reducing picking labor costs by 25% and increasing capacity.”

continued

“In terms of hardware, most changes revolve around the upgrade of RF devices and the elimination of paper to move to real-time pick-to-light systems within picking, packing and personalization. The new system dynamically releases orders according to peak times and the number of associates on the floor, reducing picking labor costs by 25% and increasing capacity.”

~ Jim Dillard, General Manager, Engineering & Projects, Large

Specialty Retailer

Functional areas where LMS is used:

√ 45% - distribution centers

√ 16% - manufacturing

√ 11% - transportation

√ 7% - retail store operations

√ 5% - break bulk , flowthru or transload facility

√ 13% -not using, but planning to use




Case Study — Specialty Retailer Installs Workforce Performance Software and Adds Pick-to-Light

On the software / process side, the focus has been on minimizing non-value added steps in the prior system to allow for the removal of both time and inefficiency and provides real time visibility to order status, productivity, and picking errors . Dillard says, “A prime example is the removal of multiple human steps in the old print, sort and order collate process. Now our new WPM prints and sorts orders by picking zone and carton greatly reducing multiple sorting and handles. Sorting collates is no longer necessary as they are now only handled once when they are inserted in the pouch on the side of the tote.”


As a result of these efforts, the company has increased pick accuracy to 99.75%, increased picking speed by 108%, while maintaining growth in seasonal order volumes and eliminating bottlenecks which were commonplace in the old system. As volume spikes, Dillard said he, "Expects these results to continue, essentially increasing the throughput and extending the lifespan capacity of our existing buildings approximately five years."

The software’s seamless integration with the company’s LMS gives the company accurate insight into picker productivity and errors, real-time and across all workzones, allowing them to make split-second decisions with regard to labor utilization. "Additionally, we now have access to other real-time analytics and reports including pick completion, orders remaining for the day, rate trending, facility throughput, and more. By implementing the WPM software as well as installing the new pick-to-light and put-to-light systems, we were able to realize a total return on investment in less than one year," Dillard concludes.

“A prime example is the removal of multiple human steps in the old print, sort and order collates process. Now our new WPM prints and sorts orders by picking zone and carton greatly reducing multiple sorting / handles .... Additionally, we now have access to other real-time analytics and reports including pick completion, orders remaining for the day, rate trending, facility throughput, and more. By implementing the WPM software as well as installing the new pick-to-light and put-to-light systems, we were able to realize a total return on investment in less than one year.”

~ Jim Dillard, General Manager, Engineering & Projects, Large

Specialty Retailer

Competitive Assessment Aberdeen Group analyzed the aggregated metrics of surveyed companies to determine whether their performance ranked as Best-in-Class, Industry Average, or Laggard. In addition to having common performance levels, each class also shared characteristics in five key categories: (1) process (the approaches they take to execute daily operations); (2) organization (corporate focus and collaboration among stakeholders); (3) knowledge management (contextualizing data and exposing it to key stakeholders); (4) technology (the selection of the appropriate tools and the effective deployment of those tools); and (5) performance management (the ability of the organization to measure its results to improve its business). These characteristics (identified in Table 3) serve as a guideline for best practices, and correlate directly with Best-in-Class performance across the key metrics.



Table 3: The Competitive Framework

Best-in-Class Average Laggards Confirm transactions with automatic data capture (bar-

coding, speech, RFID)83% 69% 51%

Zone Picking (Multiple persons pick portions of the same order)

75% 56% 23% Receive goods without using paper documents

60% 47% 37% Preplanned cartonization and picking instructions

57% 51% 25% Container Management (managing containers and the

orders and lines they contain, tailoring for shelf ready by store)

Process

33% 15% 16% Central direction of processes in the warehouse (1%

more likely 80% 74% 58%

One or more VP level positions active in WMS and automation implementations

Organizational Management

50% 43% 32% Know the contents of every bin in the warehouse in real

time 87% 73% 50%

Labor / Task Management (tracking actual time to complete tasks against a system-calculated time)

58% 41% 17% Event Management (automatically notifying appropriate personnel when certain warehousing events take place)

57% 32% 16% Dynamic Real-time order dispatch (ability to interleave

order adds or quantity changes to already planned or in-process picks / puts)

Knowledge and

Performance Management

31% 31% 2%

Auto data capture/confirmation: Technology

96% are using barcode technology (i.e., linear, 2D barcode, or direct part marking) 16% use voice confirmation for picking or putaway





Best-in-Class Average Laggards Software technologies:

80% Commercially developed Warehouse Management Software (WMS) 52% Labor Management Software 44% Distributed Order Management Software 35% Home-grown or legacy WMS that is no longer commercially supported 31% Cartonization Software



Integrated solutions:

Technology (cont.)

53% Conveyor-based picking systems 16% Speech-based warehousing




Based on the findings of the Competitive Framework and interviews with end users, Aberdeen’s analysis of the Best-in-Class demonstrates the following capabilities and enablers in process, organization, knowledge, technology, and performance management.

Process Management Based on the Findings in Table 3, the following sections include the planning and execution related process gaps that companies need to focus on.

Superior processes result in superior performance. At 83%, Best-in-Class companies are 1.3 times as likely as all others to confirm transactions with automatic data capture. Items and orders that are confirmed result in higher picking accuracy which translates to higher perfect order rates - a key performance area for leading companies or those trying to reduce a performance gap.



