How To Measure Your Warehouse Efficiency Using KPI’s

Logistics, Manufacturing

It’s highly likely that you have access to a lot of data and figures when measuring warehouse efficiency, which have been accumulated between surveys and studies. The most challenging part is how to translate this and put it to the best possible use in improving overall efficiency. A first step is to identify the right key performance indicators (KPIs) from the above that will provide actionable information on your logistics processes.

How to Define KPIs for a Warehouse

Warehouse KPIs can be broken down into different categories, such as receiving, put-away, storage, fulfilment and warehouse safety.

  • Receiving KPIs deal with your warehouse’s efficiency in the receiving of incoming goods and moving it to other areas of the warehouse.
  • Put-away KPIs will indicate how your warehouse handles the steps after receiving the goods, when the materials go into storage.
  • Inventory KPIs refers to warehouse performance in terms of carrying cost, space utilization and inventory turnover.
  • Fulfilment KPIs primarily measure the accuracy and productivity of the picking and packing process.
  • Safety KPIs are important for keeping track of employee health and satisfaction. A low score risks high employee turnover and poor productivity.

Below are some important warehouse KPI examples that are worth considering in the ongoing process of measuring warehouse efficiency to then set objectives and improve.

Warehouse Receiving KPIs

  • Receiving cycle time: The receiving cycle time is the average time a delivery takes to process. Cycle times that are too long will affect other warehouse KPIs and a possible solution might be, for example, to reschedule deliveries to give the receiving area more processing time for each delivery.
  • Receiving productivity: This KPI details the volume of goods received per warehouse worker or the volume per man-hour. A low number could indicate that the material handling equipment isn’t properly utilised or other deficiencies in the process.

Warehouse Put-Away KPIs

  • Put-away cycle time: This KPI is similar to receiving cycle time, but instead measures the total time spent to put away items, on average. Possible solutions to long put-away cycle time could be changing the layout of the warehouse or more effective employee training on safely handling equipment.
  • Put-away accuracy rate: The accuracy rate puts a percentage on the number of items that were put away correctly on the first attempt, with the goal of reaching 100%. As with many other warehouse processes, poor accuracy could lead to disruption and congestion in other areas.

Warehouse Inventory KPIs

  • Carrying cost of inventory: This KPI defines the total amount of money spent on holding, owning and storing inventory. It represents how long you will be able to continue storing your inventory before you start to lose money – at which point you will need to find solutions for slow-moving inventory.
  • Inventory turnover: Defines the frequency at which your inventory is being monetised and replaced in a given time period. So it therefore indicates your company’s ability to generate sales and growth. It is inversely correlated to the cost of carrying KPI, which will normally increase as inventory turnover decreases.
  • Inventory accuracy: Inventory accuracy compares the quantities in your inventory management system with what is actually on the shelves. Frequent inaccuracies can lead to increased overall costs due to e.g. customer dissatisfaction due to unanticipated backorders.

Warehouse Fulfilment KPIs

  • Internal order cycle time: The average amount of time taken from when an order is received until it is shipped, excluding the time taken by the shipping carrier. If this number is growing, it could indicate a problem with the picking and packing process.
  • Perfect order percentage: This KPI represents the percentage of orders that has moved through the fulfilment process without issues. The percentages included in the calculation are normally the percentage of damaged goods, orders on time, correct documentation and shipped complete orders.
  • Picking accuracy: The total number of orders divided by the perfect order rate. A declining picking accuracy percentage indicates problems in the fulfilment process that will eventually lead to dissatisfied customers.

Warehouse Safety KPIs

  • Time between accidents: Obviously, increasing the time between accidents is a good thing. But it is also important to observe long-term trends and take swift action should it trend the wrong way. Using high-quality material handling systems is one effective way to reduce time between accidents while increasing productivity.
  • Time lost due to injury: This is the amount of time that individual workers would otherwise have spent on working, defined as lost time in hours divided by total number of work hours. A high number could indicate poor ergonomic conditions or a high frequency of more severe accidents.

Many of the above KPIs are directly or indirectly affected by a facility’s use of material handling equipment. Once you have decided on the right tools and equipment, such as vacuum lifting systems, and you are utilising them correctly, staff health can be improved while simultaneously achieving considerably higher productivity in many areas. Measuring warehouse efficiency before deciding which material handling equipment is best is important so that the areas for improvement can be clearly identified and then improvements can be monitored.

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