Fulfillment Excellence and Dynamic Event Warehousing … · Fulfillment Excellence and Dynamic...

Fulfillment Excellence and Dynamic Event Warehousing Come of Age

January 2012

Bob Heaney


© 2011 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897

Executive Summary When it comes to warehousing, there is a growing schism between the haves and the have-nots. Up to 94% companies in Aberdeen's research are striving to enhance mobility and be more dynamic, real-time, and event driven. However, many have not yet adopted the underlying process and technology enablers required for real-time operational processes. This report examines the correlation between key process capabilities, the technology that supports them, and improved ROI performance in the distribution center.

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

• 97.8% perfect order rate delivered to customers complete / on-time

• 3.7% decrease in warehouse labor costs per unit handled vs. last year

• 2.6% 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 compared to others:

• 33% more likely to support task interleaving dynamically (switching employees between functions - picking, replenishment, etc.)

• 24% more likely to know the contents of every bin in the warehouse in real time

• 19% more likely to confirm the location of put-away goods in real time

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

• Examine whether currently-implemented systems provide the level of visibility and event-driven capability needed to operate in today's mobile, more interactive, warehouse.

• Re-evaluate capacity and ROI models, and re-examine the assumptions upon which they are based. Solutions that addressed important pressures in the past may need to give way to new costs, but they may also provide previously-overlooked benefits that have become more valuable in the current environment.

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

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.

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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 The Maturity Class Framework ............................................................................ 4 The Best-in-Class PACE Model ............................................................................ 6 Best-in-Class Strategies ........................................................................................... 6

Chapter Two: Benchmarking Requirements for Success ................................... 9 Competitive Assessment ...................................................................................... 10 Capabilities and Enablers ...................................................................................... 12

Chapter Three: Required Actions ......................................................................... 19 Laggard Steps to Success ...................................................................................... 19 Industry Average Steps to Success .................................................................... 19 Best-in-Class Steps to Success ............................................................................ 20

Appendix A: Research Methodology ..................................................................... 21 Appendix B: Related Aberdeen Research ............................................................ 23

Figures Figure 1: Top two Pressures in Warehousing / Fulfillment Services ................ 4 Figure 2: Top Two Actions in Warehousing / Fulfillment Services ................... 7

Tables Table 1: Top Performers Earn Best-in-Class Status.............................................. 5 Table 2: The Best-in-Class PACE Framework ....................................................... 6 Table 3: The Competitive Framework ................................................................... 11 Table 4: Technological Investment Hurdles and ROI Guidelines .................... 15 Table 5: The PACE Framework Key ...................................................................... 22 Table 6: The Competitive Framework Key .......................................................... 22 Table 7: The Relationship Between PACE and the Competitive Framework ......................................................................................................................................... 22



Chapter One: Benchmarking the Best-in-Class

Business Context Even in the best of times, warehouse management excellence requires the careful balancing of competing objectives like space / resource utilization versus organizational efficiency, picking and replenishment speed versus accuracy, and increasing throughput versus minimizing labor costs. The complexity of today's fulfillment process has increased under multi-channel logistics, with same-day web-ordering and direct-to-consumer models impacting as many as 65% of all companies. Today's economic environment has only heightened this challenge, with increased scrutiny of capital expenditures, and more demanding requirements for return on investment (ROI). For this study, Aberdeen surveyed over 134 executives to understand their performance and the rise of mobility and event driven processing. This report explores current capabilities and the use of enabling technologies, as well as potential future investments and ROI expectations.

As illustrated in Figure 1 below, the top pressures driving companies to improve their distribution center operations highlight the need for delicate balancing of competing objectives.

Figure 1: Top two Pressures in Warehousing / Fulfillment Services

Source: Aberdeen Group, December 2011

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:

43%

26%

48%

21%

58%

21%

32%

40%

39%

50%

51%

54%

0% 10% 20% 30% 40% 50% 60% 70%

Customer demands for value-addedservices

Need for better utilization ofunderutilized resources

Proliferation of SKUs, sizes, packaging

Need to manage multiple sales /logistics channels

Percent of Respondents n=134

Best-in-Class Industry Average Laggard

Fast Facts

√ 94% of respondents will be exploring process or technology solutions to become more Event Driven and Real-time in fulfillment

√ 78% of respondents expect full payback on process or technology investments within 2 years

√ 26% of respondents expect full payback on process or technology investments within 1 year or less.