Preplanned cartonization and picking instructions provide the advantage of allowing the warehouse management system to optimize orders into cartons and sequenced picking assignments according to labor management efficiency. At 57% Best-in-Class companies are 1.4 times as likely as all others to utilize this WMS/LMS capability. Advanced LMS systems provide cartonization that not only can optimize labor requirements but also can optimize carton sizes for an order to facilitate "tailoring of items sequenced for store shelves" (33% of Best-in-Class versus only 15% for all others).

An additional process capability that's found in LMS/WMS systems is the ability to perform zone picking (75% for Best-in-Class and only 23% for Laggard companies, Table 3). It's clear from our study metrics that both accuracy and labor performance can be significantly improved through superior process, hence, gaps of this large scale (about 50 percentage points) should not go unnoticed. If your company lacks this capability today be sure to evaluate enhancing your WMS/LMS and processes to determine if you (or the 3PL who performs your fulfillment) can deliver an acceptable ROI in installing this capability (see Table 6).

A multi-channel and multi-format logistics capability is a key strategic advantage that if lacking (not having the capacity to ship direct to consumer, for instance) diminishes the capability of an enterprise to compete for new business. A list of usage by channel and format is ranked in the sidebar. It is important that enterprises upgrade the capabilities that their warehouses and warehouse systems provide (either themselves or through 3PL or LSP providers) so that they remain flexible and competitive in the logistics formats they support. Cross docking and DC bypass are examples of formats that require special systems and operating techniques for adequate support. Today's WMS systems offer distributed order management capabilities that allow a company to plan and execute fulfillment according to the logistics format that results in the highest level of service at an optimized cost.

Logistics Formats

√ 47% - shipping to or through a traditional distribution center

√ 39% - shipping direct-to-store

√ 34% - shipping through 3PL or e-fulfillment provider

√ 27% - shipping through a break-bulk facility (i.e., cross dock, transload, or distribution center flowthru facility)

√ 23% - shipping through a free port, free trade zone, or transition point for customs

√ 10% - we plan to add capabilities in other areas not checked

The key takeaway is that Best-in-Class companies are more heavily embracing planning and resource utilization process capabilities enhancing the companies' ability to meet or beat cost and the service metrics (increasing warehouse productivity, reducing labor costs, and optimizing service).

Organizational Management Organizational alignment and internal collaboration and integration with other departments are the most important aspects of balanced performance across warehouse management.

The Warehouse Management Organization - Centralized Direction of Process and WorkforceAn effective organizational structure is the key to the success of any warehouse operation. Eighty percent (80%) of Best-in-Class companies and 74% of Industry Average companies provide for centralized direction of processes in the warehouse (versus letting operators plan and direct their




“At the moment planning is not connected to inbound receiving, but it’s critical for our planners to be able to view incoming shipments. We began implementing a company-wide Enterprise Resource Planning (ERP) solution last year. Our visibility is becoming more consistent as data becomes more consistent. We also now have visibility into the requested delivery date and the committed supplier delivery date.”

~ Sr. Logistics Director, Global Manufacturer

own work). Even 58% of Laggard companies centralize the direction of their workers. While these levels are fairly high, having a detailed knowledge of workload requirements by employee, function, and work zone guides a fully featured direction process. This detailed knowledge is enabled through engineered standards for labor management/allocation and tracking systems (we will discuss the specific merits of using these systems in the technology section).

Beyond the centralized direction of processes, it is important that senior levels within the management organization are involved and active in process change, WMS, and automation initiatives. At 50%, Best-in-Class companies are 28% more likely than all others to have one or more VP level positions active in WMS and automation implementations.

But the correlation goes beyond just the VP level - C-level involvement gives rise to improved metrics (with uplifts of up to 20%) and it is therefore not surprising that Best-in-Class companies tend to have higher levels of C-level involvement in warehouse operations.

Bidirectional Data Exchange Sixty-one percent (61%) of all respondent companies in our companion study (International Transportation: Optimize Cost and Service in a Global Market, July 2010) have automated data exchange (orders/items, shipment status and cost) beyond warehousing and across the supply chain organization (Table 4). Relative to the 2009 levels, the number of companies automating this information-sharing with other departments has increased by double-digits and, likewise, the number of departments with which they share is also on the rise (Table 4 shows the eight additional departments that were included in this data exchange).

Table 4: Automated Exchange of Data with Other Departments

Oct 2009 July 2010


Department

n=180 Totals

n=181 Totals

n=37

Best-in-Class

Best-in-Class vs. Others

Supply Chain 61% 61% 68% + 13%

Finance 49% 50% 59% + 23%

Warehousing 54% 47% 50% + 9%

43%

44%

44%

-

Third-party partners (3PL, etc.)

Sales 29% 35% 44% + 38%

Manufacturing 18% 28% 38% + 46%

Procurement 32% 38% 38% -

Customer support 29% 36% 36% -

Trade compliance 13% 23% 32% + 52%

Source: Aberdeen Group, July 2010





In related supply chain planning studies, Best-in-Class companies have demonstrated higher levels of alignment of supply chain tactics with the corporate goals of the C-level suite of organizations. In addition, Best-in-Class companies have demonstrated greater integration of adjacent departments like finance, procurement and sales into the S&OP processes.

