Key performance indicators allow warehousing companies to define and identify progress toward set business goals. KPIs are vital to the success of every warehouse company but will vary from business to business. They are a reflection of a company’s vision and mission and provide the means by which a company’s inbound freight handling performancecan be assessed over time. Simply put, if you don’t have a way of measuring how well your business is doing, you cannot identify the areas that need improvement.
KPIs can also be described as performance scorecards consisting of checks and benchmarks that highlight areas of improvement and quantify short and long-term trends in performance. They can also be used to compare a business’s performance to its competitors via industry benchmarks. Below are the top four warehouse KPIs every manager should measure.
High inventory turnover rates are exactly what warehousing companies strive to achieve. Inventory turnover measures the rate at which your warehouse is able to burn through its entire stock in a fiscal year. This metric is then compared against the industry averages to give a clear picture of the company’s performance. Measuring the inventory turnover rate helps to gauge and guide a company’s product demand and buying practices. Most warehousing companies have significant amounts of investment tied up in inventory, and it is therefore essential for management to know what’s being sold and what isn’t.
Order Picking and Packing
In any warehouse company’s operations, order picking and packing is perhaps the most expensive and tedious process. Order picking is described in some instances as the most labor-intensive and complicated aspect of warehouse operations. Order picking and packing KPIs are absolutely essential considering customer satisfaction are pegged on them. Some metrics measured by order picking KPIs include;
- The cost per line item picked
- Order cycle times
- How many orders are picked every hour?
- The use of packaging among other consumables
- The cost of picking labor
Rate of Returns
The rate of return is a useful KPI metric that determines how often clients return orders, giving great insight into the levels of customer satisfaction as a whole. The rate of return KPI is best put to use in identifying the reasons for return. This way, warehouse managers can put into place strategies aimed at resolving both systemic and customer-specific reasons for return orders, which are always costly and never good for the customer relationship. The most common causes of a high rate of returns include late delivery, damaged goods, inaccurate product descriptions, shipping of the wrong items and more. When such issues are addressed and the necessary improvements effected, a warehouse can once more realize healthy profit margins.
Inventory accuracy is another crucial metric for warehouse companies. This is primarily because if the inventory tracking is inaccurate, drawbacks such as unexpected backorders, customer dissatisfaction, and high operating costs are realized. The physical inventory accuracy in a typical warehouse should match inventory listed in the company database. However, there is sometimes a disparity between physical inventory and database inventory in most large distribution centers. Performing inventory accuracy KPI checks on a regular basis ensures that optimal bookkeeping practices are observed, and can highlight the need for systems or process overhauls. For example, integrating a barcode inventory management system can save your company a whole lot of trouble and improve your warehouse’s overall efficiency.
To quote former Chairman of the Federal Reserve Ben Bernanke, good decisions depend on good measurement. KPIs are indispensable to managers in growing revenues and cutting costs. But, they can’t be used for actionable decision-making unless they are accurate, updated in real time, and visible across the organization for full accountability.
Warehouse operations turn to warehouse management systems (WMS) like Costa Solutions’ LiveDock to get instant visibility into performance. Good warehouse reporting technology allows managers to identify both reportable strengths and bottlenecks or areas in need of improvement.