LOG208 Warehouse

Management and Technology

Seminar 5 T03
Jan Semester
Francis Kwa
Ground Rules for ZOOM
 ZOOM
• Feel free to ask questions in the Chat Box
– I will answer the questions after stopping the presentation logically
• Feel free to “raise hand” if you have a question while I am presenting
– Will unmute you
– For you to raise the question
• Do feedback if there are issues with bandwidth
– Too slow. Screen did not refresh.
– Poll did not display
• Occasionally, will seek feedback to insure we are “connected”
• In case of internet outage, reconnect back to ZOOM session

3
3
Previous Lesson Recap
• Many factors affect warehouse size and they must be considered.
Warehouse layout can have a profound effect on the flow of goods within
the facility.
• Examine ways to estimate the receiving and dispatch areas, storage
space in terms of total pallet capacity and aisle width.
• Choice of storage system depend on type of operations and trade-off
between storage density versus speed of access.
• Factors that can affect the choice of handling equipment and the features
of handling equipment are inspected.
4
Previous Lesson Recap (Racking Computation)

Common errors from not reading the question :

Assuming the pallet dimension is 1m for the width module
Failure to use the right pallet dimension to compute the length module
If you used long run (pallet dimension) for the width module,
5
the value (pallet dimension) for the length module is the short-run
Log208 Course Overview
SU1 The Role SU2 Receiving SU3 Information SU4 Warehouse SU5 Warehouse
SU6 Managing
and Scope of and Put-away, and Innovation in Layout, Storage Pricing and
Workplace Safety
Warehouse Order Picking and Warehouse and Handling Performance
and Health
Management Other Processes Operations Equipment Management

Role of
Warehouse Workplace
Warehousing Receiving and Warehouse Pricing for
Management Safety and
in the Supply Put-away Layout Design Warehousing
Systems Health
Chain

Warehouse Order Picking Storage and Warehouse The

Innovations in
Administration and Other Handling Performance Warehouse of
Warehousing
and Processes Processes Equipment Management the Future

Quiz#1 (2%) / TMA (18%) Quiz#2 (2%) Quiz#3 (2%)

GBA (20%)
PCT (6%) / Exam (50%)
6
Study Unit 5 - Warehouse Pricing
and Performance Management
Pricing for Warehousing
Warehouse Performance Management
Study Unit Learning Outcomes

• Analyse warehouse costs using different costing methods.

• Relate how a 3PL can charge for warehouse services.

• Discuss the importance of measuring warehouse performance.

• Examine warehouse performance using relevant performance

measures.

8
Pricing for Warehousing
Warehouse Costs
How To Charge for Warehouse Services?
Warehouse Pricing
• Last week, you bought an apartment.
• Started to do planning
– Renovation, Types of furniture to buy, Location for the furniture
• With the plan, you started to source for contractor.
• Your research indicated the cost to do the renovation is approx. $30K.
• You called up a few contractors to compare pricing and service offerings.
• If you are one of the the subcontractor, what would you do to secure the business ?
• Provide your views in Chat or Audio

• Provide freebies
• Provide reference list of happy customers or past projects
• Quality service
• Most competitive rate
– To do this, need to know your cost base

10
 Why need to know our cost?
• Profit or Cost Centre
– Profit Centre (typically 3PL/Service Provider)
• Revenue – Cost = Profit
– Cost Centre (manufacturer/distributor)
• Cost only. No revenue
• Budgeting
– To determine the cost of providing the services
– To determine a selling price
• To determine Cost efficiency
– Benchmark against industry
• To determine revenue target to turn in a profit (3PL/Service Provider)
• To determine the lowest cost possible to price the produced goods competitively (In-
house provider)

11
Global warehouse rental rates in central areas - 2016 Warehouse Cost Index (2020)
(Source: CBRE Research) (Source: bca.gov.sg)

Singapore Cost of Warehousing is ranked 6th in 2020.

12
Warehouse rental is only one cost competition factor
Businesstimes.com.sg: Singapore industrial space rents and prices up in Q4 from Q3, but down
on-year
THU, JAN 28, 2021 - 6:48 PM

PRICES and rentals of industrial space edged up quarter on quarter in Q4 2020 as a delay in new
completions nudged the occupancy rate upwards, although prices and rents were still down year
on year.
Compared to the previous year, however, prices of industrial space were 2.7 per cent lower, while
rents were down 1.5 per cent.

