15th international scientific conference Business Logistics in Modern Management

October 15, 2015 - Osijek, Croatia

EVALUATION PROBLEM AND ASSESSMENT METHOD

OF WAREHOUSE PROCESS EFFICIENCY

Adam Kolinski
Poznan School of Logistics
Estkowskiego Street 6, 61-755 Poznan, Poland
E-mail: adam.kolinski@wsl.com.pl

Boguslaw Sliwczynski
Institute of Logistics and Warehousing
Estkowskiego Street 6, 61-755 Poznan, Poland
E-mail: boguslaw.sliwczynski@ilim.poznan.pl

Scientific paper

Abstract

Warehouse processes are one of the key elements of material flow efficiency
along the supply chain. In the literature and scientific research is difficult to find a
comprehensive analysis evaluation warehouse processes efficiency. Lack of
unambiguous definition makes it impossible to develop a universal method for
evaluation of warehouse processes efficiency. In addition, element hampering the
standardization of evaluation methods is the specificity of the warehouse processes.
Warehouse processes can focus on ensuring flow continuity of the production or
distribution process. These problems are condition for conducting detailed scientific
research in this area.
Comprehensive analysis of efficiency requires both an operational data relating
to technological process, supported by support processes and service, but also the data
generated by an information system in order to ensure their reliability and timeliness.
For this reason, the efficiency analysis should ultimately affect the warehouse process,
taking into account both the material flow and information flow, as well as the aspects
of warehouse management and existing feedback.
The main aim of researches presented in the article is improving of product
profitability by value and efficiency enhancement of warehouse processes according
to score of multi-criteria analysis (MCA) encompassing cost-efficiency and cost-
effectiveness analysis CE|EA or cost benefit analysis CBA among other. Authors
have made attempts of indicators compilation to assess the warehouse processes
efficiency, including basic assumptions of Balanced Scorecard.

Key words: warehouse efficiency, warehouse process, logistics controlling

1. INTRODUCTION

The specificity of warehouse processes will need to concentrate on those factors

that have a crucial impact on the continuity of the material flow throughout the supply

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chain. The scientific studies of the logistics management, can be found a lot of factors
- the processes and resources - that affect the whole warehouse process. It is therefore
clear that the warehouse management should focus on ways to improve the efficiency
of processes, both internal and external supply chain and continuous monitoring and
evaluation of the results. The research problem identified by the Authors during the
research literature and observations in enterprises have assessed the efficiency of
warehouse process, taking into account the multi-dimensional analysis of the
interrelationships within the process, as well as linkages with other processes affecting
the continuity of material flow.

proportion of the achieved effect to borne spending:

(1)

key: E- efficiency; e effects; s spending

Complexity of warehouse management is supported by a number of managing

concepts which are implemented in order to improve warehouse efficiency. According
to model (1) we can distinguish few methods of improving efficiency of actions:
lowering spendings and keeping the level of effects at the same time,
lowering spendings and raising the level of effects at the same time,
keeping the level of spendings and raising the level of effects at the same
time,
raising the level of spendings and raising drastically the level of effects at
the same time.
Figure 1 shows basic methods of improving warehouse efficiency and attributing
them to chosen concepts of managing.

Figure 1. Attributing methods of improving efficiency to chosen concepts of

managing

e const e e e
E E E E
s s s const s

Theory of Constraints Diversification strategy

LEAN MANAGEMENT AGILE MANAGEMENT

Source: own study based on (Kolinski, 2013)

The basis of the above picture is conviction that Lean Management concept
concentrates on lowering spendings by, among others, lowering the level of expenses.
Agile Management concept, on the other hand, does not focus on expenses
optimisation. Therefore, the methods of improving efficiency which did not concern
lowering spendings were recognised as characteristic of Agile Management concept.
Theory of Constraints concentrates on two methods of improving efficiency:
improving effects and keeping spendings as well as improving process and lowering

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spendings (e.g. reducing the supply of work in progress). According to the definition
of diversification (Kolinski, 2010), raising effects is possible thanks to increasing
spendings (e.g. introducing new products or entering new markets).
Literature analysis only confirms the complexity of warehouse efficiency. Most
organizations say they are continually trying to increase their productivity. There are
really four ways of doing this (Waters, 2002):
improve effectiveness with better decisions,
improve efficiency using fewer inputs to achieve the same outputs,
improve performance in some other way such as higher quality, fewer
accidents, less disruption,
improve morale to give more co-operation and incentives.
Nevertheless, it needs to be remembered that aiming at maximising efficiency
can entail numerous threats. The most dangerous traps of maximising
efficiency are:
lack of coordination in realisation of operational aims of individual
departments with strategic aims of a company or a supply chain,
discrepancy between strategic aims formulated by individual companies
which are elements of a supply chain,
discrepancy between operational aims of different departments of a company.

