Tips on how to measure warehouse efficiency
Last Modified: 30.08.2022
How effecient is your warehouse running?
This is a challenging question without having the right KPI’s or measurements to keep track of the warehouse.
This article will explain how KPI can be used in warehouses as well as outline some critical KPIs you can use in each of these categories to improve your overall warehouse efficiency.
Having an efficient warehouse means more than having a smooth process of outgoing products and incoming inventory, you need to ensure the safety of your operators and quality within your order fulfillment. But what KPI’s will be most important in helping you keep track of your warehouse efficiency and how can they help guide you to a high performing warehouse.
Warehouse KPIs can be broken into a few different segments:
Receiving KPIs go through how efficient it is for your warehouse to receive incoming goods and how well they then go from the receiving stations to the rest of the warehouse.
Put away KPIs refer to after your warehouse has received goods; these materials then need to be put away into your stock and inventory.
Inventory KPIs look at the cost and efficiency of keeping inventory in stock for your pickers to pick.
Fulfillment KPI point out the percentage of order within the fulfillment process without any flaws or modifications.
Below we will outline some critical KPIs you can use in each of these categories to improve your overall warehouse efficiency.
When it comes to receiving, if something fails here, it will make an impact down the line in storing and picking processes. So it is essential to get this right and having this process running as efficiently as possible. There are two critical KPIs we have outlined; they can help in tracking information that can give you indications on how well your receiving process is.
This metric determines how well the receiving area is performing overall. It is determined by the volume of inventory received/ number of hours worked. So, for example, you may receive 2000 goods per week and only have two employees at 40 hours each. So in this example, it would be 2000/80 = 25 goods per hour are being processed. The lower the number means, there may be efficiency improvements that could be made that can improve this number. In general, this tracking number should increase over time as you work with your receiving process.
Receiving Cycle Time
This helps you determine how long it takes to process the goods you receive in your warehouse. This can include counting, booking the items, and storage preparation. You can determine this KPI by Total Time of Deliveries / Number of Deliveries.
The next step in the process after receiving the goods is the put-away process. The put-away process is the process of obtaining products and placing them into their zone in a warehouse. Having an efficient put-away process can make it faster for you to place items for sale or increase the speed of your manufacturing. We have highlighted two KPIs which can help you determine how efficient your put away process is.
The accuracy rate is quite an obvious KPI but can often be overlooked as a KPI that should be monitored regularly. This can help point out different areas of the put-away process that isn’t functioning optimally. To determine your accuracy rate, just take the total inventory put-away correctly and divide it by the Total Inventory put-away. Put simply; total inventory put-away correctly/ total inventory put-away. You would like this number to be as close to 100% as possible.
Put away cycle time
This KPI is all about how long it takes to place the items away within your warehouse. It should be easiest to put away the most popular items, and therefore your warehouse should be arranged to make these items have a quick put-away time, so they are always on stock. To determine this KPI, you need to calculate the total time for putting away and divide that by the total time. Simply put, the total time for put-away / Total time.
Managing your inventory can be difficult, especially if you have many items in your catalog. The management of inventory can have a significant impact on your customer satisfaction because, if you do not have products in stock or in easy to reach places, you may not be able to fulfill the order. Below we have outlined two of the Inventory KPIs we believe are most helpful in ensuring an optimal inventory management process.
Cost of carrying inventory
The cost of carrying inventory helps you determine how much it costs to keep and store your inventory as a percent annually. To resolve this, you need to calculate your carrying costs and divide those by the overall inventory costs. Simply, the KPI can be calculated by carrying costs / total inventory costs.
Inventory turnover rate
This inventory turnover ratio lets you know how quickly you can sell your inventory. If this is too low and it can indicate that you have weak sales and if it is high, it can mean you have strong sales throughout that period. You determine this KPI by calculating sales divided by Avg. Inventory or cost of goods sold divided by Avg. Inventory.
Breaking up the management of your warehouse into the three segments of receiving, put away, and inventory can help you focus on where the underlying issues may lie. Managing a warehouse and ensuring it is running well can be difficult. Still, it all starts with collecting data and information about how your warehouse works and then using KPIs to track the performance. There are many more KPIs available than just the ones above. However, these can give you a quick analysis of your warehouse performance, to begin with.
To understand the overall performance of your business it is important to not only keep track of your sales but also to fulfill the promise of delivering goods to customers based on their specifications and expectations. This becomes especially crucial as more customers are moving to online orders where technology allows businesses to more accurately analyze the fulfillment process.
Measuring Order Fulfillment
The main indicators to optimize the effeciency of the fulfillment process is to reduce transportation and overall costs, reduce delivery time, and increase attractiveness of your business by increasing profitability. There is a variety of ways to do this, however, we have gathered the three perceived most important factors.
- On-time delivery
This is a key-factor for customer satisfaction. KPI analyzes the percentage of orders that has been shipped and delivered on time.
- Order Cycle Time
Measure the total time it takes from the customers have placed an order until it is delivered, including shipping time. To keep this minimized, operators need to optimize omnichannel fulfillment.
- Order Fulfillment Percentage
The percentage of orders that has been delivered to customers without any defualts or errors within the promised delivery time including order placement, packaging, shipping and delivery.