Warehouse management is one of the critical points of logistics companies, if not the most critical of them. The speed and accuracy with which orders are received, and the accuracy and efficiency in their preparation and dispatch will determine customer satisfaction and repeat business.
Tracking warehouse performance is essential to understand the impact that warehouse management has on the entire customer response chain and on total business costs. Defining and measuring KPIs for the warehouse management system will allow you to set objectives for improving management month by month.
What are the KPIs in warehouse management that you should measure?
Current business literature places all its focus on data. Having data is the foundation of business improvement. But not knowing how to use it, or having superfluous, redundant or incorrect data can lead to the failure of the business project.
In this way, we must carefully choose the data that will help us grow and improve. And when we talk about warehouses, we talk about items, inventory, delivery times and storage costs.
Therefore, inventory accuracy, item availability and replenishment, turnover and the sales ratio will help us better understand how it works.
Let us define and analyse some of the relevant KPIs in warehouse management and how they contribute to improvement.
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Goods receiving efficiency
Goods receiving efficiency is calculated by dividing the volume of goods received by the number of working hours performed in the same period. It includes the time that elapses from when the goods are received until they are accounted for, registered and ready for storage.
The experience of warehouse staff and the organisation of the arrival process are crucial for improving this KPI. If the value shows a downward trend, you should carry out an audit of the processes linked to the area.
How to improve this KPI
- Have qualified staff, training and coaching them if necessary.
- Create a SKU for each item.
- Assign this SKU to a specific location in the warehouse to improve the placement process.
Picking accuracy
More important than the speed at which material leaves the warehouse is the accuracy of deliveries. The warehouse output KPI indicates the precision with which your employees use the shelving to sort items.
The objective of this KPI is for goods to be stored correctly and kept properly placed throughout the timeline.
It is calculated as a ratio between the number of incorrect orders and the total number of orders prepared.
An indicator below 100% in this KPI indicates errors in placement patterns that suggest an assumed error or the mixing of similar products.
How to improve this KPI
- Be thorough in warehouse organisation.
- Mechanise picking systems and choose the right ones for your warehouse.
- Reduce staff turnover, train and coach them if necessary.
Shipping KPIs
If we were previously talking about accuracy, in this case we are going to measure the speed at which we deliver orders to customers.
Shipping KPIs include the time elapsed in the order cycle, or the time it takes for a customer’s order to leave the warehouse from the moment it is placed.
The objective is to reduce the KPI value. If order cycle times increase, we will likely find problems in the picking, packing or shipping processes.
How to improve this KPI
- Integrate the order receiving and warehouse areas.
- Review picking and packing processes.
Storage KPI
In this case we refer to the cost of keeping products in storage. A high turnover of goods in the warehouse minimises unit storage costs and maximises the profit obtained by the company.
It is calculated as a ratio between the value of products sold and the average inventory.
How to improve this KPI
- Implement a predictive purchasing system.
- Identify slow-moving stock to reduce it.
- Use tools for modern warehouse management.
Return KPI
It is one of the most important warehouse KPIs, as it implies a double cost (dispatch and collection) without any associated revenue, and therefore must be especially monitored.
Beyond errors made by the customer themselves, we must minimise our own errors in order preparation or the delivery of damaged goods.
It is calculated as a ratio between the number of products returned and the number of products sold.
How to improve this KPI
- Analyse each reason for return to find repetition patterns that reveal errors in the system.
- Ensure the accuracy of data entered into the information system.
- Minimise damage related to storage.
- Introduce control and reporting systems in the order preparation system.
Backorder KPI (due to stockout)
Successful warehouse management will minimise the number of orders pending delivery due to not having all the items that make up the order.
Reducing backorders will increase customer satisfaction, warehouse turnover and reduce the number of cancelled or returned orders.
This KPI is calculated as a ratio between the number of orders on hold and the total number of orders.
How to improve this KPI
- Implement a predictive purchasing system that helps you correctly plan inventory.
- Ensure the accuracy of data entered into the information system.