How does a warehouse or fulfillment center measure success? Looking at the bottom line is not enough to understand an operation’s success or failure. In fact, many factors contribute to the bottom line, such as warehouse efficiency, quality control, customer service, and the supply chain, just to name a few.
In each of these areas, there are a variety of metrics to be collected and analyzed. The trick here is identifying the correct stack of metrics, KPIs, and benchmarks that are relevant to your business and its goals. A single data point doesn’t have much relevance unless it’s paired and compared with other data points.
Deciding which metrics to track can be tricky, and might involve some trial and error. You might not follow the same metrics as another company, even one in the same industry. A good starting point is understanding what you need/want the data to tell you – this will help point you in the right direction.
Key takeaways:
Before you pick which metrics to track, it is important to understand what a metric is. Metrics are purely data points and they are everywhere in a warehouse. How many boxes arrived today? That’s a metric. How many square feet of storage space are occupied by a certain SKU? That’s a metric. The list goes on and on.
Literally, anything that can be counted or quantified can be a metric. But by themselves, metrics may or may not provide useful information. When combined with other metrics, however, certain data can become key performance indicators or KPIs.
KPIs are the basis for strategic goals. They deal with targets and benchmarks that are relevant for the particular business and what it is trying to accomplish. Studying KPIs helps managers see how they are measuring up to their own historical data as well as other companies in their industry.
KPIs, and the metrics that make them up, might track data in terms of a numerical value (number of items, the time it takes to fill an order), a percentage increase or decrease, or a target (number of orders filled per hour, allowable returns per week.)
All KPIs are metrics, but not all metrics are KPIs. However, it is common to see the terms used interchangeably. In general, there is nothing wrong with that. The distinction is important, though, when it comes to deciding what data to track. Managers must know if a data point is relevant on its own or if it needs to be combined with others to be meaningful.
Let’s say a record number of orders leave the warehouse one day. That’s great, right? But what if half of those shipments are returned because the customer received the wrong item? This is really bad news—but also a much more relevant piece of information than just knowing the record order number. The number of orders and the number of returns are both metrics. Together, they create a KPI that tracks picking accuracy. Managers now know where they have a problem and can take the necessary steps to fix it.
Keeping track of the right metrics and KPIs is an extremely useful tool to help discover and solve problems for a warehouse. Historical data and industry standards can help a manager decide how to interpret the metrics and create meaningful KPIs. Falling short of predetermined benchmarks is a signal that there is a problem. Adjustments can be made to staffing, processes, or even the warehouse layout, depending on which metric is lagging.
A warehouse experiencing the alarmingly exaggerated number of returns in our example above has a problem with its picking accuracy. This could stem from a number of possible sources:
If returns were due to items breaking in transit, the potential issues would be different—perhaps a quality control failure or a shipper’s mishandling. The job of metrics and KPIs is to sound the alarm that a problem exists. Then the managers can then take a closer look to find the right solution.
We have previously outlined 20 Important Warehouse Metrics and KPIs for warehouse setup and organized them by warehouse area. Each one has a number of specific metrics and KPIs that tell the story of the area’s success. Here are just a few examples:
The number of damaged items received
The time needed to unpack and place items in storage
The amount of space needed to hold various SKUs
Inventory turnover or sales velocity
Orders picked per hour and/or by an employee
Cost per line item picked
Packing costs, including labor and packing materials
Average days late to the customer
Carrying costs such as a mortgage or lease amount, utilities, and insurance
Total transportation cost per package (movement throughout the warehouse from receiving through shipment)
This is just a small sample of the types of things that can be measured in a warehouse. Things like the time it takes to unpack or pick an order can be measured by barcoding software that timestamps each stage of a process. When a step takes too long, managers might consider automating the process, changing the warehouse layout, or reviewing staff scheduling. Not enough shelf space for new inventory or higher than usual carrying costs calls for a review of inventory management protocols.
In addition to being meaningful and relevant, metrics must be timely and ideally within your control. Tracking historical sales data can help gauge whether or not a business is improving its performance over time. Real-time data available with a WMS can alert managers the instant things happen so they can respond right away. Automation and warehouse management software can put valuable real-time data at managers’ fingertips. Both past metrics and current data can be useful and most companies look at a mixture, which makes up reports. It all depends on the priorities and what they hope to learn from the data.
Managers can choose important metrics by focusing on the pain points for their business. If shipping incorrect items is a problem, for example, they may want to look at individual picker accuracy. Metrics there could point to one employee who is making a lot of mistakes. On the other hand, if the same mistake is happening with several different employees but with one SKU, perhaps it was mislabeled or placed on the wrong shelf.
If there is an issue with late deliveries, the problem could be anywhere in the order fulfillment process or with the carrier. Tracking metrics that measure how long each step takes could identify the problem. Perhaps the warehouse layout could be rearranged for a more efficient pick path. Or something like automated cartonization could speed things up.
Every business strives to constantly improve its operations. Keeping track of speed and accuracy of fulfillment, minimizing returns, and smart utilization of staff and space, can all be handled by watching the right metrics and KPIs.
Metrics are the key to the strategic decisions that will optimize efficiency, correct problems, and justify investments in new equipment and personnel.
If you would like more advice on which KPIs are relevant to your operations and how to go about measuring them, contact us. We’d be happy to help you get set up.
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