A significant part of warehouse management involves measuring warehouse key performance indicators (KPIs) or metrics. After all, those numbers are one of the best ways for you to assess whether or not your warehouse is operating at maximum efficiency. Should there be any problem areas, those can also be addressed early on.
The metrics may be straightforward. But, it isn’t to say that achieving warehouse efficiency is not without its own set of complexities. If you are a warehouse manager, in-depth knowledge of those metrics and their corresponding functions can help make important and informed decisions. Most importantly, these metrics can serve as benchmarks for you to find the best warehouse management system that will not only ensure efficiency but also improve overall operations to boost sales and revenues.
That said, here’s a list of the top nine metrics that you should know. These metrics are grouped based on the activities involved in every stage of the warehouse process.
Topping this list is the umbrella term coined to measure a warehouse’s receiving performance. This is very important to measure, given how warehouse operations always begin with receiving. If the starting point is poor, then there’s a higher likelihood of bumps along the entire supply chain process.
These are three of the most important receiving metrics;
- Receiving productivity- This is computed by measuring the volume or number of goods received for every warehouse clerk per hour.
- Cost of receiving per receiving line- This refers to the expense that the warehouse covers in the receiving process of each receiving line.
- Receiving cycle time- This metric measures the time it takes to process each receipt.
Another catch-all term that encompasses many other sub-metrics is what’s known as Put-away. This process begins right after the products are received in your warehouse, for manufacturing, production, or retail. Put-away refers to putting each product on its right shelves for the most efficient and convenient retrieval.
The most important put-away metrics are:
- Put-away productivity- This measures the volume of stock put away for every warehouse clerk, per hour;
- Put-away cost per line- The term is used to refer to the expenses incurred for putting away stocks per line.
Order Fulfillment Metrics
There are generally two order fulfillment metrics that can help the warehouse management team decide on matters relating to the warehouse’s order fulfillment efficiency. These are:
Fill Rate Per Line
An order line refers to any individual line in an order bill. The fill rate per line refers to the percentage of completely filled-out order lines in proportion to the total number of order lines.
In simpler terms, the fill rate per line is the measure of the warehouse’s ability to meet demand. The higher the fill rate per line, the better. That means your warehouse is at its peak in terms of efficiency, regardless of the sudden increase and decrease in demand.
Back Order Rate
Keeping track of the back order rate is vital for any warehouse involved in supply chains. This metric measures the number of orders that are not completely fulfilled based on the scheduled time but are expected to be delivered on a later date.
Moreover, your back order rate will give you and your warehouse team insights on how easy or difficult it is for you to fulfill orders. Back orders are usually prevalent when demand for certain products spikes. If your planning, production, and delivery processes are efficient, dealing with an increase in demand should not be a problem.
Do note that a high backorder rate should be addressed immediately as this has a direct impact on customer or client satisfaction.
These are two of the metrics which are key to accurately measure how efficient your storage system and the process is:
The inventory turnover metric refers to the number of times annually that your warehouse is able to go through the entire available stock. It doesn’t necessarily have to mean zero wastage, although such is ideal. The higher your turnover rate is, the better it is for your business. It means that demand is high and consistent. When this is met, it also means your warehouse is able to optimize its management and operations.
If your inventory turnover rate is low, however, you may need to work on improvements, which may involve other divisions of the company.
Here are some strategies you may want to consider.
- Go through proper forecasting, as not all products are created equal in terms of popularity;
- Have an effective marketing strategy, so you can continue to increase demand and empty your inventory;
- Adopt an efficient inventory system, as with an excellent one, you can reduce data inaccuracies that may slow down the entire process of the supply chain.
Carrying Cost of inventory, which is the cost of storage for any given time. Also known as holding costs, this includes all the costs related to holding and storing items, such as rent, salaries, taxes, overhead, insurance, taxes, and opportunity cost.
Generally, holding costs should be low because it indicates that you have the right levels of inventory to meet the demands without any spoilage or damage to the goods or items.
The list of metrics above is also known as warehouse efficiency and management KPIs.
If you want to improve your warehouse’s efficiency and success rates, then you have to be more mindful and monitor the metrics above. Warehouse management, when done well, can affect the supply chain and production positively. Most importantly, how you will use and interpret these KPIs can be key determinants to the success or failure of your business.