KPIs: The key to unlocking warehouse performance

Liam Reid at The Barcode Warehouse explains the five most important sets of KPIs that you need to measure in order to increase warehouse efficiency and improve profit margins

By understanding the role of KPIs in decision-making, business leaders can unlock the full potential of warehouse operations and drive success in today’s highly competitive market.

In global research into warehouse management, carried out by AutoStore in early 2023, a third (31%) of respondents cited that workforce efficiency was a challenge they needed to face. While new technology such as automation and AI is highly effective at increasing the speed of labour-intensive tasks like picking, packing, and stock management, they are a mid-to-long-term solution due to the money, time, and training required.

One area that is often overlooked when considering how to unlock the performance potential of a warehouse is strategy, more specifically, the use of Key Performance Indicators (KPIs). 

KPIs serve as essential metrics that enable decision-makers to monitor, evaluate and improve the performance of their warehouse operations. Far from a new concept, KPIs are still a widely underused or misunderstood tool in any warehouse manager’s kit.

Common problems faced when trying to implement KPIs include team apathy or cynicism toward the concept, missing links between targets and positive business outcomes, and excessively high or intentionally low objectives. 

KPIs: a definition

A KPI is a measurement or metric that helps businesses track and evaluate how well they are achieving their goals. It provides a clear and indisputable way to assess performance and progress towards the overall success of the business. Essentially a KPI is a signpost to help managers and decision-makers understand whether they are heading in the right direction or if adjustments are required.

In the warehousing industry, KPIs are most often tied to one of three areas: inventory, shipping, and operations. The main objective is usually to improve the accuracy, speed, and safety of these processes. 

As an example, if one of your goals is to ensure timely delivery of orders to customers, then a relevant KPI under the ‘shipping’ topic would be ‘on-time delivery’ which measures the percentage of orders that are delivered within the decided upon time frame.

By regularly monitoring this KPI, you can assess how well your warehouse is performing toward meeting this goal. If the percentage is high, it’s indicative of good performance but if it’s lower than expected then there may be issues that need attention such as inefficient processes or logistics challenges. 

With this in mind, let’s explore the five most important sets of KPIs to measure if you’re looking to unlock the full potential of your warehousing processes.

Inventory KPIs

Inventory KPIs in warehousing are specific metrics that are used to assess the performance and effectiveness of the existing inventory management systems and process and identify opportunities to improve.

By measuring metrics such as inventory levels, accuracy, order fill rates and even carrying costs the overall efficiency of the warehouse’s inventory management can be benchmarked and set on to improve and optimise warehouse operations. 

Common inventory KPIs include: 

• Inventory accuracy; this metric analyses the precision and accuracy of the recorded inventory versus the actual physical inventory. High inventory accuracy ensures stock levels are properly maintained and reduces the risks of stockouts or overstocking. 
• Inventory turnover; measures how quickly inventory is sold and replaced within a specific timeframe. A high inventory turnover indicates that products are selling quickly while a low turnover may suggest slow-moving or obsolete stock. 
• Order fill rate; measures the percentage of customer orders that are completed with the requested products. A high order fill rate indicates efficient inventory management and is linked to customer satisfaction. 
• Carrying costs; are the expenses associated with holding and storing inventory. These include warehousing expenses, insurance, depreciation and the opportunity cost of capital being tied up in inventory. High carrying costs suggests opportunities to reduce inventory levels, streamline processes and minimise expenses. 

Receiving KPIs

If improving the accuracy, timeliness and overall performance of your inventory receiving activities are a priority for you, then these metrics are how you can identify opportunities to enhance the efficiency of warehouse operations. 

