About Key Performance Indicators (KPIs) for a warehouse, there are many that apply to both inventory and performance. The management of a warehouse comes loaded with many challenges and opportunities.
The best warehouse managers will relentlessly track key performance indicators and use them to evaluate and improve their operations.
Skunexus.
So be sure to review every detail set out here:
Key Warehouse management indicators can be seen here. https://www.skunexus.com/blog/warehouse-management-kpis
Inventory indicators.
We’ll start with Inventory KPIs, giving some of the inventory management metrics that overlap with warehouse metrics. This is one of the most important Warehouse management indicators. Advice: almost all companies make these assessments. We will give simple formulas to calculate these indicators.
1) Shrinkage:
It can be defined as the percentage of inventory that appears in the records but is not physically in the actual inventory. The formula for calculating it is
F= (Cost of Posted Inventory – Cost of Physical Inventory) ÷ cost of posted inventory
Note. When this KPI is excessive, it can mean that you have a problem with inventory damage, theft, erroneous counting, or vendor fraud (when a vendor bills for more products than you ship), and that a thorough investigation must be conducted.
2) Warehouse management indicators: accuracy.
Defined as the percentage of inventory that is tracked and physically present.
The formula for calculating it is:
FTM = (Database Inventory or Software / Physical Inventory) x 100
Note. This indicator gives us the accuracy of the tracked inventory (usually using an inventory management system) compared to the physical inventory in the warehouse. This number is usually close to 100%, but can be disabled if theft, damage, or inventory compliance is not adequately tracked.
3) Inventory rotation rate.
It is a ratio that shows how many times inventory was sold and replaced over a specific time period.
Formula: There are two calculations that will show your inventory turnover rate:
F = Average inventory ÷, or F = Cost of goods sold ÷ average inventory
This KPI tells you how fast you’re selling your inventory. It is often measured based on the rotation rate of industry averages. When your turnover rate is low, it indicates that you have weak sales and excess inventory. A higher proportion shows that you have strong sales or could indicate that you are giving customers large discounts.
4) Inventory cost.
It is the percentage that represents what is spent on inventory overhead each year. F= Transportation costs ÷ overall inventory costs
This KPI tells you how much you will spend (as a percentage) to maintain and store your inventory annually. When you need to reduce the cost of carrying inventory, it’s important to reduce your inventory by eliminating outdated, slow, or dead inventory.
Reception indicators and Warehouse management indicators.
Receiving KPIs are the most important thing to keep in mind when receiving is that if it is done wrong, slowly or inaccurately. This will have a domino effect and make all other parts of inventory or warehouse operations more difficult.
Receiving is the first instance where new inventory enters a warehouse, so it’s important that it’s done quickly, efficiently, and error-free. To organize your warehouse follows our blog post.
Use these KPIs to track this task.
1) Line cost
By definition, the cost of receiving a line item on a purchase order.
F= Total cost of receiving / Total items online.
Which means: The higher this number, the less efficient your will be receiving process.
2) Reception efficiency.
Definition of inventory volume received per hour worked. It is one of the key Warehouse management indicators.
Formula = Volume / number of man hours.
This metric determines how productive employees work in the receiving area. A lower score means employees could be hindered, need additional help, or are being negatively affected by some other factor.
3) Receiving time of a cycle.
The definition is the amount of time it takes to process a delivery.
F = Total delivery time / number of deliveries.
If deliveries take a long time to process, then it can be advantageous to reduce the number of deliveries, or reschedule them so that receiving has more time to process each delivery.
Commodity placement indicators.
Once the inventory is received, it must be saved. These KPIs measure the effectiveness of that process.
1) Precision speed.
By definition, it is the percentage of precisely placed items the first time.
F = properly placed inventory / Total inventory placed
It is a simple metric to calculate, this measures the knowledge and processes of employees who place recently received inventory. This should be as close as possible to 100%, and if it isn’t, it can diagnose where it’s going wrong and fix it to speed up the whole process.
2) Cost of line placement.
This is the cost to save an item line.
Formula: F = Total cost of saving line/total items
Normally measured in man-hours or a dollar figure, this metric can help target areas for cost reduction in the placement process by highlighting inefficiencies. If this is too high, the placement process will need to be improved.
3) Location cycle time:
This is the amount of time it takes to save items on average.
Formula: Total time to save / total time
What it means: these metric measures the average time it takes to save an individual item. It can be adjusted by rearranging the warehouse to store the items faster or by training employees in the most efficient way to complete this task.
Compliance indicators.
These indicators refer to the goals achieved, such as sales, contracts, stored goods, orders delivered….etc. This KPI is a good indicator of your company’s performance.
1) Selection accuracy.
Defining the accuracy of selected orders .
Formula:
F = (Total number of orders – Returns of incorrect items)/total number of orders) x 100
It means that choosing the right products is a very important part of warehouse operations. If this number is low, then an employee is most likely not doing their job properly, or there is no process set in place.
2) Customer return rate
This is the percentage of items returned compared to the total items sold.
Formula: Returned items / items sold
Clearly, this number should be as low as possible, but that is almost never possible. The important thing is to delve into why the items are returned. Damaged or late deliveries are under your control, while product issues or fraud may not be, but they are important to consider.
Security indicators in the warehouse.
Safety is first a good methodology to follow. While safety won’t necessarily increase benefits or efficiency, it can reduce costs, create happier employees, and foster a healthy work environment.
Many of these warehouse security metrics are final indicators: they measure the result, not the input. They will not measure the number of times workouts are performed or compliance with safety standards: they will measure the negative effects they had on warehouse security after they have occurred.
Leading indicators measure proactive activities that contribute to good security practices. For example, holding monthly trainings or requiring certifications.
1) Time Since the last accident.
The definition is the number of days since the last accident occurred.
F = Number of days since the last accident
Get this number as high as possible and keep aiming to get higher. Since this is the main final indicator of warehouse security, it is a good reference point for how security training and monitoring works.
2. Time lost due to injuries.
It’s the amount of time that would otherwise have been spent working.
F = Time lost in hours due to accidents / total number of hours worked
What it means: If an employee is injured at work and cannot work, they cannot contribute, and other resources should be called overtime offered if necessary.
3. Accidents per year.
This indicator is self-explanatory – it is the number of accidents that occur in a year. Surely you want 0, but no one is perfect, and accidents are just that- accidents. They’re not intentional. An increase in accidents per year could indicate bigger problems in workplace safety.
Conclusion.
You probably won’t measure all the key performance indicators in your warehouse. The truth is that there are many and warehouse managers will find the best that are important for their operations, and check the other quarterly or annually. The Key Performance Indicators are key indicators for the company; therefore we cannot fall into the error of wanting to measure everything. We must learn to discard those that are not relevant to our purposes.
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