Warehouse Management: What It Is and How to Do It Right
This warehouse management article helps you understand practical advice for any business that is involved in running warehousing operations.
Warehouse KPI: How to Decrease Cost by Measuring Indicators
Warehouses should use key performance indicators to improve operations. But what are KPIs and how can you implement them? Read to find out!
Warehouse Key Performance Indicators (KPI) are a great tool for helping improve your warehouse operations. But what are Warehouse KPIs and how do they benefit your business? This article examines the importance of KPIs in improving warehouse operations and provides examples of what types of KPI metrics you can track to ensure optimal efficiency.
Table of Contents
What are Warehouse KPIs?
Warehouse KPIs are measures that help to see how well a warehouse is working. They help measure things like how quickly orders get sent out and how accurate the inventory is. When a warehouse measures KPIs, these are useful checklist points for the warehouse audit process.
Why are warehouse KPIs important?
By closely monitoring these key performance indicators, warehouse managers can identify areas where improvements can be made to ensure that the warehouse is running as efficiently and effectively as possible.
Having the right KPIs in place can also help identify areas for cost savings, such as reducing waste or improving process efficiency. Tracking these metrics allows managers to compare performance over time, set achievable goals, and make decisions based on data-driven insights rather than guesswork. Overall, having robust KPI tracking in place will enable warehouse managers to make better decisions, increase productivity and efficiency, and ultimately improve customer service levels throughout the entire supply chain.
Additionally, warehouse KPIs help to measure the performance of individual team members and identify areas for training and development. By measuring worker output and tracking how long it takes for workers to complete tasks, managers can gain insights into employee performance and make sure each employee is staying productive and on track. This helps ensure that operational processes are running smoothly throughout the warehouse and that each worker is doing their fair share of work.
3 Main Categories & Examples of Warehouse KPI
Warehouse KPIs can be divided into three main categories: operational, customer service, and performance. Below are some example warehouse KPIs that can fit within each category.
Operational KPIs
Operational KPIs focus on the effectiveness of processes such as inventory management and storage, order fulfillment, delivery accuracy, equipment utilization, space optimization, and product quality. These metrics help to measure how well the warehouse is performing and identify areas for improvement.
- Stockout Percentage
The stockout percentage KPI is a measure of the number of times an item is unavailable for purchase because it has sold out. This warehouse KPI helps to monitor demand and anticipate future needs, as well as identify potential supply chain issues. - Pick/Put Away Frequency
The pick/put away frequency KPI is a measure of the number of times an item is moved from storage to the point of sale or vice versa. This metric helps to identify any potential bottlenecks in the warehouse and enables managers to manage inventory levels more efficiently. It also allows managers to measure how quickly items are shipped out to customers. - Inventory Turnover Rate
The inventory turnover rate KPI is a measure of the number of times per unit period that the stock in a warehouse has been replaced, sold off, or otherwise disposed of. It helps managers to monitor the efficiency and effectiveness of their inventory management processes. This metric can be calculated by dividing the total cost of goods sold by the average inventory value. High inventory turnover rates are an indication of effective inventory management, while low rates indicate that the warehouse is not efficiently managing its stock levels. Low inventory turnover rates result in an increased carrying cost of inventory. By tracking this metric, warehouses can ensure that they always have the right amount of inventory on hand to meet customer demand. - Inventory Accuracy
The inventory accuracy KPI is a measure of the accuracy of the warehouse’s inventory system. It helps to track and identify any discrepancies between the actual quantity of items in stock and what is recorded in the inventory system. This KPI requires regular monitoring so that warehouses can quickly respond to and correct any inaccuracies. The total inventory accuracy rate should be at least 95%. - Inventory Shrinkage
The inventory shrinkage warehouse KPI measures the amount of recorded inventory that is lost due to theft, damage, or other factors. It helps managers to identify areas where their processes are inefficient and can be improved. Additionally, it allows them to monitor their entire inventory levels and respond quickly when discrepancies are identified. For warehouses to be more efficient and profitable, they should strive for an inventory shrinkage rate of less than 1%. - Storage Utilization Efficiency
Storage utilization efficiency is a KPI that measures the effectiveness of how storage space is used within the warehouse. It is calculated by dividing the actual amount of usable storage space by the total amount of available storage space. This metric helps businesses identify ways to maximize their warehouse space and improve their operations, such as by introducing automated systems or increasing inventory turnover. - Labor Productivity (Units/Hour)
The labor productivity KPI is a measure of the number of units produced or handled per hour by each employee. It is an important metric for tracking employee performance and ensuring that the warehouse is running efficiently. This KPI can be calculated by dividing the total number of completed tasks by the total hours worked. Sometimes it’s useful for a warehouse manager to break this KPI down into a “cost per line” result. By monitoring this metric, managers can identify potential issues and make necessary adjustments to improve warehouse efficiency. - Average Length of Stay in Warehouse
The average length of stay in KPI is a metric used to measure the amount of time that items remain in the warehouse before they are shipped out or sold. This KPI helps managers identify potential problems and areas for improvement within their supply chain, such as delays in receiving orders or slow turnaround times. It also allows warehouses to optimize their inventory levels and ensure that items are not staying in the warehouse for longer than necessary. This metric can be calculated by dividing the total number of days an item spends in the warehouse by the total number of items processed during a given period. - Space Utilization Rate
