Unlocking Hidden Cost in the Distribution Center
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Unlocking Hidden Cost in the Distribution Center A Research Report by Intermec Technologies Corporation RESEARCH PAPER EXECUTIVE SUMMARY RESEARCH METHODOLOGY The “Unlocking Hidden Cost in the Distribution The research, commissioned by Intermec and carried Center” research examines current views out by research company Vanson Bourne, surveyed on distribution center trends and challenges 250 senior supply chain and distribution center from senior supply chain and distribution managers at organisations with over 500 employees center managers within the UK, France, in the UK, France, Germany and North America. Germany and Northern America. The interviews were conducted by telephone with respondents spanning industries including retail, With many businesses still feeling the effects manufacturing, distribution, transport, chemicals, of the recession, facing increased competition logistics, pharmaceuticals, wholesale and FMCG. and being forced to operate on smaller and smaller profit margins, distribution managers 50 interviews were conducted in each European are increasingly tasked with the seemingly country with 100 interviews taking place in impossible job of finding cost savings from North America during October 2012. existing operations. To do this, managers are learning that they have to leave no stone unturned in order to effectively evaluate SIZE current processes and technology to help identify areas for efficiency improvements. 28% 36% Key Findings From The Intermec Research Are: • Managers are seeking to improve operational efficiency by gaining back mere seconds from each workflow to improve the overall 36% time and cost savings. Having workers take fewer steps over the course of a day, eliminating battery changes mid-shift or 501-1000 employees using one device for multiple purposes are all areas managers identified as key 1001-3000 employees components to increase efficiency. It is also More than 3000 employees clear that technology investment will impact productivity when deployed effectively. SECTOR • Picking accuracy is of growing importance to 5% managers as visibility increases over the cost 6% 24% to the business through measures such as 7% The Perfect Order Index. Managers believe mis-picks to be an ongoing issue within the 8% workplace and one that could be avoided through new technology and processes. 8% 22% • Trends such as ‘reverse logistics’ are growing 9% in popularity as businesses look to manage 10% returned goods within the supply chain as quickly as possible to reduce the impact Retail Manufacturing on the bottom line. And along with this, managers are adopting ‘Hardware as a Service’ Distribution Transport models to ease the burden of peak periods without significant capital expenditure. Chemicals Logistics Adoption of RFID and Voice technology is Pharmaceuticals Wholesale steadily growing, with the US and Germany quicker on adoption in both instances. FMCG 2 SUMMARY OF RESEARCH STATISTICS Every Second Counts • 79% of managers have been tasked with finding Nearly ... areas where time and cost saving could be made 3, 000 hours per year • Of the managers tasked with finding cost are lost at distribution centres savings, nearly 85% have been asked to find between 10% and 30% • Nearly two thirds (60%) of organizations agree that “Large time and cost savings opportunities can be found in gaining back mere seconds in operations workflows” Technology And Process Trends Within The Distribution Center • On average, organizations could find nearly 3,000 • More than three in five managers in each hours’ worth of direct labour hour reductions country, excluding France, see ‘reverse if processes were made more efficient logistics’ as a key focus area. Just over a third of managers in France agree with this • UK inventory control and French packing are the most inefficient workflow • To address short term requirements in processes of those surveyed the distribution center, nearly two-thirds (62%) of managers view the leasing of • 89% of managers believe that investing in new hardware as a cost-effective solution technology would enable them to achieve time savings and improve worker productivity • More than 70% of organizations in the UK, France, Germany and USA use mobile handheld computers in the distribution center while more than half (52%) use RFID Greater Visibility On The Cost Of Mis-Picks • Surprisingly nearly a quarter (23%) of distribution centers still use paper. • Almost three in five (59%) of managers This is highest in the US at 27% use “The Perfect Order” metric • Almost four in five organizations see boosting • 90% of managers in the UK measure the cost worker productivity as the most important of mis-picks, compared with 74% in France, factor in their business except in France where 77% in the US and 82% in Germany improving worker safety was ranked 2% higher • France has the lowest average picking accuracy at just 