How to Measure Warehouse KPIs to Improve Performance
September 24, 2021
But how do you know if a warehouse is performing well?
Warehousing requires keeping a close eye on performance by monitoring KPIs related to receiving, inventory management, and fulfillment.
By failing to monitor key KPIs, it will be hard to optimize your warehouse and make improvements accordingly.
In this article, learn how to track warehouse performance by monitoring the right KPIs.
What are warehouse key performance indicators (KPIs)?
Warehouse key performance indicators (KPIs) are metrics associated with measuring warehouse performance, from the receiving process to fulfilling orders.
Setting warehouse KPIs make it easy to monitor OKRs by tracking how efficiently an ecommerce warehouse is operating while also uncovering potential problems, managing risks, and finding ways to optimize workflows.
There is a lot that goes into warehouse management, which is why warehouse KPIs are often broken down into different categories, from inventory management to fulfillment.
Why tracking warehouse KPIs is important
Here is a breakdown of the importance of tracking warehouse KPIs.
Improve warehouse efficiency
Tracking warehouse KPIs helps to improve warehouse efficiency.
By tracking performance, you can identify areas to focus on, improve upon, and invest in. There are many factors that play into an efficient warehouse, so it’s important to identify any areas of weaknesses, so you can optimize and improve accordingly.
For instance, there have been many advancements in digital warehousing that help to cut out mundane tasks by automating them, which eliminates time-consuming manual work, saving thousands of man-hours.
But maybe it’s not so much inefficiencies in how your team operates that’s causing inefficiencies, but rather your current warehouse setup. If you’re tracking the right KPIs, you might find that technology could help optimize your storage, as well as streamline order fulfillment workflows.
Overall, tracking warehouse KPIs can show you how to improve efficiency, whether it’s by implementing technology or improving internal processes.
Saves retailers money
Along with improving efficiencies, optimizing areas of your warehouse operations that need improvement can help to optimize logistics costs.
Saving money is top of mind for most ecommerce businesses — but it’s never been more important. In 2021 alone, logistics warehouse tenants have seen a 10% rate hike due to high demand for warehouse expansion and construction. Just the cost of renting a warehouse can quickly cut into profit margins.
Taking the time to find ways to optimize efficiency and workflows can help you — and better yet, identifying how much warehouse space you really need. This might also include taking a look at how to optimize inventory levels to meet demand while cutting back on holding costs.
Improves customer satisfaction
Whether it’s improving fulfillment workflows to ensure accuracy, or finding ways to speed up the returns management process, much of how your ecommerce warehouse operates impacts customer satisfaction.
That’s why it’s essential to track certain ecommerce KPIs that identify how your warehouse operation is influencing the customer experience, such as order accuracy and shipping times.
Warehouse location plays a key role in setting up your warehouse(s) to meet customer expectations. For instance, you might find that moving your warehouse to a more centralized location closer to more of your customers can enable faster and more affordable shipping.
“As we started to hit that first inflection point of growth, it became apparent we needed to look for a 3PL that could help us expand geographically in the US and also drive down shipping costs and expenses.
We distribute inventory across ShipBob’s fulfillment network so we can be closer to major distribution hubs, shipping carriers, and more of our customers. Since switching to ShipBob, our fulfillment costs went down by 25%.”
Michael Peters, VP of E-Commerce Operations at TB12
Ensure better workplace satisfaction
The more safe and engaged your team feels, the more efficient your warehouse will be.
In 2019, according to the US Bureau of Labor Statistics, the transportation and warehousing worker injury rate was 4.4 per 100 full-time workers. Unfortunately, warehouse injuries and fatality rates continue to rise.
Though speed is a top priority, an unsafe environment will only slow your team down. By looking at safety KPIs, you can determine whether or not your internal processes encourage a safe environment for your employees, and can therefore lead to higher productivity.
For example, not leaving trash or equipment in the middle of the floor is both safe and makes getting around on a forklift easier. And creating a one-way workflow can be an efficient way to set up warehouse workstations as it helps to ensure safety and eliminate congestion.