2. SPECIFIC OF WAREHOUSE PROCESS EFFICIENCY

Warehouse management is a very important element of business activity of each

enterprises. Therefore, warehouse management in the enterprise is of particular
importance. Warehouse management shall be examined at least in three key areas of
processes jointly influenced in supply chain ( , 2015):
procurement - the aim of warehouse management is to receive materials and
raw materials for the production of suppliers, storage and issuing to
production,
production - where the task of warehouse management is reduced to an
optimal allocation of materials and resources to the appropriate areas and
production stages,
distribution - where to store, completed and deliver finished goods in such a
way as to meet the expectations of customers (right product, at the right time,
the right place, at the right price).
Warehouse efficiency is a concept which is quite difficult to define. Generally
efficiency can be defined as a measurement (usually expressed as a percentage) of the
actual output to the standard output expected. Efficiency measures how well
something is performing relative to existing standards; in contrast, productivity
measures output relative to a specific input, e.g., tons/labor hour. Efficiency is the
ratio of (APICS, 2004):
actual units produced to the standard rate of production expected in a time
period,
standard hours produced to actual hours worked (taking longer means less
efficiency),

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actual volume of output in value to a standard volume in a time period in

value.
Analyzing the warehouse process in terms of efficiency, determine the
objectives and tasks of effective warehouse management, which is shown in Table 1.

Table 1. Objectives and tasks of effective warehouse management

Objectives Tasks
ensuring the availability of technical and
maximize use of storage space, personal resources to achieve the planned level
achieved through appropriate of activity - only possible with close
measures in the design, coordination with the leadership of the company;
construction and commissioning ensuring the flow of goods corresponding to the
of the magazine and responding requirements for deliveries and shipments -
to current changes; requires cooperation warehouse with
procurement and sales departments;
Solid planning, control and maintaining the use
of all available resources - is made at the
minimizing the use of operational level and can be based on production
manipulating operations - the schedules and orders placed with suppliers or
first step eliminates redundant sales plans and orders from customers;
operations, and the second seeks continuous monitoring, evaluation and
to reduce the execution time of improvement of the warehouse process
necessary activities according to established criteria - should be
based on selected indicators and gauges
reflecting the process
Source: own study based on (Niemczyk, 2010, p. 248-251)

Admitting the validity of the thesis that warehouse management has a significant
impact on the functioning of the company, it is clear it should strive to continuously
improve the functioning of the warehouse. The most important factors affecting the
increase of functioning productivity of the warehouse, are:
adjustment of flow into warehouse capacity - the starting point should be to
determine the warehouse capacity. Based on it, working with the businesses,
it should set a schedule for deliveries and shipments to avoid the
accumulation of work during the day and excess loading units flowing
through the warehouse,
the use of storage space - refers to the efficient management of the available
amount of storage area,
rationalization of routes traveled by employees and the goods - this factor is
most important for the process of completion, except that you should strive
to eliminate or shorten the routes traveled by employees without the goods,
use of staff - analyzing this factor should be paid attention to three criteria:
load-time employees, they possess the competence and stability of
employment,

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effective information flow - has a key impact on the implementation of all

phases of the warehouse process. Any disruption in the flow of information
(especially in the stage of completion and issuance) may result in delays in
the implementation of contracts.
Besides organizational factors outlined above, the efficiency of warehouse
processes also depend on the following factors:
modern equipment of warehouse,
the use of modern technology,
utilization of automatic identification systems based on barcodes or a
system of EPC / RFID,
the use of information systems supporting warehouse management (WMS).
In its detailed analysis of the warehouse process in terms of operational

