The 5 Most Important KPIs for Warehouses

What are KPIs?

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:

• Optimized warehouse costs: KPIs track the costs of various operations based on time, orders packed and picked, the costs of products and resources, and order cycle times. This data can help business leaders decide how to use money more effectively and reduce costs.
• Increased operational efficiency: Managers can use KPIs to assess progress toward warehouse goals and use them to tweak operations that are not succeeding. 
• Improved workplace safety: It is imperative to track equipment breakdowns, injury rates and other safety-related measures. This can help minimize the chances of workers getting hurt on the job.
• Strengthened customer experience: To boost customer satisfaction, use KPIs to track orders and shipping times. Providing this information to customers can help solve any issues or identify mistakes within orders early in the process.

The most important KPIs for warehouses

Warehouses should focus the most attention on these vital KPIs.

Inventory accuracy

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. 

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. 

Efficiency of receiving

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. 

Picking and packing costs

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.

Inventory turnover 

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.

Customer cycle order time

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.

Best practices for measuring warehouse KPIs

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. 

• Define goals for your warehouse. Without setting goals, you are likely to track unnecessary KPIs, which can waste time and decrease efficiency. Set quantifiable goals, and then determine how you will assess achievement toward these goals.
• Identify the most relevant KPIs to meet those goals. If your goal is to improve receiving operations, you might track receiving costs, productivity and accuracy. Once you’ve met your initial goal and your established KPIs are no longer relevant, replace them with those you need to meet current goals.
• Ensure education and visibility across the organization. Inform staff of the KPIs that are relevant to their operation, and help them understand what the data represents. You can send out weekly reports, use mobile apps or hold frequent meetings to keep staff up to date.
• Analyze results, and adjust as necessary. KPIs give you analytics from past and current performance, which can be used to highlight areas in need of improvement and  growth. Use the results to review overall processes, identify issues and take actions to improve. 
• Prioritize continual improvement and auditing. There is always something that can be improved within the warehouse to make things run more smoothly, better satisfy customers or streamline production. Regular audits can help managers gauge safety, efficiency and accuracy of operations as they continue to strive for growth.

Nicole Pontius contributed to this article.