Common Warehouse KPIs: How to Choose and Use Them

Is your business one that operates distribution centres and other warehouse facilities to maintain control of inventory? If so, you’re probably engaged in the eternal search to make warehouse processes faster, easier, less expensive, and safer.

Indeed, such continuous improvement is a staple requirement for successful warehouse operations, but to improve continuously, you need the right supply chain key performance indicators (KPIs) to provide quantifiable visibility of performance. A warehouse management system (WMS) plays a crucial role in tracking and optimising these KPIs, thereby enhancing operational efficiency.

As we’ve mentioned in other KPI articles that we’ve written, in our consulting work we come across a surprising number of businesses that struggle to choose and use KPIs effectively.

So now and then, we like to publish an article to help demystify the topic. This time we’re going to share some warehouse-specific insights into KPI selection and use.

Understanding Warehouse KPIs

What are Key Performance Indicators (KPIs)?

KPIs are measurable numbers that show how well an organisation is doing at achieving its goals. In warehouse operations, KPIs are used to measure and report on various aspects of the warehouse, such as inventory management, order fulfilment, and shipping.

As warehouse optimisation consultants, we often help companies determine, track, and analyse their KPIs. This allows warehouse managers to identify areas to improve, optimise processes, and make data-driven decisions to increase efficiency and reduce costs.

Benefits of Using Warehouse KPIs

Let’s begin with this — a typical question from those unfamiliar with KPIs and their use in warehouse performance improvement. We’re sure you don’t need us to spell out the general benefits of key performance indicators, but it’s not always easy to see the specifics of how they can help you manage your warehouse.

Indeed, there is something of an art to using KPIs effectively, and it’s primarily in the appropriate selection of the right combination of metrics.

Using warehouse KPIs offers several benefits, including:

• Better Inventory Management: By tracking inventory turnover, inventory accuracy, and other KPIs, you can optimise inventory levels and reduce stockouts and overstocking, ensuring you have the right stock at the right time for better inventory management.
• Increased Customer Satisfaction: By monitoring order fulfilment rates, shipping times, and other KPIs, you can ensure orders are fulfilled quickly and accurately. This means that customers get their orders on time and in good condition.
• More Efficient Operations: Tracking KPIs, such as picking process efficiency, allows you to identify areas to improve and optimise processes, which reduces labour costs and increases productivity. Efficient warehouse operations mean faster processing times and lower operational costs.
• Cost Reduction: By tracking KPIs like carrying cost of inventory, you can identify ways to reduce costs and increase profit. Reducing the carrying cost of inventory can save you a significant amount, as it minimises the costs of holding and managing stock.

KPIs become an invaluable tool for companies that get this right, guiding improvements to productivity, efficiency, cost, service, and safety. One example KPI is the inventory-to-sales ratio, which compares a warehouse’s inventory levels to its sales figures. This ratio is crucial for identifying sales trends, making purchasing decisions, and managing inventory efficiently.

It also helps in forecasting cash flow issues and adjusting stock levels to meet demand. Of course, you will need KPIs that cover each of these elements, so to help you select the right ones, the following sections provide overviews of some of the most useful KPIs in each category.

Common Challenges in Implementing Warehouse KPIs

The truth is, not all KPIs are useful or even worth applying to your operations. Implementing warehouse KPIs can be tough, especially for warehouses with limited resources or no data collection systems. Some common challenges are:

• Defining Relevant KPIs: Warehouse managers must define KPIs that are relevant to their operation and goals. This requires a clear understanding of the warehouse’s objectives and what needs to be improved.
• Collecting Accurate Data: Warehouse managers must ensure data is collected accurately and consistently to support KPI analysis. Inaccurate or inconsistent data leads to wrong conclusions and poor decisions.
• Data Analysis: Warehouse managers need to have the skills and resources to analyse KPI data, perhaps making use of advanced analytics tools and techniques.

KPIs to Speed up the Warehouse

If you want goods and materials to flow through your warehouses or distribution centres at a faster rate, you’ll need to monitor productivity KPIs.

Implementing warehouse management systems can help track productivity KPIs and improve overall warehouse performance by reducing errors and enhancing operational efficiency.

For example, a picking rate of 100 cases per hour (CPH) indicates that your warehouse is working faster than if you pick 75 CPH, and twice as fast as at 50 CPH.

Picking is just one of the warehouse tasks that burn time, though, and you will need KPIs that monitor the speed at which you execute all your other activities.