the efficiency of warehouse resources and their utilization,

performance and reliability of warehouse operations,
load handling time of the adoption until the release and warehouse capacity,
taking into account downtime, queues and bottlenecks in the flow of goods.
Warehouse efficiency is a very important issue from the point of view of
processes organised in a company and in a supply chain. Improving the efficiency of
a warehouse process is therefore a very important factor in controlling actions. The
efficiency analysis process applies the techniques of Value Stream Mapping on the
value stream product of warehouse processes chain. Product value analysis for n
values making up a set of dependent variables is multifunctional in its nature. A set of
values Wn at the end of the supply chain depends on the results of component
operations Dk in the warehouse operations chain (utilizing space, equipment, and labor
effectively), e.g. timeliness and completeness of warehouse operations, warehousing
quality and reliability, exact order picking and handling (ICRC, 2004, p. 285-362).

(2)

It should be noted, however, that despite numerous references to science

literature, in practice economic efficiency analysis is not applied so as to provide
successful support decision processes occurring in the enterprise. Scientific research
performed by the Authors in identifying difficulties in carrying out a comprehensive
analysis of the efficiency of processes confirms low level of analytical tools use in
-6). It should be noted that 46% of
surveyed enterprises did not perform such analyze or is not aware of this. Despite the
fact that 54% of enterprises use efficiency analysis process, it shall be regarded as
unsatisfactory and confirming the generally prevailing opinion that the efficiency
analysis is a complex process and difficult to use in practice, especially due to the lack
of universal analytical tools to support its implementation. However, results also
indicate an increase in awareness of the need for efficiency analysis in order to
improve the competitive position on the market.

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3. IT SUPPORT OF WAREHOUSE EFFICIENCY ANALYSIS

The main role of information technology tools is to support gaining, processing

and distributing data, which makes the process of making decisions by the
management more efficient. Nowadays, a very competitive factor is the information
flow time, which shortens processes in enterprise. It is also a very important aspect of
management actions concerning the analysis and assessment of warehouse process
efficiency as the time of making strategic and operational decisions relies on these
actions. Continuous time pressure makes it difficult to analyse data and draw the right
conclusions (Kolinski & Sliwczynski, 2014, p. 206). Therefore, it seems to be vital to
implement IT solutions in analytical tasks not only in a warehouse process but also in
a process in company and supply chain. The main task of IT tools supporting
efficiency assessment is to assist man
Controlling IT systems have been undervalued and their implementation and practical
use have been very scarce and general. Nowadays, IT tools for supporting the
assessment of warehouse processes efficiency are taking on a special meaning,
especially for companies oriented on gaining a competitive dominance on the market.
These are mainly large and medium logistics companies which generate the
biggest demand for collecting, processing and storing data with the help of IT tools
supporting decision making. Due to fragmentation and diversity of this sector we can
distinguish three stages for IT support of warehouse process efficiency:
carrying out efficiency analyses based on spreadsheet programs,
implementation of analytical tools in an environment of ERP class
integrated systems for managing enterprise,
developing dedicated IT systems to specific of warehouse processes and
related with other elements of material flow in a supply chain.
Controlling in a warehouse processes which is supported by a computer should
take into account specific requirements of all information recipients. Information
technology system of controlling takes the information necessary to carry out analyses
from a data warehouse, where all the transactional data recorded in a company is
saved. This transactional data contains: data concerning customer service (CRM), data
for managing a supply chain (SCM), data concerning supply, warehouse, inventory,
production, logistics, transport and shipping, distribution, finance and accountancy,
sales, HR and payroll, and quality control. Combining all received information with
the help of a controlling information technology system makes it possible to carry out
cross- ity. The functioning rules of an
independent controlling information technology system are presented in figure 2.

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Figure 2. Functioning rules of a controlling information technology system

REPORTING
The information system of controlling

CRM SCM

Procurement Warehouse Inventory Production

Logistics Transport Distribution Sale HR Quality Control

The Enterprise information system

MONITORING
Source: own study (Fajfer et al., 2014, p. 43)

