It can be argued that the warehouse serves as the heart and soul of any eCommerce merchant’s operations. And, with today’s customers demanding ever-faster delivery of their purchases, all warehouse procedures must be performed at the highest level possible.
The plethora of KPIs (key performance indicators) available to merchants can provide an enormous amount of data to help achieve optimal results. From the time goods arrive at the loading dock until they are picked up by a shipping carrier, online retailers can measure (and improve upon) a broad array of processes.
At SkuNexus, the management software systems we design help automate, streamline, and optimize the full range of procedures performed in the warehouse. We know how important an organized, efficient warehouse is, and the role that KPIs play, in maximizing revenues, increasing productivity, and boosting customer satisfaction.
The sheer number of metrics available can be overwhelming, so we are providing here what we consider the 18 most important warehouse management KPIs. Using this information, merchants can see where they are doing things well, where they should make minor adjustments, and where major changes may be required.
1. Time to Receive
Definition: Measures process efficiency of stock reception.
Formula: Time needed for inbound stock to be accepted + validated + added into inventory records + made ready for putaway
— Any delays or breakdowns during receiving can create further backlog as inventory moves through the warehouse. Pinpointing, and addressing, deficiencies here will save time, reduce costs, and improve inventory flow. For reporting purposes, this KPI should be recorded within your warehouse management system (WMS).
2. Receiving Cost per Line
Definition: Total amount spent on receiving a line of products from vendors.
Formula: Total cost of receiving / Total number of items per receiving line
— Cost-based KPIs can provide clarity by putting operations into monetary terms. A higher cost per line denotes a less-than-optimal receiving process.
Definition: Metric to evaluate warehouse productivity when receiving stock.
Formula: Volume of Inventory Received / Total # of Working Hours
— Receiving consists of a series of micro-tasks: pre-receiving preparation for what is arriving, unloading, inspection, and putaway prep. The use of barcode scanners, organization of paperwork, placement of equipment (forklifts, pallets, etc.), and optimized warehouse configuration can all play roles in maximizing receiving efficiency.
Putaway KPIs4. Putaway Accuracy Rate
Definition: Percentage of inventory put away error-free the first time.
Formula: (# of items put away correctly / Total # of items put away) x100
— Putaway accuracy is essential to the fulfillment operations that will follow, as inaccurately-stored items will only cause delays in pick/pack/ship. Barcode scanning helps ensure accuracy and must be employed here. WIth proper controls in place, there is no reason why a merchant cannot aspire to a perfect accuracy rate.
5. Putaway Cost per Line
Definition: Total amount spent to put away a line of products from vendors.
Formula: Total cost of putaway / Total # of line items
— Just like the receiving cost per line KPI, this measures the cost to put away a line item on a purchase order. To reiterate, the higher the put away cost per line, the less efficient a warehouse’s put away process.
6. Putaway Cycle Time
Definition: Average time to put away a single item.
Formula: Total time taken to complete process of placing received inventory into storage / Total number of items in given period
— An extension of Time to Receive, this KPI indicates efficient (or inefficient) warehouse processes. Putaway Cycle Time can be optimized via directed putaway, wherein the WMS provides clear instructions re: exactly where goods are to be stored the moment they enter the facility.
7. Dock to Stock Time
Definition: Time to receive, sort/process, and place items in storage.
Formula: Sum cycle time in hours for all supplier receipts / Total # of supplier receipts
A receiving/putaway combo KPI. An efficient loading dock is a catalyst. Breakdowns and tie-ups here will have a negative ripple effect throughout the warehouse, whereas well-managed and executed dock-to-stock processes provide a foundation for optimized fulfillment.
Inventory KPIs8. Shrinkage
Definition: Percentage of recorded inventory not in actual inventory.
Formula: [(Cost of Recorded Inventory – Cost of Physical Inventory) / Cost of Recorded Inventory) x100
— Shrinkage measures inventory that cannot be accounted for. The “reasonable” causes (accidental damage, miscounting) still indicate potential errors in processes that must be corrected, while theft and/or fraud are among the most serious issues a merchant can face and must be investigated and rectified ASAP.
9. Inventory Accuracy
Definition: Difference, expressed as a percentage, between what you actually have in available physical stock and what you think you have, i.e. what the inventory record shows in your inventory management system (IMS).