During this companion study, as part of the execution processes, 50% of responding companies reported data sharing with finance, and 35% reported sharing data with sales - the two most tightly integrated being the S&OP or integrated business planning process. With the level of connectivity increasing over time, organizations have greater visibility, by and with, the finance department (with corresponding tighter controls on cost) and closer integration with sales leading to gains in customer service. Best-in-Class organizations have widened the gap with their peers by +23% and +38% respectively.

Other areas of differentiation for the Best-in-Class are in trade compliance (32%) and manufacturing (38%) organizational interaction where they are more likely to have data exchange in place by +52% and +46% respectively versus all others.

Visibility, data collaboration and connectivity are necessary requirements to feed the dynamic optimization process. And, indeed, they were identified in the actions section as significant differentiators toward improving cost and service metrics in today's dynamic warehousing environment. Referring to Figure 2, under Actions, we find the Best-in-Class companies are prepared to respond to such changes. This is especially so where Best-in-Class are 20 percentage points more likely than all other companies to enable visibility of inbound to outbound items - a metric that directly impacts perfect order rate.

Knowledge / Performance Management Today's leaders and Best-in-Class logistics managers are looking beyond basic process implementation and organization structure - they are making sure that performance management at individual, group/dept, and facility levels is a priority. Table 4 introduced us to the data exchange capabilities that companies have now and their connectivity or alignment with internal departments. Table 5 takes things a step further and shows the relative level of labor measurement across functional areas for direct and indirect labor and by maturity class.

The number following the dash illustrates the performance gap For Best-in-Class companies versus the all other column in terms of labor measurement to the individual employee. This labor measurement performance gap is a very significant advancement (Best-in-Class firms are 1.5-times to 3.5-times as likely as all others to measure across each area). Even though almost 73% of all companies state that they track warehouse transactions to specific employees they do not all do so with the same degree of precision (nor do they measure performance to that level in each of the areas listed above and sorted in descending rank). Even those firms that have a LMS have varying



levels of its usage ranging from a high of 68% for picking to a low of 23% for indirect labor.

It will also be shown in the technology section that they are not at all equal when it comes to the level of automation or software they use to measure or track performance.

Table 5: Individual Performance Measures and Performance Gaps

Measure Individual Employees Functional Area All

Firms Best-in-

Class All

Others Have LMS

Do Not Measure

Picking - 1.65x 50% 73% 44% 68% 50%

Replenishment - 2.33x 38% 70% 30% 58% 38%

Put-away - 1.53x 46% 63% 41% 65% 46%

Packing - 1.96x 35% 59% 30% 48% 35%

Receiving - 1.51x 43% 59% 39% 60% 43%

Shipping - 1.83x 36% 57% 31% 47% 36%

Value-added services - 3.46x 20% 45% 13% 30% 20%

Indirect labor areas - 3.5x 12% 28% 8% 23% 12%


Managers also need to monitor and adjust workforce requirements across roles / tasks within a given workday. This requires process knowledge. A key differentiator for the Best-in-Class is that they are 1.6-times as likely as the Industry Average and 2.9-times as likely as Laggards to utilize established standards against which employees can be measured. A process of establishing standards and then monitoring actual performance is the foundation for workforce flexibility. This illustrates the principle that flexibility and detailed process knowledge are tightly linked - you need to have standards and expectations of performance coupled with visibility of performance data to monitor, flex and direct your workers across multiple roles within the workday.

As we discovered earlier it takes more than shared visibility to data and tracking for an enterprise to maximize the opportunity to plan or allocate and then maximize labor across functional areas, shifts, work zone and volume. The Best-in-Class companies have people, process, technology and, yes, superior performance and labor management to their credit. They are using a combination of all these tools to seize strategic advantage and contribute to superior labor resource allocations and heightened productivity - and they are widening the gap in overall performance.



Case Study — Engineered Standards Achieve Ongoing ROI

A well-known $20 billion manufacturer/retailer is currently in the process of deploying a best-of-breed labor management solution to multiple facilities throughout the global enterprise.

Approximately six years ago, this large retail distributor converted one of its largest facilities to engineered standards. This facility, at over 1 million square feet, supports a combination of softgoods of footwear and apparel items and has in excess of 600 full-time employees.

The numbers of stock keeping units and shipping quantities at each Distribution Center (DC) involved are very large. In a typical day, the receiving department will unload up to 40 trailers, and employees in the pick, pack, and ship functions will process over 10,000 orders. Items are received as cases which are floor-stacked in trucks. At the time of replenishment, full case equivalents of the footwear items are sent to the picking zones in quantities required to support the pick.

“Our management team wanted a fair and accurate system for measuring worker performance and we lacked the systems required to plan and monitor individual and group performance,” says the company’s Manager of Inventory and Capacity Planning. “So we implemented engineered labor standards across all direct labor functions and integrated them into our overall WMS and ERP systems.” An ambitious project, the conversion encompassed all direct labor functions beginning with receiving and ending in packing and shipping.

Once the picking cycle begins, individual footwear SKUs are repacked into cases mixed with other individual SKU pairs as required for each individual shipping order. For apparel (non-footwear items) a similar process takes place as pickers place the required quantity of each SKU into totes and onto a tilt tray for delivery to pack stations.

Once each item, tote and/or case for a given order is completed it proceeds to pack stations where final packing and labeling takes place prior to moving to shipping.

