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Warehouse Metrics to Track to Improve Profitability and Operations

warehouse metrics

Today's warehouse managers often accrue massive amounts of performance data, but sometimes find they can apply little of it toward making productivity gains or customer service improvements. Instead of becoming overwhelmed with data, managers should identify and focus on the most useful  warehouse metrics to gather, report, and apply.

We continue our series on the most important metrics as it relates to manufacturing metrics, logistics metrics, and more by covering some of the top warehouse metrics to track. Make sure you check out the other two posts on metrics that matter so you too can stay ahead of your supply chain and make a difference on affecting your bottom line and business performance.

The Perfect Order: Made by Understanding Warehouse  Metrics

Tools or modules often found in warehouse management systems (WMS) can automatically capture key data over a specified time period (such as one month) and display and report it as graphs and trends supported by the underlying data. This capability should make it easy to quickly identify problems.

When implementing new measurement tools and best practices, consider starting with what your customers care about most—the Perfect Order. Every warehouse strives for Perfect Orders, in which customers consistently receive the right product, on time, undamaged, and with the correct documentation. With virtually error-free shipments, customer satisfaction increases and customer support costs decrease. This is the backbone of the reasons why tracking metrics, and in this case, warehouse metrics, is so vital....to have more control and affect change.

The Perfect Order is a calculation of the error-free rate of each stage of a purchase order. When customers have a problem with an order received, they notify their distributor. The distributor then tracks the error in the WMS with "reason codes" assigned to categories such as warehouse pick accuracy, on-time delivery, and invoice accuracy.

This data is then calculated to determine the Perfect Order metric. If, for example, five warehouse pick accuracy errors are flagged on 10,000 lines, total warehouse pick accuracy rate is 99.95 percent. If on-time delivery rate is 99.2 percent, invoice accuracy rate is 96 percent, shipped without damage rate is 99 percent, and order entry accuracy rate is 99.2 percent, then the total Perfect Order metric is 94.04 percent.

Made to Order....Shaped by Tracking and Enacting Upon Insights Gleaned from Warehouse Metrics

warehouse metrics to trackAdditional recommended warehouse metrics to consider when evaluating a warehouse's order performance include the following:

  • Fill rate: This data measures lines shipped versus lines ordered by a customer. Fill rate encompasses more than just warehouse performance because it also depends on ordered items being in stock and available. From the customer's perspective, fill rate represents the service level a distributor can provide.
  • Ship to promise: This figure measures the timeliness of order filling, while the shipping accuracy rate measures the accuracy of order filling as viewed by the customer.
  • Customer retention: This metric charts the number and percentage of customers during the prior time period who are also customers in the current period. Depending on the frequency of purchase, longer time periods, such as six months or one year, provide a more meaningful measurement. Over several years, you can chart the trend of increasing or decreasing retention.
  • New customers: This record charts the number and percentage of new customers in each time period, where a new customer is one who bought in the current period but not in any preceding time period.

Warehouse Metrics to Know What's In Stock

Once these order metrics are well in place, consider key warehouse metrics for tracking and managing inventory. With the right inventory tools, distributors and wholesalers know at all times exactly what product is in the warehouse, where it's located, and when it needs to be replenished. Greater inventory accuracy and control results in less overstock/dead stock, higher turnover, and better data for financial planning.

Key inventory warehouse metrics include:

  • Inventory accuracy: Used to identify product discrepancies, this measurement is typically derived from cycle counts, a function within a WMS that automatically counts a subset of inventory on a daily demand or on a scheduled basis.
  • Inventory turnover: This figure measures purchasing management and timeliness of vendor returns. It is the number of times that inventory cycles or turns over per year.
  • Expense Controls: The next recommended area of measurement, and the one that matters most to CFOs, is expense control. Specifically, this data looks at total warehouse costs as a percent of company sales. Warehouse costs typically include direct and indirect labor, employee benefits, supplies, operating equipment and maintenance, rent, utilities, and depreciation. Expense control also measures transportation and logistics costs as a percent of sales, as well as sales and lines shipped by each warehouse employee per hour.

Tying all the Warehouse Metrics Together

Once enough warehouse metrics and transaction data points have been accrued, it is easy to establish some realistic productivity standards. Consider benchmarking the warehouse cost structure and productivity per person against other distributors. Or, benchmark against industry survey results such as the annual research survey conducted by Georgia Southern University and other major reports such as from various consultants.

Measuring progress against the warehouse's own targets is more useful, however, because performance depends on a variety of unique factors such as processes, specific customer expectations, and automated materials handling infrastructure.

Over time, consider leveraging these key warehouse metrics by applying new variables. For example, a warehouse employee incentive might spark a dramatic improvement in Perfect Order numbers. Chart the impact. And continue to seek only those key data points that truly demonstrate the warehouse's contribution to the company.

What warehouse metrics are you tracking? Let us know in the comments section below.

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Adam Robinson
Adam Robinson oversees the overall marketing strategy for Cerasis including website development, social media and content marketing, trade show marketing, email campaigns, and webinar marketing. Mr. Robinson works with the business development department to create messaging that attracts the right decision makers, gaining inbound leads and increasing brand awareness all while shortening sales cycles, the time it takes to gain sales appointments and set proper sales and execution expectations.
Adam Robinson
Adam Robinson
  • Gene Kaplan

    Good stuff but several of the metrics above are not totally in the control of the operations team (ex: customer retention). Care must be taken in what warehouse metrics are actually employed and how they are used so that people do not become unempowered.

    • Cerasis

      Gene, thanks for the comment. Do you have some additional metrics we should include that you would include? What are you tracking?

      • Gene Kaplan

        Receiving cycle time is a good one. It is an area which gives lots of folks trouble and is something the warehouse team can control.

        I also like various forms of productivity measurements. Units/man-hour and such. They are strange metrics for many to get used to but the advantage is again these are things the warehouse team can control, whereas they cannot control manpower cost for example. You have to be careful with these thought because you don’t want to me trying to compare activities which have different standards. Examples would be picks/man-hour for lot or serial tracked inventory compared to other simpler picks.

        Inventory accuracy, as mentioned in the article, is a good one and there are several ways to measure it. Care must be taken here also to make the metrics meaningful.

        Cycle count performance is important as well so as to measure the effectiveness of the cycle counting program.

        Another related topic is the use of teams and how that interplays with the metrics. The way teams are assembled and maintained is important and team metrics are often a way to incentivize without getting unintended results.

        Which brings us around to the topic of “be careful what you measure” because yes you can’t change what you don’t measure but those unintended results can be problematic.

        A good topic and I would like to see some input from others!

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