Knowing what’s working in your warehouse and what’s not is imperative for success. When it comes to measuring warehouse efficiency and productivity, warehouse managers often find themselves drowning in performance data.
To prevent yourself from feeling overwhelmed, an easy first step is choose what metrics you care about the most. Simply explained, warehouse efficiency metrics are a comprehensive way to measure operational effectiveness, quality, and productivity.
Although it’s up to you to choose and tailor your metrics to your unique operations, here are some of the industry’s most commonly used performance stats:
Perfect Order Rate
For warehouses, producing perfect orders is the ultimate goal. The percentage of perfect orders act as a good indicator for overall warehouse performance.
This metric specifically measures the number of orders your warehouse successfully delivers without incident: the correct item, shipped on time and received in good condition by the customer who ordered it.
Perfect Orders Completed / Total Orders Placed = Perfect Order Rate
However, while accuracy is important, time spent and costs associated with executing orders perfectly are also important considerations, so it’s essential to utilize those metrics with this in mind.
Order Picking Accuracy
Order picking accuracy refers to the number of items that are being correctly picked and scanned into and out of bin locations. An inaccurate order can very easily occur and ultimately results in increased shipping time per average order or rate of return.
Total Number of Orders / Perfect Order Rate = Order Picking Accuracy
On-time delivery refers to the number of orders that are filled and shipped according to the promised delivery dates
Total Number of On-Time Orders / Total Orders Shipped = On-time Delivery %
Carrying Cost of Inventory
The carrying cost of inventory metric, is the cost of storing inventory over a certain timeframe. When you have inventory taking up warehouse space, it comes with an array of costs, such as labor, risk/insurance, storage and freight.
With a firm grasp on this KPI, warehouses can make smarter buying and forecasting decisions, leading to higher inventory turnover. It’s also a smart idea to find ways to control carrying costs.
Inventory Carrying Rate X Average Inventory Value = Carrying Cost of Inventory
Inventory turnover measures how many times during a set period your distribution center is able to clear its entire inventory. For a clearer picture of your performance, compare this rate against industry averages.
Cost of Goods Sold / Average Inventory for the Period = Inventory Turnover
If your business adheres to a first-in, first-out policy, you need to know how long products are lingering in your warehouse, especially if they have expiration dates.
Missing items metrics
Stats on items that are showing as available in your stock system or WMS but are not in their correct locations need to be recorded.
Out-of-stock items metrics
Figures relating to the number of items that are on back order from the manufacturer, causing orders to get congested.
Per Hour Operation Metrics
These look at the different areas of processing, including picking, packing, processing, etc. The most common are:
- Orders Per Hour
Orders Picked or Packed / Warehouse Operating Hours = Orders per Hour
- Items Per Hour
Items Picked or Packed / Warehouse Operating Hours = Items per Hour
- Packages Shipped
Total Packages Shipped / Warehouse Operating Hours = Packages Shipped per Hour
- Returns Processed Per Hour
Total Number of Returns Processed / Warehouse Operating Hours = Returns Processed per Hour
Cost per Order
Cost per order looks at the total warehouse costs compared to orders shipped. Costs can include direct and indirect labor, benefits, occupancy, packing supplies, telecom and credit card processing.
Total Warehouse Cost / Total Orders Shipped = Cost per Order
Downtime to Operating Time
The ratio of downtime to operating time is a direct indicator of asset availability for production. This metric outlines the time that is not being utilized during operating hours.
Downtime : Total Operating Time = Downtime to Operating Time
Although metrics are a valuable measuring tool, they can be overwhelming if you track too many of them, so start small and pick ones that are specific to your warehouse objectives. However, bare in mind that your metrics aren’t going to improve overnight— nevertheless measuring them is the first step to improvement. If there is a significant gap between current performance and ideal performance, there should be intermediate goals to help the entire team stay on task. Reaching these in-between metrics can help show managers and employees that their improvements are working or need adjustment.