One of my favorite charts shows how the cost of fixing bugs goes up exponentially through stages of software deployment:
Fixing problems in a warehouse is very similar. Fixing something downstream takes orders of magnitude more effort than doing it right the first time. But quality errors are a ‘sleeper’ cost driver; how often have you seen the cost of quality errors reported? Probably not very often as such. While Cost of Quality is often thought of in a six-sigma, manufacturing setting, it’s very real in warehousing and distribution too.
So what is the cost of poor quality (or accuracy) in a warehouse?
Let’s look at a couple cases.
Why are quality problems high-cost?
Let’s say that one of our receivers is in a hurry to make his numbers and mis-receives an item; his quantity is wrong, or he misses a SKU. He puts it on a cart for putaway. The stower goes to put the item away and finds that it doesn’t systematically exist on the cart. A problem!
Now we have to deal with the waste of transporting the item to a problem-solver; the time-in-process to research the item and the PO it was tied to; the re-receipt of the item; and re-handling it for putaway. In the meantime, the stock levels plan is not accurate, since the dock-to-stock time service-level has been missed, so an order can’t be fulfilled, resulting in an unsatisfied downstream customer. The shipper has not gotten paid, or was charged for a Short, which will have to be rectified and returned, requiring more effort by yet more people. The reputational damage of poor processing and poor fill rates will affect the business. Management time and effort is spent assessing the problem, checking whether it’s fixable, researching the employee’s performance history, and following up with the employee to tell him to “pay more attention.” Perhaps IT system development is required to fix the problem, or to report on it.
The net cost of the mis-receive by the associate, by the time it’s all said and done, is more than 10x the cost of doing it correctly the first time. Defects are a Lean waste for a reason!
This pattern holds in many processes in the facilities; a mis-pick will require replacing the item, an additional pick, research, perhaps extra shipping, cycle-counting, and maybe an angry customer. A bad pack-out will get kicked out at a jackpot and require research and re-handling to ship. A dimensional problem will cause an order mis-ship, followed by research, re-stocking or re-handling, and cube mis-utilization. A mis-loaded truck will require re-shipment or re-loading. And so on.
Is that happening in your facility? Walk around and look for piles of product that’s not in location or work-in-process. There’s your answer!
What does all that effort cost?
It’s difficult to measure precisely, and varies from process to process.
A good rule of thumb is to take your error rate, and multiply the labor required by 10x. Let’s say 1% of your total production requires rework along the lines outlined above. With defect handling cost as outlined above, a 10% labor cost to deal with the problems would be realistic, if not optimistic, and would include direct, indirect, equipment, and management functions.
So, do you know your error rates?
What can you do about it?
Quality problems are much harder to address than are productivity gaps.
Productivity is directly reported from transactions and time, and is front-and-center on performance reviews. Quality errors require an independent auditing process that has to be developed, implemented reliably with your teams, and measured against the production process for rate determination. So first, measure the defects, attribute them to processes, develop error rates to prioritize efforts, and then follow up and close the loop.
As you improve your operation, you can find and fix the source of the errors before they go downstream through simple 100% inspections, process improvement, and poka-yokes.
The good news is that once you fix your quality and accuracy problems, you’ll find that every-day operating gets tremendously easier, and your customers are happier. And, by the way, your other numbers will improve too.
Quality matters; invest in the effort.
Share any distribution quality/accuracy management tips or insights in the comments!