Unlocking Warehouse Efficiency: 5 Key Performance Indicators

Liam Reid, Director of Technology and Innovation, The Barcode Warehouse

Key performance indicators can play an important role in decision-making and allow you to tap into the full potential of your warehouse operations and thrive in today’s competitive market.

Defining Success

Key performance indicators (KPIs) are essential metrics that empower decision-makers in their choices. In their simplest format, a KPI is a measurable metric that helps businesses gauge and evaluate their goal achievement. It acts as a clear yardstick, providing a straightforward, data-informed, assessment of performance and progress toward overall business goals.

When you set a KPI, you’re setting a small goal as part of your bigger business strategy. How you are tracking against that goal at pertinent moments throughout the year, whether that’s weekly, monthly, quarterly, will determine whether you’re on the right path or if adjustments need to be made to get you back on track.

While that may sound straightforward enough, some of the biggest challenges faced by organizations when trying to implement KPIs are:

• Lack of understanding of what can and should be measured

• Unclear connections between targets and positive business outcomes

• Setting objective that are either too high or artificially low

• Poor communication of targets and their expected outcomes

• Team hesitance or doubt of the framework

Today we’re going to cover the first critical topic: what can and should be measured in a warehouse environment.

Warehousing Key Performance Indicators

KPIs for the warehousing industry are unique and are most often linked to three main areas of operation: inventory management, shipping processes, and operational workflows.

The ultimate aim of setting warehouse KPIs is to enhance the accuracy, speed, and safety of these highly complex tasks based on your business needs.

For example, if your aim is to ensure that 98% of your orders are delivered on time, a relevant KPI under the shipping theme could be on-time delivery.

This metric benchmarks the percentage of orders delivered within the agreed time frame. Regularly tracking these KPIs provides insights into how well your warehouse is performing against this goal.

Higher percentages indicate good performance, while lower figures may indicate issues with processes or logistical challenges. Once you know where you stand, you can then set about making a strategy to overcome these obstacles and achieve your targets.

With this framework in mind, let’s delve into the five key KPIs that are crucial for unleashing the full potential of your warehouse operations:

• Inventory

• Receiving

• Putaway

• Shipping

• Safety

For each KPI, we’ve provided a list of useful metrics that you may wish to measure as part of your efficiency strategy. These lists are designed as a starting point for you and your business, and are by no means fully comprehensive of everything that you could track.

Inventory KPIs: Navigating management with precision

In warehousing, inventory KPIs are specific metrics used to evaluate existing inventory management systems and processes. By measuring factors such as inventory levels, accuracy, order fill rates, and carrying costs, you can assess and enhance the overall efficiency of your inventory management.

Some of the most popular inventory management KPIs you may want to measure include:

• Inventory accuracy: Measures the precision of recorded inventory compared to actual stock, reducing the risk of stock imbalances.

• Inventory turnover: Gauges how quickly inventory moves within a specific time frame, indicating brisk sales.

• Order fill rate: Assesses the percentage of customer orders fulfilled, reflecting efficient inventory management.

• Carrying costs: Accounts for expenses related to holding inventory, highlighting opportunities for optimization.

Receiving KPIs: Ensuring precision in intake

If you’re focused on improving accuracy, timeliness, and overall effectiveness in inventory receipt, several metrics can help identify areas for enhancing warehouse efficiency.

Common receiving KPIs measured in a warehouse environment include:

• Receiving accuracy: Measures the alignment between expected and actual stock quantities, uncovering supply chain inefficiencies.

• Receiving cycle time: Quantifies the time from inventory arrival to secure storage, revealing operational efficiency.

• Receiving backlog: Tracks pending receipts, identifying bottlenecks for targeted solutions.

• Supplier compliance: Evaluates supplier adherence to receiving protocols, streamlining operations and averting disruptions.

Putaway KPIs: Optimizing storage dynamics

Putaway KPIs are pivotal for optimizing storage usage and improving the speed and accuracy of inventory placement. These metrics provide tangible benchmarks for streamlining labor-intensive tasks.

Key putaway KPIs you may wish to benchmark your organization against include:

• Putaway accuracy: Measures correct inventory placement, reducing discrepancies and errors.

• Putaway cycle time: Gauges the time taken to move received inventory to its final storage, identifying process inefficiencies.

• Storage space utilization: Assesses how effectively storage capacity is used within the warehouse.

• Product accessibility: Measures ease of access to stored inventory, reflecting efficient order fulfilment and replenishment.

Order Management KPIs: Precision in fulfilment

Efficiently managing customer orders is a demanding aspect of warehouse operations, impacting profitability and customer satisfaction. Order management KPIs shed light on accuracy, timeliness, and overall order processing efficacy and can be measured in the following ways:

• Order accuracy: Reflects order fulfilment precision, correlating with error reduction and heightened customer satisfaction.

• Order cycle time: Measures order processing duration, with quicker fulfilment enhancing profitability and customer contentment.

• On-time delivery: Evaluates order management and logistics efficiency, identifying areas for improvement.

• Returns: Gauges order returns, assisting in identifying underlying process issues for strategic refinement.

Safety KPIs: Safeguarding workplace well-being

Safety KPIs are pivotal evaluative tools, assessing the impact and effectiveness of health and safety practices within the warehouse setting. Proactive monitoring of these metrics fosters a secure work environment, minimizes accidents, and ensures employee well-being:

• Lost time injury frequency rate (LTIFR): Measures injuries resulting in work leave per million hours worked, highlighting hazard trends.

• Safety training completion: Gauges employee compliance with safety training programs, nurturing a safety-centric culture.

The Pivotal Role of Key Performance Indicators in Warehouse Operations

To sum up, KPIs are pivotal tools for assessing performance and tracking progress towards your business goals; you can’t improve what you’re not measuring, after all.

Through these examples of inventory, receiving, putaway, order management, and safety KPIs, you can gain a foundational understanding that can guide your strategy in the coming months and years; achieving continuous growth, learning, and success in the dynamic realm of warehouse operations.