The total available stock in Q4 2020 rose by 38,000 square metres (sq m), down sharply from the
average quarterly increase of 188,000 sq m racked up over the last three years. At 357,000 sq m,
2020 saw the lowest yearly increase in available stock since 2005.

Mr Tay added: “With the distribution of Covid-19 vaccines, the city-state’s strategic location and
developed IT infrastructure would position Singapore as a key warehousing and storage hub.
Logistics properties are expected to benefit, with price and rent increases ranging from 1 to 3 per
cent in 2021.”
To be a key warehousing and storage hub, Singapore’s Warehousing Operation must be
highly effective and efficient. 13
 Pricing for Warehousing
Relative average prices of industrial property across the different regions

Benchmark: Office Rental in CBD

Class Discussion:
What are the factors that may influence
warehouse costs?

Why do some e-commerce business prefer to

outsource the warehouse to a 3PL?

Convert fixed cost to transactional cost

Trade-offs : Control and Competency
development

14
Source: https://blog.spaceship.com.sg/comparison-of-warehouse-rental-prices-in-singapore
Type of Costs

Storage costs are costs Storage

associated with having goods Costs
stored in the warehouse
space.

Handling costs include labour Total Ware-

Handling
and equipment costs. Costs house
Costs

Overhead costs include

management and
administration, sales and Over-
marketing, and head
miscellaneous costs. Costs

15
Type of Costs
Total Warehouse
Costs

Storage Costs Handling Costs Overhead Costs

Management
Sales and Miscellaneous
Space Costs Labour Costs Equipment Costs and
Marketing Costs
Administration

Variable Costs: Salaries, Communication

Rent, Building Fixed Costs: Variable Costs: Fixed Costs: Advertising,
Running costs, Company cars, costs, Postage,
Insurance, … Wages, … Bonuses, … Rent, … Exhibitions,…
… … …

Summary of warehouse cost.

Important to differentiate between Fixed and Variable costs.
Which cost is the highest? Storage, Handing, or Overhead Cost?
16
Return On Investment
Concept
Return on Investment (ROI)

Savings from Investment − Cost of Investment

Return on Investment, ROI = × 100
Cost of Investment

To show the value of To compare different

an investment investments

18
 What is Return On Investment ?

• You have One million dollar,

– Local bank saving interest rate is 1% per year
– Foreign bank saving interest rate is 2% per year
• Which bank will you deposit the one million dollar ?
– (Chat Response)
– 1% per year is $10,000
– 2% per year is $20,000
• At end of the deposit period, you want to
– Preserve the One Million Dollar
– Maximise the return from the One Million Dollar investment: $20,000

19
 What is Return On Investment ?

• Businesses are always looking for higher returns – value creation

• If a Company plans to invest One Million Dollars to buy a machine

– The company is expecting this machine to generate over an expected time period.
i.e. one year
• More than One Million Dollar Saving or
• Additional Profit to recover the One Million Dollar
• If the equipment is not expected to generate more than One Million Dollar in
value creation
– The Company will not proceed with the investment

20
Return on Investment (ROI)
Savings from Investment − Cost of Investment
Return on Investment, ROI = × 100
Cost of Investment

To improve the picking process, you decided to invest in a AGV that

cost $20,000
With this investment, you can redeploy 3 workers with a total annual
salary of $30,000
Should we approve this investment ?
What is the ROI?

21
Return on Investment (ROI)
Savings from Investment − Cost of Investment
Return on Investment, ROI = × 100
Cost of Investment

To improve the picking process, you decided to invest in a AGV that cost
$20,000
With this investment, you can redeploy 3 workers with a total annual salary of
$30,000 to shipping departmenr
Should we approve this investment?

$30,000 − $20,000
(Return on Investment, ROI ) 50% = × 100
$20,000

Positive 50% return

The investment provides a saving of $10,000 for the first year.

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Return on Investment (ROI) (negative return)
Savings from Investment − Cost of Investment
Return on Investment, ROI = × 100
Cost of Investment

To improve the picking process, you decided to invest in a AGV that cost
$30,000
With this investment, you are able to redeploy 2 workers with total annual
income of $20,000 to shipping department
Should we approve the investment ?

