Warehouse Key Performance Indicators (KPIs) are critical to the success of any warehouse operation as they allow you to monitor and set benchmarks for your operation. This is how you achieve an efficiently managed warehouse. They also help to identify areas that require improvement, especially the ones that have a direct effect on the overall cost of the operation and customer satisfaction.
Warehouse KPIs are often unique to an operation, and not all metrics apply to all operations. But, in our opinion, there are some mandatory warehouse KPIs that should be tracked irrespective of the size of the operation for a efficiently managed warehouse. These include:
- Order fulfillment
- Inventory Accuracy
- Overall Throughput
- Order Accuracy
- Inventory Turns
- Dead Stock
- Supplier KPI
- Customer Satisfaction
In this post, we’ll take a deeper look at key warehouse KPIs and provide performance guidance.
Order Fulfillment begins with the order placement and culminates in the dispatch of the goods for distribution to the customer. There are several metrics to be measured within the order fulfillment process including:
- Order Fill Rate: Fill rate is the measurement of the percentage of the order that has been filled. A typically acceptable order fill rate is between 97-98% of the total order. Anything below 94% is probably due to inefficiencies in the warehouse operation and replenishment processes. An order fill rate of 100% is said to be the best in class in the industry.
- Order Fulfillment Timeliness: A 100% order fill rate is of no consequence to the customer if the order is not shipped on time. A typically acceptable time frame for order fulfillment is 1-2 days, with best in class being less than 24 hours from the time of order placement until dispatch from the warehouse.
- Picks per hour is the primary outbound metric that enables you to identify and analyze the efficiency of the picking team and their daily performance. An average picker is expected to pick between 120-175 pieces/ cases per hour, with best-in-class pickers achieving more than 250 picks per hour. Applying advanced technology like Voice Picking can drive pick rates 30% higher under the right conditions.
- On Time, In Full: Even if all the above are achieved as best in class, if the goods are not delivered on time, it will negatively affect business. Typical on-time shipments should be between 98-99%. Anything over this average is considered excellent.
The accuracy of your physical inventory should correspond with that listed in your 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. You can improve your inventory accuracy rate by conducting regular checks against your database and using cycle counting as a means of continually validating your database records.
Physical inventory Count ÷ Database Inventory Count = Percentage Inventory Accuracy
Warehouse throughput refers to the number of units that are processed and moved through your building on a daily basis. To calculate your throughput rate, track the movement of goods through the warehouse for a given period of time. For example, if you want to measure how many orders are processed by your warehouse within an eight-hour shift, you can track the number of orders received in that amount of time, and how long it takes each product to move from the picking stage to packaging and labeling. If your warehouse processes 400 orders in eight hours, it means that workers are completing an average of 50 orders per hour.
Replenishment is the moving of inventory from a central or reserve storage location to the primary storage bins for further movement downstream into pick faces for pick/pack operations. 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 how efficient the process is. With effective replenishment techniques, warehouses/companies can:
- Avoid overstock and deadstock
- Ensure there are no shortages
- Ensure on-time deliveries
- Ensure proper product rotation
- Maintain adequate safety stock
Shipping / Picking Accuracy
The essence of a warehouse operation is to ensure that the customer gets the goods they ordered within the time frame they wanted it. Therefore, order accuracy is one of the most important metrics that a warehouse must measure daily. Best in class warehouse operations target order accuracy of between 99.5% to 99.9%.
Stock turnover ratio is a metric used to identify how often and how soon a particular stock item is being received, ordered, processed, and delivered within a given time period. This metric is an important measure of a company’s inventory health and order process. Inventory turns or “speed class” of an item can be maintained in a WMS, which gives you the ability to treat inventory within an operation differently. For example, with inventory cycle counting, you can count the fast movers more often than the slow movers, giving you the ability to apply labor efforts directly where it can have an impact as opposed to treating all inventory items equally with the same inventory management processes.
Dead stock is inventory that is not moving due to lack of demand. It sits in the warehouse occupying space and eating up capacity. It includes stock that is damaged, expired, or unsellable for any reason. Dead stock metrics are important to monitor because dead stock creates avoidable inventory costs and blocks up space for other, more profitable goods. Best practice here is to track dead stock and provide reports to management that create sales incentives to move these goods out.
Measuring Supplier KPI 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 measuring include reliability, performance, compliance, and customer service.
Customer satisfaction relies heavily on the performance of the entire warehouse operation. Your customer satisfaction levels summarize the overall performance of your inbound and outbound operations, overall inventory management, and communication protocols. Customer satisfaction can be measured by focusing on:
- On-time delivery
- Shipping accuracy
- Stock accuracy
- Inventory turns
- Activity reporting, such as shorts and returns
If you’re not consistently tracking what works and what doesn’t, then it’s impossible to know what your operation needs to thrive and whether or not you have an efficiently managed warehouse. Choosing the right warehouse KPIs to track based on your operational goals is the first step toward achieving a profitable business with happy customers. Once the warehouse KPIs that fit your operation are identified, measure them consistently and make changes based on your learnings. You might find that you need more space, more employees, or new technology like a new WMS system. Whatever your needs, proper KPI tracking will help you discover them.
Learn more in this White Paper: What are you measuring in your warehouse?