Visual Metrics The Executive Insight into the Competitive Landscape

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1 Visual Metrics The Executive Insight into the Competitive Landscape Based on WERC s (Warehousing Education and Research Council) DC Measures Industry Study WHITE PAPER

2 Table of Contents Executive Summary 3 The Business Analytics Era 4-5 What is Benchmarking? 6-7 The Challenges of Performance Measurement and Benchmarking 8-10 Delivering Actionable Intelligence TECSYS Visual Metrics 14 About TECSYS & WERC WERC: Warehousing Education Research Council 2014 TECSYS Inc. (TECSYS) All Rights Reserved. This document and translations of it may be copied and furnished to others, and derivative works that comment on or otherwise explain it or assist in its implementation may be prepared, copied, published and distributed, in whole or in part, without restriction of any kind, provided that the above copyright notice is included on all such copies and derivative works. However, this document itself may not be modified in any way, such as by removing the copyright notice or references to TECSYS, except as needed for the purpose of making reference to, in which case the procedures for copyrights defined in this Document must be followed, or as required to translate it into languages other than English. The limited permissions granted above are perpetual. This document and the information contained herein is provided on an As Is basis and TECSYS disclaims all warranties, express or implied, including but not limited to any warranty that the use of the information herein will not infringe any rights or any implied warranties of merchantability or fitness for a particular purpose. All names, trademarks, products, and services mentioned are registered or unregistered trademarks of their respective owners. 2

3 Executive Summary In today s highly competitive and volatile global economy, a longstanding organizational directive for virtually all corporate functions has only intensified: reducing operating costs while improving the business value that an organization generates for the enterprise. Yet many executives struggle to answer that call because they lack a detailed picture of their organization s performance along key dimensions and how that performance measures up to their competitors and peers. For this reason, benchmarking is a critical tool. Benchmarking enables leaders to gauge where the organization leads, lags or operates at par with other organizations. Equally important, benchmarking provides the baseline by which an organization can articulate key issues, as well as a means by which to measure a company s ability to achieve specific outcomes. In doing so, benchmarking helps to identify and address the areas that most urgently need improvement. Benchmarking is a critical tool. It helps leaders define the right strategy for their organization by enabling them to gauge where the organization leads, lags or operates at par with other organizations. Historically, many distribution organizations have had the challenge of clearly measuring their successes and failures in order to drive progress in their business operations. This white paper explores how analytics can play a major role in supply chain management, and how the inclusion of benchmark data into software analytics can benefit distributors in numerous ways. Benchmarking is a specific process in which an organization compares its cost and performance data against data from a similar entity, to better understand both its position in the market and the current state of the business health. We will explore why benchmarking processes are important now more than ever, and discuss some of the challenges that decision makers may face when attempting to utilize benchmark data. Distribution organizations will find that using software applications with embedded benchmark data can improve the process of measuring and tracking progress and net other important benefits outlined later in this white paper. 3

4 The Business Analytics Era To become a top performer in today s competitive marketplace, a distribution organization must leverage growing amounts of available data (both internal and external data) from comparable business environments. Intelligent business data can convince executives, motivate employees, drive strategic decision-making, measure progress and help define the route to becoming an industry leader. In order to better understand the impact of analytics, Massachusetts Institute of Technology (MIT) conducted an ongoing study spanning over 2500 respondents. In their most recent report, 67% of those surveyed firmly believe that their use of analytics has directly contributed to their competitiveness. In another study 1 of more than 400 companies, the MIT Center for Digital Business concluded that companies that do more with digital technologies and support their digital investments with leadership and governance capabilities are 26% more profitable than their industry peers, and outperform average industry performance by 6% to 9%. According to the MIT study 1, Companies that are leading the analytics revolution are already making data and analytics a source of competitive differentiation. Increasingly, top thinkers in business believe that analytics, especially analytics connected with big data, will be a driving force in our economy and society in the next 10 to 20 years. This belief is matched with action in both the public and private sectors. According to the MIT study 1, Companies that are leading the analytics revolution are already making data and analytics a source of competitive differentiation. IMPACT OF ANALYTICS ON CORPORATE PERFORMANCE 67% 26% 9% gain a competitive edge are more profitable than their peers outperform the industry average Source: MIT Sloan Management Review on Data and Analytics of 2013 Why Data, Why Now? When used correctly, analytics can empower organizations to make smart, data-driven decisions. Yet why is data becoming increasingly more important to profit-conscious individuals? For one, we now have more data than ever before due to an increasing number of data sources, as well as more advanced technology that has discovered new ways to access and package information as useful intelligence. Companies are also more knowledgeable about the various ways that they can take advantage of data to make important decisions. Benchmarking in particular has paved the way for companies to compile, track and record data to gain a contextual understanding of their comparative performance. Utilizing industry-specific data and metrics, today s solutions are robust and imperative to any organization looking to become a top performer. Utilizing industry- specific data and metrics, today s solutions are robust, informative and imperative to any organization looking to become a top performer. 1 MIT Sloan Management Review Report Spring

