Key Performance Indicators for effective Warehouse Operations

Key Performance Indicators for effective Warehouse Operations
Key Performance Indicators for effective Warehouse Operations

Managing warehouse operations is the most important challenge for all supply chain managers and warehouse managers. Establishing the right KPIs can help managers to monitor performance continuously and optimize operations. The following are the selected list of KPIs can be used based on industry and size of operations.  It is to see WMS software has this performance management capability.  This article is useful for all industry warehouse operations and distribution centers.  We all know that the warehouse operations include receiving, putaway, storage, pick & pack, and distribution processes. 

The KPIs are categorized into 5groups for better understanding.

Receiving

The receiving activity is fundamental to warehousing function. Warehouse operations begin with this process. The receiving process could include goods physically received at the warehouse and stored or directly delivered at the customer site or cross-docked.

Warehouse KPI metrics that correspond to the receiving process are:

  • Cost of receiving per receiving Line: The expense that the warehouse incurs on the receiving process of each receiving line. This includes handling costs as well.
  • Receiving productivity: Determined in terms of labor by measuring the volume of goods received per warehouse clerk per hour.
  • Receiving accuracy: Percentage of accurate receipts, i.e., the proportion of correctly received orders against purchase orders.
  • Receiving cycle time: The time is taken to process each receipt.

Put-away

Once goods are received in the warehouse, the process of putaway begins with placing each item/piece at a predefined location selected for the most convenient retrieval. We have different types of put-away processes which include, direct put-away, directed put-away, batched and sequenced put-away, interleaving.

Warehouse KPI metrics that correspond to the put-away process are:

  • Putaway cost per line: Expenses for putting away stock per line, including labor, handling, and equipment costs.
  • Putaway productivity: Volume of stock put away per warehouse labor per hour.
  • Putaway accuracy: Percentage of thenumber of items put away accurately at the designated location.
  • Labor and equipment utilizationPercentage of the labor and material handling equipment utilized during the put-away process.
  • Putaway cycle time: Total time is taken during the entire process of each put-away task.

Storage

The one most important process in warehouse operations is to store SKUs properly and make sure that they are retrievable and control damage. Whether your warehouse is dependent on storing goods manually or uses AS/RS (Automated Storage and Retrieval System), you still need to measure efficiency. 

Warehouse KPI metrics that correspond to the Storage process are:

  • Carrying cost of inventory: Cost of total carrying cost of SKUs.
  • Storage productivity: Volume of inventory stored per square foot.
  • Space utilizationPercentage of space occupied by inventory out of the total space available for storage.
  • Inventory turnover: This metric used to know the frequency with which you sell out your entire inventory. This KPI also helps out to know slow-moving goods and fast-moving goods.
  • Inventory to sales ratio: Measure of stock levels against sales. This helps managers identify monthly increases in inventory against falling sales.

Pick & Pack

The process of picking & packing directly impacts on lead time. More accuracy in picking means shorter lead time. This is the most important operation in the warehouse as far as poor efficiency is concerned. Picking in the right order decreases the rate of order return and increases customer satisfaction.

Warehouse KPI metrics that correspond to the Pick & Pack process are:

  • Picking and packing cost: The cost incurred per order line, including handling, labeling, relabeling, and packing.
  • Picking productivityThe number of order lines picked per hour.
  • Picking accuracy: The percentage of orders picked and packed without error.
  • Labor and equipment utilization: The percentage of labor & pick/pack equipment out of the total labor and equipment utilized during the process.
  • Picking cycle time: Time is taken to pick each order.

Distribution

As the roles and responsibilities of warehouses expand with the growth of always-on supply chain, the added function of distribution exerts additional pressure on warehouse management.

Warehouse KPI metrics that correspond to the Distribution process are:

  • Order lead time: The average time taken by an order to reach the customer once the order has been placed. This is one of the most crucial KPIs for warehouses and distribution centers.
  • Perfect order rate: Number of orders the warehouse delivered without error. It indicates the success rate of the warehouse/distribution center.
  • Backorder rate: This Backorder Rate comes from out of stock items. This Backorder Rate usually indicates the failure of forecasted sales and helps in the sales plan.

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