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KPIs For Warehouse Operations

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KPIs For Warehouse Operations
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KPIs For Warehouse Operations- The problem of the effectiveness and efficiency of warehouses has now become a crowded issue in the talks, especially with the rapid growth of E-commerce. The growth demanded a major change in warehouse management patterns, due to the heavy and fast traffic of goods.

Efficient warehouses will be able to ensure the smooth flow of products into and out of the warehouse smoothly without any obstacles. All of this is about how to achieve and maintain optimal warehouse performance.  

Key Performance Indicator (KPI) is a measurable value associated with the main business objectives of a company or organization and is one of the important elements for setting and monitoring profit and production goals in the long term.  

KPIs allow you to find and prioritize issues in your warehouse or distribution center. All aspects and factors are determined and given parameters to then be monitored consistently continuously. KPIs can be one of the highly recommended ways to create effective and efficient warehouse operations.

In this article, you'll learn about the significance of KPIs because they relate to warehouse performance metrics and why they're valuable to your business. In previous articles I have also written several articles related to this warehouse KPIs. For those of you who haven't read it please search the search box for this blog by typing "KPI".

WHAT IS A KPI?

When we talk about warehouse performance metrics, KPIs are a very important element. KPIs or key performance indicators, are measurable values typically used to highlight the strengths and weaknesses of your warehouse or distribution center. KPIs usually focus on external factors such as timely delivery of goods, but in fact we can also focus on the problem of receiving goods, putaways, storage of goods, order collection, packing of goods, and shipping goods in warehouses. 

You'll learn a lot about these KPIs, but for now, I'll share with you about the benefits of KPIs first.

Warehouse KPI Focus, among others:
  • Receipt of Goods
  • Putaway
  • Luggage Storage
  • Pick Up And Packing Goods
  • Delivery of Goods
All right, we'll peel the five focused warehouse KPIs above in more detail in the following description.

KPIs For Warehouse Operations
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1. Receipt of Goods

Maintaining an efficient and well-managed reception area is an important asset that you should pay close attention to.  It is important that new inventory is processed quickly, efficiently, and error-free. Problems occurring in the process of receiving goods have significant consequences that can be a hindrance to your operations, which can affect your entire operating activities and jeopardize your company's revenue potential.

The goods receipt KPI sees the cost per item of receipt of the goods, the volume of goods received per working hour, the time of the truck in the loading and unloading area and the accuracy of the purchase order.

Let's try to check the metrics for receiving goods in this warehouse in more detail, as follows:

A. Per Line admission fee = Warehouse fee is charged on the goods receiving line (including handling fee)

The formula formula is : Total cost of receipt / Number of items

Assessment interpretation: A higher amount equals less efficient operation.  Admission fees should have a lower trend over time.

B. Efficiency of goods receipt (or productivity) = Volume of goods received per warehouse operator per hour

The formula formula is : Working hours / total receipt volume

Assessment interpretation: Higher scores indicate more efficient acceptance operations while lower scores indicate potential problems in the receipt of goods that must be acted upon.  Acceptance efficiency should be a higher trend over time.

C. Accuracy of receipt of goods = Portion of orders received correctly

The formula formula is : Correct item / total number of items included in purchase order

Valuation interpretation : A higher score indicates a more accurate purchase order.  Reception accuracy should be very high.  If the score drops, then there is an indication of a problem with the vendor and that needs to be addressed immediately.

D. Loading and unloading area = Total percentage of loading and unloading area usage

The formula formula is : Space area used / Total space area unloading

Assessment interpretation: A higher score indicates the utilization of loading and unloading space areas in warehouse reception areas or distribution centers. Limitations of support tools in the loading and unloading area can lead to inefficient reception operations, but utilizing more loading and unloading space may also require more employees and resources involved to become inefficient.

These warehouse KPIs can also highlight problems or bottlenecks that occur, allowing you to fix them before they spread to other areas of the supply chain.