4% reporting a 99% or greater pick rate and has the greatest room for improvement on perfect orders • Organizations that measure the cost of mis-picks are on average losing £242,000 / $389,000 / €291,000 a year due to mis-picks in the picking workflow 3 EVERY SECOND COUNTS The distribution center is under In the past 6 months ... increasing pressure to reduce cost and increase margins. In the last six months alone, nearly eight out of ten (79%) of managers have 8 out of 10 been tasked managers have been tasked with nding with finding cost savings in existing operations cost savings from existing operations. This is as high as 88% in Germany and 84% in the UK. In the US and France this figure is slightly lower at 76% and 72% respectively. On average ... Perhaps unsurprisingly, given the managers have been tasked with economic climate, the amount of cost nding nearly 20% cost savings savings managers have been tasked across their organizations with finding is not minimal. Managers have been tasked with finding an average of 19% from existing operations. OF MANAGERS BELIEVE THAT 89% INVESTING IN NEW TECHNOLOGY WOULD ENABLE THEM TO ACHIEVE TIME SAVINGS AND IMPROVE WORKER PRODUCTIVITY 4 EVERY SECOND COUNTS Of those involved in finding cost and time saving areas, almost 85% have 32% been asked to find cost savings of between 10% 28% and 30%. Almost three in 24% ten (28%) are being asked to find the higher end of this bracket: 21% to 30%. Despite the majority of managers tasked with Yes – between 10 and 15% Have you been finding cost savings, nearly tasked with one in three (30%) have Yes – between 16 and 20% meeting or not conducted a review of Yes – between 21 and 30% targeting a certain workflow process in their percentage in distribution center within cost savings? the past year. Given this is considered to be the first step in identifying areas for improvement this figure could be concerning for many business leaders. The research 30% In the last also reveals that in the 6-12 months have companies that are yet you conducted a to take action to improve detailed workflow workflow productivity, process review of there is a degree of 70% your distribution resistance to the idea of center/warehouse carrying out a full review. in order to uncover hidden Yes No opportunities and identify areas where efficiency and/or cost savings could be realized? 5 EVERY SECOND COUNTS Managers who have The Drivers Prompting Workflow Process Reviews not held a review in the past year, say that compliance (28%) or poor Internal audit of 28% performance (27%) are performance metrics… most likely to prompt them to do so. This Poor company 27% is in contrast to the performance businesses that have held Executive management reviews with only 9% of 23% request companies citing poor performance as the driver. Interestingly, in a world What would be most likely to prompt you in which every customer’s to conduct one in the next 6 months? business is hard won, and even harder kept, nearly : ( one in five companies (16%) say they will not review their workflow % of managers said they processes until after 16 a customer complaint will not review their workow processes until after a customer has been received. complaint has been received Businesses that have conducted recent reviews revealed that Companies Who Have Conducted A Review their top drivers for this were compliance (26%), Internal audit of internal improvement performance metrics out 26% program (22%) and an of compliance executive management Internal continuous 22% request (23%). improvement program Executive management 22% request What prompted the review? Please select the most appropriate answer 6 EVERY SECOND COUNTS Yielding Greatest Cost Saving – Country Differences In the UK the packing/loading area of the In Germany, putaway, In the USA inventory During the In France, picking is by far workflow provides the best replenishment and control is the workflow the area that has the most opportunity for cost stocking; along with area that provides the review, which opportunity for savings or savings closely followed by receiving are the areas most opportunity for gains gains picking and inventory with the most opportunity or savings workflow control area provided the most 60% opportunity 55% 58% 58% 57% 53% 53% 50% 46% 47% for cost 44% 43% 40% 40% 37% 38% 37% 37% savings and/ 32% 28% or efficiency gains? Packing/loading Receiving Putaway/replenishment/ Picking (selection) Inventory control stocking UK France Germany USA In Germany, reviews are far more likely to be prompted % by an executive 60 of managers agreed management large time and cost savings can request than by be found by gaining back mere anything else with seconds in operations workows 40% choosing this option. This compares to just 16% in the US, and 25% Through the process of workflow reviews in both France and the UK. and when faced with finding up to 30% cost savings, managers are looking to shave Following a review, managers identified seconds wherever possible.