Some KPIs that you may want to consider tracking include: 

• Receiving accuracy; are you getting the exact quantity of stock that you expected, and in the manner that you expected it to be packaged and delivered? A low rate means that there are inefficiencies in your supplier chain which could be impacting your profitability.
• Receiving cycle time; the duration it takes to process incoming inventory from the moment it arrives at your warehouse doors until it’s safely away in your storage.
• Receiving backlog; how many pending or outstanding receipts are awaiting processes. Monitoring the backlog helps managers identify and address any delays and inefficiency that might be slowing down operational efficiency.
• Supplier compliance; measures the extent to which suppliers are following the agreed-on receiving requirements and processes. It considers everything from the accuracy of shopping documentation, labelling and packing to ensure smooth receiving operations and minimising disruptions caused by non-compliant shipments. 

Putaway KPIs

Putaway KPIs are vital to track if you are looking for opportunities to optimise your storage utilisation and improve the speed and accuracy of your put-away process. By assigning measurable metrics to the movement and placement of your inventory, you can benchmark and develop strategies for reducing the more labour or time-intensive tasks. 

Metrics that you may want to analyse include: 

• Put away accuracy; indicates how frequently your inventory is being placed in the correct, designated, storage location whether that’s bins or shelves. A high put-away accuracy score reduces the risk of inventory discrepancies and picking errors. 
• Put-away cycle time; measures the amount of time it takes to move your received inventory from the dock to its final storage location. This metric can help you identify any bottlenecks or inefficiencies in the process that could be changed to make inventory available at a faster rate. 
• Storage space utilisation; can be used to assess how well the warehouse utilises and maximises its storage capacity. 
• Product accessibility; measures the ease of access to stored inventory, whether that’s for order fulfilment or replenishment. A high score for product accessibility is an indication that products are efficiently being picked with minimal time and effort required. 

Order management KPIs

Managing customer orders is one of the most challenging aspects of warehouse management. Due to the close contact to the customer, not only can this impact your profitability but also customer satisfaction and repeat rate.

Order management KPIs provide insights into the accuracy, timeliness and overall performance of order processing, fulfilment and delivery. To track this, you may be interested in reviewing;

• Order accuracy; the precision of which order fulfilment is completed. High order accuracy often correlates with minimal errors, reduction in returns and exchanges and high customer satisfaction scores. 
• Order cycle time; measure how long it takes to process and complete a customer order from the moment the order is placed until it’s ready for shipment. Faster order fulfilment can increase profitability and customer satisfaction. 
• On-time delivery; the percentage of customer orders that are delivered on time. Monitoring this helps assess the efficiency of the order management and logistics processes and identifies any areas for improvement. 
• Returns; order returns measure the percentage of customer orders that are returned due to issues such as incorrect products, damaged items, or customer dissatisfaction. This can assist with identifying underlying issues in the order management process such as picking errors or packing deficiencies.

Safety KPIs

Safety KPIs evaluate and measure the impact and effectiveness of health and safety practices and procedures within the warehouse environment. They assess the level of safety compliance,  identify potential risks, and ensure the well-being of employees, visitors, and the overall workplace.

By monitoring these KPIs, businesses can proactively manage safety concerns, reduce accidents and injuries, and create a safe working environment.

Common safety KPIs include: 

• Lost Time Injury Frequency Rate, or LTIFR measures the number of injuries that result in time off work per million hours worked. Monitoring this can help identify trends, potential hazards and areas where safety protocols need to be improved. 
• Safety training completion measures the percentage of employees that have completed their required safety training programs and certifications. Ensuring that your employees are equipped with up to date knowledge and skills to perform their duties safely fosters a safety-focused culture within the warehouse. 

Clear and indisputable measures

In summary, if you are looking for clear, indisputable ways to assess your performance and progress towards the overall success of your business goals, KPIs are a critical part of achieving this.

This overview of KPIs for inventory, receiving, put away, order management and safety provides a good starting point for setting your own KPIs and monitoring processes in place for a prosperous year ahead.

Liam Reid is Director of Technology and Innovation at The Barcode Warehouse, With over 35 years’ experience helping organisations transform their operations with the latest technology, software and solutions, The Barcode Warehouse is a key strategic partner for businesses of all sizes.

Main image courtesy of iStockPhoto.com