Thanks to new and potent data analytics technologies, warehouse operators and supply chain managers can access more data than ever. Business owners gain a complete understanding of operations with deep analysis and warehouse KPIs. It’s easier to track where expenditures are and where investments are needed. It can also tell you how much revenue they can anticipate from their current inventory.
Preparing your warehouse for 2023 means taking a deeper look into how you and your teams perform. Logistics KPIs are crucial for tracking a business’s progress. It’s because the supply chain has such a substantial impact on how companies operate. With so many steps in the supply chain, any one variable can significantly impact various outcomes, including profitability, customer satisfaction, reputation, and growth.
When metrics fall short of your desired benchmarks, you can act to improve supply chain performance based on this information.
You’ll learn more knowledge about how to enhance your supply chain operations if you monitor the appropriate warehouse KPIs relevant to your company.
Why Warehouse KPIs are Important
Your business’s essential fulfillment and logistics strategy must consider warehouse KPIs for various reasons. Studies predict that the supply chain analytics market will grow to $16.82 billion by 2027. Organizations now realize that using analytics in decision-making can boost their tactical, strategic, and operational effectiveness.
1. Focused Data & Insights
The increasing number of sources, platforms, and touchpoints analyzed makes fulfillment operations more complex. When you are in charge of busy supply chains, sorting through a mountain of data soon becomes challenging. However, KPIs will enable you to narrow your attention to the data that matters.
Supply chain-based analytics present what matters in an easily digestible visual style from a central location. Working with supply chain-style metrics helps you manage your logistical operations more effectively. It also aids in spotting hidden trends that will significantly enhance your overall strategy. Furthermore, it can spot any emerging problems (gaps in inventory, a lack of inventory, bottlenecks in your delivery processes, etc.) before they worsen.
2. Rapid Adaptability
Performance indicators are crucial as they provide the information you need to be flexible and adaptable. In any circumstance, supply chain management success demands complete adaptability. You need to have the ability to fix problems right away.
A strong supply chain can help you stand out from the competition. This factor is critical as client needs and the business environment evolve. With the help of target data visualizations, you can quickly and confidently analyze supply chain-focused metrics. Gain valuable knowledge and make appropriate strategic changes to your processes based on current situations.
Five Warehouse KPIs You Should be Tracking
Gathering, curating, and analyzing important warehouse metrics help you scale your supply chain and logistics operations. Capitalize on your strengths and quickly identify any inefficiencies within your system. There are various warehouse KPIs for your assessment and optimization. To help you, here’s a curated list so you can spot potential bottlenecks and ensure sustainable development.
1. Inventory Days of Supply
Inventory days in supply measures how long, on average, your stock remains unsold on your shelves.
Calculation begins when your business purchases goods or raw materials from your supplier and ends when a client buys that inventory.
(Inventory / Cost of Sales) x (Days in Period) = Inventory Days of Supply
This metric demonstrates how rapidly your business can sell goods. Based on your sales pace, it can assist your warehousing management in maintaining appropriate inventory levels.
To avoid running out of inventory during periods of high demand, you might modify how much stock you buy all at once. If you have a low number of days in inventory, this could mean your product sells quickly.
On the other hand, if sales are slow and your days in inventory are high, you can order less. Doing this reduces the amount of money locked up in unusable goods.
2. Freight Bill Accuracy
Freight bill accuracy measures how frequently your business receives a shipping invoice that differs from your supplier’s initial estimate.
If shippers are consistently overcharging you, the cost of your supply chain operations could spiral out of control. It’s crucial to audit invoices regularly to fix any mistakes or spot inaccuracies far below your requirements.
This entails comparing the initial quotes your shippers provided you with the most recent invoices they issued.
Once you know how many receipts corresponded to the first quote, you can use the following calculation:
(Number of Accurate Freight Bills / Total Freight Bills) x 100 = Freight Bill Accuracy Rate
Ideally, your accuracy rate should be 100%. If it isn’t, remember that errors may result in financial loss. Don’t let supplier errors drive up the expense of your supply chain. You may need to replace unreliable shippers with more reliable business partners.
3. Receiving Efficiency
This metric measures your receiving area’s overall efficiency. These are goods received per clerk or the number of employees in the receiving area per hour. Low efficiency might indicate that receiving procedures are less effective or that you must maximize equipment usage.
Volume of Inventory Received / No. of Working Hours = Receiving Efficiency
You can use this KPI with other metrics, such as equipment, to identify problems in your receiving area and why they occur. For instance, if workforce utilization and receiving efficiency are both poor, that could mean that many employees are waiting for instructions or for equipment to become available. In either situation, having more resources or receiving better training can help you increase workforce utilization. More efficient workers lead to a more productive warehouse.
4. Order Picking Accuracy
(Total number of orders – Incorrect item returns) / Total number of orders = Order Picking Accuracy
This KPI measures how precisely items are selected from your warehouse for customer orders. You can use it to increase the overall warehouse efficiency of your order management processes. Your picking accuracy should be as close to 1, which denotes perfect performance.
Order picking accuracy (OPA) is directly related to profitability. The more orders you accurately fill, the fewer returns you receive. As a result, the lower your costs will be.
Businesses can steer clear of errors by using OPA. Picking errors cause orders to be delivered incorrectly, cause warehouse operation inefficiency, and incur additional costs.
5. Warehouse Capacity Utilization
A warehouse’s capacity utilization measures how effectively you use your entire space. Calculate the total area of your warehouse, taking into account any space you use for offices, meeting areas, restrooms, and other amenities. Consider only the entire space you have for inventory.
(Total Inventory Space x Warehouse Space Clear Height) / Overall Volume of All Inventory = Warehouse Capacity Utilization
For effective material handling, you need to use space for your racks. Be sure to leave enough room for people to move around and for forklifts to operate. Consider altering the number or breadth of aisles, the aisle orientation, and the size and orientation of your racks and shelving. By clearing the height in specific portions of the facility, you may find that you are not actually making full use of your warehouse space. The optimal range of space utilization is around 22-27%.
The first step to boosting warehouse productivity, efficiency, and customer satisfaction is to identify regularly, implement, and track warehouse KPIs. Doing this will produce predictable operations and consistently favorable results.
You can optimize your supply chain for continued success in a competitive commercial environment by being able to make accurate projections. These provide real value aid in making intelligent decisions under pressure.
Communication is the cornerstone of a successful warehouse. Every cog in the supply chain machine will become smoother, more efficient, and more reliable once everyone involved understands their role. Easy access to the metrics needed to maximize their potential is also a big advantage.
According to studies, 79% of businesses with efficient supply chains experience higher revenue growth than the industry average.
Remember that even the most diligent efforts to digitize your warehouse may be for nothing if you can’t measure warehouse operations. You may feel at ease with the current situation this past year. However, it is crucial that you periodically audit the internal system in your warehouse. You can then determine what is working well, what is not, and what needs to be changed to improve your internal processes.
ZhenHub makes tracking all these warehouse KPIs easier with our complete suite of logistics software solutions. Digitize tracking all these metrics in one dashboard. Implement better strategies in your supply chain when you sign up on our website today.