July 29, 2020
Without measuring goals, it’s impossible to determine success. This is especially true in the warehouse management space. For warehouse operations, tracking key performance indicators (KPIs) helps determine warehouse performance, from total number of orders picked to labor costs to order cycle time. Warehouse KPIs track warehouse efficiency. Which warehouse KPIs should warehouse managers track? Here are 7 to start.
Inventory accuracy:
Inventory accuracy includes the physical inventory that the warehouse management is tracking, compared to what is actually present at the distribution center. If the total number of items, (i.e. the inventory levels) are incorrect, the warehouse management will have problems with items on backorder, rising inventory cost and cost of goods sold, and other important factors in inventory count. This lack of inventory accuracy will negatively impact customer satisfaction. A warehouse management system (WMS) using barcodes or other tracking systems, rather than a simple spreadsheet with line items, is essential to maintain an inventory accuracy rate.
Inventory turnover rate:
The inventory turnover rate is the percentage or ratio showing how many times the inventory was sold and replaced in a specific timeframe. Ideally this information is captured real-time, and a warehouse management system can do that, providing the needed visibility to understand not only the total number of orders, but the average time products stay in the warehouse. A higher inventory turnover rate is better than lower inventory turnover. KPIs like inventory turnover rates should be compared to industry benchmarks.
Backorder rate:
The backorder rate is the inbound rate of purchase orders for items currently out of stock. A higher backorder rate could be due to an unexpected demand, or it could be due to poor planning, lead time or forecasting issues in the supply chain.
Order picking accuracy:
Order picking accuracy affects several warehouse KPIs. An efficient warehousing picking process starts with putaway, ensuring items are easy to find, using barcodes or other tagging and tracking methods. Order accuracy is vital for customer satisfaction and minimizing the rate of return. Order picking accuracy is one of the KPIs for tracking the picking and packing process. Other KPIs related to order picking accuracy include labor cost, total number of orders picked per shift or hour, and cycle time. Pickers should have the training and support they need for the highest accuracy rate.
Order cycle time:
Order cycle times are performance metrics for the average time needed to fulfill customer purchase orders. This impacts customer satisfaction, as customers are now setting higher expectations for order accuracy, and they don’t tolerate late delivery
Rate of return:
KPIs for reverse logistics includes customer returns. Inventory tracking and inventory management of returned items affects the cost of inventory and carrying costs, plus labor costs. A higher rate of return may indicate order inaccuracies, a product quality problem, or a product description issue. This is an important warehousing KPI because it can highlight other problems with warehousing efficiency.
Warehouse efficiency:
Warehouse efficiency is an umbrella KPI covering many discrete actions. This efficiency KPI shows how the inbound goods are handled in the receiving area, putaway, the picking process (putaway affects lead time and order picking accuracy), as well as customer returns. If the warehouse efficiency KPI is not meeting benchmarks, it’s a sign your warehouse management needs to dig further to uncover problems.
Tracking warehousing KPIs is an important way to ensure your warehouse operations are efficient, retaining inventory value. High performing KPIs are an important link in the supply chain. Stord works with shippers on the end-to-end visibility of their goods, integrating with WMS programs and offering both warehouse and transportation services, so shippers will gain high customer satisfaction ratings while growing their businesses. Contact us to see how Stord can help your company raise its KPIs.