Warehouse KPIs to track for measuring & improving performance
There are several effective ways to measure warehouse performance, from how well inventory is managed to how efficient your warehouse picking and packing process is.
Below is a breakdown of the different warehouse KPIs by type and what metrics to follow.
Inventory is the center of your logistics operations. Without enough inventory to meet demand, it will be challenging to run an efficient warehouse. And too much inventory can also lead to higher costs with too much capital tied up in it before you sell it.
Here are the essential metrics to track, so you can measure the effectiveness of your warehouse inventory management process.
- Inventory-to-sales ratio: This KPI tracks inventory on hand at the end of the month versus the number of sales you made within the same month. You can use this metric to detect when your sales are dropping as average inventory units on hand increase or don’t deplete as fast as they typically do.
- Inventory carrying cost: Your inventory carrying cost is calculated by adding up all the expenses associated with holding and storing unsold finished goods. Tracking how much you’re spending on carrying costs helps you keep track of inventory expenses and makes inventory accounting much easier during tax season.
- Inventory accuracy: Inventory accuracy refers to monitoring physical counts of inventory and comparing it with what has been recorded. Your inventory accuracy rate can give you some insight into how well you manage and track inventory as it enters and leaves the warehouse.
- Inventory shrinkage: Similar to inventory accuracy, monitoring inventory shrinkage is when actual inventory levels are less than what’s recored in the a business’s balance sheet. Inventory shrinkage could occur for a multitude of reasons like theft, damage, or even supplier fraud.
- Inventory turnover rate: Tracking inventory turnover shows how many times inventory is sold and then replaced in a specific time period. Understanding the average inventory turnover rate is a critical measure of business performance, cost management, and sales. It can also offer you insights into what your best-selling versus slow-moving items are. The faster you turn over inventory, the quicker you are selling products and recouping money.
Tracking these essential inventory KPIs is a great start in optimizing your warehouse, but it’s also time-consuming and requires technology — such as an inventory management system — to accurately track inventory activity in real time.
That’s why many brands turn to a 3PL like ShipBob to help with inventory management. ShipBob’s proprietary warehouse management system (WMS) includes built-in inventory tracking tools, so merchants are able to easily reconcile inventory without being involved in the day-to-day operations.
From the ShipBob dashboard, we make it easy to pull custom inventory reports, which let you view a trend analysis of your products and give you more control over the key metrics that drive business growth, including carrying costs and other operational expenses.
“We utilize ShipBob’s Inventory API, which allows us to programmatically retrieve real-time data on how many units of each product are currently stored at ShipBob’s warehouses. We currently use this API to generate custom reports to tie this inventory data into our accounting platforms.”
Receiving inventory is a crucial part of managing a warehouse. It ensures that all inventory is accounted before it gets stowed away.
Let’s say you order more inventory from your supplier and it’s put on the shelves only for you to find out later that what you ordered didn’t match up to what you received.
Monitoring warehouse receiving performance ensures that your receiving process is efficient and accurate. It also provides you with a better understanding of when to reorder more inventory, putting both production and receiving timelines into consideration. Here are some of the most common receiving KPIs.
- Receiving efficiency: Monitoring receiving efficiency tracks the productivity of work being carried out when receiving more stock. Any inefficiency in this area could indicate a need to optimize it with more streamlined processes, staff training, or new equipment.
- Receiving cycle time: The receiving cycle time refers to how long it takes to process new stock received in your warehouse. It includes everything from counting it, to sorting and storing it. A long receiving cycle time could indicate a need to improve your processes to make them more efficient.
- Cost of receiving per line: Warehouse receiving involves time and labor. Cost of receiving per line refers to how much money you spend on receiving new products.
The following KPIs can help you measure your put-away process, which refers to how efficiently your team puts away new inventory to their assigned areas within the warehouse.
