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Warehouse Key Performance Indicators
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Key performance indicators (KPIs) are measures of a company’s strengths and weaknesses of the business. They should be used in comparison to the external competition and internal customers to improve company’s economic standing. In Supply Chain, the warehouse is a critical function. Should products not move effortlessly within the warehouse, a business could come to face serious challenges to its welfare. The warehouse must be continually measured by key performance indicators. In this age of continuous improvements, it is vital to compare against industry standards, and if none to set the tone.
This narrative of a company’s well being is called benchmarking. It is the process by which to measure a business’s internal processes against the competition. The narrative includes productivity, quality, time, and cost. The idea is to discover weaknesses, learn from them and to execute better and in a more cost effective manner.
Warehouse costs are driven by people, cost, space and systems. Thus, KPIs in a warehouse are based on these drivers and supposed to be tied directly to these usual activities:
We shall discuss each activity in detail below.
The receiving activity is basic to any warehousing function. If the merchandise is not properly received, it will be difficult to handle subsequent operations. Merchandise is received against a purchase order and posted to the Warehouse Management System (WMS) through Electronic Data Interchange (EDI). The most important performance indicators to be ascertained are: cost of receiving per receiving line, volume received per man hour, receiving dock utilization expressed in a percentage, accurate receipts expressed in percentages and time taken to process a receipt.
After properly receiving the goods, it has to be stored in a location that is convenient for retrieval. This is the put-away process. The following indicators are needed at this stage: cost per put away line, put-away per man hour, utilization of labor and equipment, quality of the put-away and cycle time for put-away.
At this point is becomes a bit more complex as there are two possible storage systems a warehouse can use: manual storage or automated storage / retrieval system. If use a manual type of system there are a number of types.
- Block stacking – Units’ loads stacked on top of each other and stored in the lanes.
- Stacking frames – self contained units made up of decks and posts. These are portable and can stack several layers upon each other.
- Single-deep selective pallet rack – a combination of metal uprights and cross bars allowing for quick picks.
- Drive-in racks – merely extend the reduction of aisle space
- Drive-thru racks – rack accessible from either side.
The key performance indicators for measuring shipping process are: storage cost per item, inventory per square feet, percentage location without inventory discrepancies and inventory days on hand.
Order picking is the most expensive part of warehouse operations as it is very labor intensive and it is estimated to be 50% of all warehouse costs. Not to mention this is tied directly to customer satisfaction. Usually broken into two parts – case picking and then small item picking. Relevant key performance indicators for Pick-n-Pack operations are cost of picking per line order, order lines picked per hour, picking labor and equipment usage shown as a percentage, the percentage of perfect picking lines and cycle time per order. Remember, any incorrect pick could lead to an unhappy customer – something we want to avoid if at all possible.
Shipping is not just the goods to the customer. It can be internal shipping between departments, functions, workstations and stock transfers. The latter being the origin for moving product from point to point to point. Important performance indicators, but by no means all of them, are cost of each shipping order, labor or man hour for each order, utilization of shipping docks, percentage of perfect shipping and the time order is picked till it actually leaves the dock.
These are general guidelines. The volume of labor used the costs of the operations and equipment earmarked for warehouse activity depends upon the products handled. Therefore, key performance indicators should be adapted to the product type. The warehouse is the busiest place in any business and the potential in productivity, costs and safety improvements is huge.
To most of us involved in Inventory and or Warehouse operations these may seem obvious measurements to engage. However, too often they are seen as superfluous to the overall business operation. This is an error organizations can ill afford (dollar value and inventory issues) to make.
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Performance Management (also known as Strategic Performance Management, Performance Measurement, Business Performance Management, Enterprise Performance Management, or Corporate Performance Management) is a strategic management approach for monitoring how a business is performing. It describes the methodologies, metrics, processes, systems, and software that are used for monitoring and managing the business performance of an organization.
As Peter Drucker famously said, "If you can't measure it, you can't improve it."
Having a structured and robust Strategic Performance Management system (e.g. the Balanced Scorecard) is critical to the sustainable success of any organization; and affects all areas of our organization.
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About Stuart RosenbergStuart Rosenberg has a regional reputation as a subject matter expert and published author in Supply Chain Management and Lean Six Sigma disciplines. He has outstanding knowledge of all inventory control functions in both manufacturing and distribution environments, and grasp of all data involved with all inventory systems, cost analysis and product evaluations. Stuart has initiated, managed and oversaw all inventory control environments and situations, with direct supervision of various warehouse locations, to certify continuous accuracy, reliability and integrity of companies inventory operational and financial data. He has influenced, counseled, and directed major revisions to enhance companies operational efficiencies. You can read more about Stuart on his blog and find him on Linkedin here. Stuart also has several thought leadership papers available on Flevy (srosenbe7).
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