5 Adoption of Analytics CIOs named business intelligence (BI) and analytics their top technology priority in 2012 and again in 2013 (see Hunting and Harvesting in a Digital World: The 2013 CIO Agenda ). This focus is likely to continue through 2017 because the benefits of fact-based decision-making are clear to business managers in a broad range of disciplines, including marketing, sales, supply chain management, manufacturing, engineering, risk management, finance and HR. As the cost of acquiring, storing and managing data continues to fall, companies are finding it practical to apply BI and analytics in more situations. According to Gartner, 1 by 2017, over 50% of analytics implementations will make use of event data streams generated from instrumented machines, applications and/or individuals. Therefore, there is no better time to leverage the various analytics solutions that are now on the market. 50% According to Gartner 1 by 2017, over 50% of analytics implementations will make use of event data streams generated from instrumented machines, applications and/or individuals. 1 Gartner Report Predicts 2014: Business Intelligence and Analytics Will Remain CIO s Top Technology Priorities 25 November

6 What is Benchmarking? Benchmarking is a process in which companies collect specific data on costs and performance, and assess the results in conjunction with data from other entities. This process, which involves both qualitative and quantitative information, can help companies make sense of their current successes or failures in comparison to top-performing companies in a specific industry or field. Benchmark data itself consists of a number of strategic metrics and information based on a company s size, industry, processes and other factors. To successfully utilize benchmark data, one must find data that is relevant to the company s specific industry. Benchmarking can also generate the rigorous cost and performance baseline necessary to effectively track progress over time in terms of cost reductions and performance improvements. According to Accenture 1, benchmarking provides people across the organization with a common business language regarding processes, metrics, key issues and outcomes, and helps organizations put in place a rigorous and continuous improvement process to bring out higher levels of performance. The combination of internal and external benchmarking helps identify the most important gaps between an organization s current state and where it wants to be, and therefore helps to create both a road map and a business case for change. In summary, benchmarking covers three key elements: According to Accenture 1, benchmarking provides people across the organization with a common business language regarding processes, metrics, key issues and outcomes, and helps organizations put in place a rigorous and continuous improvement process to bring out higher levels of performance. 1. The most important gaps between an organization s state and where it should be. 2. A rigorous cost and performance baseline to effectively track progress. 3. A common business language regarding process, metrics, key issues and outcomes that can be used to prove progress. Importance of Benchmarking in Distribution As products and services become standardized, organizations today are looking for new ways to maintain a competitive advantage. Focusing on improving internal processes to achieve competitive advantage has become the key differentiator. Warehouse and distribution management consist of process-intensive activities that significantly affect a distribution organization s operating costs. Consequently, improving efficiencies and effectiveness in the warehouse will have a direct, positive impact on an organization s bottom line. However, in this competitive landscape, decision makers need to compare their KPIs (key performance indicators) against industry data to validate performance and to drive strategies to correct underperforming activities. Otherwise, the competition will pass them by! As products and services become standardized, organizations today are looking for new ways to maintain a competitive advantage. 1 Accenture Report Achieving High Performance: The Value of Benchmarking 6

