Warehouse management is a task in its own right. However, today, there are a dozen of warehouse technologies that are making this task easy.
But, there is one aspect, which, if ignored, can render all the technological advancement useless – performance measurement. With round-the-clock performance measurement, you can expect to achieve consistent and predictable productivity levels.
This blog will provide you with some of the top warehouse KPIs (Key Performance Indicators) that every warehouse manager should be tracking.
Peter Drucker, one of the most renowned business management gurus, puts the idea aptly in his words:
And that is the very essence of lean warehouse management too. Tracking performance not only lets you track the efficiency of warehouse processes, but also take corrective measures to increase productivity and asset utilization. The result is continuous operational improvement and increased customer satisfaction.
Here are the top 24 warehouse key performance indicators as they relate to standard warehouse and distribution center processes:
Top 24 Warehouse KPIs
Metrics that measure receiving performance are among the most critical warehouse KPIs. Warehouse operations begin with this process and any inefficiency here will have a snowball effect on all the subsequent processes, thus multiplying inefficiencies.
Warehouse KPI metrics that correspond to the receiving process are:
- 1. Cost of Receiving Per Receiving Line: The expense that the warehouse incurs on the receiving process of each receiving line. This includes handling costs as well.
- 2. Receiving Productivity: Determined in terms of labor by measuring the volume of goods received per warehouse clerk per hour.
- 3. Receiving Accuracy: Percentage of accurate receipts, i.e., the proportion of correctly received orders against purchase orders.
- 4. Dock Door Utilization: Percentage of how many of the total dock doors were utilized.
- 5. Receiving Cycle Time: The time taken to process each receipt.
These warehouse KPIs help managers identify the lapses in receiving and save a chain reaction of inefficiencies down the process line.
Catching inefficiencies, like a long receiving cycle because of busy dock doors, can lead to elimination of discrepancies as early as in the receiving stage.
Once goods are received, the process of putaway begins with placing each item at a designated location that offers convenient retrieval.
Effective putaway ensures a smooth picking process, thus significantly reducing lead time.
Here are some of the important warehouse KPIs that you must track to measure the efficiency of the putaway process:
- 6. Putaway Cost Per Line: Expenses incurred for putting away stock per line. It includes labor, handling, and equipment costs.
- 7. Putaway Productivity: Volume of stock put away per warehouse clerk per hour.
- 8. Putaway Accuracy: Percentage of number of items put away accurately at the correct designated location.
- 9. Labor and Equipment Utilization: Percentage of the labor and material handling equipment utilized during the putaway process.
- 10. Putaway Cycle Time: Total time taken during the entire process of each putaway task.
Measuring the putaway through these key performance indicators gives you a clear picture of potential inefficiencies in the process. Recognizing hurdles like inaccuracies or paucity of labor will help you to optimize and streamline the process.
Whether your warehouse is dependent on storing goods manually or uses AS/RS (Automated Storage and Retrieval System), you still need to measure efficiency. Here are some important KPIs to measure storage efficiency:
- 11. Carrying Cost of Inventory: The cost of storage over a particular span of time. It includes the cost of inventory, capital costs, service costs, damage costs, as well as costs of obsolescence. The longer the stock stays in, the higher will it cost the warehouse.
- 12. Storage Productivity: Volume of inventory stored per square foot.
- 13. Space Utilization: Percentage of space occupied by inventory out of the total space available for storage.
- 14. Inventory Turnover: Measures the number of time the entire inventory gets through during a period of time.
- 15. Inventory to Sales Ratio: Measures the stock levels against sales. It helps managers identify at the end of each month, increasing inventory against falling sales.
These storage & inventory management KPIs are of immense importance when it comes to maximizing storage utilization and reducing cost of inventory. For example, a low inventory turnover leads you to track down its reasons and helps you improve inventory management.
Pick & Pack
The process of picking & packing directly affects lead time. Accuracy in picking means shorter lead time.
Picking the right order leads to decreased rate of order return and increased customer satisfaction.
- 16. Picking and Packing Cost: The cost incurred per order line including handling, labeling, relabeling, and packing.
- 17. Picking Productivity: The number of order lines picked per hour.
- 18. Picking Accuracy: The percentage of orders picked and packed without any incident.
- 19. Labor and Equipment Utilization: The percentage of labor & pick/pack equipment out of the total labor and equipment utilized during the process.
- 20. Picking Cycle Time: Time taken to pick each order.
A study by WERC shows that best-in class picking accuracy can go up as high as 99.9% or more.
As warehouses gain more roles and responsibilities with the growth of always-on supply chain, distribution comes as an added function that exerts extra pressure on warehouses. Here are some of KPIs relevant to distribution:
- 21. Order Lead Time: One of the most crucial KPIs for warehouses and distribution centers. Lead time is the average time taken by an order to reach the customer once the order has been placed.
- 22. Perfect Order Rate: Number of orders the warehouse delivered without any incident. It indicates the success rate of the warehouse/distribution center.
- 23. Back Order Rate: The rate at which orders are coming in for items that are out of stock. There are situations wherein unexpected spike in demand causes this. However, if this rate is consistently high, it is an indication that there are lapses in planning and forecasting.
Another study by WERC shows that best in class perfect order rate can go up as high as 99.3% or more.
Utilizing some of these distribution KPIs will help you diagnose underlying problems.
For example, a high back order rate indicates that a warehouse or distribution center isn’t stocking the appropriate inventory volumes. In this case the problem lies in understanding consumer behavior and forecasting demand in a better way to properly set inventory levels.
In most cases, the always-on warehouse is exposed to returns and reverse logistics. As a result, proper KPIs are also necessary to measure the efficiency and effectiveness of this process.
Here is a KPI that you do not want to ignore if you are exposed to this process:
- 24. Rate of Return: The rate at which goods, once sold, are being returned. It is best used when you segment it by the reason for return.
This is one of the top warehouse KPIs that can help the warehouse/operations manager diagnose the exact reasons for rising warehousing costs and customer dissatisfaction as it lets you dig into the reasons for returns.
Identifying, implementing, and tracking warehouse key performance indicators on a consistent basis is the first step towards increasing warehouse productivity, efficiency, and customer satisfaction. This will yield consistent positive results and operational predictability.
Remember, even the best of efforts towards warehouse digitalization can go down the drain if you can’t measure warehouse operations.
As always, if there is anything else that you would like to know about this topic, or if you need some tips on improving warehouse performance, do not hesitate to comment.