Distribution Center Management Balanced Scorecard Approach

Distribution center management in fast paced business environment is a very challenging mission. If you work in retail business, every day is hectic because you have to handle thousands of stock keeping units and you have to respond to growing customer’s demand. Management of distribution center needs to maintain equilibrium between demand and supply. Because distribution center is the center of gravity, receiving/sending products from/to many members in supply chain.

In distribution center business, you have to manage not only the operations but also business earning and growth. In order to execute distribution center management successfully, you need to have well balanced approach that you team can understand, implement and monitor the progress. I have developed sample of strategic distribution center management scheme using simplified Balanced Scorecard which is centered on 4 perspectives.

Financial Perspective

This perspective shows you how good your distribution center is doing. If you have full understanding of earning now and in the past, you will get better idea about how much effort you and you team you give into distribution center management. To do this, you should divide customer into segment, collect revenue figure in the past (for example 5 years back) up to current period. When you finish, I believe you should be able to highlight 2 important segments, namely, well performing segment and overlooked segment.

Customer Perspective

For well performing segment, I suggest you to conduct regular customer satisfaction survey to ensure that you won’t lose this segment to your competitor. Moreover, you should try to establish customer service policy to ensure that each of your customers receives standardized response and service. For overlooked segment, you need to do customer retention. Just drop by to say hi to your inactive customer and listen to their suggestion and comment. This information is very useful and can be used as the input to next perspective.

Internal Business Processes

After you get information from both well performing segment and overlooked segment, now you should have a very good idea about how you should improve your operations. The purpose of internal business process perspective is just that, improve your operations so you can win new customer and retain existing customer. I’ve gathered generic improvement initiative for distribution center management as follows,

Process improvement: this can be done by means of business process mapping, identify non value added activities in distribution center and make change to process flow.

Quality management: you might want to consider implementation of quality management system such as TQM or ISO. This is highly recommended if you receive lots of complaints from customers about shipping or document errors.

Information technology: I personally believe that not every distribution center has integrated IT system. Disparate system creates clutter among processes. For example, if order processing system is separated from warehouse system, operators need to make data entry into 2 different systems to complete shipment. This is time-consuming and high cost operation. Investment of integrated information system should be looked into.

Innovation: Investment in innovation sometimes increase cost more than save cost. However, you need to have innovation. Existing customer may run away to more modernized distribution center or you don’t have selling point to pitch to you new prospect if your distribution center is outdated. I would recommend RFID, Status Tracking, Vehicle Tracking and equipment automation to streamline your distribution center.

Cost Management: Three high cost areas are storage space, truck utilization and order picking. These elements deserve high attention.

Safety and Compliance: Trend of corporate social responsibility is spreading around the world. You may not be able to have business with big customer if you don’t pay attention to issues like workplace safety, road safety, hazardous material, fire safety, regulatory compliance and so on. These are not revenue generating topics but they’re essential.

Learning and Growth

You can’t do everything by yourself, employee is fundamental of business. Experienced staffs carry out task properly, satisfy customer and generate revenue for you. This is the importance of the last perspective.

Logistics and supply chain management is relatively new subject and I believe many staffs in distribution center don’t have formal training/education in this area. You shouldn’t hesitate to provide your staff with the knowledge, it’s OK either on-the-job-training or structured training. You should try to inject new idea and knowledge to your staff as much as possible.

Last but not least, employee is the essence. Satisfied employee tends to provide very useful information when you do any improvement initiative. On the other hand, dissatisfied employee create disturbance, defy change and act unprofessionally to customer. Employee satisfaction survey or employee retention program will help you run your distribution center in sustainable way.