The company developed detailed engineered standards at the work-element level and deployed the solution at a number of their distribution centers. The overall initiative involved a substantial commitment in people, process, and technology, but has provided the company with the ability to:

• Monitor individual employee performance (see Table 5 for the range of overall adoption across groups/areas)

• Monitor team, group, department performance • Identify under-performing employees for coaching or

performance improvement • Use reports to analyze labor performance and requirements for

facility improvement and future planning continued

“We are now in the process of developing engineered standards for our newest high-volume automated DC. Our company's labor productivity improvement to date has made me a convert. Based on our track record at similarly sized DCs, once the new site is fully implemented, we are expecting to obtain full payback, on this deployment in less than 18 months.”

~ Manager of Inventory and Capacity Planning,

Sports Apparel Retailer

“Our management team wanted a fair and accurate system for measuring worker performance and we lacked the systems required to plan and monitor individual and group performance. So we implemented engineered labor standards across all direct labor functions and integrated them into our overall WMS and ERP systems.”

~ Manager of Inventory and Capacity Planning,

Sports Apparel Retailer




Case Study — Engineered Standards Achieve Ongoing ROI

Over the last six years, this large manufacturer and retail distributor has continued to realize a significant return on investment as it deployed its solutions to new and non-converted existing DCs.

“We are now in the process of developing engineered standards for our newest high-volume automated DC. Our company's labor productivity improvement to date has made me a convert,” says the company’s Manager of Inventory and Capacity Planning. “And based on our track record at similarly sized DCs, once the new site is fully implemented, we are expecting to obtain full payback, on this deployment in less than 18 months.”

Technology Management and Utilization When it comes to bringing together best-practices in process improvements with the technology available in the market today, investment in WMS/LMS software, auto-ID, and material handling equipment has largely matured and is poised to match business need in virtually every aspect of warehousing. With the exception of voice and robotics (which are just now emerging as newer options for all companies to explore). The larger need for companies in each class is properly selecting from all the options that are competing for the company's continuous improvement dollar.

We asked the respondents which were planning investments in one or more technology areas to indicate their interest in investment / improvement (by technology type). Out of 158 survey takers 128 have some interest in options ranging from software, equipment, logistics service providers, or 3PLs to help them upgrade their current capabilities or to handle portions of their volume. The real challenge in selection is aligning the right technology/solution to each operations specific need or operating profile and then sorting through a cost/benefit analysis for all the competing options. To provide a decision matrix to assist in building out the cost /benefit and ROI factors we provide the following table.

Table 6: Technological Investment Hurdles and ROI Guidelines

Expected ROI All Types

Auto ID LMS WMS 3PL Material Handling

Voice

Percent of Companies Planning

73% 55% 41% 18% 18% 14%

0 - 6 months 4 3 4 2 1 1 1 7 - 12 months 19 13 11 8 5 4 1 13 - 18 months 28 22 16 12 6 6 6

19 months - 2 years 58 45 29 22 8 7 6 2 - 3 years 12 8 6 8 2 5 4 3 - 5 years 7 3 5 1 1 - -

More than 5 years - - - - - - -



Expected ROI All Types

Auto ID LMS WMS 3PL Material Handling

Voice

Total Companies … 128 94 71 53 23 23 18 Months to ROI…. 19.7 19.0 19.4 19.0 18.0 18.5 19.3

Percent expecting less than 1 year ROI

18% 17% 21% 19% 26% 22% 11%

Source: Aberdeen Group, November 2010 Note: while none of the companies in the study have internal ROI financial paybacks set at beyond five years this does not imply that

years of usage is less than 5 years. In many instances these solutions have been in place at these companies for 7-10 years and more. For automation and equipment the depreciation schedules themselves are 7 years or more but the payback expectation is still 2 years or less

Across the top of the matrix are the various technology types ranging from Auto ID at 73% of the investment responses, or 94 interested companies, and ending in voice at 14% of the responses (18 companies). In the middle section of the matrix are the ROI required financial payback hurdles mandated for each solution type and company. Overall there is an average ROI expectation of 19.7 months to payback. Some of the companies are targeting paybacks in less than one year and the percent of companies with that expectation is in the last row. From the ROI matrix we can observe several key points:

Current Software Usage All

√ 68% - Commercially developed Warehouse Management Software (WMS)

√ 44% - Spreadsheets or manual system to manage the warehouse

√ 40% - Transportation Management

√ 35% - Mobile computer software for ruggedized warehouse applications

√ 31% - Labor Management Software

√ 29% - Distributed Order Management Software

√ 27% - Home-grown or legacy WMS that is no longer commercially supported

√ 14% - Home-grown or legacy WCS that is no longer commercially supported

• The popularity of a given investment choice is ranked from left to right and the first two items auto ID and LMS are in the 50% plus range. Auto ID has very high adoption rates currently (Table 3 where barcode usage is 96%, 87% and 64% for Best-in-Class, Industry Average, and Laggard respectively)

• The first two choices also represent choices that typically are lower in terms of capital outlays and, yet, are areas of investment where benefits in labor productivity and resource efficiency can yield significant benefits (perhaps even self-funding) within one year. Each has its unique benefits but they are also complementary solutions, meaning that if one can take time out of a process with Auto ID then one can plan, measure, schedule, and allocate labor to the new process under LMS.