The space utilization rate KPI is a measure of the efficiency of a warehouse’s storage capacity. It gauges how much space is used to store products in comparison to the total available storage area. This metric helps managers identify areas where they can improve their utilization of space and increase the efficiency of their operations. The space utilization rate can be calculated by dividing the total amount of space utilized for storage by the total available storage area. Higher utilization rates are an indication of effective management, while lower values suggest that improvements need to be made. - Equipment Utilization Ratio
The Equipment Utilization Ratio (EUR) KPI is a metric used to measure the efficiency of resources within the warehouse. It helps managers understand and optimize the usage of machines, tools, and other equipment to increase operational performance. This measure is calculated by dividing the total time equipment was utilized for production or storage activities by the total amount of time it was available for those activities. By tracking this KPI, warehouses can identify areas where they are wasting resources and make improvements to maximize equipment utilization. - Accidents Per Year
The accidents per year KPI tracks the number of accidents each year. This is to see how big the safety problem is. The goal should be zero accidents. Check the numbers to understand how serious it is. - Time Since Last Accident
The time since last accident KPI tells you how much time has passed since the last warehouse safety accident. It is important to keep the number low because that means accidents don’t happen often. That keeps us safe.
Customer Service KPIs
Customer Service KPIs track how quickly orders are shipped out and whether customers receive their orders on time. These metrics help ensure that customer service is consistent and up to standard throughout the warehouse operations.
- Shipping Accuracy
Shipping Accuracy is a KPI that measures the accuracy of what is shipped out to customers. This metric helps evaluate how well deliveries are matched with customer orders, and it can be calculated by dividing the number of items delivered correctly by the total number of orders sent out. Shipping accuracy helps monitor customer satisfaction and identify potential issues within logistics and order fulfillment processes. Tracking this KPI can help warehouses improve their operations, optimize their inventory levels, and provide better service to their customers. - On-Time Shipping Rate
The on-time shipping rate KPI is a metric used to measure the percentage of orders that are shipped out within the required time frame. This metric helps businesses ensure that customer expectations are being met by providing timely delivery of goods and services. To calculate this KPI, the total number of orders shipped out on time is divided by the total number of orders placed. Tracking this metric is essential for ensuring high customer satisfaction and meeting customer needs. - Rate of Returns
The rate of returns KPI measures the percentage of items that are returned to the warehouse due to reasons such as incorrect orders, damaged goods, or unsatisfactory services. This metric can be calculated by dividing the total number of returns by the total number of items shipped out. Tracking this KPI is essential for understanding customer satisfaction and identifying any issues with order fulfillment processes. It also helps warehouses improve their operations by identifying potential problems, such as incorrect items shipped out or delays in delivery times. By monitoring the rate of returns, warehouses can ensure that orders are fulfilled accurately and quickly to maintain customer satisfaction. - Customer Complaints Resolution Time
The Customer Complaints Resolution Time KPI is a measure of how quickly customer complaints are resolved by the warehouse. This metric can be calculated by subtracting the date a complaint is made from the date when it is fully resolved. Tracking this KPI can help identify any issues that may be causing delays or inconsistencies in responding to customer complaints, and it can help warehouses improve their customer service processes. This metric also allows managers to monitor how satisfied your customers are, as the timely resolution of customer complaints is essential for maintaining a positive relationship with customers. - Average Response Time to Customer Queries
The Average Response Time to Customer Queries KPI is a measure of how quickly customer queries are answered. This metric can be calculated by subtracting the time the query was made from the time it was answered. Tracking this KPI allows warehouses to identify any issues with responding to customers quickly and efficiently, and it helps them ensure customers are satisfied by providing timely answers to their queries. - First Contact Resolution Rate
The First Contact Resolution Rate is a measure of how quickly customer queries or complaints are resolved on the first contact. It is calculated by dividing the number of queries/complaints that have been resolved on the first contact by the total number of customer queries/complaints received. Tracking this metric can help warehouses better understand their customer service process and identify areas for improvement to provide better service and maintain high levels of satisfied customers. - Service Level Agreement (SLA) Compliance
The Service Level Agreement (SLA) Compliance KPI is a metric used to measure how well a warehouse is meeting its contractual obligations. It measures the percentage of orders that are successfully delivered within the agreed-upon timeframe, as specified in its contracts with customers. This KPI helps warehouses determine if their operations are meeting customer expectations and allows them to identify any issues that may be causing delays in order delivery. Tracking this metric is essential for ensuring your customers are happy and meeting service-level agreements. - Quality Assurance KPI (QA KPI)
The Quality Assurance (QA) KPI is a metric used to measure the quality of products and services delivered by a warehouse. This metric can be calculated by assessing factors such as accuracy, consistency, and speed of delivery. It helps warehouses identify areas for improvement to maintain high levels of quality. Additionally, tracking this metric can help warehouses ensure that their customers consistently receive a high-quality product or service and maintain customer satisfaction.