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

• Actual Cost per Unit -Percentage change in warehouse labor costs per unit handled versus prior year actual

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

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

Definition of Maturity Class Mean Class Performance

Best-in-Class: Top 20%

of aggregate performance scorers

Possessed a perfect order rate of 97.8% delivered to customer’s request Decreased their warehouse labor costs per unit

handled, year over year, by 3.7% Decreased their actual warehouse operating cost

versus budget by 2.6 %

Industry Average: Middle 50% of aggregate

performance scorers

Possessed a perfect order rate of 96.7% delivered to customer’s request Increased their warehouse labor costs per unit

handled, year over year, by 1.8% Increased their actual warehouse operating cost

versus budget by 1.2%

Laggard: Bottom 30% of aggregate

performance scorers

Possessed a perfect order rate of 91.6% delivered to customer’s request Increased their warehouse labor costs per unit

handled, year over year, by 4.9% Increased their actual warehouse operating cost

versus budget by 3.6% versus prior year


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:

• Best-in-Class companies delivered a 3.7% decrease in warehouse labor costs per unit handled, year over year, versus a 3.6% increase for Laggards. This represents an 8.5 percentage point advantage for labor cost - the largest controllable warehouse expense.

• Further evaluation of the perfect order rate metric reveals the following: for 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

The warehouse in today's marketplace is the last frontier to trim additional costs out of the business and it is one of the few remaining places where the business has total control.

~ Operations Manager,

Beverage distributor



91.6%, only 19% 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, missing on more than 5 out of 100 orders (a service level of less than 95%) is not sustainable for most industry segments.

The Best-in-Class PACE Model Using warehousing and logistics 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 Need to manage

multiple sales / logistics channels Need for better

utilization of underutilized resources

Better integrate order and operating delivery flows Improve throughput

through systems or automation Improve labor

efficiency and workforce productivity by reassessing management software

Track warehouse transactions to specific employees Central direction of processes Cross docking, DC Bypass,

transloading, or flowthrough (without a put-away step) Advanced pick methodologies

like batch, zone, put, put to light, or cluster picking Labor / task management Task Interleaving dynamically

(switching employees between functions.) Dynamic real time order

dispatch

Confirm transactions with automatic data capture (e.g., barcoding, speech, RFID) - 85% Confirm the location of put-away

goods in real time - 82% Direct order-picking with mobile

devices - 78% Track inventory attributes (e.g., lot

numbers, serial numbers, size, style, color, etc.) in real time - 78% Commercially developed warehouse

management software (WMS) - 72% Labor management software - 57% Conveyor-based picking systems -

38% Pick-to-light and put-to-light

systems - 28%


Best-in-Class Strategies The Best-in-Class and All Other companies (Industry Average and Laggards combined) have differences and similarities in the strategic actions they take. Companies were asked to select their top two actions (Figure 2). In warehouse resource management it is important to synchronize warehouse activities to order requirements. Eighty-two percent (82%) of the Best-in-Class, and 59% of all others, are seeking to integrate order and operating delivery flows better. The ability to gain early visibility to orders and volumes can greatly assist in resource and labor planning and allocation -- an area where Best-in-Class companies an 8 percentage point advantage. 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. They also can address multi-



channel logistics formats such as cross docking, which require interactive real-time visibility to order flows.

Figure 2: Top Two Actions in Warehousing / Fulfillment Services


Overall, both Best-in-Class and All Others focus on integration, productivity and throughput within the warehouse. However, the enterprise's ability to balance workload demands, gain visibility into order flows and worker tasks, and, ultimately, deliver perfect orders, vary markedly between the Best-in-Class and All Others. This will be further detailed in the insight that follows and in Chapter Two.

16%

49%

35%

55%

21%

52%

40%

63%

30%

52%

63%

82%

0% 20% 40% 60% 80% 100%

Store more product in the same space

Improve labor efficiency and workforceproductivity by reassessing

management software

Improve throughput through systemsor automation

Better integrate order and operatingdelivery flows

Percent of Respondents n=134

Best-in-Class Industry Average Laggard



Aberdeen Insights — An Assessment Strategy

Advanced customer order visibility and real-time dynamic visibility to orders and individual tasks are important, but only part of the solution. Having the processes and tools at your disposal to realign those labor resources dynamically and effectively can improve labor efficiency and workforce productivity. Fifty-two percent (52%) of companies (Figure 2) are focusing on and reassessing labor management software and resource planning tools to improve efficiency, but companies are somewhat limited in their capability to measure performance at the individual worker level.

