Key performance indicators, or KPIs, set vital benchmarks for a business. They are, therefore, essential to any warehouse’s success. Warehouse KPI tracking can help you determine which areas of your operation need improvement, particularly the ones that impact direcly overall customer satisfaction and cost.
Another term for KPIs is metrics, and there are many that a warehouse can utilize. Each business has its own set of metrics most suitable for its success. Whichever KPIs a particular warehouse operations choose, however, warehouse KPI tracking generally tracks certain key elements of performance common to all warehouses, including:
Tracking KPIs in each of these areas collectively allows warehouse managers to:
As mentioned earlier, each warehouse is best served by choosing its own most suitable KPIs. Select at least one KPI from each category below to measure and optimize value-based selling in your warehouse.
Receiving metrics measure aspects of receiving deliveries of products, from processing to sorting to storing them.
This metric measures the amount a particular line of products has cost you to receive from vendors. It covers the entire process of receiving, including handling and tracking these items. The more efficient you are, the lower this cost should get. Calculate it by dividing your total receiving cost by how many items each line contains.
How long does it take to process the stock you've received fully? Calculate this by dividing the full amount of time you spent sorting the stock you've received by the total number of items you've received.
How productive are your receiving area workers? Knowing this can help you learn whether implementing any additional training or adjustments to receiving procedures is in order. Calculate this metric by dividing how much inventory you've received by how many hours your receiving staff worked to complete the process of receiving that stock.
Inventory metrics involve the supply of products your warehouse has stored in it. They help you monitor the movement of these products throughout the stages of your operations.
How accurately does the quantity of inventory you've tracked match the amount present physically in your warehouse? This can be easily done by dividing the inventory the system has tracked by the inventory physically present in the warehouse. For complete inventory accuracy, this number should be one.
How much money are you spending to own, hold, and store inventory in your warehouse? This tells you how long you can keep doing so before losing money on that inventory. A high carrying cost means you may want to adjust how you handle dead stock and slow-moving products. To figure out inventory carrying costs, divide your overall carrying costs by your overall costs for that inventory.
What is the value of any inventory your warehouse is missing due to factors like miscalculation, damage, or theft? To figure out shrinkage, first, subtract the cost of inventory that's physically present from that which you've recorded; then divide this number by the cost of the inventory you've recorded.
This ratio measures how much of your inventory remains after fulfilling all the sales for a given month. This can help you predict possible cash flow concerns, identify how many products you've sold, and determine how much you'll need to restock without concerns about backorders impeding sales. To calculate this, divide the amount of inventory remaining at the end of a month by the number of sales you've made that month.
How frequently is your inventory selling? There are a couple of ways you could calculate this. You can either divide your cost for goods sold or your amount of sales by the average amount of inventory you carry in your warehouse.
Putaway metrics measure how you store product shipments that your warehouse has received. For optimum efficiency, you should store these products in the most appropriate and easily accessible locations. Putaway metrics assess your performance in terms of those factors.
What proportion of items did you accurately store without any mistakes or errors? To calculate it, divide how much inventory you've stored correctly by how much inventory you've stored in total.
How much does putting away a complete line of items cost you? This measurement can help you lower your overall spend on the whole putaway process in your warehouse. To calculate it, divide your total putaway cost by your total number of items in the line.
How much time does it take you to put away one inventory item? The shorter this time is, the more efficient your operation. To reduce this time, you can improve the productivity of your staff and/or position items more efficiently within your warehouse.
Order management or distribution KPIs assess all the processes and procedures you use between receiving an order from a customer and the customer's receipt of what they ordered. These metrics involve how smoothly and seamlessly the tasks involved in this process are being performed, from accepting the order to selecting the proper products to fill the order to packing and shipping the order to handling any post-sales issues that may arise, such as refunds and returns.
This metric lets you glean how accurately your team picks items to fulfill customer orders. To calculate it, first, subtract the number of returns due to incorrect items from the total amount of orders; then, divide that number by the total order amount. Ideally, this number will be as close to one.
On average, starting from when an order is placed, how much time does it take to ship that order? This accounts for every stage in the process, from accepting an order to picking and packing the necessary items to fulfill the order to prepare the package for shipment. The quicker you can ship orders, the greater your odds of your customers returning.
On average, starting from the time when a customer places an order, how long does it take to reach that customer? To calculate this, take your total order cycle time and add the time it takes to ship the order to the recipient.
How many backorders do you have in relation to your total number of orders? If this number is high, you need to improve how you forecast, plan, and track inventory. Calculate this by dividing the total number of backorders by the number of orders you have in total.
How many of the total amount of orders you've fulfilled have been fulfilled accurately and delivered correctly and on time? A low rate tells you that you need to reexamine and adjust your order management procedures. Calculate this metric by dividing accurately fulfilled orders by the total amount of orders.
Safety metrics help ensure employees remain safe on the job, such as when using large equipment. They do this by measuring accidents so as to help identify ways to prevent them in the future.
How many accidents has your warehouse endured that have cost you time and money? Obviously, this number should be as close to zero as possible.
How much time has passed between a current accident and the previous one? The greater this time, the safer your working environment.
Best practices for warehouse KPI tracking, measuring, and implementing involve:
With a warehouse running optimally, you have more time and resources to focus on what matters most to any warehouse business: your customers and their satisfaction. That is why effective pallet company marketing is so important, for without customer orders, even the most efficiently run warehouse can fail. Contact us today to discuss how we can help you market your pallet company effectively and keep those orders coming in.