The Secret to Efficiency: Benchmarking Your Warehouse Performance

A warehouse can measure its efficiency by picking and tracking certain relevant metrics. But data points mean little unless they are compared to something. Benchmarking is the practice of setting expectations and goals for each metric and key performance indicator (KPI). Once set, managers can gauge progress and success based on how close the warehouse comes to the target. 

Think of benchmarking as creating a point of reference for competition. Sometimes that competition is the warehouse’s own past performance in regards to a certain metric. Other times it might compare its performance to that of similar companies, or against the industry as a whole. Studying benchmarks allows a manager to see clearly how their warehouse is measuring up to—or not quite meeting—its goals. This knowledge then gives them a basis for making strategic decisions regarding operations and best practices. 

Key takeaways:

1. Metrics and KPIs are more meaningful when combined with benchmarking.
2. Benchmarks provide a point of reference for competing with other companies or one’s own past performance.
3. Benchmarking works best when it is planned out with the company's goals in mind, uses real-time data, and is revisited and revised when necessary. 

Quantitative vs. Qualitative Benchmarks

Benchmarking that involves measurable data (metrics or KPIs), is quantitative. Progress is indicated when a desired number or ratio is achieved. For example, a decrease from the previous month’s number of returns due to mis-picks is a successful outcome, indicating that things are moving in the right direction. However, not reaching the benchmarked target for the number of orders filled per day, means there is room for improvement and needs looking into. 

Qualitative benchmarks are based on best practices or techniques. They are measurable, but not in the same way that pure data can be measured. Examples might be information tied to a customer satisfaction survey, or working toward a goal to automate a process fully. 

Both quantitative and qualitative benchmarking are useful, and almost all businesses use a combination of both. The important thing is that the benchmarks used are relevant to the goals the company hopes to reach. 

Benchmarking Provides a Wealth of Knowledge

Benchmarking, in simple terms, provides tangible evidence of how well the warehouse is operating by setting standards and goals. These standards measure things like speed, accuracy, cost, safety, errors, damage, or customer satisfaction.

Benchmarking is all about goals and improvement. Warehouses can gain a strategic, operational, and financial advantage by understanding where they are now compared to where they were previously, or where they could be. The goal might be to beat competing businesses or their own past performance. Either way, benchmarking provides a measurable way to continually improve, find and fix problems, and justify business decisions such as adding staff or investing in new equipment.

An Example of Benchmarking in Action

Let’s say a warehouse has 10 pickers and measures their efficiency with the KPI of orders picked per hour. The manager’s research indicates they should be able to pick 100 orders each hour, or 10 orders per employee. 

If only 90 orders are picked on a regular basis, a number of different things could be going on:

• There could be a disorganized warehouse setup
• Pickpaths or picking methods might not be efficient
• Workers could need additional training
• Certain parts of the process might benefit from automation
• Inventory is experiencing stockouts and backorders

In this case, setting and monitoring a benchmark is pointing out that a problem exists somewhere in the process. The manager can then dig deeper to find exactly where there is a deficit and find a solution. The data making up the benchmark can be the basis of strategic decisions such as reconfiguring the warehouse layout or launching new inventory management procedures.

The issue with an unmet benchmark can also be with the benchmark itself. In our example, perhaps the employees are working as efficiently as they can, and 100 orders per hour is simply unrealistic. Managers may choose to add more staff or invest in new equipment.

In the opposite scenario where the 100-order benchmark is reached easily on a consistent basis, the manager may need to adjust it upward, setting a new goal for the team. If management is fine keeping the benchmark where it is, they could instead reassign one of the pickers to another role.

Choosing Which Metrics and KPIs to Benchmark

Metrics by themselves are bits of data. Combine them and you get key performance indicators. Either one can be a useful benchmark, as long as the data gathered—and what it compares—teaches something relevant to the warehouse. 

Let’s look at an example. Imagine someone practicing their basketball skills. There are several different ways to measure how good they are at making baskets. 