23
 Return on Investment (ROI)

Savings from Investment − Cost of Investment

Return on Investment, ROI = × 100
Cost of Investment

To improve the picking process, you decided to invest in a

AGV that cost $30,000
With this investment, you are able to redeploy 2 workers
with total annual income of $20,000
Should we approve the investment ?
$20,000 − $30,000
(Return on Investment, ROI ) −33% = × 100
$30,000
Negative -33% return
The investment does not provide saving
Cost $10,000 more than current solution (2 workers) per year.
Why should shareholders approve the investment?

24
Return on Investment (ROI) Summary
In the business world, ROI computation is not straight forward
• Interest (Rate of return)
• Cost of Capital
• Depreciation Period
• Maintenance Cost
• Additional Revenue Stream (Not just cost saving)
• Can improvement/innovation provide differentiation?
• Risk Assessment
• What are the probabilities of realizing the benefits?
• Known and Unknown future developments/trends
• Company may invest “negative” ROI project for future capabilities

25
Traditional Costing vs.
Activity-Based Costing (ABC)
Page 378
Traditional Costing vs. Activity-Based Costing (ABC)

Allocate

Traditional Costing Activity-based Costing

•Unable to accurately capture the •Assign resource costs based on
true costs the activities
•Allocate overhead costs arbitrarily •Assign warehouse activity costs
based on actual consumption
27
 Activity 1: The ABCs of Activity-
Based Costing for Logistics
• Class to Read the article by Tan Miller
Class discussion (20 min) (2017) on activity-based costing for
logistics. 10 min
• Mini Presentation on ABC and Traditional
Concept
• Class discussion on the Learning Outcomes
questions
• Individual Assignment on Question C
• 10 minutes
 https://www.mhlnews.com/transportation-distribution/article/22054501/the-abcs-of-
activitybased-costing-for-logistics

Visit the Material Handling and Logistics website and read the article by Tan Miller
(2017) on activity-based costing for logistics.

(a) Figure 1 compares the channel profitability of company XYZ using traditional costing
and ABC method. What are your thoughts on this?

(b) Figure 2 shows the ABC model of XYZ’s DC operations represented by a flowchart.
What do you observe about the ABC model?

(c) There is a beverage company who sales soda water, tonic water, and ginger ale. The
relevant cost and revenue information are listed as below table. The total operating
overhead for all three products together is $548k. What is the net profit of each product
type respectively using traditional accounting and ABC?
(d) What do you think are the disadvantages of using ABC?

(e) The article argues that ABC is becoming important for logistics operations in today’s
business environment. Do you agree? Why or why not?
Read the article to provide your views for the following questions

(a) Figure 1 compares the channel

profitability of company XYZ using
traditional costing and ABC method. What
are your thoughts on this?

(b) Figure 2 shows the ABC model of XYZ’s

DC operations represented by a
flowchart. What do you observe about the
ABC model?

(d) What do you think are the disadvantages

of using ABC?

(e) The article argues that ABC is becoming

important for logistics operations in
today’s business environment. Do you
agree? Why or why not? 10 minutes to read the article
Classroom discussion after
mini-presentation.
 Operating Expenses
are allocated based
In this example, on Ratio of Revenue
Trade x Total Operating
Promotions are Expense
direct cost
incurred before
operating
expenses

Actual operating
costs are determined

32
Source : https://www.mhlnews.com/transportation-distribution/article/22054501/the-abcs-of-activitybased-costing-for-logistics
Traditional Accounting – Revenue Ratio Computation

Total Operating Expense = $84

Total Revenue = $700
Mass Merchandisers Revenue is $400
Ratio of Mass Merchandisers Revenue to Total Revenue
$400 / $700 = 57%
Total Operating Expense allocation for Mass Merchandisers = 57% x $84 = $48
Net Profit for Mass Merchandisers = $100 - $16- $48 = $36
Net Profit (%) = 36 / 400 = 9%
Note: Trade Promotions ($16) are direct costs incurred by Mass Merchandisers. i.e
discounts, rebate, etc
Source : https://www.mhlnews.com/transportation-distribution/article/22054501/the-abcs-of-activitybased-costing-for-logistics
33
Activity Based Costing (ABC Concept)
ABC COST Assignment
Customer Customer Customer
A B C Total
Gross Revenue 400 200 100 700
COG -300 -160 -70 -530
Gross Margin 100 40 30 170
Trade Promotions 16 2 2 20
ABC Assignments
Manager allocation Cost 8 4 5 17
Determine using value
Direct Personnel Cost 10 5 6 21 stream mapping, resource
MHE allocation 10 6 5 21 diagram, time study, etc. to
Admin Cost allocation 12 5 8 25 determine unit cost
Total Operating Expenses assigned 40 20 24 84
Total Operating Expense must be
Nett Profit same value as Traditional
Gross Margin - Trade Promotions - Costing
44 18 4 66
Total Operating Expenses assigned

