Successful warehouse management relies on goal setting and progress tracking, but you cannot see growth without some way to measure it. Key performance indicators (KPIs) allow businesses to track and analyze data from various areas of the company, thereby making warehouse operations as efficient and successful as possible. It is important for warehouse leaders to understand what KPIs are, why they are necessary and which ones are the most essential for warehouses.
KPIs are measurements that allow business leaders to assess their company’s performance, determine goals and pinpoint areas in need of improvement. Tracking KPIs allows companies to narrow their focus on what needs attention.
Warehouse KPIs can help managers make more informed decisions to improve performance and efficiency, thus providing these benefits:
Warehouses should focus the most attention on these vital KPIs.
Inventory accuracy is a crucial KPI for warehouses, because if your inventory tracking is incorrect, your costs will skyrocket and your customer satisfaction levels will plummet. If you are relying on Excel or manual processes, your inventory accuracy will be far too low, and there’s a good chance you’ll end up reordering or manufacturing parts you already have. The costs of carrying excess inventory — or of angering customers when you don’t actually have inventory you say is in stock — will hurt not just your bottom line but also your reputation. [Read related article: Lessons From Big Brands: 7 Customer Service Pitfalls That Will Destroy Your Brand]
One solution for inaccurate inventory is to choose a system that uses barcodes to track inventory. Some warehouses find that barcoding systems integrate with their current computerized maintenance management systems (CMMS). These systems improve inventory control by providing a framework for managing inventory, supplies and other warehouse materials.
Some CMMS have capabilities for tracking shipments, managing purchase orders and monitoring stock/inventory levels.
One of the most important operations of a warehouse is receiving stock, so the efficiency of receiving is an essential KPI for warehouses. It should take into account received volume, customer returns, missing and broken stock, and return-to-vendor stock. It is imperative for warehouse managers to organize data by source and time, which allows them to pinpoint any issues with vendors, timing and return rates.
The efficiency of your receiving area has a big impact on warehouse operations. You should know the rate at which inventory is counted and be able to identify deficiencies in receiving that you can address to eliminate a chain reaction of inefficiencies across your warehouse. KPIs for receiving should include the cost of receiving per receiving line, the volume received per person-hour, the receiving dock door utilization percentage, the accurate receipts percentage, and the time taken to process a receipt.
It is easy for warehouse managers to overlook receiving for picking and shipping KPIs. However, improperly designed and poorly run receiving areas have a damaging impact across the warehouse.
Receiving KPIs are just as crucial as those for picking and shipping. Make sure to collect and analyze data to eliminate or reduce receiving inadequacies. If you don’t, the entire operation will feel the effects.
Most warehouse managers point to order picking as one of their most expensive and difficult processes because it requires the most labor. Picking and packing processes are often more complex than other operations. They are crucial to an organization’s bottom line because they are tied directly to customer satisfaction. KPIs for picking and packing should include the cost per line item picked, orders picked per hour, picking labor costs, consumables usage and cycle times per order. You can measure for accuracy and the speed of picking and packing, and one metric to consider is your percentage of perfect pick lines.
Having a high inventory turnover is good for your warehouse. Narrowing down inventory turnover to a KPI that gives you visibility into your inventory rate is useful because it will help you gauge buying practices and product demand. Your warehouse management system may provide a solution for gaining visibility into your inventory turnover and enabling forecasting to keep your inventory moving. Keep in mind that inventory turnover measures the number of times per year your warehouse goes through its entire inventory. You should compare this rate with industry averages to see how your warehouse is performing.
Don’t get so caught up in KPIs for your facility that you forget about your customer-facing metrics. While customer feedback certainly is useful, you need to forecast overall customer satisfaction using metrics such as customer cycle order time. Customers obviously do not want to wait too long for their orders, and the warehouse is on the front lines when it comes to warding off customer frustration and impatience. Your delivery windows should be in line with those of your industry. Keep reverse logistics in mind, and ensure that your return process and timeline are up to par with your ordering process.
Leveraging critical KPIs for warehouses — including inventory accuracy, efficiency of receiving, picking and packing costs, inventory turnover and customer cycle order time — will help warehouse managers run a cost-efficient, streamlined warehouse that keeps inventory moving smoothly and customers satisfied.
Keep in mind that you cannot improve or change what you cannot measure. These practices will guide you in collecting the right KPIs for your warehouse and in using collected data effectively.
Nicole Pontius contributed to this article.