• Over 70% of companies in this study report that they are tracking events at the employee level.

• Yet only 57% report that they have labor / task management (tracking actual time to complete tasks against a system-calculated time). Hence only about half are taking the full labor management step of correlating activities to a "standard or plan"

Today's warehouse environment is clouded with an array of functional areas to manage (i.e., 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, an assessment strategy should be developed to include:

Warehouse Capacity Assessments. Evaluate 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 point's specific space / labor capacities and process requirements and the degree to which they want to address real-time events or activities.

Proper Technology ROI considerations. Companies are not at all equal when it comes to the level of automation or software they use to measure or track performance, as evidenced by the fact that up to 59% of respondents plan to invest in LMS within 12 months (Table 4). Maximizing labor allocation and productivity is key to mitigating capacity and meeting ROI targets. Many companies use LMS to complement dynamic order and task dispatching in real-time as illustrated in Chapter Two. This complicates the evaluation of an LMS (or a module from a WMS that has labor management capabilities) and also makes the selection process more difficult. But added difficulty generally adds opportunity. As illustrated in the case study about Event Driven eFulfillment in Chapter Two, rigorous selection yields its own rewards. Additionally, 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.

Quick turnaround for customers is key. Precision in picking, kitting, and shipping is paramount so that every opportunity is a great experience for our customers.

~ Logistics / Supply Chain consultant,

Metals and metal products manufacturer



Chapter Two: Benchmarking Requirements for Success

This section will analyze what combination of people, process, and technology supports the warehouse management efforts of top performing enterprises. 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 —E-Commerce DC implements Dynamic Event Processing with Voice obtains ROI in Year One

This large retailer recently faced a shift in its distribution profile. In less than 6 months, it had to accomplish a full facility transformation - converting the DC to direct-to-consumer parcel delivery for its booming Internet commerce platform.

Growing from approximately 3,200 SKUs to around 12,500 SKUs – the order volumes the facility had to handle surged during the peak season (of Halloween 2009) to 115,000 orders off a full base of 35,000 items. An additional requirement of the web order SKUs was one of policy. Direct-to-consumer orders placed by 1:00 pm had to be shipped on the same day.

"The facility was challenged with the old label-based and label directed picking system, which was inadequate to sustain the planned volumes. Significant temporary process reengineering and a virtual tripling of temporary staff was required just to muscle through the peak season,” said the Vice President of Supply Chain Management. "Not only that, our future plans called for more web items; incremental web channel sales were budgeted to increase by more than three times by peak Halloween season. To absorb this volume while optimizing our costs, a major transformation of our distribution operations was required. We needed to go to dynamic picking, which required a phase-out of our predominately paper-based picking environment,” the VP continued.

Before the transformation initiative, each type of order was batched and picked via paper without extensive RF scanning (only some RF was present prior to integration and with no voice). But under the new reengineered system, all picking involves dynamic event processing, including RF scanning combined with voice integration. At the operator level, the activity involved is a combination of scanning and voice-directed, where the operator scans totes and shipping cartons to identify specific orders and confirms each pick (via UPC scan) to tote or shipping carton. Within the new pick PODs an operator is voice-directed to a

continued

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 —E-Commerce DC implements Dynamic Event Processing with Voice obtains ROI in Year One

specific POD to locate products, and scans his or her UPC to verify and ensure accuracy as each product is placed (called a ‘put’) into a bin to continue each picking phase. As order types are audited, packed and labeled as complete, they are shipped directly to the end consumer.

Project Benefits and ROI within year One Some of the productivity, audit and ROI benefits of the operation include:

• 6-month ramp up - full conversion, ramp-up and training was completed in time for the peak

• 56% increase in orders per hour

• 16% increase in units per order - this was complemented by the fact that the suggested selling that took place on the web items

• 78% increase in units per hour picked - in October 2010, the company went from 22.8 units per labor hour to 40.6 (all hours include picking, putting and audit functions)

The new system is scalable, since about 56% of the annual volume occurs during the Halloween season. "Cyber Monday this year involved a three-fold increase versus the trend where 95,000 units in one day were ordered in a multi-zone. We could not have done this without adding voice headsets, putpod carts and stations, and dynamic wave-picking,” said the VP.