Performance KPIs
Performance KPIs measure worker performance, such as how long it takes workers to complete tasks and how accurate they are when completing orders. These metrics help to identify employee strengths and weaknesses, ensuring that the warehouse operations are running efficiently.
- Order Lead Time
The order lead time KPI is a measure of the amount of time elapsed between an order being placed and its delivery to the customer. This metric helps to identify potential problems in the ordering process, such as delays in receiving orders or slow turnaround times. It also allows a warehouse manager to track how quickly orders can be fulfilled and delivered, ensuring that customer expectations are met. This metric can be calculated by subtracting the time an order is placed from the delivery date. - Lead Time Variability
The lead time variability KPI is a measure of the average difference in the amount of time it takes to complete an order from the moment it is placed until it is delivered. It offers insight into how quickly and reliably orders are fulfilled, as well as their degree of consistency over time. This metric allows managers to identify any issues that may be causing delays or inconsistent performance. Tracking lead time variability is essential for ensuring that customers always receive their orders on time and with the correct items. - Cycle Time (Order to Delivery)
The cycle time KPI measures the total amount of time it takes for an order to be fulfilled and delivered to a customer. This metric is important for understanding how quickly orders can be turned around; it is calculated by subtracting the time an order is placed from the delivery date. - Accuracy of Orders Picked
The Accuracy of Orders Picked KPI is a metric used to measure the accuracy of orders that are picked from a warehouse. This metric is important for ensuring that customers receive their orders as expected and eliminates any potential errors that could occur during the picking process. It can be calculated by measuring the percentage of correctly picked orders, compared to the total number of orders placed. Tracking this metric is essential for ensuring customer satisfaction and picking accuracy throughout the order fulfillment process. - Order Fulfillment Rate
The order fulfillment rate KPI is a metric used to measure the speed and accuracy of fulfilling customer orders from the warehouse. This KPI helps managers identify areas that require improvement and allows them to track their progress over time. The order fulfillment rate is calculated by dividing the total number of orders fulfilled within a given period by the total number of orders received during the same period. - Shipping Error Rates
The shipping error rates KPI is a measure of the accuracy of the shipments sent from the warehouse. It tracks and identifies any shipping mistakes that could occur during the process, such as incorrect items or missing orders. This metric can be calculated by subtracting the number of correctly shipped orders from the total amount of orders placed over a period of time. Tracking this metric is essential for ensuring that customers always receive the correct orders on time. - Productivity per Worker/Team
The productivity per worker/team warehouse KPI measures the amount of work output achieved by each worker or team within a period of time. It is an important metric for tracking the efficiency and effectiveness of warehouse operations, as it helps to compare the output of workers and teams over time. This metric can be calculated by dividing the amount of work completed within a given period by the total number of hours worked. High warehouse productivity per worker/team indicates that the warehouse is running efficiently, while lower values suggest that warehouse processes need to be improved.
How to Measure Warehouse Performance With Warehouse KPIs
Once you have set up your KPIs, it is important to regularly track and analyze data to gain insights into warehouse performance. This will enable you to identify areas for improvement or take corrective action as needed. By tracking these metrics over time, you will be able to compare performance from month-to-month, set achievable goals, and ensure that your warehouse is running as efficiently as possible.
To help track these warehouse metrics, you can use software such as a warehouse management system or other inventory management system. These types of systems can automate the collection of data which helps ensure the data is not only accurate but timely. Many times, better insights are available as the data sets increase in robustness whether they include timestamps or other points of interest. WMS software or other automated systems also can help visualize data and automatically generate reports on a warehouse KPI which helps stakeholders understand the improvements.
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Conclusion About Warehouse KPIs
If you own or run a warehouse operation, you should keep track of how well you are doing by using warehouse KPIs. These can include inventory KPIs such as cycle time, putaway cycle time, as well as performance and customer related KPIs such as fulfillment performance. Whatever KPIs you measure, you should identify the most critical warehouse KPIs for your specific warehouse procedures.
By tracking these numbers over time, you can find areas that need to improve and make changes if needed. Use software solutions like WMS systems or other data collection tools to measure your warehouse performance so you can make the best decisions about how to run it.
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