Nett Profit (%) 11% 9% 4% 9%

Note: Trade Promotions ($16) are direct costs incurred by Mass

Merchandisers. i.e discounts, rebate, etc 34
Costing is done for
each activity and
different handling
units.

Total Operating Cost must align with company’s financial reporting system at an “aggregate level

Source : https://www.mhlnews.com/transportation-distribution/article/22054501/the-abcs-of-activitybased-costing-for- 35
logistics
Crowd Sourcing : Viewpoints
(a) Figure 1 compares the channel profitability of company XYZ using traditional costing and ABC
method. What are your thoughts on this?
 Crowd Sourcing : Viewpoints
(b) Figure 2 shows the ABC model of XYZ’s DC operations represented by a flowchart. What do you
observe about the ABC model?
Crowd Sourcing : Viewpoints

(d) What do you think are the disadvantages of using ABC?

• .
• .
• .

(e) The article argues that ABC is becoming important for logistics operations in today’s business
environment. Do you agree? Why or why not?
(e) Agree
• ..
• ..
(f) Disagree
• ..
• …
(c) There is a beverage company who sales soda water, tonic water, and
ginger ale. The relevant cost and revenue information are listed as
below table. The total operating overhead for all three products together
is $548k. What is the net profit of each product type respectively using
traditional accounting and ABC?

• Answer this question in

Discussion Forum
• Download the
spreadsheet
• Use excel functions to
work out the answers
Input your answers into the green cell
Reply to the post by pasting Table 2.
10 minutes to work out the solution.
Class Participation 20 marks
Traditional cost is based on the revenue ratio to work out the total cost for
each product
Soda water revenue percentage: 1200 / 3000 = 0.4 Revenue ratio :
Tonic water revenue percentage: 800 / 3000 = 0.27 Product revenue / Total revenue

Ginger ale revenue percentage: 1000 / 3000 = 0.33

Soda water operations cost = 548 * 0.4 = 219.2 Assign Operation Cost
Tonic water operations cost = 548 * 0.27 = 147.96 Total Operation Cost x Revenue ratio

Ginger ale operations cost = 548 * 0.33 = 180.8

Soda water net profit = 1200 – 300 – 219.2 = 680.8 Compute Net Profit for each product
Product Revenue - Product Cost
Tonic water net profit = 800 – 400 – 147.96 = 252.04 (253.87)
Ginger Ale net profit = 1000 – 500 – 180.84 = 319.16 (317.33)

Values in red fonts : excel spreadsheet computation. Rounding error from the number of decimal points.
ABC costing is based on the actual cost:

Soda water operations cost = 40 + 80 + 15 + 60 + 12 = 207 Work out Total Operation Cost by product
Tonic water operations cost = 40 + 40 + 15 + 80 + 8 = 183 Sum up the various cost elements for each
product
Ginger ale operations cost = 60 + 20 + 10 + 60 + 8 = 158

Soda water net profit = 1200 – 300 – 207 = 693

Compute Net Profit for each product
Tonic water net profit = 800 – 400 – 183 = 217 Product Revenue - Product Cost
Ginger Ale net profit = 1000 – 500 – 158 = 342
Traditional Costing vs. Activity-Based Costing (ABC)
• Same objectives with different computation
• Traditional (Standard) Costing Accounting is still very prevalent
• Simple to implement
• Compliance to accounting guidelines
• ABC Costing is specifically for activity costing
• In an organization, many activities (as a whole) produce the
product/services (revenue stream)
• Allocation estimation is still necessary
• Activity costing is time consuming
• Need clear activity mapping and time study
• ABC is typically done at operational (departmental) level

