Seasoned warehouse and facility managers know that data measurement is crucial for improving performance. Key performance indicators (KPIs), also referred to as metrics, are measurements of specific functions that, when monitored over time, can provide insight into how performance is declining or improving in the warehouse. As a unified performance benchmark, a set of KPIs can be measured together to provide management and individual team members with reasonable goals and performance targets.
This post explores the 10 most important KPIs that should be a part of your warehouse performance management plan. There are hundreds of possible metrics that can be used, so it’s important to select values that are meaningful for your unique operation. Many KPIs are also more insightful when reviewed in groups to truly describe the current state for each working area. We’ve structured this post to follow the major steps on the warehouse floor from receiving through order fulfillment.
Any part of a warehouse operation can become a bottleneck, and it’s especially important to have a streamlined receiving workflow. The arrival time of incoming shipments could change at any moment, and any delays in receiving will often impact all subsequent steps within the warehouse facility.
1. Receiving Efficiency. This metric analyzes the throughput of received material as related to the amount of work planned for each employee. It is calculated as Volume of inventory received / Total number of staff hours.
During the put-away step, warehouse workers move goods from the receiving area to their proper inventory storage location in the warehouse. If the routes and steps associated with put-away are not well defined, it can lead to a backup of material on the receiving dock or inventory stock-outs on the warehouse floor.
2. Put-Away Efficiency. Also, called put-away productivity, this is a measure of the amount of stock that is relocated as compared to the amount of effort assigned to the task. It is calculated as Volume of stock put away / Number of worker hours.
3. Put-Away Cycle Time. The speed at which put-away activities take place is also an essential metric. Establishing a baseline gives warehouse staff a benchmark from which to drive improvements. It’s calculated as Total time taken to complete each put-away assignment.
Optimizing storage space in a warehouse is a major priority. These performance indicators help understand the dynamics at play and can help warehouse managers identify additional ways to increase storage space and decrease picking cycle times by improving item placement.
4. Inventory Accuracy. An accurate inventory count is paramount to running an effective warehouse operation. This metric verifies that the actual inventory present on the warehouse floor matches what is recorded in the system. It’s calculated as Inventory management system count / Physical inventory count.
5. Inventory Turnover. This KPI helps warehouse managers understand how quickly items are moving through the warehouse. In general terms, a more rapid turnover signals a more efficient operation. Inventory turnover is calculated as Number of sales made / Average inventory level.
The fulfillment process connects incoming orders (demand) with the supply that is stored within the warehouse. Several different metrics can be tracked to ensure that orders are being fulfilled efficiently and without significant errors.
6. Cost Per Order. Each warehouse will have unique dynamics based on the type of business and industries served. The cost per order helps quantify the overall cost to fulfill orders from a given warehouse. It’s calculated as Total fulfillment cost / Total number of orders.
7. Order Cycle Time. The order cycle time is a measurement of the time needed to complete a customer order, from placement through delivery. It’s calculated as Total time from order entry to package delivery.
8. Order Accuracy Rate. This metric is represented as a percentage and is a good choice for understanding the overall effectiveness of order fulfillment activities. It’s calculated as (Total orders delivered correctly / Total number of orders) x 100.
The picking and packing steps of warehouse fulfillment involve preparing orders to be shipped to customers. Often a labor-intensive part of the workflow, it’s important to monitor these steps to ensure there are no significant bottlenecks.
9. Picking Accuracy. This metric gives a useful overall picture of picking effectiveness. It can be used as a baseline and tracked to determine if other workflow changes are improving or decreasing these values. Picking accuracy is calculated as: (Total orders picked error-free / Total order number) x 100.
A warehouse must also be able to handle returns and, in some cases, return items back onto the warehouse floor. Measuring returns is important for understanding their impact and determining the best way to deploy resources for managing these orders.
10. Return Rate. Items can be returned for several different reasons, and it’s always important to troubleshoot each return individually. Measuring the overall return rate helps a company understand if returns are increasing or decreasing over time. It’s calculated as Total number of returned items / Total items shipped.
As discussed above, it’s essential to select a full suite of KPIs that, together, create a complete picture of warehouse operations. No individual metric is useful without the proper context, and it may take time to identify the best measurements and establish baseline values. Implementing warehouse bar code labels, such as warehouse rack labels, long-range retro-reflective bar code labels and signs, returnable container labels, and pallet bar code labels can not only help streamline measurement, but they can also make your processes more efficient to improve KPIs across your warehouse operation. By using this post as a guide and conducting additional research, you can create a warehouse reporting plan that aligns your team and leads to improved performance.