Today we're looking at some of the key performance indicators (KPIs) of warehouse management. In general, KPIs can help you identify, define, and quantify execution of business goals. Yes, KPIs vary across industries. But every business needs to track KPIs to understand performance and improve in the areas critical to success.
This article is essentially a checklist of the most vital warehouse management KPIs to keep tabs on. Some KPIs we'll look at might seem obvious, while others will be less so. Ultimately, the goal is to provide a checklist of warehouse KPIs for you to measure benchmarks against.
In general, most warehouse management KPIs fall under one of four categories. We'll look at those plus one more item—a sort of KPI of KPIs.
- Shipping and receiving efficiency—drivers, docks, and dwell time
- Stock, pick, and pack efficiency
- Inventory and space management
- Time versus cost management
Plus: KPI BONUS ROUND (the meta KPI)
Why Measure KPIs?
In a world driven by e-commerce and the global supply chain, time is everything. Consumers have a voracious appetite for online goods. And we're also very impatient. We want our goodies now, if not yesterday.
The competitive pressure falls on the logistics community and warehouse managers. To stay competitive, we track, quantify, measure, and manage performance—all using data analytics. Data collection runs nonstop. KPIs give us the power to turn large data sets into actionable information. In short, KPIs drive results!
It's worth noting that all KPI categories have a measure of overlap with other categories. That seems intuitive, right? Warehouse staffers need to work together like an orchestra of finely tuned instruments. If one area is off the beat, it will spoil the symphony. Thus, let's find out which KPIs deliver synchronized warehouses—and harmonious balance sheets.
KPI Category #1: Drivers, Docks, and Dwell Time
This category of KPI allows a facility to quantify the efficiency of its clerks, docks, and overall shipping and receiving operation. A warehouse manager can compare exactly how long it takes to get drivers in and out of facilities. In short, in the world of warehouse management KPIs, excellence starts as soon as the truck arrives at the gate.
- Check-in versus appointment times: Tracking this time differential can identify a lack of efficiency. If missed appointments are trending, that's a leading indicator there are bottlenecks to identify and resolve.
- Time from check-in to door assignment: This KPI is another efficiency marker. It's worth pointing out that software such as the Vector app allows drivers to log a check-in using GPS to time-stamp it as trackable event. And when detention fees come into play later, GPS sure makes a driver's case cut and dried. If the drivers are tracking their time with GPS, it would be wise for warehouses to follow suit.
- Door assignment to trailer seal: This is essentially a measure of how quickly trucks are getting loaded. If the freight isn't packed and pallets aren't staged ahead of time, this number will increase.
- Trailer seal to checkout: Why does this need to take any time? This is a less obvious KPI, but if your facility is bottlenecked at checkout, it may be a clear indication that you need to investigate contactless freight.
- Dwell times: How long does it take to get drivers in and out of your facility? Identifying swollen dwell times can help identify bottlenecks, which helps you improve efficiency and avoid costly fees.
- Detention paid versus total number of trucks: Detention fee payments are a significant warning sign of an inefficient operation. The trend lines in detention fee payments are a leading indicator of the overall costs incurred.
KPI Category #2: Stock, Pick, and Pack Efficiency
A host of warehouse management KPIs fall under this category. The goal is to track efficiency when performing the internal processes of handling goods and freight under a roof.
- On-time shipments: Forget detention—this KPI measures when deliveries are missed by days. If your warehouse is trending higher on overdue products, it could be a key indicator that you need to either increase staff to manage workload or find another way to do more with less. Identify the bottleneck and take measures, because customers are impatient.
- Receiving accuracy: This means the percentage of accurate receipts. In other words, this KPI tracks the proportion of correctly received orders against purchase orders.
- Picking accuracy: This tracks the total number of orders picked accurately compared to the total number of orders picked. The higher this number is, the better.
- Receiving productivity: This is determined in terms of labor costs by measuring the volume of goods received per warehouse clerk per hour.
