Today, warehouse owners have access to more data than ever, as well as new and powerful data analytics tools. With the right analysis, warehouse owners can have a fuller picture of their warehouse’s operations—where costs are highest, where investments need to be made, and how much money they can expect from current inventory.
However, there’s only so much information a warehouse owner can follow at once—which makes tracking the right KPIs (Key Performance Indicators) and training employees on them extremely important.
Suboptimal KPIs can be the first signs that warehouse processes aren’t efficient or that your employees need more training in certain areas—such as count accuracy, picking, or equipment usage. By tracking the right combination of KPIs, you can more quickly understand where your employees aren’t as efficient as they could be, and what kind of approach can help you maximize your warehouse’s throughput.
Here are the top 12 KPIs all warehouse managers should be tracking and how they can be used to inform training and improve employee performance.
1. Cost of Carrying Inventory
Often represented as a fraction or percentage of the total inventory value over a period of time, this value can help you estimate the cost vs. reward of current inventory. With this value, you can get a better sense of how much money your current inventory can make you, and also help you find ways to reduce your warehouse’s overall carrying cost.
2. Inventory Turnover
This is the rate at which your entire inventory is sold. Your warehouse’s profit is built on balancing the cost of stocking items versus the profits of selling them—meaning stocking the wrong items can be costly. You can use inventory turnover information to find out which items are moving slowly and bringing down inventory turnover rate. From there, it will be possible to adapt your inventory and stocking methods to boost profits and inventory hold times.
3. Inventory Accuracy
This refers to the accuracy of your inventory count. Often, this is measured by comparing how many items are in stock against your current inventory records. When inventory tracking isn’t working, you will have a harder time knowing how much product to stock—which can lead to carrying inventory that may not get sold or under-stocking and back orders.
If your warehouse is struggling with managing inventory accuracy, digital warehouse management systems can streamline inventory management and help your employees work toward better inventory counts.
4. Dock Door, Workforce, and Equipment Utilization
These are some of the most useful KPIs for pinpointing where staff may need better training.
Utilization represents the percentage of equipment, labor, or dock doors used over a given period of time. If utilization of workforce or equipment is particularly low for one step of the process, it could be a sign your warehouse has surplus equipment or labor for a given task. On the other hand, if utilization is consistently high, your warehouse may not have the labor or equipment it needs for current order volume.
Low equipment and workforce utilization at the same time, especially when accompanied by indications from other KPIs that efficiency is low, could point to process or training issues. Reduced efficiency results when too few employees are trained to use available equipment, or when supervisors don’t direct the use of open equipment properly. Segmenting these stats further into each step of the process—receiving, storage, picking, and shipment—can help you pinpoint which employees need better training the most.
5. Receiving Efficiency
This refers to the overall efficiency of the receiving area measured in goods received per clerk—or the number of workers in the receiving area—per hour. Low efficiency can be a sign that receiving processes aren’t working as well as they could, or that equipment isn’t being utilized properly.
Combined with other measurements—such as equipment utilization—you can use this KPI to pinpoint issues with your receiving area and understand why they might be happening. For example, if both receiving efficiency and receiving workforce utilization are low, that could be a sign that many workers in receiving are waiting for direction, or for equipment to free up. In either case, more resources or better training can help you boost your workforce utilization—and, potentially, the efficiency of your warehouse’s receiving area.
6. Warehouse Capacity Utilization and Productivity
Utilization is the total amount of space in the warehouse being used, and productivity is the volume of space filled per square foot. Low utilization is undesirable and can be a sign that you can order and ship more goods than your warehouse has in the past.
According to research by WERC, best-in-class warehouses utilize greater than 94 percent of warehouse capacity on average. Aiming to hit this metric can be good way to ensure maximum usage of space.
Low productivity can mean your warehouse slotting isn’t optimized and may need to be reorganized. If productivity is low, you have more room in your warehouse than you may think. Moving goods around and reslotting can help you fit the most possible volume in the square footage your warehouse has available.
7. Order Lead Time
This is the average time between an order being placed and that order being received over a set period of time. High order lead time—or an increasing lead time—can be a sign that current warehouse processes aren’t working well, or that employees could be more efficient when it comes to picking and shipping orders.
8. Order Accuracy
Accuracy of orders is one of the most important metrics. A warehouse should ideally strive for 100 percent order accuracy. An inaccurate order here or there is to be expected, but, in general, if large numbers of inaccurate orders are making their way to shipping, that can signal serious issues in the picking, packing, and shipping processes. Like order lead time, if order accuracy is significantly off the mark, it could be a sign that better employee training is needed to improve warehouse efficiency.
9. Back-Order Rate
This is the frequency that clients order items not currently in stock at the warehouse. In general, warehouses will want to avoid any amount of back orders with the right inventory planning. A high back-order rate could show difficulty with predicting orders and anticipating demand—an opportunity for improving stock and inventory forecasting and planning methods.
10. Return Rate
This is how frequently items are returned. A high return often means that goods are either being damaged at some point, or that orders are being inaccurately filled.
Like order accuracy rate, a less-than-ideal return rate can be a sign that something—whether that’s process issues or a lack of care from employees handling packages—is causing consistent mistakes during picking and shipping, or creating other issues during the process. Combined, the difference between return rate and order accuracy can show how many returns are due to inaccuracy and how many are due to other issues such as damage or spoilage.
11. Warehouse Revenue Per Employee
This KPI can provide better understanding of whether or not your warehouse has the workforce it needs and whether or not that workforce is being distributed well across the warehouse.
12. Order Picking Accuracy
Best-in-class warehouses pick at an accuracy of nearly 99.9 percent. The warehouses with the most room for improvement typically pick at an accuracy of around 97 percent. If your warehouse’s picking accuracy is in between these two figures—or below 97 percent—that could mean there are issues with your picking system, warehouse equipment, or your pickers’ approach.
Ttracking the Right KPIs
With the right data, it’s possible to have the most complete understanding possible of a warehouse and the employees within. This means that tracking the right KPIs can be essential to both employee and overall warehouse success.
Some of the best KPIs to track focus on utilization of warehouse resources; existing costs; and metrics such as back-order rate, which show how effective your warehouse planning and forecasting strategies have been. Each of these metrics can be used to help owners or managers identify additional training opportunities for employees, reduce costs, increase the efficiency of resources use and, ideally, improve warehouse profits.
Megan Ray Nichols is a freelance writer and STEM blogger. She regularly contributes to IMPO Magazine and Born2Invest. She also updates her own blog, Schooled By Science, every Tuesday and Thursday. Stay in touch by following her on Twitter or subscribing to her blog here.