You could be shipping orders out to customers quicker and more efficiently. But if you’re not tracking warehouse performance, you’ll never know how.
Warehouse KPIs (key performance indicators) are the answer.
They allow you to set a benchmark for month-on-month improvements. And help identify areas that (when combined with a solid procedure and Warehouse Management System) will have a direct effect on both overall business costs and customer satisfaction.
So in this post, we go through seven of the most important warehouse KPI examples you need to start tracking now.
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Warehouse KPI Examples #1: Receiving efficiency
A warehouse operation all starts with actually receiving and booking in incoming stock.
This may seem a pretty mundane area at first thought. But it can get tricky when considering it can involve receiving:
- Multiple new stock deliveries each week.
- Customer returns of good items.
- Customer returns of damaged items.
- Return to vendor stock.
Such an important part of the warehouse operation needs to be tracked and measured with its own key warehouse performance indicators. This can be done by paying close attention to time taken for received stock to be counted, booked in and ready to put away.
It’s a good idea to record exact timestamps of all delivered stock. Then record another timestamp as soon as this stock is ready for putting away. You can then calculate an average for the month and compare to previous performance.
Tips for improving receiving efficiency
- Systemize the process and assign the task only to trained staff.
- Create a unique SKU to individual product variants.
- Assign each SKU to a specific warehouse bin location for quick put away.
This is one of the warehouse KPIs a quality barcode scanner can help drastically improve too.
The Veeqo Scanner, for example, can be used to scan each product as a new delivery arrives in the warehouse:
As soon as a product is scanned, you’ll be able to choose the quantity that have arrived in the purchase order and book the figure into active inventory right there and then:
Any stock needed for back orders will get siphoned off for those. The rest are instantly updated across all relevant sales channels managed by Veeqo 😎
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Warehouse KPI Examples #2: Picking accuracy
Another vital warehouse KPI is picking accuracy.
Order picking is one of the more complex of activities in a warehouse. An incorrectly picked order means returned items and paying to correct the mistake.
So this is something that can again have a huge impact on costs and customer satisfaction.
To calculate picking accuracy we can use some data taken from the ‘rate of return’ KPI (see below) and total order number in the following equation:
This then gives a percentage of the number of orders that were picked correctly.
Tips for improving picking accuracy
- Organize and set up your warehouse in a logical way.
- Use the most appropriate picking systems for your operation.
- Invest in minimizing labor turnover to keep experienced pickers around longer.
- Adopt a digital pick & pack system with the use of a barcode scanner.
Warehouse KPI Examples #3: Carrying costs
The longer inventory stays in the warehouse, the more it costs a business. But it’s essential to be able to put a quantifiable number in place here as one of your warehouse management KPIs.
Total carrying costs is the sum of everything it costs a business to hold its stock over a certain timeframe.
This includes costs like:
- Cost of capital.
- Storage costs.
- Equipment & software.
This becomes relevant as a key warehouse performance metric when expressed as a percentage of overall inventory value:
This gives a better indication of how much profit that allows you to see how much profit current stock is truly bringing – and what impact warehouse performance is having on this.
Tips for improving carrying costs
- Embrace automation to reduce labor costs without sacrificing warehouse productivity.
- Improve forecasting to limit amount of time inventory sits in the warehouse.
- Work to reduce inventory shrinkage taking place.
Warehouse KPI Examples #4: Inventory turnover
Inventory turnover is another vital warehouse management KPI and ties in quite closely with carrying cost of inventory.
It is basically the frequency at which you sell out your inventory. In other words, how quickly you sell and ship stock once it’s been put into storage.
Obviously, this is one of the warehouse KPIs you’re looking to keep high and increasing. The faster you move stock, the less it costs to store it and the more profit you can make on it.
Your inventory management system will usually provide a figure on this for you. But you can calculate inventory turnover via the following formula:
Keeping track of this performance metric enables greater insight into the popularity of certain items to gauge future buying practices.
Tips for improving inventory turnover
- Master your inventory forecasting skills.
- Identify slow moving stock and put inventory reduction strategies in place.
WikiHow also offers some great further information on mastering inventory turnover.
Warehouse KPI Examples #5: Rate of return
Rate of return is a simple yet vital warehouse management KPI. As the term suggests, it determines how often items are being returned by customers.
This obviously gives a great insight into customer satisfaction as a whole.
But the key to getting best use out of this warehouse management KPI is to segment by reason for return.
So determine several different return reasons and use the following following equation to analyze each one:
This way, the warehouse or operations manager can start looking at exact reasons why this KPI may be high and put into place strategies to resolve.
For example, a lot of returns due to incorrect item indicates the picking process needs looking at. Whereas a lot of buyer’s remorse returns may mean something in the sales channel product description needs addressing.
Tips for improving rate of return
- Segment by reason and investigate.
- Ensure product descriptions are accurate.
- Train staff on your systems and product catalogue.
- Store products in a way that minimizes spoilage and damage.
- Give packers a barcode scanner to confirm accuracy before shipping out.
Warehouse KPI Examples #6: Backorder rate
Backorder rate is one of the warehouse management KPIs that allows deep analysis of forecasting and purchasing success.
A high backorder rate means a lot of orders are coming in for items that aren’t in stock. Of course, sudden unexpected rises in demand can account for this. But if the backorder rate KPI is consistently high then it’s likely a result of:
- Poor planning and forecasting.
- 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:
Tips for improving backorder rate
- Forecast using as much data as possible.
- Use properly determined reorder points and safety stock.
- Use best inventory tracking practices to prevent overselling.
Tip: A multichannel software tool like Veeqo will use a combination of forecasting, purchase order management and real-time inventory syncing to near eliminate backorders entirely.
Warehouse KPI Examples #7: Order lead time
Order lead time is a warehouse management KPI that feeds into backorder rate. This is simply the average length of time it takes for customers to receive orders once they are placed.
The lower you can get order lead time, the happier your customers are going to 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 is the amount of time between customer orders – bringing improved retention.
Just looking at the popularity of Amazon Prime illustrates this well. According to Business Insider, Prime members spend almost twice as much on Amazon as non-Prime customers.
Tips for improving order lead time
- Make sure you’re managing orders in the best way possible.
- Choose the right picking system for your business, and consider digital batch picking.
- Use a better/quicker shipping carrier/service.
- Bulk ship orders to get more out the door per day.
Warehouse KPI dashboard
It’s worth tracking the metrics in this post by creating a warehouse KPI dashboard.
This can be a spreadsheet or other form of tracker to give you one place to update and monitor performance. Meaning you’re more likely to track and implement improvement strategies on a regular basis.
Veeqo Retailers can see a KPI dashboard to track a number of business metrics.
Like sales and orders data:
Warehouse performance as a whole, and individual team members:
Plus, a bunch more reports to sink your teeth into for warehouse performance optimization:
Of course, there are many more warehouse KPIs to keep in mind. But these are seven of the key ones we feel are vital to keep track of.
Are there any missing warehouse performance metrics from this list? Let us know your thoughts in the comments below.