• The third choice, WMS at 41%, is a choice which benefits from fairly high levels of current adoption already (see sidebar, even though many are using home grown and more manual systems). As such and relative to the first two choices, fewer are opting to replace or to upgrade the system they have in place. It is also true that this option tends to involve larger capital outlays and can extend up to, or beyond, the 19 month ROI payback hurdle. SaaS deployments and creative financing models are common now and this has the added feature of allowing deployment with little to no capital outlay. Aberdeen is currently constructing, and will publish, An Objective Guide to WMS Selection in December which will better equip companies as they match need and capability across the 40+ solutions vendors that operate in this space.

http://www.aberdeen.com/Aberdeen-Library/6944/RP-warehouse-management-software.aspx

http://www.aberdeen.com/Aberdeen-Library/6944/RP-warehouse-management-software.aspx



Outsourced Services:

√ 17% to 22% off all companies seek to expand outsourced services for logistics

Beyond these levels:

√ 29% to 40% of all companies currently utilize outsourced or managed services for components of their warehouse management

√ 29% to 41% of all companies currently outsource to more than one 3PL or logistics service providers for components of their warehousing or logistics

• The fourth choice, 3PLs or logistics service providers (18%), is a growing option to consider to handle overflow volume, strategically balance the supply network, or to offer extended capabilities that a company does not have in-house. For an idea of the current levels of adoption of this solution more details are provided in the sidebar to the right.

• The fifth choice, coming in at 18%, is material handling solutions like conveyors, unit sortation and so on. While there is a steeper investment required to justify these solutions they can be very beneficial and can sustain considerable growth in throughput volume without the need to add to headcount. Some companies which are cash rich but hiring shy can benefit from the opportunity these solutions can provide. It is also apparent from our research that many of these solutions are in use by the Best-in-Class which are two to three-times as likely to have many of them as their peers (more details on this can be found in Appendix B).

• Finally, at 14% are voice technologies which are becoming more accepted and which have become more free-ranging and mobile along with Auto ID technology. Both of these technologies are seeing applications in non-traditional areas of the warehouse like put away, replenishment and support.

• Again, each company has different operating profiles and requirements which should always be matched to the solutions that best fit.

High Levels of Current Adoption Do Not Equate to Lower Levels of Future Investment Current utilization of technologies, some of which are referenced in the technology section of Table 3, range from a low of 11% for voice and robotics (newer technologies), to the 60% to 80% range for WMS, and to the 80%+ range for some applications of barcodes and auto ID.

But don't let the high adoption rate for something like auto ID indicate that there is not a market for investment. Indeed, virtually all of the companies that are using auto ID today (73% from Table 6) are upgrading to newer equipment and expanding to non-traditional aspects of their operations (see the case study of the Specialty Retailer, for example). The same is true for WMS/LMS which are extending into advanced features like slotting, yard management, incentive based pay, and pay for performance in new and existing warehouse sites.

The big story is in enhancements or extensions of functionality to software / equipment and tools already in use. Here nearly 50% of current users, those represented by the ROI solutions matrix in Table 6, are planning enhancements. This implies that companies, many of which have made sizable investments in technology, plan to extend their investment, or at least deploy untapped features in the solutions they have, resulting in an average overall 25% increase in usage, in the next 12 months and beyond.




Most of today's warehouse managers are putting time and investment into automating all of their processes, from traditional picking areas and now extending more frequently into replenishment, storage and support. A doubling of focus into the next levels of the capabilities means investigating advanced solutions for fuller process integrations with farther reaching levels of capabilities to do these functions.

It should be noted that while the Best-in-Class are leveraging and balancing cost and service, they do not stop with just investing in the best solutions. This implies that technology by itself is incomplete without other differentiators; first, you must have good processes, people with process knowledge, and visibility. Automating a bad process does not improve performance. Likewise, you cannot execute or optimize in an agile and responsive fashion in the absence of clear visibility. And in some cases you will want to leverage the value of a 3PL which may be your best option for some aspects of your operation.

Once the core process capability is in place, automating a holistic and balanced process is critical for success. Those that have been able to capitalize on technology to extend and advance key processes under dynamic event driven optimization and real-time individual worker measurements (see Taking Resource Management and Technology to the Next Level) underscore the point.

In general terms, regardless of class, such focus can improve on-time delivery, reduce inefficiencies and bolster productivity, and reduce warehousing and labor cost year-over-year. Best-in-Class companies have been able to affect a 3% to 9% percentage point advantage in the cost metrics while sustaining the high 97% perfect order metric.

Taking Resource Management and Technology to the Next Level

No one ever said that technology or systems can solve every problem. To the contrary, it is one's ability to streamline and optimize warehouse and fulfillment processes and working more seamlessly to integrate to the border organization that is more critical to operational success than the technology one puts into play. These points are illustrated by the following Best-in-Class differentiators:

• Dynamic event driven activity. The Best-in-Class are 2.11 times as likely as all others to perform event management (automatically notifying appropriate personnel when certain warehousing events [like a confirmed pick] take place) (57% vs. 27%)

• Measure individual performance of indirect/other workers. The Best-in-Class are 3.5 times as likely as all others to measure the individual performance of indirect workers (28% vs. 8%) and 3.5-times as likely to measure the value added worker activity (45% vs. 13%).

continued

Steps to Evaluate ROI options:

√ Assess your true (actual throughput and customer) operating requirements and capacity

√ Determine the investment choices that best serve your needs and are consistent with your ROI hurdles.

√ Examine specific costs/benefits and impacts of each option.

√ Sequence recommendations toward options with the highest payback potential and lowest resource and capital investment first (Auto ID and LMS are good ones to start with).

√ Begin implementation, streamline to new processes, and develop labor management and training plans to equip the workforce.