Formula: (Counted Items / Items on Record) x100
— In general, low inventory accuracy is usually the result of one of three things, or in worst-case scenarios, a combination thereof: disorganized storage, shrinkage, and/or suboptimal inventory management. A well-organized warehouse combined with a powerful WMS/IMS can automate processes to increase operational control. Manual record-keeping and decision-making are hindrances to growth and can develop into crippling problems for any online retailer.
10. Inventory Turnover Rate
Definition: Ratio of how frequently inventory sold and was replenished during a specific time period.
Formula: Sales/Average Inventory OR Cost of Goods Sold/Average Inventory (Numbers represent $ amounts)
— Inventory Turnover Rate will help inform decisions about stock levels and/or pricing. The two methods of computing ITR are not equivalent, however, and this must be understood. The COGS ratio is considered more accurate as it does not incorporate sales markups on top of cost. Regardless of method used, a low ITR can denote poor sales or excess inventory whereas a high ITR, while preferable if due to strong sales, can also mean pricing levels are too low and need adjustment.
11. Inventory Cost of Carry
Definition: Percentage of total inventory value a company pays to maintain inventory in storage.
Formula: [(Inventory Service Costs + Inventory Risk Costs + Capital Cost + Storage Cost)/Total Inventory Value] x100
— This KPI shows how efficiently goods are moving and can reflect the accuracy of your demand projections, the strength of marketing campaigns, and the quality of warehouse layouts. High carrying costs are generally the result of multiple factors and, as such, can be targeted and lowered with a careful top-to-bottom analysis of all inputs.
12. Order Picking Accuracy
Definition: Percentage of orders picked error-free.
Formula: (# of orders picked & verified accurate prior to shipping / Total # of orders picked in time frame) x100
— Few things disappoint a shopper more than receiving the wrong item - it will be returned at your expense and the customer may never return to your store. Fortunately, the total, or near-total, elimination of picking errors is a viable goal for eCommerce merchants of all sizes. Tightly-controlled receiving and putaway operations can ensure items are in the right place, and rigorous barcode scanning and automated picklists help provide the framework to achieve as close to 100% picking accuracy as possible.
13. Orders Picked per Hour
Definition: Productivity KPI for picking operations
Formula: Total orders picked / Total hours worked in picking
Elimination of manual decision-making for pickers through automation is an excellent way to improve this metric and increase picking accuracy simultaneously.
14. Lines Picked/Shipped Rate
Definition: Measures fulfillment performance across multiple product lines.
Formula: Total order lines picked and shipped / Total hours worked in picking and shipping
Because orders may comprise items from different product lines, this is a broad metric to identify fulfillment disparities between them. Results may involve placing certain lines in different locations, altering picking/packing methods, or any other changes to improve efficiency.
15. Rate of Customer Returns
Definition: Percentage of shipped items returned to merchant.
Formula: [(# of Items Returned) / (Total # of Items Shipped)] x100
— While returns may be a fact-of-life for any eCommerce enterprise, mitigating them is crucial to reducing the myriad of associated costs. This KPI must be analyzed for potential patterns to determine why items are being returned.
Warehouse Safety KPIs
16. Time Lost Due to Injury Rate
Definition: Percentage of potential worker time lost due to accident within a given time frame.
Formula: (# of hours lost due to accident / Total Number of Hours Worked) x100
— Accidents are costly. Employee down time due to on-the-job injury can impact morale, productivity, and the bottom line. Not to mention, the company that fails to address safety issues is the company that seemingly doesn't care about its people. This metric should never be ignored.
17. Time Since Last Accident and 18. Accidents per Year
Definition: These are self-explanatory.
— The safety of your employees comes before anything else and this is exemplary of a well-run warehouse. By establishing procedures and protocols for cleaning up spills, servicing lighting, and anything else that may help prevent a workplace accident, you can foster an environment based on safety. Accidents will happen, but taking the steps to minimize their probability is always the best course of action.
The breadth and depth of KPIs directly and indirectly related to warehouse management can give your eCommerce business a treasure trove of data to monitor, analyze, and improve upon. All of these metrics have value and give actionable insights useful for any merchant looking to grow and scale its enterprise.
At SkuNexus, our goals are aligned with our clients, and we strive to design warehouse/inventory/fulfillment management software solutions so that all their KPIs, regardless of category, are moving in the right direction.
If you would like to learn more about SkuNexus and what we can do for your eCommerce business, please schedule a demo.
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Editor's Note: This post was originally published in 2018 and has been completely revamped and updated for accuracy and comprehensiveness.