Overall, when the project was justified, it was assumed that all project components hardware, software, and process change would take place, yielding a 1.8 year ROI payback. "Actual results to date have resulted in overall productivity levels that can result in a payback within 1.5 years. However, it should be noted that the voice functionality component yielded a payback of less than a year. The workers have been very receptive to the change, and have embraced it in a fashion capable of the quick ramp-up we needed in advance of the 2010 holiday season. We also estimate that, operating under the old system, this additional volume would have incurred an additional cost of $400,000 during the holiday season alone,” concluded the VP.

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

"Actual results to date have resulted in overall productivity levels that can result in a payback within 1.5 years. However, it should be noted that the voice functionality component yielded a payback of less than a year. The workers have been very receptive to the change, and have embraced it in a fashion capable of the quick ramp-up we needed in advance of the 2010 holiday season. We also estimate that, operating under the old system, this additional volume would have incurred an additional cost of $400,000 during the holiday season alone."

~ VP Supply Chain, Large Retailer



(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

Process

Cross docking, DC Bypass, transloading, or flowthrough (automatically assigning inbound receipts to outbound

orders without a put-away step)

75% 62% 45%

Advanced pick methodologies like batch, zone, put, put to light, or cluster picking

71% 58% 45%

Task Interleaving dynamically (switching employees between functions - picking, replenishment, etc.)

64% 47% 45%

Dynamic real time order dispatch (i.e., ability to interleave order adds or quantity changes to already

planned or in-process picks / puts)

54% 37% 36%

Organizational Management

Central direction of processes in the warehouse (as opposed to letting operators plan and direct own work)

82% 69% 62%

VP and/or C-level actively involved in major decisions concerning Solutions / Changes / Investments

81% 75% 51%

Knowledge and

Performance Management

Track warehouse transactions to specific employees

86% 68% 64%

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

68% 58% 46%

Technology

Confirm transactions with automatic data capture (e.g., barcoding, speech, RFID)

85% 59% 53%

Direct order-picking with mobile devices

78% 60% 54%

Software and Material Handling Solutions:



Multi-Format Logistics

√ 60% - Shipping direct-to-store

√ 58% - Shipping to or through a traditional distribution center

√ 46% - Shipping direct-to-consumer

√ 40% - Shipping through 3PL or e-fulfillment provider

√ 34% - Shipping through a break-bulk facility (i.e., cross dock, transload, or distribution center flowthru facility)

√ 21% - Shipping through a free port, free trade zone, or transition point for customs

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

Best-in-Class Average Laggards

72% Commercial warehouse management software (WMS) 38% Conveyor-

based picking systems






Capabilities and Enablers Based on the findings of the Competitive Framework and interviews with end users, the Best-in-Class demonstrate the following capabilities and enablers in process, organization, knowledge, technology, and performance management.

Process - Dynamic Event Driven Processing Comes of Age Batched systems for warehousing have given way to real-time, interactive event processing as the warehouse becomes more paperless. These dynamic event processing operating techniques found in today's LMS / WMS are used by slightly more than 50% of all companies. Levels of adoption by the Best-in-Class range from a low of 54% to as high as 74% (Table 3), while these leaders are 1.3 to 1.4 -times as likely as Others to be using these advanced techniques.

• Cross Docking and multi-format logistics capability is a key advantage in today's multi-channel logistics environment. Lacking interactive systems to cross dock or ship direct to consumer, for instance, reduces an enterprise's capability to compete for new business. The sidebar ranks the adoption of various channel and format. It is important that enterprises upgrade the capabilities their warehouses and warehouse systems provide (either themselves or through 3PL or LSP providers) to remain flexible and competitive in the logistics formats they support. Cross docking and DC bypass are examples of formats that require special systems and dynamic event processing operating techniques for adequate support. The Best-in Class, at 75%, is 1.34-times as likely as all others to support these capabilities (Table 3). Today's WMS systems offer distributed order management capabilities and interactive inbound-to-outbound redirection features, allowing companies to plan and execute fulfillment according to the logistics format that results in the highest level of service at an optimized cost.

• Dynamic picking and real-time task and order interleaving are also key capabilities. The ability to perform advanced interleaved tasks whether for order adds / edits or to move employees across various warehouse functions are key features enabled by the advent of mobile devices and real-time processing.



These capabilities are enhanced by real-time data capture. The Best-in-Class (85% vs. 57%) are 1.5 times as likely as All Others to confirm transactions with automatic data capture (e.g., barcoding, speech, RFID). Confirmed items and orders have higher picking accuracy, which translates to higher perfect order rates - a key performance metric for leading companies or those trying to reduce a performance gap.