Taking Resource Management and Technology to the Next Level

Today's warehousing environment is increasingly dynamic with web-based orders, store direct shipments now (at 45% plus) becoming as commonplace as shipping through, and to, the traditional DC. Companies are being confronted on all sides with growing labor demands - but many are under strict policies not to add staff. To combat these pressures the strategic actions indicated in Figure 2 are rising in importance. Aberdeen believes that the ROI decision matrix (Table 6) can be used sort through the pros and cons and relative benefits that one can select ranging from:

• Process/system change • New or enhanced software • New or enhanced automation/equipment and • Options to partner with a 3PL for services and capacity

In reviewing the options the following steps are recommended for all companies:

• Assess your true (actual throughput and customer) operating requirements and capacity

• Determine the investment choices that best serve your needs and are consistent with your ROI hurdles. Examine specific costs/benefits and impacts of each option.

• Sequence recommendations toward options with the highest payback potential and lowest resource and capital investment first (auto ID and LMS are good ones to start with).

• Begin implementation, streamline to new processes, and develop labor management and training plans to equip the workforce.

Once an organization has chosen which metrics to track, gained visibility into performance at an employee-specific level, and implemented continuous improvement programs with ongoing training and coaching, they will have made a great start toward successful labor/resource management and are prepared to work in the new equipment or process. The speed with which such an initiative brings results, however, depends on the proper fit it has to a company's requirements.

This is an area where the measurement of group, facility, and individual performance is being performed at the highest levels by the Best-in-Class (which are 1.5-times to 3.5-times as likely to perform these measurements). Failing to measure, or delaying too long in providing the information, can only serve to compromise the chance for improvement - and thus jeopardize the potential benefits that your new solution has to offer. Technology alone is not enough; combining process best-practice, flexible technology, and dynamic optimization can not only solve the problem, but prevent other problems in the overall end-to-end supply chain. That should be the goal for today's solution providers and practitioners.



Chapter Three: Required Actions

The Best-in-Class are:

√ 3.4-times as likely as Laggards to utilize labor / task management (tracking actual time to complete tasks against a system-calculated time)

√ 3.2-times as likely as Laggards to utilize zone picking (multiple persons pick portions of the same order)

√ 2.2-times as likely as Industry Average companies to utilize container management (managing containers and the orders and lines they contain, tailoring for shelf ready by store)

√ 1.4-times as likely as Industry Average companies to communicate with warehouse workers wirelessly in real time

Whether a company is trying to move its performance in warehouse management and resource utilization from Laggard to Industry Average, or Industry Average to Best-in-Class, the following actions will help spur the necessary performance improvements:

Laggard Steps to Success • Improve overall picking processes. Picking activities in our survey

encompass over 50% of the direct labor. Best-in-Class companies at 75% are 3.2 - times as likely as Laggards to utilize zone picking (multiple persons pick portions of the same order). Laggard companies at only 23% have a lot to learn from the example of Best-in-Class companies (see Specialty Retailer case study) about how they can streamline process to flow cartons across pick zones through software and hardware reconfigurations. Many times this is simply a matter of using features available in software you already have.

• Enhance labor management solutions. Labor management is a first line of defense in resource or human capital management. Best-in-Class companies at 58% are 3.4-times as likely as Laggards to utilize labor / task management (tracking actual time to complete tasks against a system-calculated time). Laggard companies at only 17% can also benefit from the example of Best-in-Class companies and explore how they put labor standards to work to bolster efficiency.

Industry Average Steps to Success • Embrace value-added features. In today's multi-channel

distribution environment saving labor at the retail shelf is a priority requiring new services from the warehouse. Best-in-Class companies at 33% are 2.2-times as likely as Industry Average companies to utilize container management (managing containers and the orders and lines they contain, tailoring for shelf ready by store). Industry Average companies at only 15% can also benefit from the example of Best-in-Class companies and explore how they can incorporate WMS features of carton management to increase service and add value.

• Enhance real-time communications. From the ROI solutions matrix in Table 6, auto ID is the top improvement interest of companies of all classes. Best-in-Class companies at 64% are 1.4-times as likely as the Industry Average to communicate with warehouse workers wirelessly in real time. Industry Average companies at only 45% can also benefit from the example of Best-in-Class companies (see Specialty Retailer case study) and explore the benefits of real-time communications.

Best-in-Class Steps to Success • Leverage 3PLs and logistics service providers. Although more

than 50% of the Best-in-Class are already embracing the basics of




“Accuracy went from 91% to 99%, allowing us to provide better customer service and avoid expensive errors…and the big labor savings have been in the office. We went from three people doing admin work to one person doing it on a part-time basis.”

~ Jud Harris, IT Director, Aadvantage North American, a 3rd party logistics provider,

after implementing a WMS

process and technology in the recommendations for Laggard and Industry Average companies above, over 40% of them are beginning to find value in outsourcing some of their volume. Make sure you do not overlook this option for managing your warehousing operations or overflow capacity as it can have significant benefit (ROI) without deployment of company capital.

• Leverage emerging automation and mobility solutions. There is a strong correlation between the technology companies utilize with a powerful linkage of enabling technology and Best-in-Class performance (see Table 3 and Appendix B). Companies should consider taking the leap to real-time, mobile warehousing, voice, and advanced material handling - viewing it as a long term platform for growth. Using the ROI solutions matrix as a guide, an organization can begin to explore high performance capabilities that will enable this efficiency to continue for years to come.

