Article and permission to publish here provided by Dave Joseph at veridian.info.
Key performance indicators (KPIs) provide an invaluable way to judge the efficacy of operations, determine opportunities for improvement, improve customer experiences, and better manage supply chain functions, including warehouse management.
Supply chain leaders that wish to remain proactive to risks of disruption and improve operations need to understand the top warehouse KPIs and how they can mean the difference between success and failure. This blog is the first in a two-part series where Veridian, a supply chain technology implementation company, will share the top 19 warehouse KPIs that track performance in the following areas:
- Internal Operations
Let’s cover the top 10 warehouse KPIs for supply chain leaders and warehouse managers to succeed.
- Internal Operations—Shrinkage of Inventory: Inventory shrinkage refers to the amount of inventory listed in the accounting records, but such inventory is no longer within the facility. This may be the result of theft, damage, incorrect measuring, or supplier failures. Supply chain leaders can calculate the inventory shrinkage percentage by conducting a physical inventory, subtracting that value from the presumed value within accounting, and dividing the result by the presumed value in accounting.
- Internal Operations—Inventory Turnover Ratio: The inventory turnover ratio allows companies to manage fluctuating inventory throughout the year. It is calculated by dividing the cost of goods sold by the average inventory for a given timeframe. Higher ratios reflect the number of times a company has successfully sold its inventory again and again throughout the year.
- Internal Operations—Receiving—Cost Per Line: The cost per line in receiving allows supply chain leaders to better understand the costs of receiving. Understanding the cost per line within receiving can help managers better plan inventory, reorder, and account for variations to meet demand during peaks and lulls.
- Internal Operations—Receiving Cycle Time: The receiving cycle time is the total amount of time it takes to process a delivery. It is calculated by dividing the total time for a delivery by the number of total deliveries. As the result shrinks, receiving cycle time, the time needed to process an average delivery, will decline. Obviously, faster-receiving cycle times amount to more efficient processes within inbound operations.
- Internal Operations—Rate of Customer Returns: Understanding the rate of returns is essential to preventing the dissolution of inventory, keeping inventory under control, and identifying potential defects within a product. To achieve the best customer satisfaction levels possible, companies must offer returns. However, the rate of returns can be easily calculated by dividing the total number of returned products by the total number of products sold. Additional metrics can be calculated by dividing the cost of returned goods by the total cost of goods sold. As the values decline, the volume of returns will decline, and companies can rapidly judge the overall health of their returns management practices.
- Staffing—Time Since the Last Incident: The time since the last incident, such as an injury, is another essential warehouse management KPI to track. Since the top warehouse KPIs include a high focus on safety and keeping company costs in check, a longer time since the last incident alludes to a safer, healthier workplace. As a result, more employees are likely to stay with your company, reducing staff turnover rates.
- Staffing—Time Lost Due to Injury: Time lost and costs incurred as a result of an injury should also be tracked. The volume of time lost due to an injury amounts to un-worked hours on the floor, so it creates additional expenses. Furthermore, efficiency and other supply chain inventory and performance metrics may suffer as a result of time lost.
- Internal Operations—Putaway Efficiency: Tracking the putaway inventory efficiency includes KPIs for the putaway cycle time, the accuracy rate of locating the inventory, and the putaway cost per line. Putaway cycle time is calculated by taking the total time for putaway activities and dividing by the total time worked. Location putaway accuracy is determined by dividing the inventory units located correctly by the total inventory units located. Finally, the putaway cost per line is calculated by dividing the total cost of putaway activities by the total putaway activities completed. Putaway efficiency is improved when the cycle time decreases, accuracy increases, and the cost per line decreases.
- Internal Operations—Cost Per Order: Tracking the cost per order is an average that helps businesses understand product pricing and quickly judge overall profitability or contraction within the operation. The simplest way to calculate this metric is to average the total value of all costs by the total number of orders. In other words, add all costs together, and divide by the total number of outbound order transactions.
- Internal Operations—Order Picking Accuracy: Order picking accuracy is another of the vital top warehouse KPIs to track, and it is easy to calculate. Divide the total number of orders accurately picked by the total number of orders picked. As the value increases, overall accuracy increases.
Start Applying the Top Warehouse KPIs for Success
Finding the best way to improve operations is not always simple, but supply chain leaders that understand the top warehouse KPIs can better manage inventory, supplier relationships, deliver on higher customer service levels and stay competitive.
Stay tuned for part two of the warehouse KPIs for supply chain professionals to track in our next blog. Learn more about what your organization needs to do to improve warehouse efficiency by working with an expert in supply chain systems and technology, such as Veridian.