- Reject rate or return rate: If you're in retail, they call it a return. If you're in manufacturing, they call it a reject. Your customer tracks rejects, and so should you. Divide the total number of rejected or returned products by the total number of products sold. When you understand the reject rate, it can help you perform a root-cause analysis. It's typically better to catch a problem early before letting it escalate into something catastrophic. Studying rate of returns can also help you manage inventory.
KPI Category #3: Inventory and Space Management
This KPI category includes your physical space use, the inventory you carry, and your equipment.
- Part count accuracy: It all starts with knowing what you have.
- Inventory shrinkage: This KPI tracks the amount of inventory listed in the part count records versus actual inventory that's under roof. In other words, inventory may show up on a computer screen but not actually be in the facility. The root cause of this could be a system error, theft of product, misplaced product, incorrect labeling or bar coding, or a supplier shipping delay.
- Carrying costs: The longer stock stays in storage, the higher the cost to the warehouse. That's because carrying costs are essentially a running tally of an inventory item's portion of capital and service costs, including equipment, overhead, and taxes.
- Space use: This KPI measures the percentage of space occupied by inventory versus total space available for storage.
- Equipment use: Equipment and production throughput is a great KPI to track. This involves monitoring equipment maintenance schedules, the cost of down time, and return on investment.
KPI Category #4: Time Versus Cost
This KPI category involves workforce metrics.
- Time since last incident: This is a measure of overall warehouse safety. Every warehouse should track safety incidents and broadcast the running clock in order to remind all personnel to promote warehouse safety.
- Time lost due to injury: This provides a quantification of costs related to injuries sustained on the job. No one wants to deal with an injury, and no one wants to know their OSHA rep. Tracking this KPI will help you quantify the cost of improving safety measures in order to avoid injuries in the first place.
- Time lost due to sickness: This is similar to tracking time lost due to injury, except this KPI quantifies the impact COVID-19 and other illnesses have had on your business. In the time of COVID-19, it's wise to quantify the cost of time lost due to sickness. This KPI may help you build a business case for risk mitigation solutions—for example, the contactless freight solutions and eBOLs that Vector offers.
- Overtime hours: If you're paying a lot of overtime, it can be an indication that you need to be hiring. On the other hand, if you aren't working any overtime, it might be a leading indicator that you're overstaffed and may need to downsize.
- Revenue per employee: This measures the productivity of a warehouse or business unit per employee. This KPI may indicate you need to find ways to do more with less.
- Employee turnover rate: This metric could sit next to the cost of the job search. If your facility can't land quality new hires who stick, you may have no choice but to do more with less.
Your Bonus KPI: KPI Management (also known as the Meta KPI)
There's an old saying,"You gotta have the right tool for the job." The second part of that saying should be,"You also gotta use the right tool because the job ain't gonna do itself."
As such, the last KPI to consider today is what you could call the meta KPI. What are the key performance indicators of your key performance indicators?
Here's what the Meta-KPI means: Are you actually checking the KPI data that you track—and doing so with proper regularity? Also, what management decisions have you made based on your KPI measurements? And how did those fare? Similarly, what revenue can you attribute to the changes put in place? For example, if you on-boarded new software based on KPI data, what's your return on investment? Put another way, if you adopted new tech, is it helping you to actually do more with less?
That said, not every KPI is going to provide endless "aha" moments. We're surrounded by a sea of data, and there are so many KPIs that we can get lost at sea. But have faith, and you'll learn things about your business and the industry you never could have imagined. Remember, it's a journey, not a destination—enjoy it.
Which of These KPIs Are Right for You?
By all means, cherry-pick the KPIs that seem worthwhile. But I also encourage you to track a few that don't appear obvious at first glance. Stay curious. Give a KPI three to twelve months to gather steam. If it's junk, chuck it. But then again, you might be surprised what insights and competitive advantage you get from one of the KPIs we covered today. Bookmark it!
This post was written by Brian Deines. Brian believes that every day is a referendum on a brand’s relevance, and he’s excited to bring that kind of thinking to the world of modern manufacturing and logistics. He deploys a full-stack of business development, sales, and marketing tools built through years of work in the logistics, packaging, and tier-1 part supply industries serving a customer base comprised of Fortune 1000 OEMs.