The following paragraphs highlight some effective productivity KPIs that help you see the speed of your warehouse processes and work towards increasing the pace.

For Goods Receiving

Receiving cycle time – You calculate this KPI by taking the total time required to process inbound deliveries and dividing it by the number of deliveries. That will give you the receiving cycle time, which you can then start looking for ways to reduce.

Receiving efficiency – To arrive at your warehouse’s receiving efficiency, you must have some way to measure the volume of goods that passes through your receiving processes. You must then divide that volume by the number of man-hours required to process it.

Both of the above KPIs are of value in monitoring receiving performance. They each help to highlight inefficiencies in delivery management, checking goods in, and preparing them for storage.

Given that issues in these processes can have a knock-on effect on other warehousing activities, it’s crucial to try and eliminate them to get those receiving cycle times down and efficiency heading upward.

For Putaway

Putaway is the next step for goods received into your warehouse and forms another repetitive cycle of activities. Perhaps the most effective measure of speed here, then, is the putaway cycle time.

To calculate putaway cycle time, you will need to take the total number of man-hours used for putaway and divide it by the total number of items put away.

Again, the aim should be to reduce the cycle time, which might typically mean revisiting warehouse operatives’ training to improve their skills, or perhaps changing the warehouse layout to gain efficiencies.

For Picking

Picking is probably the most voluminous and time-consuming activity in the warehouse, and the secret to speeding it up is to minimise the travel time consumed by your pickers.

First, of course, you will need some way to measure the rate at which your workforce is picking orders. Otherwise, you won’t know if your efforts to reduce travel time are yielding results.

The best KPI for this is probably a straightforward calculation of pick rate, using units per hour. The units might be single items, cases, or even pallets, and you will be looking for the number of picked units per hour to increase as you implement steps to increase picking speed.

KPIs to Drive Warehouse Efficiencies

Efficiency is the Holy Grail of warehouse operations, since an efficient warehouse operates smoothly, quickly, and at optimal cost — and often delivers superior service. A well-selected set of efficiency-focused KPIs will help you identify bottlenecks and pain points in your warehouse, so that you can target them for remedial action.

Tracking carrying costs is crucial in optimising stock levels and minimising expenses. It leads to more efficient inventory management practices, prevents stockouts, and assists warehouse managers in making informed decisions about purchasing and forecasting.

To that end, you may want to consider the following key metrics for measuring warehouse efficiency:

For Goods Receiving

Receiving efficiency, described in more detail in the previous section of this article, is the most suitable KPI for driving efficiency improvements and increasing speed in the goods receiving process.

Receiving cost per line – Cost, as well as accuracy and speed, is a telling factor when assessing efficiency, which is why we can start to include cost-based KPIs for efficiency measurement. For example, you can calculate the cost to receive each line item on your purchase orders. A reduction in the cost per line indicates that your receiving process is becoming more efficient.

For Putaway

Along with putaway cycle time, which we also covered in the previous section, the following two KPIs help to provide insights into putaway efficiency:

Putaway accuracy – This KPI tracks the percentage of inventory correctly put away on the first attempt, and anything less than 100% should be considered unacceptable. To calculate the results, you take the total number of items put away correctly and divide it by the total number of items put away (and multiply the result by 100).

Putaway cost per line – You calculate the results of this KPI in the same way as receiving cost per line. Essentially, you need to understand the variable expenses attached to each step in the putaway process. The higher the costs per line for putting products away, the less efficient the process is, and the more substantial are the opportunities for improvement.

For Picking

Accuracy is one of the most effective barometers of picking efficiency. If your picking processes are streamlined and efficient, the likelihood of picking errors is reduced, and vice versa. Meanwhile, speed, as measured by productivity, can also indicate efficiency. However, it’s not a definitive measure.

For example, you can increase the number of units picked per hour by increasing the number of pickers you use, but that’s hardly an efficient solution.

On the other hand, introducing a process step that reduces the chance of errors will improve productivity and make picking an easier task for your warehouse operatives — and will also help to drive down costs. That’s why we recommend you include order picking accuracy as a KPI for warehouse performance monitoring.

Order Picking Accuracy: The Formula

To calculate order picking accuracy, you will need to have checking steps built into your picking process to catch errors before picked orders end up on the back of trucks. As part of the process, your checkers will need to record the number of inaccurate orders they catch (and, of course, they will need to ensure the errors are corrected).