7 Benchmarking: A Powerful Tool for High Performance BASED ON WERC S DC MEASURES INDUSTRY STUDY 2013 In order to be competitive, an organization needs to know how it stacks up to the competition. This understanding provides insight into whether an organization is a leader or laggard, and it also speaks to how an organization s operations contribute to its overall success. Without this contextual understanding, an organization is unable to address opportunities and challenges that can undermine its ability to establish a leadership position in the market. Top Benefits of Benchmarking include the ability to: 1. Better identify critical gaps in costs and performance to effectively manage a business. 2. More easily prioritize opportunities. 3. Create or renew a culture of managing by metrics. 4. Set forth a standard for key aspects of an organization s business processes. Companies use benchmarking results in a variety of ways. According to a study by Accenture 1, leading organizations use benchmark results to make real-time decisions, reduce costs, increase customer understanding and accelerate the development of new products. Benchmark data has a variety of uses, another being the ability to measure successes by having a baseline with which decision makers can compare future data. Fill Rate (%) WERC - Best-in-Class Laggards 1 Accenture Report Achieving High Performance: The Value of Benchmarking 7

8 The Challenges of Performance Measurement and Benchmarking Benchmarking comes with its own set of challenges. When executed poorly, benchmarking will do little more than confuse an organization s bottom line and stall growth. Below are some of the most common challenges a company will face when utilizing benchmark data. 1. The first challenge is how to derive organization s metrics from a system of record that they can trust. 2. The second challenge is to find good benchmark data from a reputable source. 3. The third challenge is how to bring an organization s own metrics together with benchmark data to produce information that alerts its management how well they are and their industry is performing. Finding a Trusted System of Record First, a company must identify source data for the analytics that would be used to generate performance metrics. The system of record must contain reliable data. Furthermore, the data needs to be manipulated in order to produce measures that can be compared to benchmarks. Having access to the right data allows the organization to compare apples to apples, while providing decision makers with the consistency that is essential to carrying out critical decisions. Finding a Trusted Source of Relevant Benchmark Data The benchmark data a company utilizes will validate or potentially skew its findings. If an organization uses benchmark data from a different industry, the business may find that the KPIs and standardized language will lead its management astray and hinder the development and measurement of useful metrics. Benchmark data that is incorrect or outdated could provide an inaccurate assessment of an organization s current state, particularly relative to its competitors. Therefore, choosing relevant and dependable benchmark data based on practical performance-based metrics is of the utmost importance when utilizing benchmarking processes. Benchmark data that is incorrect or outdated could provide an inaccurate assessment of an organization s current state, particularly relative to its competitors. 8

9 WERC 1 : A Trusted Source for Logistics Professionals The Warehousing Education and Research Council (WERC) is the only professional organization focused on warehouse management and its role in the supply chain. This organization provides practical howto information to help members grow professionally as they improve warehouse and company performance. WERC s annual study aims to help practitioners gain a deeper, clearer understanding of key distribution metrics while tracking trends in performance over time. For the past decade, WERC s findings have informed business decisions in various organizations, proving both their trustworthiness and their excellent reputation as an unbiased, relevant source of industry-specific benchmark data. These top performers come from relevant industries such as manufacturing (35%), third-party warehouses (25.2%) and wholesale distribution (7.7%). Within the manufacturing segment, most companies were in the consumer products, high technology or general manufacturing industries a significant representation of each segment in their respective industries. WHO IS IN THE WERC S STUDY Other 7.3% WERC Study: Combined survey for 2013 had over 800 participants of which 535 provided usable responses Utilities / Government 1.8% Food Distribution 1.2% Wholesale Distribution 7.9% Retail 16.5% Converting Data into Useful Information Data isn t inherently useful or informative. In fact, all of the relevant data in the world would be rendered useless without a comprehensive understanding of how it should be utilized. While benchmark data can provide valuable insight into how a distribution organization s costs and performance measure up to competitors, decision makers must also understand how to use this data: first, within the benchmarking process and secondly, when trying to make sense of the comparison between their organization s data and the benchmark data. Missteps in converting data into useful, actionable information can paralyze even the best benchmarking efforts. BREAKDOWN BY INDUSTRY Manufacturing 35.4% Life Sciences - Pharmaceuticals 3.7% Life Sciences - Medical devices 4.9% Solving Benchmark Data Challenges with WERC-Embedded Metrics 3rd Party Warehouse 18.9% Transportation Service Privider 2.4% In August 2013, supply chain management solution provider TECSYS partnered with WERC to offer embedded industry metrics of high performers into its warehouse management analytics solutions. By incorporating benchmark data from WERC s annual study, TECSYS WMS offers some of the most important intelligence that decision makers can use to improve performance and competitiveness. 1 WERC: Warehousing Education Research Council 9