2. Putaway 

Once the inventory is received, it then needs to be put in the correct location so that it can be picked up, packaged, and shipped quickly and accurately. Putaway delays will lead to longer cycle times and placing inventory in the wrong location may cause errors in order selection.

Here are some putaway KPIs that will help you to ensure a smooth order selection process in your warehouse, among others:

A. Putaway cost = Total cost for retrieval (including labor, handling, and equipment costs)

The formula formula is : Total cost of Putaway / Total items

Assessment interpretation : Putaway cost per line metric is usually measured in working hours per Dollar and can highlight inefficiencies in the putaway process.  Lower numbers indicate more efficient and productive putaway operations.

B. Putaway productivity = Pick-up volume per hour worked

The formula formula is : Total cost of Putaway / Total items

Assessment interpretation : Putaway cost per line metric is usually measured in working hours per Dollar and can highlight inefficiencies in the putaway process.  Lower numbers indicate more efficient and productive putaway operations.

C. Putaway accuracy = Percentage of inventory accurately inserted into the correct location

The formula formula is : Total putaway inventory correctly / Total putaway inventory

Assessment interpretation : Putaway accuracy can highlight problems by getting rid of newly received supplies.  This should be close to 100%.  Otherwise, you may need to consider measuring accuracy per employee or looking at the process as a whole, and identifying the source of the inaccuracies that occur.

D. Utilization of labor and equipment = Total percentage of material and labor handling equipment used during the putaway process

The formula formula is: Total labor and tools used during putaway / Total labor and tools

Assessment Interpretation : The total workforce and tools used to place supplies show how labor and resources run by rising during the putaway process.  This figure should be reviewed in relation to other putaway KPIs.

E. Cycle time putaway cycle = Total average amount - average time required for putaway inventory items

The formula formula is : Total time for putaway item item / total putaway time

Assessment Interpretation : Putaway cycle time measures the average time it takes to get rid of a single inventory item.  Lower cycle times by rearranging warehouses according to the 80/20 rule make faster moving items easier to putway and also easier to select.  Employee efficiency training can also lower the time metric of this putaway cycle.

Proper putaway evaluation through this KPIs will give you a clear picture of possible inefficiencies in the process. Recognizing possible errors will help you to optimize and streamline the process, which will impact the rest of the warehouse space.

3. Storage of Goods

The measured key indicator for luggage storage depends on the type of storage system you are using. If you are using a manual system, you want to use stacking blocks and shelf storage indicators for your KPIs. Automated Storage (Retrieval System) methods can include inventory transport costs, storage productivity, space utilization, inventory turnover, and inventory-to-sales ratios.

A. Cost of carrying inventory = Total cost for inventory storage over time, including inventory, capital, service, damage and expired goods

The formula formula is : Total cost of Putaway / Total items

Assessment interpretation : Putaway cost per line metric is usually measured in working hours per Dollar and can highlight inefficiencies in the putaway process.  Lower numbers indicate more efficient and productive putaway operations.

B. Storage productivity = Inventory volume per square foot of warehouse

The formula formula is : Total number of inventory items / Warehouse volume

Assessment interpretation : Storage productivity KPIs show how efficient your warehouse or distribution center is when it matter of inventory storage.  These KPIs are more relevant to some operations than others.  Warehouses that use automatic storage and retrieval systems (ASRS) will have denser storage numbers than using manual pickers.

C. Storage utilization = Percentage of storage space included in inventory

The formula formula is: Storage space is covered in inventory / warehouse space

Assessment interpretation: Storage utilization shows how efficient your warehouse or distribution center is in terms of storage space.  There may be available space that can be allocated for inventory storage or if the warehouse is too congested, it can hinder the ability for workers to putaway quickly in selecting orders.

D. Inventory turnover = The number of times an inventory has been sold and replaced over a certain period of time

The formula formula is: Sales / Inventory (or cost of goods sold /average inventory)

Valuation interpretation: High turnover can indicate strong sales or insufficient inventory to meet demand.  Low turnover indicates weak or overstocking sales.