43
How to Charge for Warehouse Services?
Shared-User
Warehouse
Charges

Storage Handling Value-adding

charges charges services

Variable Fixed Variable Fixed Variable

Fixed charge
charge charges charges charges charges

Rate per pallet/carton/item

stored per week, Rate per
Rate per pallet/carton/item
square foot/cubic foot
Rental cost per week or per in-handled, Rate per
occupied per week, Rate per Management fee per month Lump sum for a one-off job Rate per unit basis
month pallet/carton/item out-
tonne stored per week, Rate
handled
per shelf location utilised per
week

44
Activity 2: Charging for Storage
and Handling
Individual Calculation (10 min)
Present findings (10 min)
Total (20 min)
Suppose you work for a 3PL company that offers warehousing services. Assume the
pallet storage data in textbook Table 12.5 pp 358 applies. The warehousing agreement
with the customer is based on the following pallet storage and handling charges:

Pallet storage: $8.50 per pallet per week

Handling – Pallet-In: $3.00 per pallet
Handling – Pallet-Out: $3.00 per pallet

Calculate the amount to bill the customer for the following scenarios:

(a) Scenario 1: Dedicated storage space for 220 pallets and handling

(b) Scenario 2: Based on maximum number of pallets and handling

(c) Scenario 3: Based on average number of pallets and handling

10 minutes to compute
Pallet storage: $8.50 per pallet per week
Handling – Pallet-In: $3.00 per pallet
Handling – Pallet-Out: $3.00 per pallet

Calculate the amount to bill the customer for the following scenarios:

(a) Scenario 1: Dedicated storage space for 220 pallets and handling

(b) Scenario 2: Based on maximum number of pallets and handling

(c) Scenario 3: Based on average number of pallets and handling

10 minutes to compute the values

Activity 2: Charging for Storage and Handling
Number of Pallets / Days Monday Tuesday Wednesday Thursday Friday Saturday Sunday
Number of Pallets 100 175 200 190 70 70 70
Intake 100 100 50 10 20 20 0
Despatches 25 75 60 130 20 20 0

Handling Charge In $ 3.00

Handling Charge Out $ 3.00
Storage Charge $ 8.50
Storage Total Total
Data Amount Total Intake Despatches Amount
Dedicated storage space 220 $ 1,870 $ 900 $ 990 $ 3,760.00
Maximum number of Pallets 200 $ 1,700 $ 900 $ 990 $ 3,590.00
Average number of Pallets 125 $ 1,063 $ 900 $ 990 $ 2,952.50

Total Intake 300 $ 900

Total Despatches 330 $ 990

10 minutes to compute the values 48

Activity 2: Charging for Storage and Handling
Number of Pallets / Days Monday Tuesday Wednesday Thursday Friday Saturday Sunday
Number of Pallets 100 175 200 190 70 70 70
Intake 100 100 50 10 20 20 0
Despatches 25 75 60 130 20 20 0

Handling Charge In $ 3.00

Handling Charge Out $ 3.00
Storage Charge $ 8.50
Storage Total Total
Data Amount Total Intake Despatches Amount
Dedicated storage space 220 $ 1,870 $ 900 $ 990 $ 3,760.00
Maximum number of Pallets 200 $ 1,700 $ 900 $ 990 $ 3,590.00
Average number of Pallets 125 $ 1,063 $ 900 $ 990 $ 2,952.50

Total Intake 300 $ 900

Total Despatches 330 $ 990
For Service Provider, which option is better?
49
Dedicated Storage Space. (Highest revenue)
Warehouse Performance
Management
Why Measure Performance? What To Measure?
How To Choose the Right KPIs?
Activity 3: Why Do KPIs Matter?

View Video and Discuss

 https://www.youtube.com/watch?v=q61BoEMgbZI

Watch the following video from Merchandise Warehouse to find out why key
performance indicators (KPIs) matter from a warehousing perspective.

(a) Why do KPIs matter to Merchandise Warehouse?

(b) What is the goal for the company? Is it only meant for senior management?
(c) What are the two main KPIs set by Merchandise Warehouse? Why do you think
they involve accuracy?
(d) According to Merchandise Warehouse, what are the 3M’s of a KPI?
(e) Do you agree with the views expressed in the video? Why or why not?
(f) What lessons can I learn from this? How can I apply this to my work, study or life?
Note the 3M
Answers from Class Sourcing

(a) Why do KPIs matter to Merchandise Warehouse?

