Key Metrics to Optimize Your Warehouse Operations and Maximize Efficiency
What metrics should you be tracking for your warehouse? These five KPIs can have substantial impacts on operational efficiency and the bottom line.
Warehouse managers and executives understand the value of key performance indicators (KPIs) for identifying and defining progress toward business goals. KPIs mirror business goals and the overall mission and enable companies to measure performance over time. KPIs provide the all-important measuring stick to help warehouse leaders know how they are doing and identify areas that they need to improve. So, which KPIs are most important for warehouses? Each operation should tailor KPIs to their situation, but there are a few KPIs that all warehouses should use to operate more efficiently and effectively: inventory accuracy, efficiency of receiving, picking and packing cost, inventory turnover and customer cycle order time.
Keep reading for a more in-depth look at each of these crucial KPIs that can help you optimize your warehouse operations.
1. Inventory Accuracy
Of course, inventory is a major part of warehousing, and inventory accuracy is a critical 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 due to inaccurate counts. The costs of carrying too much inventory, or of angering customers when you don’t actually have inventory on-hand that you indicated is in stock, will hurt not just your bottom line but also your reputation.
One solution for inaccurate inventory is choosing 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. Additionally, some CMMS have capabilities for tracking shipments, managing purchase orders, and monitoring stock and inventory levels.
2. Efficiency of Receiving
One of the most critical operations of a warehouse is receiving stock; thus, the efficiency of receiving is a KPI for warehouses and should take into account received volume, customer returns, missing and broken stock, and return to vendor stock. Karl Friesenbichler, automation industry expert, reminds warehouse managers to group figures by the source and times to “identify peak times, quality issues with suppliers, and the return rate from various sales areas.”
The efficiency of your receiving area significantly impacts warehouse operations. You should know the rate at which inventory is counted and be able to identify deficiencies in receiving that you can address in order to eliminate a chain reaction of inefficiencies across your warehouse. Specific relevant KPIs for receiving should include the cost of receiving per receiving line, the volume received per man-hour, receiving dock door utilization percentage, 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. But, improperly designed and poorly run receiving areas have a damaging impact across the warehouse. If you have receiving inadequacies, your entire operation will feel the effects.
3. 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 often are more complex than other operations, and they are crucial to an organization’s bottom line because they are directly tied to customer satisfaction. KPIs for picking and packing should include 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 speed of picking and packing, and one specific metric to consider is your percentage of perfect pick lines.
4. 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.
5. 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 like 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 the rest of your industry. Keep reverse logistics in mind and ensure your return process and timeline are up to part with your ordering process.
All warehouse managers strive for efficiency to keep costs low and revenue high. Leveraging these critical KPIs for warehouses – inventory accuracy, efficiency of receiving, picking and packing cost, inventory turnover, and customer cycle order time – will help warehouse managers run a cost-efficient, streamlined, and effective warehouse that keeps inventory moving smoothly and customers satisfied.