- Put-away cycle time: The put-away cycle time refers to how long it takes to put away items in your warehouse. An efficient put-away process will show up in the form of shorter put-away cycle times while a long put-away cycle time could indicate that you need to review your existing process and identify ways to improve.
- Put-away accuracy: Put-away accuracy refers to the percentage of inventory that you put away correctly the first time. This KPI is critical to follow, because it can influence your picking process and how accurate items are being fulfilled. It can also slow down your team later on in the process if they’re struggling to find items in the warehouse when fulfilling orders.
- Put-away cost per line: The cost per line KPI gives you an idea of how much you spend on putting away each line of items, with higher costs indicating a potential inefficiency in your current process.
Warehouse picking requires efficient workflows that allow your picking team to quickly pick the right items per order without compromising accuracy, such as mis-picks. To track picking performance, here are few KPIs worth monitoring.
- Picking efficiency: Also known as “picking productivity,” tracking picking efficiency refers to the number of order lines that are picked every hour.
- Picking accuracy: Accuracy is one of the most critical warehouse KPIs. It can help you identify how many orders are being picked and packed without errors. If accuracy rates start to fall, it’s a sign there isn’t enough bandwidth or your team needs more training.
- Picking cycle time: The picking cycle time tells you how long it takes to pick each order. If cycle times are longer than average, it might be time to implementing warehouse technology and automation tools.
- Picking and packing cost: Of course, tracking picking and pack costs can tell you how much you’re spending, from labor costs to packaging materials.
If you’re having trouble with fulfilling orders accurately, outsourcing the pick-and-pack process to a 3PL is worth the investment. ShipBob’s pick and pack fulfillment service is designed to keep your costs low while increasing efficiency and accuracy.
As soon as an order is created or automatically imported into your ShipBob dashboard, it is seamlessly routed to the closest fulfillment center to be fulfilled. Once we receive an order, a team member is given a digital picking list of the items, quantities, and storage locations at our facility to procure and count to complete their pick, scanning each item every step of the way so you can fully see where an order is in the fulfillment process in real time.
Our facilities are also optimized to efficiently fulfill orders by using methods such as batch picking. The efficiencies we gain can be passed back on to you in the form of cost-savings.
“We see outsourcing fulfillment as a cost-savings that will save you money in the long run. 3PLs negotiate rates, give you back all the time you’d spend on fulfillment, and reduce the errors you’d make.
We looked into opening our own warehouses and hiring employees, but couldn’t come close with what 3PLs charge for picking, packing, and shipping.
We’d also be worried about scheduling fulfillment shifts, ordering boxes and shipping labels, and dealing with the extra headaches of running logistics.”
Gerard Ecker, Founder & CEO of Ocean & Co.
Other important parts of warehouse operations include order management and shipping. Looking at your entire supply chain operation as a whole can provide more insights into how well your warehouse operations is performing.
Here are a few more distribution metrics and performance-related KPIs worth tracking to optimize warehouse performance.
- Order lead time: Relating to customer satisfaction, this order lead time metric helps you understand how long it takes for a customer to physically receive their order once they’ve placed it.
- Total order cycle time: With a direct impact on fulfillment, average order cycle time refers to how long it takes to get your order ready to be shipped. It starts from the moment an order is placed and includes the entire process of picking, packing, and any other step(s) needed for it to get in the carrier’s hands.
- On-time shipping rate: On-time shipping rate keeps track of how well you manage to ship out orders without delay, as well as tracking last-mile delivery times by carrier partner. This helps you decide what shipping methods to offer and what carriers to partner with.
- Rate of returns: Ecommerce return rate is also important to measure because it requires labor and costs to process and return the items to their designated areas within the warehouse (or to dispose of them) on top of extra potential shipping or product costs. Whether returns are due to product damage, an unwanted gift, a product description that doesn’t match reality, or the incorrect item sent — tracking returns can provide insights into product quality and overall customer satisfaction.
“Compared to other warehouses we’ve worked with, ShipBob processes orders so quickly to get them out the door faster.”