The main tasks of an independent controlling information technology system are

planning (operational as well as constructive-financial), monitoring, analysis and
simulations as well as reporting. The functionality of an independent controlling
information technology system is compared to the functionality of a controlling
module included in ERP class information technology system. Nevertheless, the
independent system is much more detailed than the system of ERP class. For this
reason it can not only single-handedly supervise all controlling processes in a
company but also serve as a tool supporting the work of an integrated information
technology system. The controlling system makes it possible to use one, integrated
database which contains all current and archival information generated by all
processes taking place in a company. The information obtained from a controlling
system enable:
improvement in operational and constructive-financial planning (budgeting),
precise monitoring of l
reality,
state analysis and signaling a threat with the help of index analysis,
plan and budget correction,
reaction to diversions from a plan or a budget,
carrying out analyses and forecasts of investments, projects and results,
compilation of results of budget realisation analysis,
reporting,

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determining the tools for analysis and control, which should be used in a

market.
Using information technology tools of controlling entails many benefits for
efficiency in a company and a supply chain. The most important benefits are (Fajfer
et al., 2014, p. 44):
quick access to managerial information,
obtaining more detailed analyses and, in consequence, obtaining better bases
for making decisions,
possibility to carry out data analyses single-handedly,
monitoring planned task realisation from the area of logistics,
possibility to make a simulation of the influence which made decisions have
on

logistics functioning.

4. INDICATORS FOR ASSESSING WAREHOUSE EFFICIENCY

An analysis of warehouse efficiency should be based not only on operational

indicators, which are directly connected with warehouse process, but also on financial
indicators. Aims and indicators used in an analysis of warehouse efficiency should

be named complete when it does not only refer to indicators which apply to past results
but also when it allows to monitor what affects future results. The problem of
complete warehouse efficiency assessment has still not been polished in the matter
subject literature. Taking into account ecological aspect, the problem of warehouse
efficiency assessment can be based on the assumptions of Balanced Scorecard
developed by R. Kaplan and D. Norton. The authors proposed the analysis of
efficiency from four perspectives: financial, customer, internal business process, and
learning and growth. Many companies already have performance measurement
systems that incorporate financial and nonfinancial measures. What is new about a
call for a "balanced" set of measures? While virtually all organizations do indeed have
financial and nonfinancial measures, many use their nonfinancial measures for local
improvements, at their front-line and customer facing operations. Aggregate financial
measures are used by senior managers as if these measures could summarize
adequately the results of operations performed by their lower and mid-level
employees. These organizations are using their financial and nonfinancial
performance measures only for tactical feedback and control of warehouse process in
short-term (Kaplan & Norton, 1996, p. 8).

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Figure 3. A general model of warehouse management controlling system

Source: own study

On the basis of the plan shown in figure 3 detailed analyses have been carried
out with the aforementioned assumptions taken into account. It needs be remembered
that the system presented in figure 3 is only a model. In reality, there is a lot of
feedback interactions ensuing from, for example, the need for additional
measurements or carrying out analyses just at the stage of working out a decision.
Carrying out an analysis of warehouse efficiency in discussed four perspectives,
we have developed a set of indicators (Corbett, 1998; Sliwczynski, 2011b; Twarog,
2005) which take into account the basic characteristics of efficiency defined by model
(1). Table 2 presents chosen indicators of assessing eco-efficiency of warehouse in a
financial perspective.

Table 2. Chosen indicators of assessing efficiency of warehouse processes in a

financial perspective
formul
No. name of indicator characteristic unit
a
a - net profit
1. Return on investment (ROI) %
b - investment*

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formul
No. name of indicator characteristic unit
a
a - net income after tax
2. Return on equity (ROE) %
b - shareholder equity
a - net income
3. Return on assets (ROA) %
b - mode of total assets
a - net profit
4. Return on sales (ROS) %
b- sales revenue
a - material consumption
Ratio of material inventory costs
5. %
turnover b - average stocks of
materials
a - net sales
6. Ratio of worker productivity %
b - salary costs
* Investment, means the money which were spend for buying things which will be
sold (Goldratt & Cox, 2004).
Source: own study based on (Kolinski, 2013)

The table shows only chosen financial indicators

most often used when assessing warehouse efficiency. There are many more
indicators which can be useful in economic practice but it needs to be borne in mind
that the more indicators, the bigger the threat of missing the main aim of carrying out
an analysis.

perspective.

