Key Performance Indicators (KPIs) are more than just numbers on a report. Identifying warehouse KPIs and measuring progress relative to those targets is important for understanding current business performance and driving continuous improvement. Accurately identifying and tracking warehouse KPIs provides your company the ability to compare your inbound and outbound warehouse metrics and the corresponding resource efficiencies to the company’s historical data. Having this data visible and at the forefront also enables your company to benchmark its strengths and weaknesses against its competitors. The tracked warehouse metrics will help determine the best processes and technology to implement to meet your business needs and increase warehouse efficiency. To get the most benefit from your warehouse metrics, it is important to track the right ones.
The following information describes some of the most frequently tracked and beneficial warehouse KPIs by operational area for managing a facility.
THE IMPORTANCE OF INBOUND WAREHOUSE METRICS
With generally less labor and less visibility to customers, inbound and receiving operations are erroneously considered less critical than outbound operations. Inbound operations are responsible for whether the subsequent operations will succeed or fail. The phrase, "Garbage in, garbage out" can describe the impact that inbound activities will have on future output and overall success. Errors that are missed or created during receiving can cause labor associated with subsequent tasks to grow exponentially.
INBOUND METRICS TO TRACK
- Dock to Stock Cycle Time - measures inbound cycle time when a load arrives at the warehouse dock and until the inventory is fully processed through all receiving tasks and considered "in-stock".
- Inbound/Receiving Cost - this cost includes the labor required to process and handle products from dock to stock. It can also include administrative labor.
- Vendor Compliance - this metric tracks the frequency of which vendor inconsistencies, errors, and issues occur.
THE IMPORTANCE OF OUTBOUND METRICS
The functional areas associated with outbound tasks in distribution warehouses and order fulfillment centers often account for the majority of direct labor and variable expenses. For that reason, controlling and monitoring in the outbound area is very important. In addition, improvements in these areas will likely provide a higher return on investment.
OUTBOUND METRICS TO TRACK
- Outbound Processing Throughput versus Capacity - measure the daily demand by functional processing area against capacity which can identify typical peak- and low-volume trends.
- Picking & Packing Cost - the staffing levels by functional area and the associated picking and packing costs. This includes both direct and indirect labor such as administrative tasks.
- Order Accuracy - the percentage of orders that are accurate. Interested in increasing order accuracy? There are many solutions that range in scale and price that can meet your level of operations including automated goods-to-person soultions and pick-assisted solutions.
- Order Processing Time - the amount of time it takes once an order is received to when it is shipped.
THE IMPORTANCE OF INVENTORY METRICS
A distribution facility does not exist without inventory which includes all the items or materials being held in the building. Proper inventory management facilitates improved order accuracy, more efficient operations, and better profits through lower costs and higher sales. Too much inventory can cause inefficient operations and excess warehouse costs whereas too little inventory can lead to missed sales. Inaccurate inventory can lead to order errors and poor customer satisfaction as well as higher costs. Inventory and its ebb and flow will dictate the storage media, its configuration, and its utilization.
INVENTORY METRICS TO TRACK
- Storage Cost per Unit - storage costs include fixed and variable costs and are divided by the number of units in a given period. This is often analyzed monthly.
- Days of Inventory on Hand - the amount of inventory divided by units shipped per day. In other words, based on historical average of units shipped per day, how many days are there before the inventory on hand is depleted?
- Storage Utilization - 100% storage utilization can be bad since it doesn't leave room for operational flexibility or to move inventory as needed. You also don't want storage utilization to be too low. Two key measures of storage utilization are cube utilization and location utilization. Cube utilization is the total volume occupied by the product divided by the total volume available for the product. Location utilization is the total locations containing the product divided by the total number of locations.
- Inventory Accuracy - the comparison of physical inventory to the systemic recorded inventory. This included item type and quantity.
THE IMPORTANCE OF OVERALL FACILITY METRICS
Besides metrics that are specific to an individual area of a facility, there are also cross-functional metrics that are crucial to track in order to highlight the facility’s macro trends. This can include tracking shipment and order profiles, overall cost per order, and various utilization rates.
OVERALL METRICS TO TRACK
- Labor Utilization Rate - calculate by taking an employee's output divided by the maximum potential output. Then multiply by 100.
- Stock Keeping Unit (SKU) Velocity - the quantity and frequency of movement over a given period.
- Units per Order - the average number of items that customers are purchasing in any given transaction.
- Lines per Order - the number of lines per day divided by the total number of orders per day.
- Average Fulfillment Cost per Order - calculate by totaling all fixed and variable costs for a certain period and divide it by the total number of orders processed in that same period.
- Equipment Utilization Rate - calculate by dividing equipment output by the maximum potential output, then multiply by 100.
Tracking key performance metrics helps you run a leaner and more profitable business. Having a clear understanding of how well your organization is performing provides the necessary data to run your business today and equips you with the information needed to make important decisions about the future. The historic throughput, volume, and profile metrics listed are guides to narrow the scope of applicable technologies for an operation as well as determine appropriate system sizing. The productivity, efficiency, and accuracy metrics help identify areas that are strong candidates for process or technology-assisted improvement. The cost metrics can aid in accurate return on investment calculations to guide decision making on any potential changes. It is crucial to identify and track Key Performance Indicators to understand trends within the facility and identify opportunities for improvement. A better understanding of historical data helps construct improved plans to achieve future growth targets and improved efficiencies.