Harley Abrams, Operations Manager of SuperSpeed Golf, LLC
Accidents in the warehouse not only put your staff at risk but could seriously damage your bottom line. Be sure to also track warehouse safety when monitoring warehouse performance.
- Accidents per year: When it comes to accidents per year, it’s important to keep this number as low as possible with the goal of zero accidents per year.
- Time since last accident: Though the goal is to have no accidents, unexpected accidents do happen. But hopefully the time between accidents is high and infrequent.
- Time lost due to injury: It should always be a business’s priority to keep people safe. While accidents aren’t necessarily thought to be measured as in terms of time, tracking time lost due to injury shines more light on how much of an impact injury has on workplace productivity, employee satisfaction, and overall costs.
- Total recordable incident rate (TRIR): TRIR is the total number of work-related injuries per 100 full-time workers during a one-year period. Note: OSHA uses this metric to gauge a business’s safety performance and monitor high-risk industries.
So how do you track all of those?
Keeping track of all these warehouse KPIs can be a challenge while also trying to manage other parts of your business, such as product development, marketing, and customer service. That’s where technology and automation comes in.
Warehouse automation is an integral part of optimizing the supply chain, as it reduces the time, effort, and errors caused by manual, variable tasks. Warehouse technology is also used to automatically record and aggregate data all in one place, so it’s easy to analyze performance and make improvements accordingly.
However, warehouse automation and technology can be big investments (on top of the high cost of leasing a warehouse or purchasing land). Tech-enabled 3PLs like ShipBob offer the fulfillment infrastructure, technology, expertise, and customer support needed to grow a successful online brand without the need to run your own warehouse and invest in premium fulfillment technology.
“Logistics is something you never think about until it stops working, and we’ve never come to that point with ShipBob. Everything just works. We are super happy with ShipBob and very impressed by how well they’ve pumped out our large volume of orders.”
Sergio Tache, CEO of Dossier
Stop worrying about warehouse performance — outsource fulfillment to ShipBob!
From product development to reaching new customers — online retailers already have a lot on their plate. That’s why fast-growing direct-to-consumer (DTC) brands turn to ShipBob.
By outsourcing fulfillment to ShipBob, you don’t have to manage your own warehouse to maintain control over operations. From receiving inventory to orders leaving the warehouse, ShipBob offers full visibility into your logistics operations.
All of ShipBob’s distribution centers are powered by the same, best-in-class technology, which makes it easy to track warehouse performance, real-time inventory levels, and fulfillment and shipping activity all in one place.
“ShipBob provided us with an in-depth analysis based on our order history and helped us understand which custom box sizes we should stock ourselves at ShipBob warehouses to help reduce our costs.
We feel like ShipBob is a partner that’s in it together with us. We never get the sense that ShipBob is just interested in getting our fulfillment fees. It is much more than that — they really care about our success and what makes us successful as a company.”
Ready to learn how ShipBob can help you better manage your supply chain by taking warehousing off your plate? Click the button below for more information and custom pricing.
Warehouse KPIs FAQs
Here are answers to the most often asked questions about warehouse KPIs and metrics.
How do you evaluate warehouse performance?
You can evaluate warehouse performance by keeping track of vital warehouse KPIs that relate to receiving, inventory management, warehouse safety and fulfillment and shipping performance. Monitoring the different parts of your warehouse will provide you with insights on how to optimize workflows and processes.
How are warehouse KPIs measured?
Warehouse KPIs are measured using different formulas and calculations. However, since there is a lot of activity that occurs within a warehouse, it’s always best to invest in a warehouse management system, as well as inventory management tools to help you automatically track activity and aggregate data all in one place.
What metrics should a warehouse track?
There are several different metrics to track when managing your own warehouse. Some of the most important metrics include carrying costs, order accuracy, and inventory turnover rate but you should also look at receiving KPIs, put-away KPIs, picking KPIs, safety KPIs, and more.