The Essential KPIs You Need to Measure Your Warehousing Efficiency

Published : June 1, 2016

Rows of warehousing shelves

Assessing the health of a human being generally involves a specific set of tests that each have a certain set of guiding numbers, with a hearty pulse accepted as the first signal of overall health. In contrast, though a warehouse may have a metaphorical "heart" in its management, there is no universal pulse to examine, nor one-size-fits-all readings to compare against. Each business and warehouse is a self-contained environment, created through a mix of industry, niche, volume, staff and dozens of other variables that defy casual categorization. So how do you determine which warehousing metrics you should gather and follow

Focus on Your Facility First

No matter what products are being stored, warehouses all have one commonality: overhead. The cost of storing a product is an essential piece of information for determining overall profitability, explains Paul Trujillo of Business 2 Community.  If you can't accurately pinpoint what warehousing is costing your company on a per-unit basis, your profit projections and goals — and, thus, your measures of success — will be entirely off-base. The good news is that determining this specific number will force you to reevaluate many expenses that are often simply shrugged off as necessary: utilities, rent-per-square-foot, insurance and so on. Sometimes, as these numbers are brought to light, they're found to be too high. In these cases, having concrete reports to show decision-makers will facilitate changes like warehouse downsizing or relocation. 

Have you ever heard of "blocking" a freezer? If you're not familiar with the concept, it involves keeping a home freezer well-stocked, volume-wise, in order to increase the efficiency output of its cold air. This concept can be applied to the efficiency of warehouses through capacity. Essentially, the more necessary items you’re able to keep in your — well-managed, naturally — warehouse, the more you drive down the cost-per-unit of warehousing those items. If you're only using half of your available floor space by neglecting to "go up" with shelving, you're not just passing up an opportunity, you're forcing up the base cost of your existing items.

Determine how much of your warehouse that you're actually using, and work to bring that number as close to 100% as is feasibly possible with your resources. Adam Robinson of Cerasis also suggests mapping out your peak capacity demands — for example, major holidays for warehouses in the retail industry. Once those have been isolated, consider adding temporary or overflow warehousing solutions to accommodate product solely in those peaks, as opposed to bloating annual cost for a few busy months.

Next, Look to Your Receiving 

When products arrive at your loading docks, chances are that they're typically inventoried, signed for and put away in their appropriate bins or shelves. When was the last time you watched and documented the process in detail? Consider how long a shipment should take to unpack and put away and compare that number with the actual performance of your warehouse team. If there is a large discrepancy, ask yourself if your time goals were overly ambitious — a scenario that can lead to miscommunication and employee dissatisfaction if left unchecked — or if your team is actually underperforming by using inefficient methods.

Your warehouse staff should have a stated, adhered-to method for each phase of receiving an order: An order in which to open boxes, a step in which to check inventory, and an orderly, delegated method for getting those goods where they need to be. Haphazard or piecemeal unpacking practices not only invite error and potential oversight, they're very inefficient. They can also increase truck time at the dock, and the longer a driver is waiting for your staff to unpack or load, the more expenses like gas cost and hourly driver pay might impact your bottom line.

Think of it this way: without guidance, your warehouse staff will crisscross the warehouse in random task-fixated patterns, often wasting time and misplacing paperwork along the way. In addition to superior efficiency, having an order of operations on the books makes narrowing down a problem as easy as backtracking. If a product is missing or misfiled, you should be able to accurately figure out when it was received and who put it away simply by glancing at paperwork. If you need to "ask around," that's a red flag that your current workflows are wasting both time and money. Look to warehousing metrics to inform new ones. If your workers are moving to extreme ends of the warehouse on their restocking paths, you may also want to consider moving shelving or locations around. Popularity of various products will change over time, and if product X is no longer your biggest performer, it's time to move your new biggest performer closer to the docks.

Finally, Look at Your Customer-Facing Metrics

If you've transformed your warehouse into a well-oiled machine, but still fail to meet customer expectations, your efforts haven't gone far enough. The turnaround time on orders and your percentage of perfect orders are the kinds of goals your entire team needs to be focused on. Your other warehouse metrics will support these measures of success. In short, a disorganized, expensive warehouse will turn out similar results for its customers, and that's definitely not a sustainable scenario in a competitive business. But don't rely solely on customer feedback to determine if your warehousing approaches are working.

Careful examination of metrics over time will highlight both positive and negative trends to promote or minimize. System ID's Jay Schofield reminds warehouse managers that metrics such as customer cycle order time are one of the best ways to forecast overall customer satisfaction.

Whether it's off-the-shelf or personalized, customers simply don't want to wait a long time for their orders to manifest, and a warehouse is the first — and often only! — line of defense against that impatience. Make sure that your delivery windows are in line with the rest of your industry and don't neglect reverse logistics. Your return process and timeline should be just as short and hassle-free as that of your ordering process. If an order goes off without obstacles but the return process is a headache, a customer won't remember your stellar delivery, they'll remember the aggravation of attempting to return their incorrect or damaged product.

Efficiency is best achieved through a partnership between common sense management and factual, numbers-based KPIs like those mentioned here. The overarching idea is that, even if staff or the C-suite can find problems with one method, they'll usually be swayed by the other, ensuring that managers get the support they need to encourage true success and profitability for their companies. If you don't know the state of your KPIs offhand, it's time to start penciling in periodic state-of-the-warehouse checks on your calendar. Gaining ground in the race for first in your industry may be only a few carefully-compiled metrics away!

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Topics: Warehouse Management

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