5 Key Warehouse Performance Metrics for an Effective Operation
Identifying and measuring KPIs is the first step to improvement
Performance metrics are a universal way to measure a warehouse operation’s overall effectiveness, quality and productivity. In today’s fast-paced and competitive environment, setting benchmarks and goals for a company is essential, but it’s not enough to set lofty goals for the coming year in terms of revenue, profits or production. In the warehouse, success is the sum of all its parts. To reach overall production, quality, safety or service goals, an examination of each step is essential. Through this evaluation process of different performance metrics, managers can find actionable information and begin prioritizing problems within a warehousing or distribution operation.
We’ve previously discussed how key performance indicators (KPIs) demonstrate the value of warehouse functions. Now, let’s take a dive deeper into five specific performance metrics to consider implementing in the modern warehouse.
Before we delve deeper, it’s important to underline the individuality of performance metrics. Industry benchmarks are there to aspire to, but each warehouse has its own unique challenges and situations that can make these industry benchmarks less relevant.
After we understand where a particular warehouse stands in terms of performance metrics, managers must make a specific plan on not only where to improve (and by how much), but, more importantly, how to improve. This might take a larger discussion with employees to gather ideas and develop a detailed plan.
Performance Metrics for an Effective Operation
1. Truck time at the dock
Receiving is often an overlooked segment of overall warehouse processes; order picking, packing and shipping are typically more heavily scrutinized. However, a warehouse can reap dividends by streamlining the receiving process as a well-run receiving dock sets the stage for a well-run warehouse.
One of the performance metrics to consider tracking is the truck time at the dock. It can help illuminate several issues, such as inadequate labor and low productivity, as well as gauge utilization of the dock and uncover efficiency issues in infrastructure and other processes (all these are KPIs to consider as well).
By decreasing truck time at the dock and finding efficiencies in the process, managers can gain both cost savings and a boost in productivity.
2. Time from receiving to pick location
It takes time to intake inventory, but just how much time? That’s what this KPI measures.
From an efficiency perspective, this is important because inventory on-site, but not in an accessible area, cannot be packaged and shipped. It’s in “limbo,” unable to add value or create income. Compressing this time streamlines warehouse processes and helps turn inventory investments into profits. Leveraging today’s material handling equipment (conveyors, sortation systems, AS/RS systems, etc.) can play a role in optimizing this part of the warehouse. See more on receiving areas and how to successfully optimize them here: Cluttered Receiving Area Problems and Solutions; The Case for a Supersized Receiving Area.
This KPI should be coupled with other related metrics, such as putaway per man hour, cost per item to put away and putaway accuracy rate (or cycle time) to create a full picture of the putaway process.
Every day a product is in warehouse storage is a cost. An excess amount of inventory is an overhead expense that trickles down and affects other cost centers as well. More inventory means more storage and systems needed to manage that inventory, and it may take more time to locate, package and ship a product.
The days-on-hand KPI looks at how much time a product is at the warehouse. By examining this metric, warehouses can identify areas where inventory practices can be tightened up. Measurement of this KPI will depend on whether an operation has a manual or automated storage system, but warehouse managers should also look at storage cost per item and inventory storage per square foot. Many warehouses are working toward a just-in-time inventory system to lower the capital costs of keeping excessive inventory on hand.
For any warehouse improvement, it’s essential to consider the cost/benefit analysis. For example, to lower the average days-on-hand, what would it cost to make that happen and what savings would be realized?
4. Cost per line item shipped
Order picking and packing are often the most expensive and complicated processes within the warehouse. These processes often marry people, equipment, information technologies and custom needs. Because of this complexity, there are many different types of metrics. Picking operations are directly tied to customer satisfaction, so that only elevates its importance.
The cost per line item picked shipped is a good starting metric to help you get a handle on the expenses incurred to ship a single item. This metric takes into account the total warehouse costs and divides it by the total number of items shipped.
Timing and accuracy also play a big role in shipping and should be routinely measured and reviewed. These KPIs include picking labor costs, orders picked per hour, cycle times per hour, etc.
5. Perfect orders and error-free rate
To put together orders perfectly time after time, day after day, well, that’s the ultimate goal for warehouses. Percentage of perfect orders is a good measure of overall warehouse performance. Take a look at industry benchmarks to get a good understanding of how well competitors are doing in terms of perfect orders.
However, while accuracy is important, time spent and costs associated with executing perfectly are also important considerations, so utilize those metrics as well.
This is by no means an exhaustive list of key performance metrics for modern warehouses; it’s only a start. Today’s software technologies, like warehouse management or warehouse control systems, offer the ability to track and analyze data across the warehouse. They can help make sense of the vast amount of data available, develop trends and aid in monitoring progress toward defined performance metrics.
Keep in mind, KPIs aren’t going to improve overnight—measuring them is the first step to improvement. If there is a significant gap between current performance and ideal performance, there should be intermediate goals to help the entire team stay on task. Reaching these in-between metrics can help show managers and employees that what they are doing to improve is working.
It should also be noted that prioritizing the areas identified for improvement is vital. A warehouse may want to focus on the issues where improvement would improve customer experience, where they can lower cost or where both of these critical goals intersect.
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.