It’s crucial to track key performance indicators, or KPIs, in the warehouse environment, similar to how you track sales and e-commerce data.
Data on receiving, handling, and shipping things can reveal underproductive areas. Using your collected data, you can improve your process to become more profitable.
Monthly monitoring of these metrics is beneficial. It can help you determine whether your warehouse management systems are performing. It is crucial to understand how the warehouse is performing to optimize it.
What is Warehouse KPI?
The key performance indicators generally encompass how inventory is received, where it is shipped, and how fast it is shipped. Using these data, you can determine how the warehouse performs over time. It can show whether the organization is progressing towards its long-term goals.
Here are the top KPIs you need to pay attention to help you grow your ECom business.
Inventory KPIs focus on the products that you store in your warehouse. It’s a great way to keep an eye on how your inventory is moving. Here are some of the best KPIs to track regarding inventory management.
Carrying Cost of Inventory
Warehouse managers are well aware that stagnant inventories cost money. Warehouse managers can make better buying and forecasting decisions by quantifying specific carrying costs. These costs include:
- Capital costs
- Inventory risk
- Inventory service costs
Analyzing these data can lead to a higher inventory turnover.
Order Lead Time
Order lead time like red stag fulfillment lead time refers to how long a customer receives their order after placing it. This KPI can determine how much inventory your warehouse must carry at any time. You can increase customer satisfaction by measuring this.
Close monitoring of this KPI can prevent customer dissatisfaction. It can also help companies avoid relying on forecasting.
Shorter lead times mean happier customers.
Calculating your specific turnover rate can help you gauge your buying practices and product demand. A warehouse management system (WMS) provides visibility and forecasting to keep goods flowing.
Inventory turnover KPIs measure how often your distribution company goes through its inventory every year. Compare your distribution center’s performance with industry averages to get a clearer picture.
Inventory shrinkage (also known as inventory loss) is a KPI used to track losses. These losses can result from:
- clerical error
- lost goods
- supplier fraud
It is crucial to calculate inventory shrinkage to avoid discrepancies in your inventory.
Having a high shrinkage rate can negatively affect a business’s profits. Therefore, warehouse managers should thoroughly investigate every shrinkage instance to pinpoint the problem.
A company’s ability to weather unexpected disruptions impacts its inventory-to-sales ratio. As a result, warehouse managers can identify early cash flow problems by increasing inventory levels against declining sales rates.
In addition, it can help cut back orders by highlighting spikes in sales. However, it can also show a potential increase in buying.
Streamlined order fulfillment can help a warehouse have a high inventory-to-sales ratio. However, warehouse managers should carefully monitor this KPI to forecast and predict future inventory needs.
There is usually a mismatch between physical and inventory data, especially in large distribution centers—inaccurate inventory delays in orders, unhappy customers, and higher costs. Therefore, good visibility is crucial for warehouse efficiency. In addition, you can improve your inventory accuracy rate by using cycle counting to confirm your data.
After a successful delivery, warehouses process, sort, and store stocks. By examining KPIs such as receiving efficiency and receiving cycle time, you can measure your warehouse’s efficiency.
Receiving efficiency determines the effectiveness of warehouse workplaces when receiving stocks. Likewise, detecting and eliminating inefficiencies can hugely affect other warehouse operations. So, it’s vital to streamline your workflow as much as possible.
Receiving Cycle Time
Receiving cycle time refers to the total processing time it takes to process a delivery. A short receiving-cycle time indicates a smooth delivery process. In contrast, a long receiving cycle time indicates process inefficiency.
Rescheduling or reducing the deliveries can help you if you have a long receiving cycle time. It can give your receiving area more time to process each incoming delivery.
Picking orders is one of the more complicated warehouse activities. Picking an incorrect order means returning it and paying to fix it.
Tracking this KPI can improve the efficiency of your warehouse management process. For example, it can help you pick the right items for customer orders. It is ideal to have an accuracy level of 1, meaning you have made no mistakes.
Perfect Order Rate
You can measure how many orders your warehouse delivers without incident with this KPI. The customer who ordered the item must have received it in good condition, and the item must have shipped on time. You can catch errors or inaccuracies in orders by using lean practices before leaving the warehouse.
Following warehouse and distribution center best practices will improve your perfect order rate. The key to catching imperfect orders before they ship to customers is to identify problems as they arise and root them out at the source.
Back Order Rate
Knowing how many backorders you have can help you forecast stock purchases. Of course, there will always be a temporary high backorder rate for any given item during a spike in demand. However, a consistently high backorder rate is a sure sign of warehouse inefficiency.
You can decrease back-order rates by accurate forecasting. Close monitoring of your inventory-to-sales ratio can also help you. This KPI will also improve with high inventory accuracy rates.
Rate of Return
The rate of return is a valuable KPI in a distribution center, even more so if it’s broken down by cause for return. If warehouse managers identify the causes of returns, they can address the issues and make the necessary improvements. These causes can include:
- Damaged products
- Late deliveries
- Inaccurate product descriptions
- Wrong items sent
Knowing how the warehouse operates and making necessary adjustments helps keep warehousing costs low. Making decisions faster and more accurately can be accomplished by tracking critical KPIs. Your collected data will help you understand the weak points in your process, refine them, and maintain your profitability.