E. Inventory sales ratio = The relationship between the amount of inventory stored and the number of orders filled

The formula formula is : Inventory value / Sales value

Valuation interpretation: The inventory-to-sales ratio should be lower over time, indicating that you have enough inventory to meet sales expectations without overstocking.

These storage and inventory management KPIs are important when it matters of maximizing storage utilization and reducing inventory costs.

4. Pick Up and Packing Goods

A. Costs incurred per order line, including pick up, handling, labeling, relabeling, and packing

The formula formula is : Cost picking and packing / order line

Assessment interpretation: Slow picking speed and errors are very expensive and negatively impact the Bottom line as well as customer satisfaction.

b. Productivity Pick = Selected rows per hour compared to previous historical numbers

The formula formula is: Hourly production of employees or teams (orders, lines, cartons) / time (usually in hours)

Assessment interpretation: Optimizing selection productivity reduces labor costs and expands facility capacity.  "Multi-Channel Merchant" does a great job in detailing the complexities involved in measuring and improving picking productivity.  You can increase pick-up speed with pick-to-Light technology, which helps warehouses, distribution centers, and manufacturing facilities select, package, and ship more orders, in less time, with fewer errors.

C. Pick accuracy = Selection accuracy indicator to ensure customers receive the correct order

The formula formula is: Hourly production of employees or teams (orders, lines, cartons) / time (usually in hours)

Assessment: Low selection accuracy indicates lack of quality control, putaway errors, choice list issues, or training issues.  Choosing inaccuracies increases cycle time, reduces customer satisfaction, and negatively affects profit margins.

You can significantly improve accuracy with pick-to-Light technology, which helps warehouse operators select, package, and ship more orders, in less time, with fewer errors.

5. Delivery of Goods

Shipping seems like the simplest thing about warehouse management, but nevertheless, shipping goods is not just a matter of putting goods on trucks and delivering them to customers. Delivery is not provided only to customers, but also to other departments or other facilities. Regarding KPIs, some of the best metrics for delivery include lead order time, perfect order rate, and return order rate.

A. Leadtime Order is the time it takes to order the goods to get to the customer after it is placed.

B. The perfect order price is the total number of warehouse orders shipped without any problems. This is how you keep up with the success rate of warehouses or distribution centers.

C. The return order level is the rate at which orders are entered for items that are out of stock.  Keeping up with these performance indicators can help indicate possible problems in planning and forecasting in warehouses or distribution centers.

These suggested KPIs are just some of what I'll discuss later on my next article. However, many of these more specific indicators are adaptations of basic ideas. 

Since warehouses are the busiest area of growing operations, it makes sense to measure and then review the performance of your indicators. As business changes, certain indicators will become more important, and some others less important.

HOW TO MEASURE WAREHOUSE EFFICIENCY? 

KPIs For Warehouse Operations
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Understanding The Necessary KPIs

How to measure warehouse efficiency? Before you go any further, then you need to understand first the right type of KPIs and indeed indispensable.

How Many KPIs Do You Need?

When measuring the effectiveness and cost of your supply chain, you certainly want to set up and monitor a number of KPIs to monitor your supply chain components. Keep in mind, however, that there are things like using too many KPIs. 

When determining which KPIs to measure, it's a good idea to consider the following:
  • Arrest order
  • Inventory management
  • Purchasing and supplier management, production or manufacturing, and warehousing

Cross-function KPIs tend to provide snippets of the following end-to-end performance factors:
  • Perfect order (level of accuracy that meets customer requirements)
  • Inventory level
  • Stock loss and/or loss
  • Gross profit
  • Cost of goods sold
  • Total logistics costs


Measuring KPIs in this area is efficient enough for your supply chain management. For some people, identifying 8 areas for a KPI does not seem to be enough and they tend to overdo it by monitoring more KPIs than necessary.