Aberdeen Insights — Summary

The predominant pressure companies are experiencing is a need to reduce warehouse operating expenses while maximizing utilization of resources. In order to achieve this goal, companies will look both to increase efficiency of software and automation across the entire distribution network, and to improve collaboration with outside parties to allow for better planning of physical space/locations and labor assignments. Maximizing the network efficiency requires the proper allocation and application of space, people and technology.


While current economic conditions have caused some companies to react by postponing planned investments and delaying the evaluation process for prospective projects, others are taking a more strategic approach. Expected payback horizons, however, have not shifted significantly and are fairly equal across a broad spectrum of options ranging from software to automation and outsourcing.

The key to decision-making in this environment is the realization that improvements can be made - and benefits realized - even in difficult times and consistent with ROI guidelines. The rewards can be greater in an environment of return to growth under hiring restrictions. What is required in this analysis is the re-definition of the pressures each company is facing, a review of which capabilities can best address those pressures, and a re-evaluation of available ROI solutions (Table 6) to identify which solution can provide both the needed functionality and the expected ROI.

The specific requirements and solutions will vary by company, but the outcome is the selection of the solution(s) most appropriate for each company in its journey of continuous improvement.

http://assessment.aberdeen.com/8K6USwg6a0/index.aspx



Appendix A: Research Methodology

Between October and November 2010, Aberdeen examined the use, the experiences, and the intentions of more than 158 enterprises using warehouse management in a diverse set of enterprises.

Study Focus

Responding supply chain and operations executives completed an online survey that included questions designed to determine the following:

√ The degree to which WMS/LMS (or 3PL service solutions) or automation is employed in their warehouse operations and the financial implications of the solutions in use.

√ The structure and effectiveness of existing WMS/LMS (or 3PL service solutions) or automation implementations

√ Current and planned use of warehouse related services/automation to aid operational and promotional activities and improve resource utilization.

√ The benefits, if any, that have been derived from warehouse related services/automation initiatives

The study aimed to identify emerging best practices for utilizing and improving resources in warehouse operations. Additionally, this study will provide a framework by which readers could assess their own warehouse management capabilities.

Aberdeen supplemented this online survey effort with telephone interviews with select survey respondents, gathering additional information on warehouse management and resource utilization strategies, experiences, and results.

Responding enterprises included the following:

• Job title: The research sample included respondents with the following job titles: Manager (34%); Director (22%); EVP / SVP / VP (12%); Consultant (10%); Staff (6%); CEO / President (5%); and other (11%).

• Department / function: The research sample included respondents from the following departments or functions: procurement, supply chain, or logistics manager (51%); operations manager (17%); IT manager or staff (12%); senior management (6%); sales and marketing staff (4%) and other (10%).

• Industry: The research sample included respondents from: Wholesale Distribution (14%); Retail and Apparel (12%); Food and Beverage (11%); Industrial Manufacturing (11%); Consumer Packaged Goods (CPG) (7%); Computer Equipment (6%); Pharmaceutical Manufacturing (5%); Health and Medical (5%); Government, Aerospace and Defense (2%); and other (27%).

• Geography: The majority of respondents (73%) were from North America. Remaining respondents were from the Europe, Middle East, and Africa (EMEA) (17%), Asia-Pacific region (8%) and South/Central America and Caribbean (2%).

• Company size: Thirty-six percent (36%) of respondents were from large enterprises (annual revenues above US $1 billion); 38% were from midsize enterprises (annual revenues between $50 million and $1 billion); and 26% of respondents were from small businesses (annual revenues of $50 million or less).

• Headcount: Thirty-nine percent (39%) of respondents were from large enterprises (headcount greater than 1,000 employees); 43% were from midsize enterprises (headcount between 100 and 999 employees); and 18% of respondents were from small businesses (headcount between 1 and 99 employees).




Table 7: The PACE Framework Key

Overview Aberdeen applies a methodology to benchmark research that evaluates the business pressures, actions, capabilities, and enablers (PACE) that indicate corporate behavior in specific business processes. These terms are defined as follows: Pressures — external forces that impact an organization’s market position, competitiveness, or business operations (e.g., economic, political and regulatory, technology, changing customer preferences, competitive) Actions — the strategic approaches that an organization takes in response to industry pressures (e.g., align the corporate business model to leverage industry opportunities, such as product / service strategy, target markets, financial strategy, go-to-market, and sales strategy) Capabilities — the business process competencies required to execute corporate strategy (e.g., skilled people, brand, market positioning, viable products / services, ecosystem partners, financing) Enablers — the key functionality of technology solutions required to support the organization’s enabling business practices (e.g., development platform, applications, network connectivity, user interface, training and support, partner interfaces, data cleansing, and management)


Table 8: The Competitive Framework Key

Overview The Aberdeen Competitive Framework defines enterprises as falling into one of the following three levels of practices and performance:

In the following categories: Process — What is the scope of process standardization? What is the efficiency and effectiveness of this process? Best-in-Class (20%) — Practices that are the best

currently being employed and are significantly superior to the Industry Average, and result in the top industry performance.

Organization — How is your company currently organized to manage and optimize this particular process?

Industry Average (50%) — Practices that represent the average or norm, and result in average industry performance.

Knowledge — What visibility do you have into key data and intelligence required to manage this process? Technology — What level of automation have you used to support this process? How is this automation integrated and aligned?

