As supply chains become increasingly more global in nature the ability to effectively manage a network of distribution centers is becoming a required core competency. Unfortunately, a surprisingly high number of companies that currently practice multi-site distribution are experiencing real challenges in this area impacting profitability. In a recent survey of 146 multi-site distributors, almost two thirds of companies report that their operations are moving in the WRONG direction—costs have risen, and customer service levels have declined.

Best-in-Class Performance

However, a small group of companies have mastered the art of managing a network of warehouses. These companies follow strategies which allow them to provide superior levels of customer service while at the same time containing costs. On average, Best-in-Class companies have:
• 99% or more on-time and complete orders
• Fewer than 1% of orders contain a line that is back ordered

• Lower inventory carrying costs over two years
• Reduced inventory write-offs for spoilage or obsolescence over two years

Competitive Maturity Assessment

The firms enjoying Best-in-Class performance shared several common characteristics with respect to their multi-site order fulfillment capabilities, such as:
• Companies that have reduced their order fulfillment costs year-over-year are 82% more likely to have sales order splitting capabilities.
• Companies have reduced their inventory carrying costs year-over-year are almost TWICE as likely to practice order distribution by inventory level.
• Companies that have 99% or more complete shipments are 54% more likely practice Vendor Order Splitting.

Required Actions

To achieve Best-in-Class performance, multi-site distributors must:
• Leverage the entire network to fill orders, and move away from dedicated use facilities, resulting in greater agility and improve levels of customer service
• Rather than “rip and replace” disparate WMS systems, use a Multi-Site Inventory Visibility platform to manage globally
• Utilize warehouse and order management applications to enable Sales Order Splitting

Benchmarking the Best-in-Class
Fast Facts

• Two-thirds of companies report that their operations are moving in the WRONG direction— costs have risen and customer service levels have declined.
• Only one out of every three multi-site distributors can improve customer service while reducing costs.
• While most companies are still struggling just to meet service demands like customers needing their orders faster, leading companies take a broader approach that addresses cost containment as well as customer service. As supply chains become increasingly global, managing a network of distribution centers is becoming a fact of life for more companies. However, a high number of companies that currently practice multi-site distribution are experiencing real challenges to profitability.

As Figure 1 indicates, however, almost two-thirds of companies report that their operations are moving in the WRONG direction— costs have risen, and customer service levels have declined.
Companies engaged in multi-site order fulfillment experience a number of challenges that single-site distributors do not. For example, planning must take place to determine which items will be stocked in which warehouses. Also, decisions must be made as to how to best use the network of distribution centers to fill individual orders.

Maturity Class Framework
Success in multi-site distribution can be measured against certain key metrics that serve as a barometer for performance in the above areas. According the The Aberdeen
Report—State of the Market 2007, companies’ top goal in 2007 is growing revenue. Although logistics costs must often rise to support this growth, Best-in-Class companies realize that it is critical that logistics costs not increase at a faster rate than sales growth.
Aberdeen used seven key performance criteria to distinguish Best-in-Class companies from Industry Average and Laggard organizations. These key performance indicators (KPIs) are designed to get at the heart of the challenges:
• Raising customer service levels
• Containing costs

Table 1 summarizes the findings and defines “Best-in-Class performance” for this study.
It is worth noting that few, if any companies meet all seven performance criteria. Class ranking is based upon a weighted scoring that factors in all KPI’s.


Best-in-Class PACE Model
Best-in-Class multi-site order fulfillment contributes to all of the key performance areas cited above, each of
which has a direct impact on the enterprise’s goal to grow revenue while containing costs. Leveraging a vast network of distribution centers to achieve that goal requires a combination of strategic actions, organizational capabilities and enabling technology (see Table 2).


As Figure 2 shows, Best-in-Class companies are focused on a somewhat different set of market pressures than are companies in general. Most companies are still struggling just to meet service demands like customers needing their orders faster. Top performing companies understand that this alone will not lead to profitability:

Figure 2: Top Pressures Faced in Multi-Site Fulfillment

Leading companies take a broader approach that addresses cost containment as well as customer service. Best-in-Class companies are far more likely to be concerned with reducing inventory carrying costs and transportation costs, as a part of a holistic approach to multi-site fulfillment.

Figure 3: Differing Strategic Actions

Companies are more than twice as likely to address these pressures through improved planning, rather than execution capabilities. Sixty-four percent (64%) list this as their primary strategy. (See Appendix B for references to other Aberdeen reports on supply chain planning).
While Supply Chain Planning is a widely accepted means of addressing these pressures, a growing number of companies are focusing on improved execution.
Multi-Site execution involves making a series of decisions at the moment an order is received regarding how the network of warehouses will be used to fill those orders.