Risks When You Have Too Many KPIs

The main reason why some companies invest in measuring too many KPIs is a lack of knowledge of what KPIs are. This is understandable because it wants to capture as many metrics as you can, especially in this age with powerful analytics software solutions. But, it's certainly unrealistic to expect people to monitor so many KPIs every day and every week.

KPIs must consist of several metrics that are realistically monitored and react constantly. KPI metrics don't have to be small either. KPIs should only track the most important elements of warehouse or distribution center performance.

The difference between KPIs and metrics will vary based on your organization's different levels. For example, the "Acceptance accuracy" metric record in the warehouse must be a useful KPI for the warehouse manager, but at the same time, the "Acceptance accuracy" metric record will not be relevant to executive-level KPIs.

As I mentioned earlier, no one knows exactly how many KPIs you need to monitor.  All will say that such KPIs will vary from business to business based on a variety of factors and elements. Long story short, if you are tempted to ask if you have too many KPIs, then the answer is you may have done so.

Set up your KPIs

Another reason not to have too many KPIs is to reduce the need to apply different levels of detail to each KPI. The result of attaching too many details to KPIs in the development of even half a dozen logistics KPIs can result in double or triple the total number of metrics in total. 

To reduce the number of clutter from having overly detailed KPIs, you can create a KPI hierarchy. Having a KPI hierarchy provides managers with a measured metric level that is appropriate for a single level of management. The goal is to make sure it's not very common, or too detailed, and it's not difficult for managers to maintain it. But again, you have to make sure your KPI hierarchy isn't too high that will offset that balance. You better focus first on two or three issues first.

Create a Two-Tier Hierarchy

Creating a two-level hierarchy is the simplest way you can get it. When you're looking to keep it as simple as possible, you'll realize that two tiers of logistics KPIs turn out to be enough. It also makes naming easy. You can call this highest level with "Primary level" and this second level with "Intermediate level".

A primary-level KPIs will be what you need to monitor at the executive level within your company.

Some metrics you may want to include in your primary-level KPIs are:
  • Logistics costs as a percentage of sales
  • Inventory Changes
  • Total days of inventory

Moving away from the primary level KPIs, we will now see secondary-level KPIs. At the secondary level, you will have KPIs that provide more detailed information with the intention of highlighting possible causes of fluctuations in key-level KPIs.

Examples of these secondary-level KPIs can include the following:
  • Warehouse costs as a percentage of sales
  • Transportation costs as a percentage of sales
  • Inventory of finished goods changed
  • Inventory of raw materials changed
  • Obsolete supplies
  • Work in the progress of the day
  • The finished goods of the day
  • Raw materials of the day
  • Full in-entry delivery
  • Timely inbound delivery
  • Delivery out in full
  • Delivery out on time
  • Production cycle time

Complexity

Let's say a two-tiered KPI solution isn't enough to sustain your warehouse or distribution center. You may want to consider a three-tier hierarchy. A three-tier KPI hierarchy can be required to include additional metrics but keep in mind that this will be a little more complex.

You see with the two-tier hierarchy above, the main hierarchy measures your metrics that give you an overall view, while the secondary level provides a more detailed view of key-level metrics that give you more complex and complex information.

The three-tier hierarchy can work if your business needs it but be sure to understand the added complexity if you want to use the system. Remember, while it's possible to keep adding further levels to even more detailed metrics, the more tiers you have, the more complex your KPI solution is. It would be better if you maintain a simple system where your KPIs work with you.

Creating Effective and Efficient KPIs For Warehouse Operations

There's an awful lot of information about what KPIs are and how they can be utilized. Having accurate metrics is critical to warehouse efficiency because immeasurable metrics can lead to inventory cost issues that can affect a healthy business.

An effective method to keep warehouses efficient is through an effective pick-to-Light process. A pick-to-Light process is beneficial for a variety of factors. For one reason, it can even be very important in order to increase KPIs.


That is an article about KPIs For Warehouse Operations, hopefully this article is useful and can add to the science of all of us.

Reference:
www.investopedia.com

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