The formula for order picking accuracy looks like this:

(Number of orders picked accurately / total number of orders picked) × 100

The closer you can get to that magic figure of 100% accurately picked orders, the more efficient your picking process is likely to be.

KPIs to Reduce Costs and Improve Service

As mentioned in several of our other articles about KPIs, there is an intrinsic link between logistics costs and your company’s level of service to its customers — but it doesn’t work the way you probably think it does.

Quite simply, the more you improve service, the greater will be the cost savings you achieve. This service/cost relationship will be readily apparent when you apply a mix of KPIs focused on both, which, in the warehouse, might comprise the following:

One crucial KPI to consider is the inventory carrying cost, which encompasses the total expenses involved in storing goods, including warehousing, labour, and obsolescence. Understanding and managing this cost is essential for optimising stock levels and maintaining healthy cash flow.

For Goods Receiving

We’ve already covered cost monitoring in the goods receiving function, with our earlier explanation of the receiving cost per line KPI. Whilst receiving activities do not directly impact service delivery, they certainly have an indirect influence on it.

The key is to make sure your receiving process is fast, efficient, and as free from mistakes as possible. To that end, all the receiving KPIs mentioned so far will help to highlight how well your receiving activities contribute to service performance.

For Putaway

Putaway cost per line, which we’ve already discussed, is the most appropriate cost-related KPI for the putaway activities in your warehouse.

However, concerning service, it will be the layout and setup of your inventory storage, rather than the putaway processes, that will have the most significant impact.

Putaway cycle time will be a helpful KPI to guide your approach to efficiency gains. After all, having all your inventory away from goods-in and stored in the correct locations as quickly as possible will help you to avoid pick-face replenishment delays and confusion over stock availability.

For Picking and Inventory Accuracy

Picking is the warehouse activity that, arguably, plays the most prominent role in service quality and operating cost. For that reason, visibility of performance is critical, requiring metrics to monitor productivity and accuracy.

To meet those needs, any of the following KPIs will be of value:

• Order picking accuracy – Discussed earlier in this article, but worth mentioning again, as accuracy is essential to minimise rework costs and support perfect order performance.
• Units picked per hour (by operative) – This KPI can be controversial, because it will highlight the differences in productivity amongst individuals in the picking workforce. However, if performance is managed sensibly and your warehouse managers work with pickers to increase picking rates without coercion, it’s an excellent way to gain productivity without increasing warehouse headcount.
• Picking cycle time – Picking cycle time is a measurement of the time taken to pick an order or a shipment. Reductions in cycle time can be achieved by building efficiencies into the picking regimen. These efficiencies, in turn, reduce costs and improve productivity.
• Picking and packing costs – This KPI complements your measurements of picking cycle time, productivity, and accuracy, since picking and packing cost transparency will help you to see the financial impact of changes in those metrics’ values.
• Perfect order – This is not a warehouse-specific KPI. Instead, it reflects performance across a range of functions, including the fulfilment activities conducted in the warehouse. Does your company track the perfect order KPI? If so, it will make sense for warehouse managers to monitor it, if only to be aware of exceptions arising from picking or dispatch errors, or broken or damaged goods.

For Dispatch

Of course, warehouse management responsibilities don’t end once an order is picked. The next step is to get your customers’ deliveries loaded onto vehicles and dispatched.

The speed and efficiency with which shipments are assembled and loaded will substantially impact operating costs and service levels, so these processes should not be left out of your KPI coverage.

One of the most valuable KPIs for dispatch is known as shipped on time, or on-time shipment readiness. It essentially measures the percentage of orders that were dispatched, or were ready for dispatch, on or before the specified shipping date.

Why is this important? It’s because on-time delivery is a critical element of customer service, and there can be many reasons for late delivery. As a warehouse operator, you need to know if and when delays in your processes are the root cause of late deliveries.

The good thing about KPIs and benchmarking is that we can help you choose the right ones and implement them, without the need to physically send our consultants into your business. Most of our KPI services can be delivered on a fully remote basis, so don’t hesitate to get in touch with us if you’d like some assistance with KPIs to help you improve service and costs in your warehouse.

Shipped on Time: What Does it Tell You?

A high percentage of orders shipped on time would indicate that warehouse issues are not causing late deliveries, and that the problems lie with the carrier of the goods. On the other hand, poor performance indicated by this KPI would suggest bottlenecks somewhere in the picking, packing, and dispatch processes.