As hardware and software have advanced, the ROI of dynamic real-time processes has become more compelling (Table 4, Technological Investment Hurdles and ROI Guidelines). If your company lacks these capabilities today, be sure to evaluate your software / technology and processes to determine if you (or the 3PL who performs your fulfillment) can deliver an acceptable ROI using these paperless capabilities.

Best-in-Class companies are more heavily embracing real-time event driven process capabilities and mobility solutions. This in turn enhances the companies' ability to meet or beat cost and service metrics (increasing warehouse productivity, reducing labor costs, and optimizing service).

Organizational Management Organizational management has evolved to become both more centralized and more aligned with top level management- over 50% of companies cite active top level ownership of process changes / investments.

An effective organizational structure is key to the success of any warehouse operation. Eighty-two percent (82%) of Best-in-Class companies and 69% of Industry Average companies provide for centralized direction of processes in the warehouse (versus letting operators plan and direct their own work). Even 62% 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 is only the start of a full-featured direction process. This detailed knowledge is enabled by engineered standards for labor management / allocation, and tracking systems for personnel and activities (we will discuss the specific merits of 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 81%, Best-in-Class companies are 21% more likely than all others to have one or more VPs and / or C-level executive positions active in warehouse process and / or automation implementations (either in-house or via 3PL providers).

Prior studies (see Appendix B) have shown that VP and C-level involvement leads to improved metrics (with uplifts of up to 20%). Therefore, it is not surprising that Best-in-Class companies tend to have higher levels of C-level involvement in warehouse operations.



Knowledge and Performance Management Today's leaders and Best-in-Class logistics managers are looking beyond basic process implementation and organization structure - they are making performance management a priority at individual, group / department, and facility levels. To preform task interleaving and track performance, it is vital to direct workers and worker activities centrally, and track each employee in real-time.

Managers also need to monitor and adjust workforce requirements across roles / tasks within a given workday. This requires process knowledge and performance management at the individual level. The Best-in-Class are 86% likely (1.2-times as likely as the Industry Average and 1.3-times as likely as Laggards) to track warehouse transactions to specific employees. Additionally, as shown in Table 3, they are 1.47 -times as likely as Laggards to track actual time to complete tasks against a system-calculated time. A process of establishing system standard times and monitoring actual performance is the foundation for workforce flexibility. Flexibility, interactive and dynamic task dispatching, and detailed process knowledge are tightly linked. You must couple standards and expectations of performance with visibility of real-time warehousing events to monitor, flex, and direct your workers across multiple roles or tasks within the workday.

As with task interleaving and cross-docking, it takes more than shared visibility to data and tracking for an enterprise to maximize the opportunity to plan dynamically, allocate, and then maximize labor across functional areas, shifts, work zone and volume. The Best-in-Class have people, process, technology, and, yes, superior performance and labor management to their credit. They use all these tools to seize strategic advantage and contribute to superior labor / task resource allocations and heightened productivity - and they are widening the gap in overall performance.

Technology - Meeting the Event Driven Fulfillment Challenge 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 mobility, and material handling equipment has largely matured, and is poised to match business need in virtually every aspect of warehousing. One trend is clear from the data: real-time processing and event driven warehousing has arrived and is growing. According to Table 3:

• 85% of the Best-in-Class confirm transactions with automatic data capture barcoding, speech, RFID

• 78% of the Best-in-Class utilize direct order-picking with mobile devices

• 72% of the Best-in-Class utilize commercial warehouse management software (WMS). These solutions all offer advanced dynamic event management

• Over 50% of even Laggard companies utilize the preceding key Dynamic Event Processing features



With the exception of voice and robotics (which are just now emerging as options for all companies to explore) most companies have already deployed most technology/automation options. Companies in each class need to select the right options from all that compete for the company's continuous improvement dollar.

We asked the respondents planning to invest in one or more technology areas to indicate their interest in investment / improvement by technology type. Table 4 provides a decision matrix to assist in developing the cost / benefit and ROI factors.