Perhaps they set a goal of 10 baskets each day. This is a simple example of benchmarking a metric. However, creating a KPI is more meaningful. In this example, that might mean calculating the percentage of baskets to attempts. Making 10 shots out of 20 instead of out of 100 changes the person’s perception of success.

A comparable situation in a warehouse would be setting a benchmark for the percentage of orders returned over time. The warehouse is competing with itself, looking for improvement in any time frame it chooses—daily, weekly, monthly, quarterly, or annually. This is an example of an internal benchmark because the competition is its own metric. 

Our basketball player might decide to set a benchmark for each type of shot: Free throws, layups, and jump shots. In terms of the warehouse, this could translate into the different reasons why products are returned. Or, they could track and compare return data points from their various locations. Again, the comparisons are internal.

If the basketball player starts to use other players’ stats as a benchmark, that is an external benchmark. Similarly, a warehouse can look to the performance of similar companies or industry leaders to help them set a benchmark for their own success.

Finding Internal and External Benchmark Data

Internal data is almost always easier to gather than external data. Warehouse management software is the powerhouse that allows managers to track virtually any internal metric they choose with ease. WMS tracks real-time inventory and order fulfillment metrics that can be configured into any number of KPIs. With automation tools such as barcode scanners the software can provide reliable data to measure current productivity, and reports that give a clear picture of how well the team is reaching its benchmarks.

For external data, trying to find an individual peer company to share their data might be difficult, but not impossible. Some companies may publish blogs or articles where they mention data to highlight their success.

An alternate source is an organization such as WERC (Warehousing Education and Research Council) that gathers and publishes reports of KPIs across a number of different industries. Some companies look to consultants who know their industry even when data is not publicly available. They can often help warehouse managers develop realistic and meaningful benchmarks.

The choice to track internal or external data (or both) depends on the benchmark’s purpose. Internal will help uncover inefficiencies and drive improvement. External benchmarks will determine how well the company stacks up within the marketplace. 

Benchmarking Tips

Benchmarking works best when it is based on a well-thought-out plan. Assess goals, decide on the metrics and KPIs that will measure those goals, and gather data using a robust warehouse management system. These tips will help benchmarks stay relevant:

• Real-time data and timely metrics are best, especially if the benchmarks exist to point out anomalies and irregularities. This allows for problem detection and solutions to happen right away.
• Measure what’s relevant and what can be controlled. Metrics can measure anything, but not everything is relevant, and some information might actually skew the results. For example, managers benchmarking the cost per order at two warehouses might need to exclude costs that are very different due to geographic location, such as property taxes or utility costs.
• Drill down when it makes sense. Benchmarks might not be relevant across the board for all products, so some attention to detail is needed. For example, picking and packing reams of paper will go much quicker than the careful handling of delicate glassware. They need different benchmarks.
• New situations require new benchmarks. Installing new, automated equipment, having to cut staff, or starting value-added services like kitting will change speed, accuracy, cost, and other factors in a warehouse. While it's good to measure the effects of new things, other benchmarks may need to be adjusted accordingly too.
• Pick the right comparisons to benchmark. Make sure that external benchmarks make sense. The basketball player in our example would get easily discouraged if he used NBA stats as a benchmark, for example. Likewise, the local artisan chocolatier can’t compare its numbers to Hershey's.
• Revisit benchmarks periodically. The goal of benchmarking is continual improvement. Managers should never just “set it and forget it”. Review for relevance and revise when necessary.

It is not enough to just pick metrics or KPIs to track. Those data points are most useful when used as the basis for benchmarking. Benchmarks help warehouses align their data with their goals and define what it means to be successful. 

Want to dig deeper into how Infoplus metrics and benchmarking can improve your warehouse efficiency? Our whitepaper Comprehensive Guide to Warehouse Metrics, KPIs and Benchmarks is a good place to start.
Book a demo today to find out how Infoplus can help you measure your progress.