Most warehousing and distribution businesses achieve 4% net profit, according to the National Association of Wholesalers and Distributors. Companies that report such figures often depend heavily on warehousing and distribution metrics to lower costs and increase profit.
In this overview of warehousing and distribution metrics, we explore the importance of metrics and common missteps related to tracking and analyzing such metrics. We’ll also look at types of metrics and how to manage them.
Why Warehousing and Distribution Metrics Matter
Most industries have experienced an increased need for tracking and analyzing metrics to help tighten up operations. Metrics provide data that decision-makers can use to act in the best interest of the bottom line. For instance, tracking warehouse and distribution metrics can positively impact:
- Efficiency: Inventory management, order entry, and warehouse activities are facets that allow for the capturing and tracking of metrics to improve efficiency. Digging into these insights can help leaders make the necessary changes to improve efficiencies throughout the warehouse. For example, popular products may be moved closer to packing stations for faster processing. Order-entry data can help better determine staffing and shipping needs. Each data element captured empowers those in charge to have a deeper understanding and adjust processes to improve efficiencies.
- Loyalty: Understanding customer metrics offers a window into customer loyalty. Repeat business is more profitable than resources required to lure new customers. Knowing your company’s metrics tied to loyalty can lead to strategies that help with retention.
- Profitability: Profitability hinges on a few outcomes: increasing sales, decreasing costs, or both. Costs are often the most overlooked variable of the equation. However, getting a grasp on all costs can help you reduce them to increase profits even if sales lag.
- Risk reduction: By looking at the KPIs associated with aging stock, leaders can better understand product sales patterns and reduce the risk of overbuying. Safety data carries a lot of weight, as it can reduce employee risks throughout the warehouse.
- Improved decision-making: Having the right data at the right time can improve organizational decision-making. Leveraging warehousing and distribution metrics is the way to help the company identify processes or procedures that need attention.
Four Types of Distribution Metrics to Watch
You might have questions about which metrics you should capture. Warehousing and distribution metrics generally fall into four distinct categories:
- Descriptive
- Diagnostic
- Predictive
- Prescriptive
These metrics are listed in this order because they’re layered to form silos of information that can help companies observe real-time performance while helping predict future outcomes.
Descriptive metrics help you understand the current reality. They are often used to dig into lagging indicators. They also can establish the foundation to explore other types of metrics and can be used along with other data to get a handle on the bigger picture.
Diagnostic metrics help distributors hone in on an issue and troubleshoot, diagnose, or find the root cause of the problem. Distribution software solutions that incorporate AI and machine learning tools can utilize descriptive and diagnostic metrics to help managers identify bottlenecks and how to resolve them.
Predictive metrics leverage the first two categories of metrics—descriptive and diagnostic—to identify the likelihood of future events. For example, these insights can help managers anticipate equipment failure or determine if they have enough people to meet production goals.
Prescriptive metrics combinethe three previous types of metrics to provide solutions to curb the development of problems.
Common Metrics Mistakes
Warehousing and distribution companies often face the same challenges related to metrics. By studying their oversights, you can save yourself from some frustration, not to mention time and money.
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 certain figures can be time and resource intensive.
Capturing Too Much Data
On the other hand, capturing too much data presents other issues. Not every piece of data is necessary for longevity. That’s why managers need to understand the types of data available in a warehousing and distribution business, so they can make intentional choices.
Bad Data
Bad data can include mistakes, such as typos keyed into the system during data entry, or poor data collection on the part of other departments. Put simply, accurate reports are predicated on the source material. Bad data can lead to poor decisions that can cost the company money and erode its stature in the marketplace.
No Strategic Alignment
Metrics should be aligned to key performance indicators (KPIs) for them to be valid. If metrics aren’t tied to goals, they might not merit tracking at all.
Lagging and Leading Indicators
Lagging always means what happened, while leading is concerned with what might be. It shouldn’t be an either/or situation. Leaders should study both to understand the industry, the market, and the potential business opportunities available.
Lack of Benchmarks
Two types of benchmarks carry the most weight. First, internal benchmarks offer a glimpse into progress. By comparing against your baseline, you can determine where you might be falling short.
At the same time, external benchmarks can help you get a handle on if (and to what extent) your organization is keeping pace with competition. Knowing industry-leading standards, such as the 4% statistic cited above, is important to longevity and relevancy. If you only knew that your company’s profit margin was 2%, you might think this bodes well, especially if it was 1.75% last year. It looks like progress, and it is. However, that’s not much to report if the industry average of 4%. Also, don’t lose sight of the fact that an average means some companies are much higher than this marker. This may motivate you to effect changes that help you capture more market share.
Consider Metrics as Related to Service Offerings
We briefly mentioned loyalty metrics or collecting metrics that help size up repeat customers. Understanding metrics can help in terms of innovation in expanding service offerings and bolstering profits. This, in turn, can help your company reach new heights.
For example, a high return rate for a product could help the company correct course. How? Well, if the product is hard to assemble or not intuitive to use, perhaps you might offer training or assembly as an add-on or free service. By offering a training package that costs $50, you may offset a $200 return expense. A holistic approach means looking at product sales, return rates, costs, and opportunities. In turn, it can mean making decisions based on what helps the company achieve greater efficiencies and success.
The Right Warehousing and Distribution Software Provides Excellent Metrics
Success with metrics and KPIs hinges on having the right warehousing and distribution software in place. Acumatica Cloud ERP can help your company evaluate and choose the right platform conducive to growth. We can also help you identify and capture important metrics that position you for optimal performance.