Table 3. Chosen indicators of assessing efficiency of warehouse processes in a

No. name of indicator Formula Characteristic unit

a - number of completed
Effectiveness of orders
1. %
realization of orders b - total number of orders
a - volume of the
Quantity or value market customers target group
2. %
share b - total market volume
a - lead time of material
Average duration of receipt
3. h
material receipt b - number of material
receipt
a - number of defective
Share of defective material material receipt
4. %
receipt to customer b - total number of
material receipt
Source: own study based on (Kolinski, 2013)

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Indicators in the customer perspective should be considered as key factors for

process improvement initiatives across the organization. Planning orientation and
organizational integration resulted in process optimization across the supply chain
resulting in a higher service level with reduction in inventories (Sehgal et al., 2006).
Table 4 presents chosen indicators of warehouse process efficiency in a perspective
of an internal process.

Table 4. Chosen indicators of warehouse proces efficiency in a perspective of an

internal process
No. name of indicator Formula Characteristic unit
a - the rotation of inventory
The indicator of warehousemen
1. b - the average number of %
productivity
employees in the warehouse
a - used warehouse capacity
2. Warehouse capacity utilization %
b - total warehouse capacity
a - the rotation of inventory
The indicator of average stock
3. b - number of days in the %
rotation
period
Duration of the warehouse a - overall duration of orders
4. h
orders for assortment groups b - number of orders
Source: own study

Encapsulation of efficiency in warehouse process is best apparent in collation of

indicators from internal business process perspective. This state of things should not
be surprising as these are processes which take place on an operational level that have
the biggest contribution in assessing warehouse process efficiency.
Table 5 presents chosen indicators of warehouse process efficiency in learning
and growth perspective.

Table 5. Chosen indicators of warehouse process efficiency in learning and growth

perspective
No. name of indicator Formula Characteristic unit
a - material consumption
Ratio of material inventory costs
1. %
turnover b - average stocks of
materials
a - number of executed
Flexibility of warehouse special orders
2. %
process b - total number of special
orders
a - the rotation of inventory
The indicator of warehousemen
3. b - the average number of %
productivity
employees in the warehouse

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a - number of defective
Share of defective material material receipt
4. %
receipt to customer b - total number of material
receipt
Source: own study

Indicators of warehouse process efficiency in learning and growth perspective

are the most wanted form of assessing warehouse process efficiency. However, they
are also the most difficult to develop. One needs to remember that indicators of
development also entail different threats. The indicators can be inconsistent with the
basic strategic aims. When preparing a collation of indicators for warehouse process
efficiency assessment one needs to bear in mind the link between individual
perspectives. Analysing and compiling indicators of efficiency assessment for each
perspective individually can lead to the situation which is reverse to the one expected.
We can then get a set of indicators which exclude one another.

5. CONCLUSION

Warehouse process is one of the key processes affecting the value-added in

supply chain. This is due to the fundamental objective of the warehouse, which is to
enable the availability of assortment in a specific quantity, a specific place and a
specific time. The problem of warehouse process efficiency, which was presented in
this article refers only to economic aspects. It should be remembered that the
assessment of efficiency should also include technical and organizational aspects.
Problem of comprehensive efficiency analysis applies not only to process
warehouse. Authors within the framework of research activities analyze the impact of
individual phases of material flow on the supply chain efficiency. The authors of the
current research analyzed the problems of evaluation of production efficiency
(Kolinski, 2012; Kolinski, 2013; Kolinski et al., 2014) and procurement process
(Sliwczynski & Kolinski, 2012a; Sliwczynski & Kolinski, 2012b). The aim of further
research is to standardize a method of evaluation of supply chain efficiency in
economic aspect, by the analogous to develop a indicators system for transport and
distribution processes, generally based on assumptions of the Balanced Scorecard.
The issues of the efficiency are widely discussed in the scientific literature, but
there is still lack of a comprehensive method, which enables the multivariate analysis
and the estimation of supply chain. When building a model for the evaluation of the
efficiency, the correlation of all levels of business management should be taken into
consideration. The ecological aspect of supply chain, gaining lately the special
attention, should be also considered. The implementation of IT systems, supporting
the management process, is a practical problem related to the process of building the
supply chain efficiency model. The functionalities of such supporting systems enable
to obtain and analyze all aspects necessary to fulfil a comprehensive analysis.
Therefore, it seems to be reasonable, to prepare a separate IT tool, which will focus
on a comprehensive efficiency analysis of all processes in the supply chain and which
should be considered as the future direction of researches in this area.

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