There are KPIs for a warehouse that will help you track the optimal performance of your establishment.
You could ship orders to customers more quickly and efficiently. But if you’re not tracking performance for better warehouse management, you’ll never know how to achieve it.
KPIs for a warehouse are the answer.
These warehouse area management indicators are what allow you to establish a reference point for month-to-month improvements. KPIs help you identify areas that (when combined with a solid warehouse management system and procedure) will have a direct effect on both overall business costs and customer satisfaction.
What is a warehouse KPI?
Warehouse KPIs are performance metrics that help evaluate the effectiveness of a team, a project, or even a company. In this case a warehouse.
It’s a way to measure goals as part of a broader strategy or to align everyone with a goal, but it’s not the goal itself. Warehouse KPIs can focus on broader activities or specific metrics or processes .
Examples of KPIs for a warehouse
Today we will share examples of storage indicators so you can start tracking now.
1. Reception efficiency
The operation of a warehouse begins with the receipt and reservation of incoming stock.
This may seem simple at first glance. But it is completely useful, especially when you consider all the things that reception can entail:
- Multiple deliveries of new stock each week.
- Customer returns of good items.
- Customer returns of damaged items.
- Return to supplier stock.
Such an important part of the warehouse operation needs to be tracked and measured with your own warehouse KPIs. This can be done by paying close attention to the time it takes to count the stock received, record it, and prepare it for storage.
It is a good idea to record the exact time of all deliveries. Then record another timestamp as soon as this holding is ready to be saved. Then taking this data into account you can calculate an average for the month and compare it with previous performance.
Tips to improve receiving efficiency in a warehouse:
- Systematize the process and assign the task only to trained personnel.
- Create a unique SKU for each product variant.
- Assign each SKU to a specific warehouse location for quick storage.
Using a barcode scanner can help you improve these types of KPIs for a warehouse.
As soon as a product is scanned, you will be able to choose the quantity that has arrived in the purchase order and write down the figure in the active inventory at that same moment and thus have better inventory management.
2. Accuracy of order collection
Another KPI for a warehouse is accuracy when orders are picked.
Order picking is one of the most complex activities in a warehouse. An incorrect order means returned items and having to pay to correct the error.
So this is something that can have a big impact on costs and customer satisfaction.
To calculate the picking accuracy we can use some data taken from the return rate and the total order number in the following equation:
Picking Accuracy = (Total Orders – Return of Incorrect Products) / Total Orders x 100
This then gives a percentage of the number of orders that were chosen correctly.
Tips to improve picking accuracy in a warehouse :
- Organize and prepare your warehouse in an orderly manner.
- Use the most appropriate picking systems for your operation.
- Invest in minimizing labor turnover to keep experienced pickers longer.
- Adopt a digital “pick & pack” system with the use of a barcode scanner.
3. Transportation costs
The longer inventory sits in the warehouse, the more it costs the business. But it is essential to be able to put a quantifiable number in place as one of your KPIs for a warehouse.
Total carrying costs are the sum of everything it costs a business to maintain its stock over a certain period of time.
This includes costs such as:
- Capital cost.
- Storage costs.
- Equipment and software.
- Materials.
- Taxes.
This becomes relevant as a key indicator for your warehouse when expressed as a percentage of the total inventory value:
Inventory Cost = (Total Costs / Average Inventory Value) x 100
This result can give you a better indicator of the benefit that the current stock is really bringing you, and what impact the warehouse performance is having on this.
Tips to improve your warehouse transportation costs:
- Embrace automation to reduce labor costs without sacrificing warehouse productivity.
- Monitor how long inventory remains in the warehouse.
- Work to reduce inventory loss.
4. Inventory rotation
Inventory turnover is another warehouse KPI, and is closely related to the cost of maintaining inventories.
It’s basically how often you sell your inventory. In other words, how quickly you sell and ship stock once it has been stored.
Obviously, this is one of the warehouse KPIs that you are looking to keep high and growing.
The faster you move stock, the less it costs to store it and the more profit you can make from it.
Your inventory control management system will usually give you a related figure so you have information about this. But you can calculate inventory turnover with the following formula:
Return on Inventory = Cost of Goods Sold / Average Inventory
Tracking this metric allows you a greater understanding of the popularity of certain items and of course, this can help you measure future purchasing practices.
Tips to improve your warehouse inventory rotation
- Master your inventory forecasting skills.
- Identify slow-moving stock and implement inventory reduction strategies.
- Use an inventory dashboard and get a better visualization of the information about what you have in stock.
5. Rate of return
Return rate is a simple but vital KPI related to the management of any warehouse. As the term suggests, it determines how often customers return items.
This obviously gives you a great idea of overall customer satisfaction.
But the key to getting the best use of this warehouse KPI is to segment the reason for the return.
So determine several different return reasons and use the following equation to analyze each of them:
Product return rate = (Units returned / units sold) x 100
In this way, the warehouse or operations manager can begin to look for the exact reasons why this KPI may be high and also implement the necessary strategies to resolve it.
For example, many returns due to an incorrect item indicate that the pickup process needs to be revised. While many buyer returns may be because it does not meet the sales channel’s product description and needs to be addressed.
Tips to improve the return rate in a warehouse
- Segment by reason of return and investigate.
- Make sure product descriptions are accurate.
- Train staff in relation to your systems and product catalog.
- Store products in a way that minimizes damage.
- Provide your packers with a barcode scanner to confirm accuracy before they ship.
6. Backorder rate
The backorder rate is one of the KPIs for a warehouse that allows for in-depth analysis of purchasing success.
A high backorder rate means that many orders come in for items that are not in stock.
Of course, sudden and unexpected increases in demand can explain this. But if the backorder rate KPI is consistently high, then it is likely the result of:
- Poor planning and foresight.
- Poor inventory tracking.
Either way, backorders create a really bad experience for customers and should be tracked and minimized. You can use the following equation to measure it:
Backorder rate = (Total number of backorders / total number of orders) x 100
Tips to Improve Backorder Rate
- Forecast using as much data as possible.
- Use determined reorder points and safety stock.
- Use inventory tracking best practices to avoid overselling.
7. Order waiting time
Order lead time is one of the KPIs for a warehouse and feeds into the backorder rate. It is simply the average time it takes for customers to receive orders once they are placed.
The shorter the wait time for orders, the happier customers will be.
As long as items also arrive in perfect condition, optimizing order lead time can also have a direct effect on a more general KPI: order cycle time. This refers to the amount of time between customer orders, which improves customer retention.
Just keeping in mind the popularity of Amazon Prime gives us an idea of the importance of order waiting times. It is estimated that Prime members spend almost twice as much on Amazon as non-Prime customers.
Tips to improve order delivery time
- Make sure you are handling orders in the best way possible.
- Use a better and faster shipping service.
- Send bulk orders to get more per day.