A warehouse can be running at peak efficiency, but until warehouse management formulates a stringent list of metrics and goals that all personnel can stand behind, the operation is only half-baked. Establishing smartly-set goals and indicators such as KPIs allows managers the ability to provide not just the warehouse, but the entire supply chain with the exact numbers they need to know the job is getting done properly and efficiently.
But planning tactics aside, sometimes managers have a tendency to go a bit overboard in regards to establishing and subsequently promoting productivity metrics. There are times when the numbers might read as being convoluted or simply might not be relevant to the specific operations. That’s why there is no “one-size-fits-all” KPI indicator plan –each and every one must be devised to fit a specific business.
Having said that, it is important that warehouses pay attention to a universal handful of productivity metrics that apply to nearly every operation. Once those are established, more KPIs can be added to the list so that all bases are covered.
Here are the 5 most important warehouse productivity metrics:
- Order Processing Turnaround Time
- Receiving Time
- Days On-Hand
- Rate of Return
- Perfect Order Performance
Now that you’ve gotten a taste of general KPI importance, let’s delve deep into the specifics of each one.
1. Order Picking Accuracy
According to metrics published in reports produced by the Warehousing Education and Research Council, the industry average for order picking accuracy lies somewhere between 91.1% and 98%. If you run even a somewhat modern operation, you should have some type of warehouse management system to generate automated reports that detail these percentages.
Once you have these metrics, you will then know exactly how much you and your team needs to improve in order to get as close to 100%-accuracy as possible. Having these results in-hand will give you the in-depth insight you need to confidently make shifts in staffing and infrastructure. It will also give you the power to make investments in emerging technologies, such as automated and/or collaborative picking tools.
2. Receiving Time
One of the most common mistakes that warehouse management newbies make at their start is that they put far too much of an emphasis on getting the product picked, packed, and ready for shipping, and not enough on inventory receiving time. When considering this, it’s important to note that the clock starts ticking at the very moment that the delivery is made from the supplier and it ends once the material is delivered to its appropriate station.
The goal of any warehouse it to have a steady stream of circular motion that spirals material in and out at a predictable, steady, and most of all, quick rate. This means that, if you leave inventory on the dock to pile up, your overall warehouse productivity is diminished. Once the proper metrics are compiled, it is impossible to know whether or not the receiving time is, in fact, dragging down the numbers. If this, in fact, is the case, it’s time to bolster receiving procedures and/or invest in automated systems that cut down the travel time required from receiving to picking.
3. Days On-Hand
Days on-hand refers to the amount of time your inventory stays stored in your warehouse. Naturally, it’s the goal of every operation to turn over as much inventory as possible, but we all know that a certain amount of backstock needs to be kept and unexpected elements can slow down orders. Having said that, it’s impossible to get a good feel for exactly how much this burdens your operation until you have calculated the accurate metrics.
So, how does a high days-on-hand scenario hurt your bottom line? The answer is a simple one: for all of the inventory you have sitting in the warehouse, the more storage systems you’ll need to house them. In the best cases, this will lead to a cluttered warehouse, and in the worst, your organizational plan will fall apart as there will be no room to store or process your new shipments.
4. Rate of Return
This is an especially important metric to consider for those working in the e-commerce business in which speedy order fulfillment and customer satisfaction is the name of the game. If this sector sounds like yours, you’ve likely employed some form of an automated warehouse management system to monitor these returns. Make sure that your associates are well aware of their responsibility to process returns as they come in.
In addition to the processing, be sure that you have a clear idea as to why the items are being returned to your warehouse. Once you have all of that information, create a breakdown that accurately explains why the returns are occurring– some examples of this might include “damaged goods,” “quality issue,” “product not as described in the listing,” etc.
5. Perfect Order Performance
Once you have the corresponding metrics, such as the rate of return, you are now ready to calculate the ever-important “perfect order performance.” The perfect order performance is the number that will tell you exactly how well your warehouse is meeting the expectations of your customers.
To calculate yours, simply plug your info into this equation provided by Supply and Demand Chain Executive:
(Percent of orders delivered on time) * (Percent of orders complete) * (Percent of orders damage free) * (Percent of orders with accurate documentation) * 100.
Of course, there are a host of other important warehouse efficiency benchmarks out there, but it’s best to keep these 5 at the forefront if efficiency is, in fact, your operation’s overarching goal. Once you have these in place, you can then build your list of KPIs that is tailormade for your business.