The challenges facing warehouse managers today are as tough as they have ever been. They include:
- Supporting the revenue growth with the same staff and stringent cost control
- Growing number of sales channels, which add complexity and requirements to the fulfillment process
- Ensuring staff productivity is maximized while balancing peak with temporary personnel
NetSuite is an extremely flexible ERP system that can also be used to manage your inventory, but how does someone running the warehouse measure their effectiveness with all the changes? How do they know whether they are best in class or lagging in some areas? We suggest 4 key metrics that can help measure the operational efficiency of your NetSuite warehouse: (1) inventory turns, (2) fulfillment rate, (3) lines picked per hour, and (4) fulfillment/shipping error rate.
Inventory turns and fulfillment rate are good counter balances as improving one can have a negative impact on the other. The following are a couple of simple definitions for clarity. Inventory turns is measured by dividing the cost of goods sold by the average inventory levels over that same period of time whereas fulfillment rate is measured as orders are completed (not counting back-orders or partial fulfillments).According to APICS, the carrying costs of inventory are 25% of the value. This includes shrinkage, product obsolescence, and cost of capital, storage, and movement. For a $10M business, increasing inventory turns from 6 to 7 can result in a $44K annual savings. The fulfillment rate is the best way to ensure “commitment” with your customers. In the simplest of terms: “Do you deliver what your customers order?” The friction between these two measures is healthy and can drive down inventory costs but strives for 100% fulfillment.
To control costs in the warehouse, where labor and the picking process is typically the most expensive variable. Lines picked per hour will vary dramatically based on the type, size, and order mix of a particular business. According to a DC Velocity study, this ranges from 25-200 lines per hour. They key is to benchmark your output then drive continuous improvements. The quality of the output is measured in fulfillment/shipping errors. Costs for this are also very company specific, but range from $25 to over $750 per error, never mind the cost of customer disappointment.
Once these metrics are benchmarked, how can they be improved? From an operational perspective, we consistently see inventory control as a top priority and, again, as no surprise. Driving improvements in the NetSuite warehouse has been proven by many OzLINK customers such as ibex Outdoor Clothing, howies, and AvidMax,all resulting in major improvements in fulfillment rates and reduction in errors.
The following are the 4 steps you should take to take drive your NetSuite warehouse to the next level:
- Define and capture the detailed metrics for your business
- Implement bar coding on items, ideally scanning shipments as they enter the warehouse
- Leverage NetSuite inventory and warehouse bin capabilities
- Implement a NetSuite mobile warehouse solution
In the journey to better serve your customer make sure to leverage domain experts, as each of the above offer many benefitsto your business. With OzLINK, every customer starts with mobile picking. There are at least two reasons for this: (1) picking is the most costly operation in terms of manpower, (2) this is the greatest opportunity to reduce errors. As a result, improvements have a direct customer benefit and greater visibility. Customers then expand their initiative and add purchase order receiving, as well as inventory processes. More recently, we have seen an expansion in customers automating the NetSuite work order process as they look to streamline more complex tasks. This “agile” approach is an excellent way to check investment against payback. The earlier improvements are used to fund the subsequent initiatives and avoid the “big bang” approach which can result in missed expectations and failed projects.
VP Sales & Marketing
Oz Development Inc