Behind every successful shipping operation is a fast and efficient warehouse environment. When your warehouse functions optimally, you generate higher profits, happier customers, and more favorable customer reviews.
But warehouses can be very complex and fast-moving, making it difficult to assess overall performance. For this reason, the only way to effectively improve your shipping environment is to track warehouse management KPIs.
Of course, the volume of warehouse management KPIs is extensive and ever-changing. Since there are many KPIs to choose from, we put together a list of some of the most important ones to have on your radar.
Order accuracy is the number of orders you successfully fulfill and ship without any issues. It’s essential to track this metric because it directly correlates with customer happiness and loyalty. At the same time, low order accuracy can drive up shipping costs and harm morale.
To calculate order accuracy, divide the number of correct orders you fulfill by your total number of orders and multiply the figure by 100.
OTD is a measurement of the warehouse’s ability to deliver a customer order by the due date. For example, an order may be due on June 1. If the order arrives before then, it’s on time. In general, you should strive to always deliver items before the delivery date.
You can calculate OTD by dividing the total number of deliveries that arrive on time by the total number of orders you deliver.
Inventory accuracy is a measurement of the actual amount of inventory you have in stock. This is an important metric because it determines your readiness and ability to deliver customer requests. It’s also extra crucial in today’s unpredictable shipping landscape.
To illustrate, imagine processing an order but not having enough items in stock to complete it. This type of mistake is embarrassing and costly.
Calculate inventory accuracy by manually counting the number of items in stock. Next, divide this number by the stock you have on record and multiply it by 100.
The carrying cost of inventory is the total amount that you pay for storing your unsold items.
For example, this may include warehousing costs and human resources. It also includes things like machinery, insurance, and risks—like perishability. The carrying cost of inventory can vary significantly depending on what you’re holding and the level of care it requires.
To figure out this metric, add your main expenses over a year, divide them by the total inventory value, and multiply that by 100.
Inventory turnover is how many times you sell and replace inventory over a year. By tracking inventory turnover, you will know whether your purchasing and inventory align with what you’re actually selling.
You can calculate the inventory turnover ratio by dividing the cost of goods sold by the average inventory for a given time frame.
Dead stock refers to items that don’t move for long periods. This can be a problem when the cost of storing an item exceeds the amount you’ll get for completing a purchase. Having a high level of dead stock could also indicate a potential problem or miscommunication between sales and purchasing teams.
Despite its negative connotation, dead stock isn’t always a bad thing. For example, some rare or expensive items may be worth strategically holding for customers if it means providing great service or preventing a customer from going to a competitor to acquire them.
For most companies, dead stock accumulates after sitting for at least one year or more. However, for some operations, dead stock can also become a liability after just a few months or weeks. For example, a seasonal store with excess holiday supplies will have a very short window for moving items.
Putaway is the process of moving items from the receiving zone to their storage location.
Many factors impact putaway, including storage space optimization, documentation, safety, speed, and transportation. Without careful planning and speedy execution, items can easily back up or get lost. This can also create friction with customers and team members.
You can calculate putaway based on cost per line (divide the total cost of putaway by total line items) or by cycle time.
POLT is the average time it takes for your warehouse to process an order and reach the buyer. This metric affects a variety of areas, including your overall inventory, production, and customer satisfaction. As such, it pays to keep careful track of this warehouse management KPI.
When determining POLT, it’s important to factor in pre-processing, processing, and post-processing times to get an accurate assessment.
Accident tracking is another important KPI to monitor. After all, warehouses can be dangerous, and managers need to commit to improving safety measures.
You can track accidents on a weekly, monthly, or annual basis. You can also keep track of the amount of time since your last incident.
Shrinkage occurs when there is a discrepancy between your inventory record and what’s available in your warehouse. This issue can stem from issues like damage and theft. It can also come from inaccurate calculations.
To calculate shrinkage, count your inventory and determine its overall cost. Then, subtract the cost from the cost in your records and divide the difference by the amount in your records.
Tracking warehouse KPIs may seem like a waste of time at first, especially in today’s fast-moving landscape where teams are trying to keep up and move products out the door quickly.
But as with most things, putting in the extra effort and keeping careful track of your metrics will save you time and improve your business’s output. By tracking warehouse KPIs, you can understand the overall level of efficiency in your operation. Then, you’ll have a good idea of how to minimize costs, maximize output, and reduce expensive errors.
Having a general sense of the right KPIs can help you maintain a high-quality work environment and eliminate inefficient processes. These metrics can also help you drive annual improvements and make structural changes to become a more efficient business.
One of the top reasons warehouse managers struggle to track KPIs is because they lack modern and efficient reporting systems. In fact, many teams are still using paper and spreadsheets and are manually calculating performance. This results in slow, inefficient, and inaccurate reporting.
Here at Vector, we can help your team move beyond traditional reporting mechanisms and digitize your operations. With Vector’s customizable digital applications, your team can improve visibility and transparency and streamline all aspects of warehouse management.
By digitizing warehouse reporting, you will gain access to a variety of metrics across all of your various workflows. This can lead to greater efficiency—and it can also help your team operate more effectively with better communication.
At the end of the day, warehouse managers need to embrace digital transformation if they wish to get ahead and gain a competitive advantage. With the right tools in place, it’s much easier to stay on top of KPIs and continuously optimize your operations.
Now is the time to reassess your warehouse KPIs and improve your tracking ability. To see how Vector can help, request a free trial today.
This post was written by Justin Reynolds. Justin is a freelance writer who enjoys telling stories about how technology, science, and creativity can help workers be more productive. In his spare time, he likes seeing or playing live music, hiking, and traveling.
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