10 Benefits of Embedded Analytics According to Gartner 1, embedded analytics offer a number of benefits. They provide a rapid ROI, because they are designed to work with the underlying business applications, and they are easy to implement since they are installed either as part of an upgrade or in a similar manner to other modules in the application stack. Embedded analytics should also offer good calculation performance and response times, as they are designed to work with the application stack. These analytics require minimal involvement from their IT department in terms of configuration and ongoing management and, in many cases, changes made to the analytic capabilities (such as adding content to a role-based portal or creating new analyses) can be made and managed by users. Comparing a Distribution Operation against WERC s Highest Performers To gain and maintain a competitive advantage over competitors requires that distribution organizations compare their metrics to peers performance in order to identify opportunities for improvement and differentiation. With TECSYS embedded metrics, decision makers can compare their internal performance results to high performers in their industry and act on them to correct and/or improve their own business. Therefore, these companies are able to reach their ultimate objectives of improved performance and profitability. 1 Gartner Report Predicts 2014: Business Intelligence and Analytics Will Remain CIO s Top Technology Priorities 25 November

11 Delivering Actionable Intelligence TECSYS has taken a few key steps to deliver insightful, actionable intelligence to a distribution organization in answering to the benchmarking challenges: The first challenge is how to derive organization s metrics from a system of record that they can trust. TECSYS analytics include pre-built data marts, filled with pre-aggregated benchmark data across multiple dimensions, alongside a distribution organization s own performance data. Therefore, decision makers or users don t need to perform the complicated task of building their own data mart; it is already available, ready to be used. The second challenge is to find good benchmark data from a reputable source. Based on WERC s relevant and reliable annual study, demographics including: industry, customer type, company size, and corporate strategy, decision makers can access top-performer metrics such as order fill rates, among several others, and can easily see how their organization measure up within their specific industry. The third challenge is how to bring an organization s own metrics together with benchmark data to produce information that alerts its management how well they are and their industry performing. Within TECSYS supply chain management solutions, top-performer data is delivered to decision makers from a system of record where it is mastered and centrally managed, including a comprehensive list of metrics that are used by the industry s top performers. Instead of accessing random data, a distribution organization can be sure that its application software solutions provided by TECSYS cover that important information on key metrics in order to stay current and competitive. With TECSYS embedded metrics of high performers into its analytics and business intelligence tools, decision makers are able to compare, side-by-side, their internal performance results to high performers in their industry. TECSYS BI & Analytics Architecture Data Marts WERC Vendor & Purchasing Inventory Demand Customer & Sales Financials Warehouse Dashboards Reports Analyses Executive BI Portal Report Designer Ad-hoc Designer OLAP Analyst Alert Designer Metadata Modeller Cube Modeller TECSYS EliteSeries WMS / DMS / TMS BI Tools Utility BI Metadata Models 11

