For companies to assess if there are opportunities to reduce costs in their logistics operations, it is important to move beyond anecdotal evidence or historical performance measurements. To understand where efficiency opportunities exist, it is important to establish a productivity measurement program through the implementation of scorecards and ABC costing techniques.
KOM International helps clients set up standardized or tailor-made productivity / ABC costing reporting systems, such that scorecards can be used to provide logistics executives with a pulse on the performance of each direct and indirect labor function within the logistics operation. This information accurately quantifies each cost component within the logistics operation. Once these components are in place, a comparison between one company's operation and other operations within the same company or industry can take place.
The comparison of production data between companies needs to take into consideration the many subjective variables that influence productivity and efficiency. For example, order picking productivity is influenced by order size, so someone comparing order pick rates needs to consider this. KOM International provides the experience and techniques to ensure productivity benchmarks are meaningful and of value.
KOM International's services in productivity benchmarking include:
KOM International helps clients to implement productivity measurement systems to enable detailed reporting of the time spent executing job functions in the logistics operation. To do this, KOM International measures operator activities through time and motion videotapes which are then used in conjunction with production data to establish current performance levels. Weekly scorecards are implemented to allow management to quickly view functional throughput rates by job function and by operator.
ABC Costing
ABC Costing combines standard accounting information with productivity and throughput data to create activity-based costs. ABC costing can be implemented simply and quickly or, conversely, by using a highly detailed approach. Regardless of the level of detail used, ABC costing results provide a powerful means of evaluating the cost of each specific job function on a throughput basis. However using ABC costing results for analysis purposes can be dangerous. For example, the activity-based cost of picking a full case could average $0.27, but that cost can significantly fluctuate depending on changes in order profiles.
KOM International helps companies to implement ABC costing programs that accurately capture the costs associated with labor, orders, space utilization, equipment usage, etc. These measurement programs can be used as the basis for evaluating changes to an operation, as well as cross-company efficiency comparisons within an industry.
For over 30 years, KOM International has developed labor productivity statistical reporting through surveys and through client work. This information has been catalogued to measure productivity by industry, size of company, product lines, type of operation, etc. The information has helped to allow companies to view their throughput and performance levels compared to other comparable companies within their industry.
The information has also been instrumental in enabling an assessment of various types of materials handling systems and operating procedures to the point that that KOM International is in the position of advising clients of realistically achievable throughput rates for different types of distribution center operations (i.e. conventional versus mechanized versus automated, etc.)
Once the labor productivity standard components are established, KOM International uses advanced computer simulation techniques to simulate alternative ways of running the operation. Simulation helps to quantify the cost benefits of resetting a distribution center, re-slotting, introducing new materials handling systems or operating procedures, etc.
KOM International's unique approach to simulation has helped companies reduce their logistics operating costs by millions of dollars before making any decisions to introduce change. KOM International's simulation service is a valuable tool to help reduce risk before making changes to a large distribution center operation.
The most important step to improving distribution center productivity is to first establish a measurement system that identifies current throughput rates by job function by building / zone / shift. Once this is in place, the measurement system can be used to judge if and where improvements in the operation are happening and what tradeoffs if any are being encountered.
KOM International offers experienced operational audits that enable companies to quickly understand productivity improvement opportunities and the associated economical benefits. To do this, KOM International performs detailed studies of each distribution center operation as well as audits of all other departments within the organization. Management is presented with a final report / presentation on where cost reduction opportunities exist and what effort and capital investment is required to achieve them. It is quite common that many efficiency improvements require no capital investment because simple procedural changes can provide substantial benefit.
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