• ….

(b) What is the goal for the company? Is it only meant for senior management?
• …

(c) What are the two main KPIs set by Merchandise Warehouse? Why do you think
they involve accuracy?
• …

Inventory and Order Accuracies are the foundation of the 4 Rights in

warehousing operation
• Right Product
• Right Quantity
• Right Location
• Right Destination
Answers from Class Sourcing

(d) According to Merchandise Warehouse, what are the 3M’s of a KPI?

• …

(e) Do you agree with the views expressed in the video? Why or why not?
• For
• …
• Against
• …

(f) What lessons can I learn from this? How can I apply this to my work, study or life?
• …
Why Measure?
Ensure customers are satisfied through
service improvement. (Customers)

Ensure there is continuous

improvement within the warehouse.
Better (Operations)
manage
customers,
operations
and staff. Ensure staff are properly trained and
are rewarded for their effort. (Staff)

Discover potential problems and troubleshoot.

(Problems)
56
What to Measure?

Trade-off
Customer
Reliability Flexibility expectations
(Customer
Service)

Warehouse’s
own
Cost Utilisation resources
(Cost)

57
What to Measure?

• Depends on “What do you want to manage ?”

• Operational
• Service Commitment (Reliability)
• Establish Capacity Line (Utilization)
• Financial (Cost)
• Efficiency
• Cost of providing express vs normal service (flexibility)
• ROI (flexibility)

58
How to Choose the Right KPIs

Specific

Timely Measurable

SMART

Relevant Achievable

59
 How to Choose the Right KPIs (SMART Goal)
Acronym to establish KPI / Set Goal

Specific Specific
• Objectives should be clear and
unambiguous
Measurable
Timely Measurable • Can be measured
Achievable
• Can be achieved
SMART
Relevant
• Relevant to the objectives
Timely
• Realistic timescale.
Relevant Achievable • When to measure

Video narrated 3M : Meaningful, Measurable, and Manage

Same Concept as SMART 60
Utilisation
Labour hours used
Labour utilisation = × 100
Labour hours available
Space used
Space utilisation = × 100
Space available
Labour Equipment hours used
Equipment utilisation = × 100
Equipment hours available
Equip-
ment
Measure the resource usage efficiency
Space
Actual Usage / Available Capacity
Example:
Available Capacity = 200
Used = 100
100 / 200 x 100 = 50% 61
Utilisation (efficiency)
Labour hours used
Labour utilisation = × 100
Labour hours available
Space used
Space utilisation = × 100
Space available
Labour Equipment hours used
Equipment utilisation = to investigate
Walk the shop × 100
Equipment hours available
Equip-
ment

Space
Labour : Sick leave or not enough work
What areload
Space : Congestion or insufficient the objectives for these KPI?
Equipment : High equipment failure or not enough work
62
Cost

Total warehouse cost

% Cost of goods sold = × 100
Total sales revenue
Total warehouse cost
Cost per unit dispatched =
Total number of units dispatched

How should we interpret these KPI ?

Is higher percentage better for % Cost of goods sold?
Which factor will make cost per unit dispatched lower ?
Provide your views .. Chat or Audio.

63
Cost (Examples)
Total warehouse cost
% Cost of goods sold = × 100
Total sales revenue
Total warehouse cost
Cost per unit dispatched =
Total number of units dispatched
Scenario 1 2 3
Total Warehouse Cost $ 10,000 $ 10,000 $ 10,000
Total Sales Revenue $ 8,000 $ 10,000 $ 12,000
% Cost of Goods Sold 125% 100% 83%

Goal : Warehouse Cost must be lower than Revenue

Scenario 1 2 3
Total Warehouse Cost $ 10,000 $ 10,000 $ 20,000
Total number of units dispatched 9,000 15,000 25,000
Cost per unit dispatched $ 1.11 $ 0.67 $ 0.80

Goal : Lower Cost per unit dispatched

Reality : Fixed Warehouse Capacity
Need to expand when capacity utilization is at 90%. 64
Labour Productivity
Lines picked
Lines picked per hour =
Total hours available

Units picked
Units picked per hour =
Total hours available

Are these 2 KPI meaningful ?

