Archive for September, 2022

Which KPIs Should You Track When Managing A Warehouse

Measuring a warehouse’s performance is vital to gauging how efficiently it is operating. It will also help you to identify areas requiring improvement, as well as uncovering any potential problems or risks.

There are many ways to measure performance but one of the most popular methods is using key performance indicators (KPIs). KPIs are used to evaluate the success of an area or activity within an organisation, such as a warehouse, against a specific set of targets.

KPIs can be financial, customer-focussed, or process-focussed. They will vary depending on the area of business or activity you wish to evaluate as their objectives will differ. For example, a sales department will have different KPIs to a warehouse.

Here are some of the most useful and important KPIs for warehouses. Implement those that are relevant to your warehouse to ensure it is running at optimal efficiency and that you are continually achieving the best results.

Receiving Efficiency

The primary purpose of a warehouse is to store goods. Naturally, this involves receiving goods. Therefore, it is important that you measure the efficiency of the receiving area of your warehouse.

You can do this by monitoring the time taken from stock being received to it being ready to put away. Record timestamps at every stage of the process then calculate the time taken between each stage and overall.

This will help you to identify which stages take the longest so that you can look at how this time can be reduced. Assigning staff to specific stages, depending on the training they have received and the skills they possess, can help to improve receiving efficiency.

Picking Accuracy

Accurate picking is essential to the smooth operation of a warehouse and the larger organisation. Incorrect picking can impact on time, cost and customer satisfaction, so it is important that it is done correctly.

You can measure the picking accuracy in your warehouse by subtracting the number of reports or returns of incorrect items from the total number of items sold, then dividing by the total number of orders, and multiplying by 100. This will give you the percentage of accurately picked orders.

To improve this percentage, make sure that your warehouse is set up in a logical way, you have appropriate systems in place, and that staff are properly trained. Quality checks should be carried out before items leave the warehouse to ensure they are correct and not faulty.

Rate of Return

As well as measuring the amount of incorrectly picked items, you should also measure the overall rate of return. Knowing how often items are returned by customers, for whatever reason, will help you to gauge customer satisfaction as a whole.

Divide the number of items returned by the total number of items sold, and times by 100. This will give you the percentage of returned items.

Breaking this down based on the reason for return will give you an insight into why items are being returned and help you to identify what improvements need to be made in an effort to reduce the rate of return.

For example, returns due to incorrect items received indicates a picking error, whereas returns due to poor quality or faults means there are issues with manufacturing and quality control.

To reduce the amount of returns you receive, ensure that product descriptions are accurate, and employees are trained on systems and stock.

Backorder Rate

Ensuring you have enough stock to fulfil orders in an appropriate time frame is essential. If a customer places an order for items that are not in stock and must wait for the item to come back in stock before the order can be fulfilled, leading to customer dissatisfaction and cancelled orders.

Measuring your backorder rate can help you to determine whether you are stocking sufficient stock. To calculate the percentage of backorders, divide the total backorders by the total number of orders, then multiply by 100.

If you are getting a lot of orders for items that are not in stock, you will have a high backorder rate. This can sometimes be accounted for by an unexpected increase in demand, but if this is happening regularly or the backorder rate is consistently high then this is a sign of poor planning, forecasting and inventory tracking.

Lead Time

The lead time is the average time taken for a customer to receive their goods after placing an order. The shorter your lead time is, the more satisfied your customers will be.

You can calculate your lead time by measuring the total time taken from a customer placing an order to the estimated delivery date, or actual delivery date if you have this information.

To calculate the average, add together all of the lead times in the same unit of time (weeks, days, hours, or minutes), then divide by the number of lead times. For example, if order A had a lead time of 6 days, order B had a lead time of 2 days, and order C had a lead time of 4 days, you would add 6, 2 and 4 together to get 12, then divide by 3 (the number of orders), to get 4. So, the average lead time in this instance would be 4 days.

As well as looking internally to identify ways to reduce your lead times, you could also use a quicker, more reliable courier service to get items to customers sooner.

There are many more KPIs that are beneficial to warehouses, but these are a good place to start and may give you some inspiration for other KPIs you could introduce that are specific to your warehouse and objectives.

For professional and tailored advice on how you can improve the productivity and efficiency of your warehouse, call our team of experts at Logical Storage Solutions on 0845 689 1300, or email [email protected].