Laggards (30%) — Practices that are significantly behind the average of the industry, and result in below average performance. Performance — What do you measure? How

frequently? What’s your actual performance?


Table 9: The Relationship Between PACE and the Competitive Framework

PACE and the Competitive Framework – How They Interact Aberdeen research indicates that companies that identify the most influential pressures and take the most transformational and effective actions are most likely to achieve superior performance. The level of competitive performance that a company achieves is strongly determined by the PACE choices that they make and how well they execute those decisions.





Appendix B: A Comparison of Material Handling Usage

The following tables show the overall levels of current adoption in current use by the 158 companies surveyed along with the relative likelihood (in terms of times more likely) of the Best-in-Class to utilize the specific enablers versus all other companies. (Please note that in the 13 items in bold the likelihood exceeds two-times)

Table 10: Product Handling Equipment Usage Rates

Product Handling Equipment All Best-in-Class Average Laggard vs. OtherSingle-deep rack 79% 93% 77% 75% 1.22 Static shelving 60% 74% 58% 53% 1.30

Counterbalanced style lift trucks 50% 60% 54% 34% 1.28 Reach or deep-reach style lift trucks 47% 64% 43% 42% 1.49

Double-deep rack 44% 65% 42% 32% 1.71 Narrow aisle lift trucks (operating in clear

aisles of up to 72”) 34% 47% 36% 21% 1.52

Gravity flow racks 31% 48% 31% 19% 1.85 Pallet flow rack 31% 50% 25% 29% 1.85

Carton flow rails 25% 33% 27% 16% 1.43 Push-back rack 24% 35% 18% 26% 1.59

Very-narrow-aisle (VNA) lift trucks (operating in clear aisles of 72” or less) 22% 44% 20% 8% 2.75

Triple-deep rack 19% 30% 14% 19% 1.88 Drive-in / drive-through rack 18% 39% 11% 17% 3.00

Mechanized deep lane storage 5% 7% 4% 8% 1.17 Source: Aberdeen Group, November 2010

Table 11: Integrated Systems Usage Rates

Integrated Systems All Best-in-Class Average Laggard vs. OtherRuggedized Mobile Computers (forklift

mounted or handheld) 48% 64% 50% 31% 1.49

Conveyor-based picking systems 27% 53% 22% 14% 2.65Automated shipping sortation 21% 47% 18% 8% 3.36

Vertical carousels and/or vertical lift modules 17% 29% 16% 10% 2.07Cartonization Software 16% 31% 10% 15% 2.58

RFID Technology 14% 18% 15% 12% 1.29 Horizontal carousels 12% 15% 10% 12% 1.36

Automatic Guided Vehicles (AGVs) 10% 14% 11% 4% 1.56 Speech-based warehousing 9% 16% 10% 3% 2.29

Pallet handling automated storage and retrieval system (AS/RS, directed robot) 9% 18% 7% 7% 2.57

Automatic palletizing systems 8% 14% 7% 5% 2.00Pick-to-light and put-to-light systems 7% 14% 7% 2% 2.80Case handling automated storage and

retrieval system (AS/RS, directed robot) 6% 19% 3% 5% 4.75

In-motion manifesting system 6% 11% 4% 4% 2.20Unit sortation (tilt tray, cross belt,

paddle, etc.) 6% 14% 5% 2% 2.80

Unit dispensing (A-frames) 4% 11% 1% 2% 5.50




Appendix C: Related Aberdeen Research

Related Aberdeen research that forms a companion or reference to this report includes:

• Robotics going Mainstream: Improve Warehouse Productivity and Safety; September 2010

• International Transportation: Optimize Cost and Service in a Global Market; July 2010

• Labor Management: Instill Accuracy, Efficiency, and Productivity in the Warehouse and Retail Store; March 2010

• On-Time and Under Budget: Maximizing Profits with Efficient Warehouse Management; December 2009

• Warehouse Operations: Increase Responsiveness through Automation; July 2009

• Five Key Steps to Optimizing Warehouse Management; February 2009

• Distribution Center Strategies for Today’s Economy: Managing Growth Without Adding Labor or Space; November 2008

• Warehouse Automation: How to Implement Tomorrow’s Order Fulfillment System Today; October 2008

• Agile Logistics: Transforming the Distribution Center; May 2008

Information on these and any other Aberdeen publications can be found at www.aberdeen.com.

Author: Bob Heaney, Senior Research Analyst, Supply Chain Management ([email protected])

Since 1988, Aberdeen's research has been helping corporations worldwide become Best-in-Class. Having benchmarked the performance of more than 644,000 companies, Aberdeen is uniquely positioned to provide organizations with the facts that matter — the facts that enable companies to get ahead and drive results. That's why our research is relied on by more than 2.2 million readers in over 40 countries, 90% of the Fortune 1,000, and 93% of the Technology 500.

As a Harte-Hanks Company, Aberdeen plays a key role of putting content in context for the global direct and targeted marketing company. Aberdeen's analytical and independent view of the "customer optimization" process of Harte-Hanks (Information – Opportunity – Insight – Engagement – Interaction) extends the client value and accentuates the strategic role Harte-Hanks brings to the market. For additional information, visit Aberdeen http://www.aberdeen.com or call (617) 723-7890, or to learn more about Harte-Hanks, call (800) 456-9748 or go to http://www.harte-hanks.com.

This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies provide for objective fact-based research and represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc. (071309b)

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