How often do you measure your warehousing KPIs? Are you using these KPIs for optimizing your warehouse operations?
Nevertheless, these questions are intimidating. They are important.
As a warehouse manager, you need to keep a tap on your warehouse performance data. And these performance metrics guide your warehouse optimization.
But, how can you sort the overwhelming amount of warehouse data? And how do you use this data for maximizing your warehouse performance?
Here is where warehousing KPIs put up an appearance.
What are warehousing KPIs?
Warehousing KPIs or key performance indicators are defined parameters to help you measure your warehouse performance.
According to the various operations in your warehouse, you can define different KPIs. And you can track these KPIs to scrutinize the efficiency and accuracy of your operations.
Further, as a warehouse manager, you need to plan how to make the most of these KPIs.
So, let’s understand how to maximize your KPIs and optimize warehousing performance.
Top 11 Warehousing KPIs and How to Make the Most Out of Them
1. Improve the Receiving Efficiency KPI
This KPI indicates the efficiency of the receiving operations at your warehouse. These operations include the processing, sorting, labeling, and storing of stocks delivered to your warehouse.
Receiving efficiency depends upon:
- The productivity of the staff involved in receiving operations
- The efficiency of the processes in the receiving department
Receiving efficiency = Volume of stock received / No. of Hours needed to make the stocks ready for sales.
How to Improve the Receiving Efficiency
- Optimize the staff efficiency working in the receiving operations
- Integrate digital or automated barcode labeling for the inventory
- Employ automated sorting functionality for the received inventory
2. Scrutinize and Optimize the Putaway Operations
a) Increase the Putaway Accuracy Rate
Putaway is the process of storing the delivered stock efficiently in the warehouse.
Putaway Accuracy indicates the accuracy with which you store the stocks in the warehouse.
Putaway Accuracy Rate = Stocks put away accurately / Total stocks put away.
- b) Reduce the Putaway Cycle Time
Putaway Cycle Time is the amount of time taken to put away a single inventory item.
Putaway Cycle Time = Time taken to put away total stocks/ Total stocks put away
How to Increase the Putaway Accuracy and Reduce Putaway Cycle Time?
- Define inventory storage protocols and train your staff accordingly
- Optimizing your warehouse storage layout
- Use automated MHEs or AS/RS setup for putting away received stocks
- Employ inventory location tracking to speed up storing process
5. Optimize the Order Picking Accuracy
Order Picking Accuracy defines the accuracy with which your staff picks stocks for orders. This KPI has a significant impact on order processing rate and customer satisfaction.
Picking Accuracy = (Total Orders Picked – Incorrect Item Returns) / Total Orders Picked
How to Optimize the Order Picking Accuracy
- Curtail the inaccuracies in the inventory labeling process (by using digital labeling)
- Use location tracking for locating the inventory one wants to pick
- Hire trained pickers and retaining them
- Employ automated order picking and packing
6. Minimize the Inventory Carrying Cost
Inventory carrying cost is the cost of holding and storing the inventory in the warehouse.
And the longer you hold an inventory higher is its carrying cost. Your inventory carrying cost must not exceed your inventory value.
So, the inventory carrying cost has a significant effect on your profit through inventory sales.
Inventory Carrying Cost = Total carrying cost / Overall inventory value.
How to Minimize the Inventory Carrying Cost
- Avoid overstocking of inventory.
- Analyze warehouse data to forecast inventory demands and stock accordingly
- Employ automation to maximize storage efficiency in your warehouse
- Reduce the order cycle time to plan for just-in-time order fulfillment. This will curtail the staging time of the inventory.
5. Boost the Inventory Turnover
The Inventory Turnover KPI is closely knit with your Inventory Carrying Cost.
It measures the sales frequency of your stored inventory. Or how faster you sell out the inventory stored in your warehouse.
Every manager wishes to increase his Inventory Turnover KPI. This will reduce the carrying cost and increase the profits on inventory sales.