Aberdeen Insights – The Cost of Manual Processes

Companies that have not automated their multi-site execution are forced to manage their DC’s through general rules and labor-intense exceptions. For instance, a company may have a rule that all orders for the Midwest region are shipped from the Chicago DC. If that DC is out of stock of a certain item, it will be back-ordered, and the customer must wait to receive it. Or, if the customer is important enough, a manager may decide that the entire order will be routed to another warehouse where there is stock, even though freight costs would have been lower if the order had been split and shipped from two different facilities. In the first instance, customer service suffers; in the second, logistics costs are excessive. If the company could easily evaluate all of the impacts of all of the fulfillment options, better decisions could be made.

In another example, a company uses an overstock warehouse to replenish the primary DC. Without a common Warehouse Management System (WMS) managing both sites, managers must assess inventory levels on a regular basis and then manually create work orders to pick goods from the overstock warehouse. There is poor visibility in the overstock warehouse as to what customer orders must be filled, and poor visibility in the primary DC of what inventory exists in the overstock warehouse. Worst-case,, orders are refused or back-orders are created for product that actually exists in an overstock facility but is not visible in the WMS in real-time. Best-case, the result is labor intense, day-today management of the replenishment process.

Benchmarking Requirements for Success
Fast Facts

• Companies that have reduced their order fulfillment costs year-over-year are 82% more likely to have sales order splitting capabilities.
• Companies have reduced their inventory carrying costs year-over-year are almost TWICE as likely to practice order distribution by inventory level.
• Companies that have 99% or more complete shipments are 54% more likely practice Vendor Order Splitting.

When it comes to multi-site execution, a new generation of process capabilities has emerged that allows companies to leverage their network of distribution centers as never before. These capabilities do not always neatly align themselves in the same technology tools or software applications. For the purposes of this report, each capability has been analyzed separately, and then grouped with similar functions to create three (3) capability groups:

Competitive Maturity Assessment

Survey respondents fell into one of three categories – Laggard, Industry Average, or Best-in-Class — based on their characteristics in five key categories: (1) process capabilities (listed on page 6); (2) organization (corporate focus and collaboration among stakeholders); (3) knowledge (visibility of inventory and work-flow data, both for internal and external distribution centers); (4) technology (the use of commercial software applications which provide functionality for each process group); and (5) performance management (ability of the organization to measure the benefits of technology deployment and use the results to improve key processes further). Survey results show that the firms exhibiting Best-in-Class characteristics excel in each category (Table 3):

Table 3: Competitive Framework

Organizational Capabilities and Technology Enablers

As Table 3 shows, when analyzed in aggregate, each of the three capability groups listed on page 6 contributes in a significant way to improved multi-site order fulfillment. However, some of the individual processes that make up each group have a much higher impact on a specific performance metric. The following three sections take a deeper dive into multi-site order fulfillment.
Distributed Order Management Capabilities

• Overall, Best-in-Class Companies are 56% more likely to have Distributed Order Management capabilities (Figure 4).

Figure 4: Best-in-Class Use of Distributed Order Management Capabilities

• Companies that have reduced their inventory carrying costs year over year are 29% more likely to have Distributed Order Management capabilities
• Companies that have reduced their order fulfillment costs year-over-year are 82% more likely to have sales order splitting capabilities.
• Companies have reduced their inventory carrying costs year-over-year are almost TWICE as likely to practice order distribution by inventory level.
• Companies that have reduced their order fulfillment costs year-over-year are 19% more likely to have Distributed Order Management capabilities.

Aberdeen Insights – Spotlight on Sales Order Splitting

Sales Order Splitting is one of the single biggest predictors of Best-in-Class performance. Best-in-Class companies that scored well in both customer service levels AND reduced operating costs are 50% more likely to have Sales Order Splitting capabilities than companies in general. Companies with this flexibility, can, in effect, perform “line-item” fulfillment, filling each component of an order in the most efficient way possible, factoring in freight cost, lead time, and inventory levels at each DC.

Multi-Site Inventory Visibility
• Overall, Best-in-Class companies are 59% more likely to have Multi-Site Inventory Visibility capabilities.