Table 4: Technological Investment Hurdles and ROI Guidelines

Expected ROI All Types

Event Driven

WMS Auto ID

Mat Hdling

LMS Voice 3PL

Percent of Companies Planning

94% 88% 83% 62% 59% 37% 31%

0 - 6 months 6 4 5 2 2 2 2 -

7 - 12 months 26 35 17 29 10 20 8 4

13 - 18 months 45 33 45 29 31 17 15 16

19 months - 2 years 21 21 18 20 15 16 10 10

2 - 3 years 18 16 16 15 14 12 8 5

3 - 5 years 6 6 6 6 4 4 2 3

More than 5 years 1 1 1 1 - 1 - -

Total Companies … 123 116 108 102 76 72 45 38

Months to ROI…. 18.3 18.0 18.9 18.7 19.6 19.2 18.9 20.5

Percent expecting less than 1 year ROI

26% 34% 20% 30% 16% 31% 22% 11%

Source: Aberdeen Group, December 2011 Note: while none of the companies in the study have internal ROI financial paybacks set at beyond five years this does not imply that these solutions have been used for less than 5 years. In many instances these solutions have been in place at these companies for 7-10 years and more. Automation and equipment are depreciated on schedules of 7 years plus, but the ROI plan is still 2 years or less

Out of 134 survey takers 123 are interested in options ranging from software, equipment, logistics service providers, or 3PLs to help them upgrade their current capabilities or handle portions of their volume. The real challenge in selection is aligning the right technology / solution to each operations-specific need or operating profile, then sorting through a cost / benefit analysis of all competing options.

Across the top of the matrix are the various technology types, ranging from Event Driven Processing (which includes all real-time interactive activities in picking, replenishment), in which 94% of respondents (116 companies) plan to invest, and ending in 3PL at 31% of respondents (38 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 18.3 months to payback. Some companies target paybacks in less than one year, and the last row summarizes the percent of companies expecting that rapid return. In the ROI matrix, we observe:

• The popularity of a given investment choice is ranked from left to right, and the first three items (Event Driven, Auto ID and WMS) are in the 80% plus range. Auto ID has a very high current adoption rate (Table 3 shows adoption levels ranging from 85% to 73% respectively depending on maturity class)

• The most popular choice for investment, Event Driven technology (94%), includes several other categories of investment across Auto ID and WMS / LMS. It also integrates Material Handling systems and mobility devices, RF, and mobility devices and Voice. It relies on real-time data capture and employee / task tracking, and hence must be coupled with WMS / LMS features and employee labor. The pressures / actions from Chapters One and Two, including the top action "the need to integrate order and operating delivery flows" and the top pressure, the "need to manage multiple logistics channels" such as cross-docking, depend on real-time event processing. Hence WMS / OMS / LMS systems need to be able to process dynamically in response to a growing number of real-time events. Event Driven Technology by nature requires concurrent change across people, process and technology. As such, it can involve significant capital outlays, and yet, because it yields benefits in labor productivity and resource efficiency, it can produce significant ROI (34% of respondents say it can self-fund within one year). Each area Event Driven Technology touches can provide unique benefits, but these are complementary solutions, meaning that if one can take time out of a process with mobility or voice, then one can plan, measure, schedule, and allocate labor to the new process under LMS.

• The system choices, WMS at 88% and LMS at 59%, benefit from high levels of current adoption already (see sidebar, even though many are using home grown and manual systems). Many opt to replace or upgrade the system they have in place to move from batched and paper-based operations to dynamic real-time event processing. The commercial systems that exist today are robust in their capabilities to handle high volume real-time interactions with RF, mobility and high speed tracking / confirmation, and can support task interleaving.

• The most common automation choices, at 62%, are material handling solutions like conveyors, unit sortation, and so on. While these solutions require a steeper investment, they can be very beneficial and can sustain considerable growth in throughput volume without the need to add headcount. Some companies which are capital rich but hiring shy can benefit from the opportunity these solutions provide. It is also apparent from our research that many of

Current Software Usage All

√ 68% - Commercially developed warehouse management software (WMS)

√ 56% - Transportation management

√ 55% - Spreadsheets or manual system to manage the warehouse or to report metrics

√ 48% - Home-grown or legacy WMS that is no longer commercially supported

√ 46% - Distributed order management software

√ 42% - Labor management software

√ 39% - Mobile computer software for ruggedized warehouse applications

√ 33% - Commercially developed warehouse control software (WCS)

√ 18% - Home-grown or legacy WCS that is no longer commercially supported



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 (see Warehouse Management Excellence: Maximizing Resources and Efficiency, October 2010 for a detailed comparison).

