Warehousing Key Performance Indicators
Demonstrate the value of warehouse functions with KPIs
Key performance indicators – KPI’s – are frequently used in general business to evaluate the success of everything from a specific department to an entire enterprise. They focus on strengths and weaknesses. Many warehousing KPI’s tend to be focused on external performance, such as on-time shipments that directly impact customers. This is a good measure, but the need to go deeper and measure the factors that drive those success rates is critical. What are some KPI’s for warehousing operations?
The warehouse is a critical function. Measure it like one
Companies that relentlessly measure sales, customer service, financial, and other functions sometimes treat their shipping and handling operations as an afterthought, which is unfortunate, because the warehouse is where tremendous value can be added to the process. Since it’s often the very last buffer between you and your customers, its role in customer satisfaction can’t be overstated. Product should flow in, store, process, and flow out with a minimum of “touches” by human hands and processes. To get to that state, you have to break down the processes. What can be improved? What should be revamped? Do you know what the industry standards are? What are your competitors and peers measuring?
Typically in broad terms, we’re discussing productivity, quality, errors, time, and costs. But the specific processes that feed these measures are what’s important. In warehousing, your costs are mostly based on labor, space, and operational equipment.
Some specific KPI’s may include:
- Receiving: The impact that a properly-designed and well-run receiving area can’t be understated. Many warehouse managers focus on higher profile areas like picking and shipping. Receiving inadequacies have significant consequences that can ripple through an entire operation. Critical measures can include cost per line item received, volume per man-hour, truck time at the dock, and accurate receipts.
- Putaway: As received inventory is slotted into picking locations, KPI measurement becomes more difficult, as order pickers are the primary user of the output of proper putaway. It can be difficult to trace putaway issues, but it’s not impossible. Factors to consider are putaway accuracy rate (or cycle time), cost per item put away, time from receiving to pick location, and putaway per man hour.
- Storage: Whether your operation utilizes manual or automated storage systems, there are key indicators you can measure, although they may vary depending on the system type. Manual systems include measures of block stacking and rack storage of various types. AS/RS can include typical unit (pallet) storage, mini-load (container) storage, carousels, and more. Measures include storage cost per item, inventory storage per square foot, and days-on-hand.
- Order Picking/Packing: In many operations, order picking is the most expensive and difficult process; it often consumes the most labor. It’s usually more diverse and complex than the rest of the operation, and it is directly connected to customer satisfaction, so the emphasis on it is warranted. KPI’s for order picking include cost per line item picked, orders picked per hour, picking labor costs, consumables (packing materials, cartons) usage, and cycle times per order. Since shipping’s main focus is customer service, measuring for accuracy and speed are high on most everyone’s list of key performance. An excellent metric is percentage of perfect pick lines.
- Shipping: This isn’t just a matter of putting goods on trucks and dispatching them to customers. Shipping may not be only to customers, but downstream to other departments or facilities. Some of the best metrics for shipping include cost per item shipped, cost per shipped order, labor hours consumed per order, percentage of perfect shipments, shipping dock utilization, and time from picked order to departure.
These suggested KPI’s are hardly the only ones. Specific operations have very specific indicators that aren’t covered by these general suggestions. However, many of these more specific indicators are adaptations of basic ideas. You could also look toward areas like safety, security, and employee satisfaction for key indicators that directly affect the process cycle from receiving to shipping.
Since the warehouse is often the busiest area of a thriving operation, it makes sense to measure, then review your indicators. As business changes, some indicators will become more important, some less. The ways you can improve your warehouse operation are myriad, and so are the ways you can measure that improvement. These types of hard metrics also make it easier for logistics and warehousing management to demonstrate that their part of the overall business, which is often an afterthought with senior managers, can add tremendous value.
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Scott Stone is Cisco-Eagle's Vice President of Marketing with more than thirty years of experience in material handling, warehousing and industrial operations. His work is published in multiple industry journals an websites on a variety of warehousing topics. He writes about automation, warehousing, safety, manufacturing and other areas of concern for industrial operations and those who operate them.