Figure 5: Best-in-Class Use of Multi-Site Inventory Visibility Capabilities

• Companies that reduced their back orders in the last 2 years are 33% more likely to have a centralized measurement system.
• Companies that reduced their inventory carrying costs year-over-year are 31% more likely to have visibility of inventory in 3PL sites.

Multi-Site Warehouse Management
• Overall, Best-in-Class companies are 32% more likely to have multi-site warehouse management capabilities.

Figure 6: Best-in-Class Use of Multi-Site WMS

• Overall, companies that have reduced their inventory write-offs due to obsolescence and spoilage year-over-year are 32% more likely to have multi-site warehouse management capabilities
• Companies that have 99% or more complete shipments are 54% more likely practice Vendor Order Splitting. Order fulfillment starts with having the right inventory in the right DC on time.
• Companies that have reduced their percentage of back-orders year-over-year are 16% more likely to have multi-site warehouse management capabilities
• Companies that have 99% or more on-time shipments are 15% more likely to practice inter-facility transfers on a single software application.

Required Actions
Whether a company is trying to move its performance in multi-site distribution from “Laggard” to “Industry Average,” or “Industry Average” to “Best-in- Class,” the following actions will help spur performance improvements:

Laggard Steps to Success

1. Implement a Global Measurement System to benchmark performance
It sounds simple, but only 1/3 of Laggard companies have any system in place to measure performance across multiple sites. Metrics that should be measured are percentage of orders that ship on time, percentage of orders that ship complete (regardless of how many facilities they ship from), percentage of back orders, percentage of inventory write-off due to spoilage or obsolescence, and number of inventory turns per year. In this way, a company can perform a competitive maturity assessment and map out a plan for improvement.

2. Leverage the entire network to fill orders, and move away from dedicated use facilities
Regionally aligned, multi-use facilities have proven to be the most effective means of filling orders for most industries. Leveraging the entire network starts with visibility of inventory so as to make better decisions. From there, two paths can be followed: inter-facility transfers or true distributed order management.

3. Deploy WMS in overstock facilities for improved performance
Laggards are much more likely to be using a two-tier network model. Often this occurs when the primary distribution center fills up, and the company signs a short-term lease for additional space in a nearby building. Companies are often reluctant to install any IT infrastructure in these overstock facilities, and often use clipboards and spreadsheets to manage the inventory here. Companies who have taken this approach should strongly consider rolling out their WMS to these facilities. WMS systems scale relatively well. Furthermore, the inefficiencies which creep in over time through manual systems can result in increased backorders when newly received stock is not yet visible, and reduced amount of complete orders.

Fast Facts
• Leverage the entire network to fill orders, and move away from dedicated use facilities
• Rather than “rip and replace” disparate WMS systems, use a multi-site inventory visibility platform to manage globally Practice Sales Order Splitting to maximize service levels while containing costs

Industry Norm Steps to Success

1. Rather than “rip and replace” disparate WMS systems, use a multi-site inventory visibility platform to manage globally
Companies that have grown significantly through acquisition are often left with a network of distribution centers that operate on several different WMS systems.
Each individual warehouse may be quite effective, but it is difficult to leverage the entire network for order fulfillment. Multi-site visibility systems are a visibility tool which sits on top of existing WMS systems and provides a global view of inventory and workflow. These tools can enable much more effective global use of inventory and improved customer service levels.

2. Practice Sales Order Splitting
Sales order splitting is one of the single best predictors of Best-in-Class performance. By filling orders on a line item basis, network efficiency can be maximized while still meeting customer service requirements. The level at which the split occurs varies by software architecture. Some ERP systems offer this functionality.
Companies that practice order management in the WMS itself should investigate whether their WMS vendor offers this option. Bear in mind that simply splitting a sales order is usually not effective unless the accounting system can still invoice the customer for a single order. Many companies have found that a distributed order management module is the easiest way to gain this layer of functionality.

Best-in-Class Next Steps

1. Practice Advanced Distributed Order Management
Advanced distributed order management can factor in such things as which DC will offer the lowest freight rate, and which distribution center has the oldest stock that might need to be sold first to avoid being written off. Companies will generally need to migrate to a commercial distributed order management system to gain this level of functionality.

2. Practice Vendor Order Splitting
Splitting orders can have payoffs on the inbound side as well. This is especially useful where inbound lead times are long. If an enterprise has global visibility of inventory and workflow, it can direct inbound product to the optimal distribution center where demand is likely to outweigh supply. Orders can be split prior to a vendor’s shipment, or can be cross-docked and re-routed to the correct DC.