• Finally, at 37%, voice technologies are becoming more accepted and more capable (this is a significant uptick in planned investment given that only about 20% of companies have voice today). The current state of the technology has benefited from the smartphone revolution. Devices have become more free-ranging, and are being bundled with Auto ID and mobile device technology. Both of these technologies are being applied in non-traditional warehouse areas like put away, replenishment, and support. The new event-driven needs of the modern warehouse, coupled with lower costs are fueling renewed interest in this technology.

• The final choice, 3PLs or logistics service providers (31%), is a growing option for handling overflow volume, strategically balancing the supply network, or offering extended capabilities (value added services and multi-channel logistics, Figure1, for example) that a company does not possess in-house. The sidebar to the right provides more details on the current levels of adoption of this solution.

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

Future Investments to Increase 35% over 12 months Current utilization of technologies, some of which are referenced in the technology section of Table 3, range from a low of 11% for robotics (newer technologies), to the 60% to 80% range for WMS, and the 80%+ range for some applications of barcodes and auto ID or Real-time Event Processing.

Yet virtually all companies using Auto ID today (83% from Table 4) 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. Nearly 50% of current users, those represented by the ROI solutions matrix in Table 4, plan enhancements.

• Virtually all companies using Auto ID today (83% from Table 4) are upgrading to newer equipment and expanding to non-traditional operations (see the case study of the eCommerce Retailer, for example).

• The same is true for WMS / LMS, which are extending into advanced picking and replenishment methods like task interleaving, mobility solutions, slotting, replenishment, yard management,

Outsourced Services (3PL/LSP):

√ 23% to 31% off all companies seek to expand outsourced services for logistics

Beyond these levels:

√ 49% to 60% 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

http://www.aberdeen.com/aberdeen-library/6887/RP-warehouse-fulfillment-management.aspx




incentive based pay, and pay for performance in new and existing warehouse sites.

• Many companies which have made sizable investments in technology plan to extend their investment, or at least deploy untapped features in solutions they already have, resulting in an average overall 35% increase in usage in the next 12 months and beyond.

In general terms, regardless of class, periodic ROI assessment and focus can improve on-time delivery and throughput, 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 cost metrics, while sustaining the high 97% perfect order metric.

Aberdeen Insights — Technology Enables, but Does Not Guarantee Superior Results

While the Best-in-Class use event driven warehousing technologies and balance cost and service, they do not stop there. 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 without real-time visibility to events. In some cases, you will want to leverage the value of a 3PL, which may be your best option for areas 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 are also using real-time individual worker measurements as illustrated in our eCommerce Retailer case study to streamline and reengineer processes in a balanced fashion.

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.



Chapter Three: Required Actions

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 • Start with picking processes. Picking activities in our survey

encompass over 50% of the direct labor. At 71%, Best-in-Class companies are 3.1-times as likely as to use cluster picking and puts- where multiple orders are picked concurrently. Laggard companies, at only 23%, have a lot to learn from the example of leading companies (see case study) about how they can streamline process to manage events and orders with interactive confirmation that is required for puts. Many times this is simply a matter of using features available in software, and barcodes and RF devices already owned, or adding an incremental item or two.

• Enhance labor management solutions. Labor management can enhance resource or human capital management. Best-in-Class companies at 57% are 2.4-times as likely as Laggards to use labor / task management and integrate with standards. Laggard companies, only 23% of which have this capability, can benefit from the example of Best-in-Class companies and explore how they bolster efficiency and ease-event driven activities by putting labor standards to work.

Industry Average Steps to Success • Enhance use of Task Interleaving. The Best-in-Class, at 64%,

are 1.36-times as likely as Average companies to switch employees dynamically between functions - (picking, replenishment, etc.). Since 70% of Average companies can confirm task in picking or replenishment events in real-time, they should turn to task interleaving, which they are only 47% likely to deploy today.

• Embrace value-added features. In today's multi-channel distribution environment, saving labor at the retail shelf requires new services from the warehouse or 3PL. Best-in-Class companies, at 39% adoption, are 2.1-times as likely as Industry Average companies to use container management (managing containers and the orders and lines they contain, tailoring for shelf ready by store). Industry Average companies, at only 18%, can also benefit from the example of Best-in-Class companies and explore how they can incorporate WMS features of carton management or confirmation to increase service and add value.

The Best-in-Class are:

√ 2.4-times as likely to utilize container management than the Industry Average

√ 1.7-times as likely to communicate with warehouse workers wirelessly in real time than the Industry Average

“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, North American, a 3rd party

logistics provider, after implementing a WMS



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

than 60% of the Best-in-Class are already embracing the basics of process and technology, over 50% are finding value in outsourcing some of their volume or are looking for service in emerging markets. Make sure you do not overlook this option for managing warehousing event-driven operations or overflow capacity, as 3PLs and logistics service providers can have significant ROI without deploying company capital.