• Yes or No
Is it Specific (SMART acronym) ?
Lines picked per hour per shift
Lines picked per hour per operator
65
Labour Productivity

Capacity or resource utilization

Orderlines Picked per day per shift (sum of pick in one shift
If the red line denotes the maximum capacity per 8 hour shift, transactions above
the red line means Overtime
66
Labour Productivity

Operator Name Operator Name

If the X axis is Operator name,

The objective for this KPI is
Productivity measurement by operator
The lowest throughput operator is 3 and 14
Need to investigate the causes (do not assume) 67
Time

Dock-to-stock time = time taken from arrival of vehicle at receiving dock to visibility
of stock on the system when put-away
Order cycle time
= time required to fulfil customer orders indicating how responsive the company can
satisfy demand
= Delivery date – Order date

• Expectation : Shorter duration

• More resources to achieve shorter time
• More resources = more cost
• Shorter duration = more cost
• Time is Money
68
 Customer service

Orders picked and dispatched accurately

Order accuracy = × 100
Total orders received
Order delivered as per customers′ request
On−time shipments = × 100
Total order received

% On−time In−full (OTIF) rate = On−time rate × In−full rate ×100

% Pefect order rate = On−time rate × In−full rate × Damage free rate × Accurate invoicing rate× 100

69
Textbook – Page 406
 Inventory
Current stock level
Stock cover in days = × 365
Total annual sales
Total number of units sold
Stock turn =
Average number of units in stock
Number of correct locations
Stock location accuracy = × 100
Number of locations counted
Number of correct lines counted
KPI to measure Inventory Stock line accuracy = × 100
Total number of lines counted
Accuracy from Physical
Inventory Counting. (once Actual quantity by SKU
Stock unit accuracy = × 100
a year or periodically) Expected quantity by SKU
Items found damaged
Damaged inventory = × 100
Items despatched per month
70
Inventory
Current stock level
Stock cover in days = × 365
Total annual sales
Total number of units sold
Stock turn =
Average number of units in stock
Number of correct locations
Stock location accuracy = × 100
Number of locations counted
Which is the Number of correct lines counted
Stock line accuracy = × 100
most important Total number of lines counted
one?
Actual quantity by SKU
Stock unit accuracy = × 100
Expected quantity by SKU
Items found damaged
Damaged inventory = × 100
Items despatched per month
71
Activity 4: Choosing the Right
KPIs
Breakout room discussion (10 min)
Present findings (10 min) Review the PDF at Class Level
Total (20 min) Class Discussion to source insights
 https://www.cisco.com/c/dam/en_us/about/ac50/ac142/docs/wsa_representative.pdf
As a VMI Hub warehouse manager, you are about to enter into an agreement with
a client. Refer to the Warehousing and Logistics Agreement at the following URL
(a) Identify the KPIs to meet the client’s requirements in Exhibit A Standard
Services Scope of Work.
• Read Exhibit A – relates the information to SU2 – Warehouse
Operation
• Read Exhibit B – performance requirements specified by CISCO
• Facilitate a review of the Document

(b) How would you measure the KPIs?

(c) What target service levels of the KPIs would you set for your warehouse
team?

(d) Suggest other KPIs that you think are important that are not specified in
the Warehousing and Logistics Agreement.
Review the pdf file
Switch to PDF document
How would you measure the KPIs?
KPI Measurement How do measure ?

Time from Goods delivery to Priority Goods (“Hot Lot”) Dock to Stock – enabled by WMS
Goods’ reflection on WMS - 2 Business Hours Date / Time Stamp
and availability for Standard Goods • GRN: date / time stamp
EMS Provider pull request - - 8 Business Hours • Put-away confirmation: date/time stamp
Time from EMS Provider 2 to 4 business hours Stock to Dock – enabled by WMS
Pull Order to Ship Date / Time Stamp
• Pull Order date / time stamp
• Dispatch confirmation: date/time stamp
Cycle Count Accuracy 99.8% Count Quantity / System Quantity

Time from Goods delivery to 24 hours Exceptional Management.

notice to Client of any Workflow Date / Time stamp. Explore
receiving discrepancy functionality in WMS or Email workflow
Resolution of Issue 24 hours for Hub Operator -- ditto --
root cause issues
How would you measure the KPIs?
KPI Measurement How do measure ?