12 Getting to Know The Critical Benchmarks for a Distribution Operation Customer Focus Total Order Cycle Time Internal Order Cycle Time The average end-to-end time between order placement by the customer and order shipment by the warehouse. The average internal time between when the order was received in the warehouse and order shipment by the warehouse. Operations Inbound Focus Dock to Stock Cycle Time On Time Receipts from Supplier The dock-to-stock cycle time equals the time (typically measured in hours) required to put away goods. The cycle time begins when goods arrive from the supplier and ends when those goods are put away in the warehouse. Percent of orders received from a supplier on the date requested. Operations Outbound Focus Fill Rate -Line Fill Rate - Order Lines Picked and Shipped Per Person Hour Orders Picked and Shipped Per Person Hour On Time Ready to Ship Measures percent of orders lines filled according to customer request. Measures percent of orders filled according to customer request. Measures the productivity of picking and shipping operations in orders. Measures the productivity of picking and shipping operations in lines per person hour. The percentage of orders ready for shipment at the planned time. Capacity and Quality Focus Average Warehouse Capacity Used Honeycomb Percentage Inventory Count Accuracy The average amount of warehouse capacity used over a specific amount of time (month to month or yearly). Measures how well actual cube utilization within the warehouse is managed. Especially important where slots may be only partially full. Measures the accuracy (by location and units) of the physical inventory compared to the reported inventory. The Value of Top-Performer Metrics Improving the effectiveness and efficiency of a warehouse will have an immediate impact on both an organization s customers and its bottom line. Knowing which metrics to focus on is critical and requires a balanced approach. Customer-focused metrics track activities that impact a distributor s most important stakeholder. Ensuring high performance in this area leads to customer satisfaction. Operations-focused metrics track activities that should provide ample supply of product in order to satisfy customers demands. Inbound metrics ensure that inventory is readily available, while outbound metrics ensure that customer orders are processed quickly and accurately. Capacity and quality-focused metrics track the accuracy of inventory on hand and provide insight into how well a distribution organization utilizes its warehouse. Having low inventory accuracies ultimately affects an organization s ability to fulfill customer demands, while improper warehouse capacity utilization can affect both costs and a company s ability to handle fluctuations in demand. 12

13 Understanding a Distributor s Position in the Industry: The End-All Goal with Visual Metrics TECSYS leverages WERC s benchmarking data to help distribution organizations gain a better understanding of their positions in the industry relative to competitors or industry top performers. These solutions can uncover a singular view of the current performance of a distribution organization, which is the end-all goal of benchmarking. A lack of benchmarking was a major reason why only a meager 29% of respondents in Accenture s benchmark data survey 1 said that they had a good understanding of where their organization stood in relation to comparable enterprises. When benchmarking is used, a vastly higher percentage of companies report knowing where their company stands within the industry. 1 Accenture Report Achieving High Performance: The Value of Benchmarking 13

14 TECSYS Visual Metrics Dashboard TECSYS Visual Metrics TECSYS Visual Metrics the industry s executive dashboard for full-cycle warehouse management analytics with embedded metrics enables decision makers to visualize their positions against competitors and execute actionable strategies for optimal performance in their distribution and customer service operations. Incorporating KPIs from the rich database of high performers in WERC s DC Measures industry study, distribution executives using TECSYS Visual Metrics dashboard will have a trusted source of interactive, high-impact management tools that are relevant to their business. They will also be able to become a top performer by gaining the ability to make more informed decisions and share insights within their business ecosystem. TECSYS Visual Metrics dashboard for the executive suite is an essential tool for monitoring business performance against industry peers. It empowers executives to gain visibility into their industry landscape and make fast decisions to improve their distribution operations. The combination of TECSYS Visual Metrics dashboard and its warehouse management application are the distribution industry s new platform for executives to improve and sustain superior supply chain management performance, competitiveness and profitability. 14

15 About TECSYS TECSYS is a market-leading provider of warehouse, distribution, transportation and delivery management, as well as business intelligence and analytics software solutions and industry-expert services. The Company s customers include mid-size and Fortune 1000 corporations in healthcare, third-party logistics and general high-volume distribution industries such as service parts, import- to-retail, industrial distribution and more. For over fifteen years, TECSYS analytics solutions have been enabling decision makers to gain clear and immediate insight into their organizational data assets in order to make informed decisions and empower their organisations to gain a significant competitive edge. The Company employs a seasoned team of experts who have extensive experience in supply chain management and in deploying TECSYS technology in high-volume distribution environments, enabling customers to significantly streamline logistics operations, reduce cost and improve customer satisfaction. About WERC The Warehousing Education and Research Council (WERC) is the only professional organization focused on warehouse management and its role in the supply chain, providing practical, how-to information to help members grow professionally as they improve warehouse and company performance. WERC is a not-for-profit organization with individual and corporate members. 15

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