• Leverage emerging automation and mobility solutions. There is a strong correlation between the technology companies use, such as put-to-light and unit sortation, with a high volume of direct-to-consumer shipments (since these orders involve more parcel or small packages with one or two items). Some Best-in-Class companies are behind (up to 40% of them) in embracing these solutions, however, and 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 (Table 4) as a guide, an organization can begin to explore high performance capabilities that will help them remain efficient for years to come.

Aberdeen Insights — Summary

Technology "have-nots" tend to be performance Laggards, and companies with a powerful layer of enabling technology tend to achieve Best-in-Class performance. ROI guidelines and capacity assessments have led many executives to explore reengineering their process, technology and workflows to capitalize on event-driven processing. Most companies (over 80%) have RF and barcodes already deployed, and many have a WMS that can operate interactively with mobile devices. Companies should redouble their efforts to embrace real-time mobile warehousing, viewing it as a long-term strategy and competitive differentiator. With overall strategy and ROI justifications yielding paybacks in as little as one year, the benefits of superior performance are sure to follow. Performance leaders have done the best job of moving from the batch, paper-based systems of yesterday to the mobile event-driven environment. These leaders are reaping rewards in the form of reduced labor costs and improved customer service, while becoming more agile under today's multi-channel logistics requirements.





Appendix A: Research Methodology

Between November and December 2011, Aberdeen examined the use, the experiences, and the intentions of more than 134 enterprises using warehouse management in a diverse set of enterprises.

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 (38%); Director (14%); EVP / SVP / VP (9%); Consultant (11%); CEO / President (7%); Staff (5%); and other (6%).

• Department / function: The research sample included respondents from the following departments or functions: procurement, supply chain, or logistics manager (52%); operations manager (9%); IT manager or staff (13%); senior management (6%); sales and marketing staff (4%) and other (16%).

• Industry: The research sample included respondents from: Retail and Apparel (15%); Consumer Packaged Goods (CPG) (14%); Industrial Manufacturing (13%); Wholesale Distribution (11%); Food and Beverage (11%); Government, Aerospace and Defense (11%); Computer Equipment (6%); Health and Medical (6%); Pharmaceutical Manufacturing (3%); and other (10%).

• Geography: The majority of respondents (61%) were from North America. Remaining respondents were from the Europe, Middle East, and Africa (EMEA) (17%), Asia-Pacific region (20%) and South/Central America and Caribbean (2%).

• Company size: Thirty-six percent (38%) of respondents were from large enterprises (annual revenues above US $1 billion); 37% were from midsize enterprises (annual revenues between $50 million and $1 billion); and 25% of respondents were from small businesses (annual revenues of $50 million or less).

• Headcount: Thirty-nine percent (51%) of respondents were from large enterprises (headcount greater than 1,000 employees); 30% were from midsize enterprises (headcount between 100 and 999 employees); and 19% of respondents were from small businesses (headcount between 1 and 99 employees).

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.



Table 5: 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 6: The Competitive Framework Key

Overview

The Aberdeen Competitive Framework defines enterprises as falling into one of the following three levels of practices and performance: 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. Industry Average (50%) — Practices that represent the average or norm, and result in average industry performance. Laggards (30%) — Practices that are significantly behind the average of the industry, and result in below average performance.

In the following categories: Process — What is the scope of process standardization? What is the efficiency and effectiveness of this process? Organization — How is your company currently organized to manage and optimize this particular process? 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? Performance — What do you measure? How frequently? What’s your actual performance?


Table 7: 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: Related Aberdeen Research

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

• Warehouse Management Excellence: Maximizing Resources and Efficiency; October 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(s): Bob Heaney, Senior Research Analyst, Supply Chain Management ([email protected])

For more than two decades, 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 2.5 million readers in over 40 countries, 90% of the Fortune 1,000, and 93% of the Technology 500.

As a Harte-Hanks Company, Aberdeen’s research provides insight and analysis to the Harte-Hanks community of local, regional, national and international marketing executives. Combined, we help our customers leverage the power of insight to deliver innovative multichannel marketing programs that drive business-changing results. For additional information, visit Aberdeen http://www.aberdeen.com or call (617) 854-5200, 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. (2011a)



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