Time from Goods delivery to Priority Goods (“Hot Lot”) Dock to Stock – enabled by WMS
Goods’ reflection on WMS - 2 Business Hours Date / Time Stamp
and availability for Standard Goods • GRN: date / time stamp
EMS Provider pull request - - 8 Business Hours • Put-away confirmation: date/time stamp
Time from EMS Provider 2 to 4 business hours Stock to Dock – enabled by WMS
Pull Order to Ship Date / Time Stamp
• Pull Order date / time stamp
• Dispatch confirmation: date/time stamp
Cycle Count Accuracy 99.8% Count Quantity / System Quantity

Time from Goods delivery to 24 hours Exceptional Management.

notice to Client of any Workflow Date / Time stamp. Explore
receiving discrepancy functionality in WMS or Email workflow
Resolution of Issue 24 hours for Hub Operator -- ditto --
root cause issues
Do you think the target service level
(in red) is achievable?
Do you think the target
service level (in red) is
achievable?
Suggest other KPIs that you think are important that are not specified in the
Warehousing and Logistics Agreement.

Class Sourcing
..
..
..
Activity 5: Calculations of KPIs

Class Calculation
BHD is a leading manufacturing company. It has a warehouse space of 9,600
square metres with 30 warehouse staffs. The available working time for each
warehouse staff is 6 days a week with 8 hours per day. The space utilisation is
70% and the labour utilisation is 75%. The average warehouse cost per month is
$20,000, and the total sales revenue per year is $600,000. Current stock level is
400 units, and monthly sale is 6,000 units.

a. What is the used space for this warehouse? How many hours are all the
staffs actually working?

b. What is percentage of cost of goods sold?

c. What is the stock cover in days for BHD?

What is the used space for this warehouse?
Space used
Space utilisation = × 100
Space available
Space used
70% = × 100
9,600
Space used = 9,600 * 70% = 6,720 square metres

BHD is a leading manufacturing company. It has a warehouse space of 9,600

square metres with 30 warehouse staffs. The available working time for each
warehouse staff is 6 days a week with 8 hours per day. The space utilisation is
70% and the labour utilisation is 75%. The average warehouse cost per month is
$20,000, and the total sales revenue per year is $600,000. Current stock level is
400 units, and monthly sale is 6,000 units.
How many hours are all the staffs actually working?
Labour hours used
Labour utilisation = × 100
Labour hours available
Labour hours used
75% = × 100
6 𝑥 8 𝑥 30
Labour hours used = = 6 * 8 * 30 * 75% = 1080 hours

BHD is a leading manufacturing company. It has a warehouse space of 9,600

square metres with 30 warehouse staffs. The available working time for each
warehouse staff is 6 days a week with 8 hours per day. The space utilisation is
70% and the labour utilisation is 75%. The average warehouse cost per month is
$20,000, and the total sales revenue per year is $600,000. Current stock level is
400 units, and monthly sale is 6,000 units.
What is percentage of cost of goods sold?

Total warehouse cost

Percentage of Cost of goods sold = × 100
Total sales revenue

20,000 x 12
Percentage of Cost of goods sold = × 100
600,000

= 40%

BHD is a leading manufacturing company. It has a warehouse space of 9,600

square metres with 30 warehouse staffs. The available working time for each
warehouse staff is 6 days a week with 8 hours per day. The space utilisation is
70% and the labour utilisation is 75%. The average warehouse cost per month is
$20,000, and the total sales revenue per year is $600,000. Current stock level is
400 units, and monthly sale is 6,000 units.
c. What is the stock cover in days for BHD?

Current stock level

Stock cover in days = × 365
Total annual sales
400
Stock cover in days = × 365
6,000 x 12

= 2.03 days

BHD is a leading manufacturing company. It has a warehouse space of 9,600

square metres with 30 warehouse staffs. The available working time for each
warehouse staff is 6 days a week with 8 hours per day. The space utilisation is
70% and the labour utilisation is 75%. The average warehouse cost per month is
$20,000, and the total sales revenue per year is $600,000. Current stock level is
400 units, and monthly sale is 6,000 units.
Summary
• Warehouse managers need a comprehensive understanding of costs
associated with their warehouse operations.

• 3PLs can charge clients for warehouse services from the perspective of
shared use.

• Warehouse performance measurement matters as it allows warehouse

managers to better manage customers, operations and staff.

• SMART way of choosing the right KPIs and examined several

warehouse KPIs.
86
THANK YOU!
Q&A