Expert: Richard Soong Date: 5/8/2008 Subject: receiving metric
Question I have a question? I manage receiving, warehouse, and inventory for a retail distributor of cell phones.
What is the general rule of thumb for measuring receiving costs?
The company I am at now is measuring direct labor by pallet?
The problem is that as purchasing improved there ordering scheme, the units per pallet increases and pallet volume decreases.
This makes the team look top heavy with regards to cost.
If measure out the direct labor against per unit, we have reduced our cost. My peers say it is not true statement since there could be 500 units to a pallet?
Our outbound shipping department measures by the unit?
What is the best way to measure?
Answer Hi Tim,
Q; What is the general rule of thumb for measuring receiving costs?
Different companies beg to differ upon the costing which could range from 3.2 - 7.8% of overall.
This information could be used to setup a benchmark on whether your company is paying more than it should or the company is on the right track.
Q: The company I am at now is measuring direct labor by pallet?
The problem is that as purchasing improved there ordering scheme, the units per pallet increases and pallet volume decreases.
This makes the team look top heavy with regards to cost.
A: I will quote an situation which I did with one of the warehouse operation that I have created. We have different labor cost for receiving and inbound storage cost with the operation. A 3rd party provider dealt with the receiving from container/truck loading to the warehouse premises with a certain fee and they dealt with the inbound check for external mishandling of cargo. The freight handling charges were done based on volume metric calculation.
i.e. the handling charges upon volume x price + handling per pallet.
There is several areas with receiving and putaway storage which you might consider looking into. With consolidated procurement does decrease the inbound freight charges but that lengthen the break bulk and putaway storage costing. You will need to strike a balance.
Q: If measure out the direct labor against per unit, we have reduced our cost. My peers say it is not true statement since there could be 500 units to a pallet?
A: With the general perception as direct labor against per unit might have beg to differ with decrease in costing but within the whole supply chain/ other area of the process has incurred the cost against the labor input. (eg as mention, cost might have increase with addition work to break bulk for putaway storage - which might have expended with your repackaging resources and labor cost) Thus data collection on several areas like your inbound cost, operation cost (putaway & picking) will provided a good idea on how much has been reduced or whether it has added hidden cost to other areas of operation.
Q: Our outbound shipping department measures by the unit?
A: This statement is too vague for me to give a general presumption on how your cost is measure upon your handling freight charges. Were you referring to piece rate charges or bulk purchase by clients ?
Q: What is the best way to measure?
A: In general, accounting from the various stages of operation/ supply chain and data collection on the costing (labor, equipment, time and etc) This will give you a better idea of whether cost saving has materialized. Gentle note, reduced of cost in a stage of the supply chain does not directly reflected general saving along the supply chain.
--
Tim, hope I have answered what you need to know and if you do have any enquires, drop me an e-mail @ richardsoong@gmail.com.
