Complex fulfillment needs, less predictability in business and seasonal operations are just a few reasons why companies outsource their warehousing and distribution center (DC) operations. New channels or product lines may cause you to require a 3PL for warehousing and value-added services such as automated materials handling or light assembly.
You may need to outsource part of your warehouse operations due to growth or a merger. If you are a supplier, you may need to position your inventory closer to the end customer to meet your own customer’s business requirements.
So how do you create a strategic plan for outsourcing your warehousing operations, whether all or part? First, look at your objectives and the outcomes you need to achieve. What are the areas of weaknesses or areas ripe for change and improvement in your current DC? Are additional locations, improved processes or new technologies warranted?
Start with business strategy
As you research warehousing solutions, be mindful of your organization’s business strategy in addition to basic customer requirements and the key performance indicators (KPIs) you need to meet. Many of the capabilities you seek in a warehouse outsource provider may be determined by your business strategy.
For help with both strategy and KPIs, the Warehousing Education and Research Council (WERC) offers excellent guidance on how warehousing metrics are tied to strategy. In conjunction with DC Velocity magazine, WERC annually polls its members about what warehouse performance metrics they use and how these measures align with corporate goals.
WERC surveys have identified these company strategies:
- Customer service: serving a segment well
- Cost leadership: competing on price
- Product/market innovation: unique or exclusive offering
- Hybrid approach: any combination of above
Conduct your due diligence and develop a new warehouse game plan with consideration of your company strategy and what metrics matter most to your customers and internal stakeholders. How are your metrics defined and calculated, externally with your customers and internally? Look for DC providers that can meet your most critical KPIs.
Here are a few examples of metrics tied to key business areas, as identified by WERC:
-Total order cycle time
-Internal order cycle time
Dock-to-stock cycle time, in hours
-Suppliers orders received per hour
-Lines received and put-away per hour
Fill rate, line
-Order fill rate
-Orders picked and shipped per hour
Quality and capacity
Order picking accuracy
-Average warehouse capacity used
-Equipment/forklifts capacity used
When developing your DC outsource strategy, there are many different warehouse metrics to consider—WERC tracks 45 operational metrics—though some will be more important to your internal audiences and your customers than others. That’s where you roll up your sleeves to select the best provider. And remember, you can’t improve what you don’t measure.
Resources featured in this blog:
About the author: Mark London is VP, Sales & Marketing at G&D Integrated