Key performance indicators (KPIs) are critical to the success of any warehouse because they set critical benchmarks for the operation. They also help identify areas that require improvement — especially those that have a direct impact on overall cost and customer satisfaction. KPIs often are unique to a particular operation, and not all metrics apply in all warehouses. But there are some standards that should be tracked, which include the following:
KPI 1: Fulfillment. Fulfillment begins with order placement and ends in the dispatch of goods to the customer. There are several metrics to be assessed within the order fulfillment process:
- Order fill rate measures the percentage of the order that has been filled. A typically acceptable order fill rate is 97-98%. Anything below 94% is probably due to inefficiencies in warehouse operations and replenishment processes.
- Order fulfillment timeliness evaluates order fulfillment time. In today’s market, this can be anywhere from 2-3 days down to a matter of hours from the time of order placement until dispatch from the warehouse.
- Picks per hour is the primary outbound metric that analyzes the performance and efficiency of the picking team. An average picker is expected to pick between 120 and 175 pieces or cases per hour, with best-in-class pickers achieving more than 250 picks per hour. Applying advanced technology such as voice picking can drive pick rates 30% higher.
- On-time in full (OTIF) identifies how well delivery goals are reached in terms of receiving the full order by the desired date. Even if all the above KPIs are achieved as best in class, if the goods are not delivered on time, it will negatively affect business. Typical OTIF shipments should be at least 98-99%.
KPI 2: Inventory accuracy. The accuracy of physical inventory should correspond with that listed in the data, but realistically there’s often a disparity between the two in any large distribution center. A high rate of inventory inaccuracy can result in unexpected back orders; dissatisfied customers; and, ultimately, higher overall costs. Inventory accuracy can be improved by conducting regular checks against the database and using cycle counting as a means of continually validating database records.
KPI 3: Overall throughput. Warehouse throughput refers to the number of units that are processed and moved on a daily basis. To calculate throughput rate, track the movement of goods through the warehouse for a given period of time. For example, to measure how many orders are processed within an eight-hour shift, track the number of orders received in that amount of time and how long it takes each product to move from picking to packaging and labeling. For instance, if a warehouse processes 400 orders in eight hours, workers are completing an average of 50 orders per hour.
KPI 4: Replenishment. Replenishment is the movement of inventory from a central or reserve storage location to the primary storage bins for further movement downstream. This metric is very important for warehouses that handle multiple products in large volumes, especially e-commerce environments. The replenishment metric monitors the methods used to carry out this movement and the efficiency of the processes involved. With effective replenishment techniques, companies can avoid overstock and dead stock, circumvent shortages, ensure on-time deliveries, rotate products properly, and maintain adequate safety stock.
KPI 5: Order accuracy. The mission of any warehouse operation is to ensure that the customer gets the goods they ordered within the time frame they want it. A key part of OTIF, order accuracy is one of the most important metrics that a warehouse must measure daily. Best-in-class warehouse operations target order accuracy at 99.5-99.9%.
KPI 6: Inventory turns. Stock turnover ratio is used to identify how often and how soon a stock item is received, ordered, processed and delivered, within a given time period. This is an important measure of a company’s inventory health and order processes. Inventory turns can be tracked in a warehouse management system, which gives users the ability to treat different types of inventory differently. For example, when inventory cycle counting, people can count the fast movers more often than the slow movers, applying labor efforts where they can have the most impact, as opposed to treating all inventory items with the same management processes.
KPI 7: Dead stock. Dead stock is inventory that is not moving because of a lack of demand due to being damaged, expired or unsellable. It sits in the warehouse occupying space and eating up capacity. The best practice here is to track dead stock, then create sales incentives to move these goods out.
KPI 8: Supplier KPIs. Measuring supplier KPIs is critical to developing best-in-class procurement. It can foster better communication, increase spend and order visibility, improve process efficiencies, identify cost-savings opportunities, and more. Supplier KPI measurements to consider include reliability, performance, compliance and customer service.
Leverage KPIs to achieve improvements
Of course, each of the preceding KPIs contributes to what is perhaps the most important KPI: customer satisfaction levels. Tracking the right warehouse KPIs is the first step toward achieving a profitable business with happy customers. Evaluate these metrics consistently, and always take proactive action based on what is discovered.
Learn more about this topic by pursuing the Supply Chain Warehousing Certificate. It includes an overview of distribution, inventory management, product storage, packaging and shipment, sustainability in logistics and more.