Inventory Turnover Ratio = Total number of sales/ Average Inventory
How to Grow Inventory Turnover
- Analyze warehouse data to forecast inventory demands
- Devise strategies to clear dead stock and sell out slow-moving inventory
6. Reduce the Inventory to Sales Ratio
A crucial KPI that you must track for your efficient warehousing is the Inventory to Sales Ratio.
It is the ratio of the remaining inventory balance to the inventory you sold out in a month.
This crucial KPI helps you scrutinize two important factors:
- If the remaining inventory levels are higher than your sales, you are overstocking. And this means an increase in your inventory carrying cost and lower profits.
- The total inventory sold per month helps you calculate the stock you need each month. However, you must make sure that you have sufficient stocks to prevent backorders.
Inventory to Sales Ratio = Inventory balance at the end of the month / Sales in that month
How to Reduce the Inventory to Sales Ratio
- Use the monthly sales data to calculate the inventory you need per month to meet demands
- Forecast peak season demands and plan stocks prudently
7. Shrink the Order Cycle Time
The Order Cycle Time defines the time taken to process an order and fulfill it. This KPI tracks the total time taken in various order fulfilment processes. It is a consolidated measurement of:
- The time needed for accepting an order;
- The time used in finding and picking the inventory;
- The time staff takes to pack and load the inventory for shipping;
- The time you take in shipping the inventory at the shopper’s doorstep.
How to Shrink the Order Cycle Time
- Train staff to deliver higher picking and packing productivity
- Use data and digital methods to locate inventory faster and speed up the picking process
- Employ automation for picking and packing products
- Manage accurate stocks data to avoid searching for inventories before accepting orders.
8. Optimize your Order Fulfillment Accuracy
Order Fulfillment Accuracy calculates the number of orders accurately delivered against the total order requests received.
It considers the orders that were:
- Delivered to the right person;
- Delivered on time; and
- Delivered with the right product.
Your goal is to increase the order fulfillment accuracy up to the maximum. This reduces your return order rate and increases customer loyalty and repeat orders.
Order Fulfillment Accuracy = Orders Delivered Accurately / Total Orders Received.
How to Increase Order Fulfillment Accuracy
- Increase the picking accuracy by using automated inventory locating
- Employ automation for various order processing tasks
9. Reduce the Cost per Order
Cost per Order KPI defines the total cost of successfully fulfilling an order. It is the total cost from the time you receive an order to the time it is delivered.
Cost per Order = Total order fulfillment cost / Total number of orders delivered.
How to Reduce the Cost per Order
- Reduce the order processing cost by increasing workforce productivity.
- Automation helps you reduce the cycle time and cost per order.
10. Check and Reduce the Rate of Returns
Rate of Returns indicates the frequency at which you receive returns on your orders.
These returns can be owing to manageable factors like:
- Damaged inventory
- Inaccurate delivery
- Incorrect item delivered
- Significant delay in delivery
Or the returns can be owing to factors you cannot control, like:
- Theft or fraud
- False claim by customer owing to the product damage after the delivery
The cost of processing returns increases in tandem with the increased rate of returns. It also has a significant impact on your profits and revenue.
Rate of Returns = (Total items returned / Total orders delivered) * 100
How to Reduce the Rate of Returns
- Curtailing manageable errors like inventory damage, wrong inventory, and incorrect delivery
- Optimizing order picking accuracy by employing automated order picking
- Controlling inventory damage by safe storing protocols
- Curtailing order fulfillment delays by managing stock availability and increasing efficiency via automation.
- Keep the Backorder Rate As Low as Possible
Backorder rate defines the number of backorders against the total order requests. Backorders translate into a loss of sales, and this is the last thing you would appreciate.
Backorder Rate = Total Backorders / Total Order Requests
How to Keep the Backorder Rate the Lowest?
- Use warehouse data for specific inventory forecasting
- Manage real-time inventory tracking with warehouse data
- Set processes and increase receiving efficiency for just-in-time order fulfillment