There are various methods for measuring warehouse performance, including analysing your company’s financial accounts, holding performance evaluations, and employing business metrics. However, one of the most prominent approaches is to create warehouse management KPIs (Key Performance Indicators), which assess how well your operations achieve their goals and objectives—sort of like a scorecard for your warehouse. Each warehouse KPI evaluates a particular process or activity and provides a result that reflects how well that procedure is performing when compared to previous statistics and standards.
Several warehouse management KPIs are applicable to most warehouses, despite the fact that they all function uniquely. However, you may not require to employ every KPI to achieve your company objectives. Alternatively, you can select only those that you believe are most important to your present objectives. Therefore, how do you identify the key performance indicators (KPIs) that you truly require? In this post, we’ll go through the most often utilised warehouse KPIs and what they can achieve for you:
Inventory KPIs are concerned with the stock of items kept in your warehouse. They’re ideal if you want to keep track of how your merchandise is moving. Inventory correctness, shrinkage, bearing cost of inventory, inventory turnover, as well as inventory to sales ratio are all prominent inventory KPIs.
Goods accuracy is defined as the concordance between the amount of inventory monitored and the amount actually present in a warehouse. Inventory tracking is often performed automatically with the help of a warehouse management network or goods management system, although this figure does not necessarily correspond to the amount of inventory that is physically present in the warehouse. This might be due to theft, vandalism, miscalculations, supplier shortages, and so on. By dividing the stock monitored by the system by the stock physically left in the warehouse, the inventory accuracy KPI will reveal if there is a disparity between the two figures. The nearer the number is to one, the more precise your inventory tracking.
Formula: Inventory as tracked by system / Physically present inventory
One type of discrepancy in inventory accuracy is shrinkage. Excess inventory is described as inventory that is documented in accounting however is no longer physically present due to factors such as theft, damage, or miscalculations. This KPI will display the value of goods absent from your warehouse as a result of those circumstances.
Formula: (Cost of recorded inventory – Cost of physically present inventory) / Cost of recorded inventory
Inventory carrying cost
The overall cost of inventory carrying is the entire sum of money spent by a firm on owning, keeping, and retaining inventory. It reflects how long your company can keep keeping inventory before losing money and having to seek a suitable remedy for slow-moving inventory as well as dead stock. Bearing costs are determined by dividing total carrying costs by average inventory costs.
Formula: Total carrying costs / Overall inventory costs
Turnover of inventory
The regularity with which your inventory is traded is referred to as inventory turnover. A greater score suggests increased sales, whereas a lower value indicates decreased sales. Inventory turnover may be determined in two ways: by dividing total sales by averaged inventory, or by dividing total cost of products sold by total inventory.
Number of sales made / Average inventory
Cost of goods sold / Average inventory
Receiving is the procedure through which a warehouse takes a delivery of merchandise, which they must subsequently process, sort, and finally store. Receiving key performance indicators (KPIs) such as receiving efficiency, cost of receiving per line, and receiving cycle time are used to assess the success of the procedures that occur during this stage.
Receiving efficiency evaluates the output of your workers’ work in your warehouse’s receiving section. This will assist you in determining whether to introduce new training sessions or improved methods.
Formula: Inventory volume received / Staff hours working
Receiving cost per line
The cost of receiving per line is the entire amount expended on getting a line of items from your suppliers that have been delivered to your warehouse. This comprises the operations that occur upon receipt, such as processing and reporting for each item. This cost should decrease with time, showing more work efficiently.
Total receiving cost / total number of items in each receiving line
Putaway is the procedure of keeping a shipment of delivered items in the most practical as well as suitable position in your warehouse. Putaway KPIs like as accuracy rate, putaway cost per line, as well as putaway cycle time can assist you in determining how well these operations are operating.
Rate of accuracy
Your accuracy rate is the percentage of objects that were put away correctly the first time. A number of 1 implies that there have been no errors or mistakes. This rate is derived by dividing the sum of merchandise appropriately put away by the total amount of goods put away.
Formula: Inventory put away correctly / Total inventory put away
Cost of putaway per line
This KPI relates to the cost of storing an entire line of items. This indication can assist you in reducing the amount of money you spend on your total putaway operations. It is determined by dividing the total putaway cost by the number of line items.
Formula: Total cost of putaway / Total line items
Order management encompasses all of the activities that occur between the moment your company receives a client order and the time the customer receives what they ordered. Receiving the order, selecting the appropriate items for it, packaging them, sending them to the correct delivery area, and finally handling post-sales activities such as returns and refunds are all part of the job. As a result, order management KPIs depend upon determining how well each of these procedures runs.
This KPI indicates how precisely things are chosen from your warehouse for client orders, allowing you to enhance the total warehouse effectiveness of your order management procedures. Your picking accuracy must be as near to one as possible, signifying no errors.
Formula: (Total number of orders – Incorrect item returns) / Total number of orders
Order processing time
The average time it takes for an order to contact a consumer after it has been completed is referred to as order lead time. The order cycle time plus delivery time equals the order lead time. Order lead times, like total order cycle time, are beneficial for your business if they are short.
Backorder rates relate the amount of backorders you’ve placed to the overall number of orders you’ve placed. A high backorder rate shows that your predicting, planning, and inventory monitoring need to be improved.
Formula: Total backorders / Total orders
Major equipment is commonly used in the operations of largest warehouses. Whereas this equipment is useful, it is not without hazards. It is advisable to keep an eye on KPIs connected to warehouse accidents in order to assist prevent them in the future.
Accidents per year
This KPI analyses how many major accidents consume time as well as money throughout the course of a year. The number must preferably be zero, but even if it isn’t, it might help you understand the scope of the problem.
Time since the previous accident
This indicator displays the amount of time since the last accident. You want to keep this number high to demonstrate that accidents are rare.
Using warehouse management KPIs may inform you how your warehouse is performing over time, which is notably important when you’re trying to meet a definite goal or enhance particular areas that you feel could need some improvement. There are numerous distinct types of warehouse KPIs, each serving a particular function, such as inventory tracking, receiving, putaway, order management, and general warehouse safety. Therefore, while assessing the performance of various operations in your warehouse, ensure you choose the proper indicators. Understanding the facets of each might assist you in determining which KPIs you require.