It could be that your company is achieving good on-time delivery results, even if orders are often late for shipping. In that case, your transportation team or your logistics partners could be taking up the slack, incurring higher than necessary logistics expenses due to the costly practice of expediting deliveries.

Again, such an issue would be exposed by measurement of the shipped on time KPI, enabling remedial steps to be taken, thus improving the cost and efficiency of your company’s logistics process as a whole.

Inventory Management KPIs

Inventory Turnover Rate and Inventory Accuracy

Inventory turnover rate and inventory accuracy are two critical KPIs for inventory management. Inventory turnover rate measures how quickly inventory is sold and replaced, whilst inventory accuracy measures the accuracy of physical inventory compared to recorded inventory.

• Inventory Turnover Rate: This KPI measures the number of times inventory is sold and replaced within a given period. A higher inventory turnover rate indicates that inventory is selling quickly and being replaced efficiently. To calculate inventory turnover rate, divide the cost of goods sold by the average inventory during the same period. This KPI helps warehouse managers understand how well inventory is moving and whether adjustments are needed to optimise stock levels.
• Inventory Accuracy: This KPI measures the accuracy of physical inventory compared to recorded inventory. A high inventory accuracy rate indicates that inventory records are accurate and up to date. To calculate inventory accuracy, divide the number of accurate inventory records by the total number of inventory records and multiply by 100. Maintaining high inventory accuracy is crucial for effective inventory management, as it ensures that stock levels are correctly reflected in the system, reducing the risk of stockouts or overstocking.

By tracking these KPIs, warehouse managers can optimise inventory levels, reduce stockouts, and minimise overstocking. For example, if the inventory turnover rate is low, warehouse managers may need to adjust inventory levels or implement strategies to increase sales. If inventory accuracy is low, warehouse managers may need to implement processes to improve data collection and inventory tracking.

Safety and Other Warehouse KPIs

We’ve deliberately left this final category of warehouse KPIs until last because, unlike those previously discussed, you’re not likely to measure them in a process-specific manner. Instead, you will typically gain more significant benefits by monitoring them over the entirety of your warehouse operation.

Keeping the Warehouse Safe

The first KPIs we want to talk about here relate to safety. Warehouses are inherently hazardous environments, combining heavy items stored at height with fast-moving mechanical equipment, pedestrians, trip hazards, manual lifting and handling, and perhaps other dangers — such as hazardous materials — thrown into the mix.

Safety KPIs, such as number of accidents (per day, week, month, or year), number of man-days lost through injury, and number of near misses reported, are essential for any manager serious about reducing the risk of workplace injuries and accidents in the warehouse, ensuring employee wellbeing, and keeping costs incurred through incidents to a minimum.

Indeed, your company has a moral and a legal obligation to improve workplace safety continuously, and these KPIs will aid immensely in that regard.

Other General Warehouse Performance KPIs

The list of possible KPIs you can deploy in your company’s warehouse(s) is almost endless. Still, as we have often asserted, it’s best to try not to monitor too many, and that is why we have provided details of a select few in this article, sticking to the ones we believe typically offer the best combination of visibility and value.

Before drawing this guide to a close, though, it’s worth listing a few other general warehouse KPIs that can help you keep tabs on performance, namely:

• Backorder rate – (Number of customer orders delayed due to backorder / total number of customer orders placed) × 100
• Backorder line percentage – (Number of order lines delayed in shipment / total number of order lines processed) × 100
• Inventory shrinkage – (Total value of pilfered, damaged, broken, spoiled, or otherwise lost inventory / total value of all inventory) × 100
• Warehouse capacity utilisation – (Amount of warehouse capacity used / total warehouse space available) × 100
• Warehouse costs as % of sales or revenue – (Warehouse expense incurred / total sales or revenue generated by the company) × 100
• Warehouse labour costs as % of total warehouse operating costs
• Warehouse labour costs as % of total supply chain costs

With these KPIs, along with those outlined in the previous sections of this article, you should be able to equip your management team with a comprehensive but manageable dashboard for tracking and analysing warehouse performance.

Don’t Forget About Inventory Management

As we wanted to approach this warehouse KPI topic in some detail, we have deliberately focused on the fulfilment processes in this article.

You may have noticed that we didn’t cover inventory management KPIs in great detail. Instead, we will follow this article with another one soon, written to a similar level of detail, but dedicated solely to KPIs for monitoring inventory management.

In the meantime, if you’d like some more advice, guidance, or hands-on assistance with any aspect of warehouse KPI selection, implementation, or use, our team is right here, waiting to help you.