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An Introduction to Warehousing and Distribution Metrics

in: Distribution, Warehouse Management|Warehouse Management System (WMS), Company News

Most warehousing and distribution businesses achieve 4% net profit, according to the National Association of Wholesalers and Distributors. Companies that are able to achieve such profits (or more) rely heavily on warehousing and distribution metrics to ensure they are minimizing expenses to maximize profits.

In this introduction to warehousing and distribution metrics, we’ll review the importance of metrics and common mistakes made when tracking and analyzing such metrics. We’ll also look at types of metrics and how to manage them.

How Can Warehousing and Distribution Metrics Improve Your Bottom Line?

Forklift loader in storage warehouse shipyard. warehousing and distribution

In nearly all industries, there has been an increased push towards tracking and analyzing metrics to improve business practices. Metrics provide data from which companies can make better decisions.

Tracking warehouse and distribution metrics can help you improve:

  1. Efficiency: Inventory management, order entry, and warehouse activities are all critical areas where companies should capture and track metrics to improve efficiency. Such metrics can be used to improve efficiencies throughout the warehouse. For example, high-demand products may be moved closer to packing stations to move orders out faster. Order-entry data may be used to analyze staffing and shipping needs for the warehouse. Each data element captured can be used to understand and adjust processes to improve efficiencies.
  2. Loyalty: Understanding customer metrics can help you assess customer loyalty. Repeat business is more profitable than constantly acquiring new customers. Knowing your company’s metrics around repeat business can lead to strategies to increase this number and improve profits.
  3. Profitability: To increase profitability, business owners know they need to increase sales, decrease costs, or both. Costs are often the most neglected aspect of the equation. Measuring all costs can help you reduce them so that you can increase profits even if sales remain the same.
  4. Risk reduction: The KPIs associated with aging stock can be used to better understand product sales patterns and reduce the risk of over-buying. Safety data can be used to reduce employee risks throughout the warehouse.
  5. Improved decision-making: Timely and accurate data can be used to improve decision-making throughout the organization. Capturing warehousing and distribution metrics ensures every area of the company is being optimized.

Four Types of Distribution Metrics

Now that you understand why you should track metrics, which metrics should you capture? Warehousing and distribution metrics generally fall into four distinct categories:

  1. Descriptive
  2. Diagnostic
  3. Predictive
  4. Prescriptive

These metrics are covered in sequence because they build upon one another to form highly complex matrices of information that can help companies not only see what is happening but potentially prevent problems from occurring.

Descriptive metrics help you understand what is happening. They are often used to analyze lagging indicators. They also set the stage for other types of metrics and can be used in conjunction with other data to gather a comprehensive picture.

Diagnostic metrics help distributors assess a problem area and diagnose, or find the root cause of, the problem. Distribution software solutions that include AI and machine learning tools can utilize descriptive and diagnostic metrics to help managers assess lagging indicators (descriptive metrics) and determine causes (diagnostic).

Predictive metrics leverage the first two categories of metrics—descriptive and diagnostic—to identify the likelihood of future events. For example, they may look at data to help you determine the likelihood of equipment failure, if you have enough personnel to complete a job on time, and similar situations.

Prescriptive metrics combinethe three previous types of metrics to provide solutions to prevent problems.

Common Metrics Mistakes

Warehousing and distribution companies often make the same mistakes when it comes to metrics. By understanding these mistakes, you can avoid making them in the future.

Not Capturing Enough Data

Unless you have the right software in place, it can be impossible to capture enough data. Manually trying to collect and record important data can be enormously time-consuming.

Capturing Too Much Data

The flip side of this mistake is capturing too much data. Not every piece of data is critical to your long-term success. Understanding the types of data available in a warehousing and distribution business and making strategic choices around the information to capture and analyze is important, too.

Bad Data

Bad data can include mistakes, such as mistakes keyed into the system during data entry, or poor data collection from different points in the organization. For reports to be accurate, they have to have accurate data to begin with. Bad data can lead to poor decisions.

No Strategic Alignment

Metrics should be aligned to key performance indicators (KPIs) for them to be valid. If metrics aren’t linked to goals, they probably aren’t important enough to capture.

Lagging and Leading Indicators

Lagging always means what happened; leading means what might happen. It’s important to look at both to understand the industry, the market, and the potential business opportunities available.

Lack of Benchmarks

There are two types of benchmarks that must be known for metrics to be meaningful. First, internal benchmarks provide you with a way to gauge progress within your company. Knowing where you began and where you are today provides a helpful way to assess progress.

But external benchmarks are also critical to understand whether your business is progressing as it should. Knowing industry-leading benchmarks, such as the 4% statistic which led off this article, is important so you can assess your business’ help in comparison with peers. If you only knew that your company’s profit margin was 2%, you might think this a great number, especially if last year it was 1.75%. It looks like progress, and it is. However, you’re still behind the industry average of 4%. And remember that an average means some companies are much higher than this figure. This may be the inspiration you need to try harder and do better.

Consider Metrics as Related to Service Offerings

We briefly mentioned loyalty metrics or collecting metrics that assess repeat customers. Understanding metrics can also open the doors to new service offerings and potential profits. This, in turn, can make your company more competitive.

For example, a high return rate for a product may mean opportunities. How? Well, if the product is hard to assemble, difficult to use, or challenging for people to begin using, perhaps you might offer training or assembly as an add-on or free service to encourage product sales. By offering a training package that costs $50, you may offset a $200 return expense. Examining the situation from all angles means looking at product sales, return rates, costs, and opportunities, and then making decisions based on what may lead to the most profitable and positive outcome for all.

The Right Warehousing and Distribution Software Provides Excellent Metrics

Companies striving to capture and use metrics and align them with KPIs often struggle without the right warehousing and distribution software in place to assist them. Mindover Software can help your company assess and choose the right platform for your needs with room to grow. We can also help you identify and capture important metrics to improve business outcomes.

A couple examples of success stories may help you understand the importance of the right software to assist with metrics. Miller Veterinary Supply, for example, is the oldest veterinary distribution company in the United States. They needed new software to support growth—and the ability to track metrics aligned with KPIs.

RJ Star distributes automotive products to warehouses throughout the United States. The new system installed for this company now provides accurate, timely data to support improved business decisions.

If you’re ready to proceed with improved warehousing and distribution metrics, Mindover Software is ready to help. Contact us or call 512-990-3994.

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Started in Austin, Texas in 2000, Mindover Software has been providing award-winning software and consulting solutions spanning the business lifecycle to small and medium sized business. Now, with consultants in Dallas, San Antonio, Austin, Boise, and San Diego, Mindover Software provides strong local support with the resources of a national company.

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