Accurately measuring your warehouse operations success is essential, but you need to be aware of what KPI’s to look at to get the right idea of what areas of your warehouse need improvement. Without looking at these KPI’s, you could be spending time and money trying to optimize completely irrelevant aspects of your operation. Below are some major KPI’s to keep in mind when tracking areas for potential improvement.
Inventory Turnover Rate
Your inventory turnover rate is the number of times per year your warehouse is able to go through its entire inventory. Keeping track of your inventory turnover rate allows you to accurately see the demand for all your products giving you the ability to alter your buying practices if you notice any areas of concern. Comparing your annual turnover rate to that of other operations and industry averages gives you a better picture of how your operation is performing.
Similar to the inventory turnover rate, days-on-hand measures the number of days product remains in the warehouse. The more time product stays in storage, the more cost you build up. While this gives warehouse managers a better idea of how their buying practices are performing, it is also essential to consider both inventory storage per square foot and cost per individual item.
In larger warehouse operations, especially, there may be some difference between the physical amount of inventory and the amounts logged in your digital database. Minimizing this difference, keeping an accurate log of your stock can reduce backorders, decrease overall costs and increase customer satisfaction. Regular cycle counts can improve this accuracy, and some operations turn to third party software or the implementation of RFID technology to streamline this process for keeping a more accurate inventory database.
Order Picking Accuracy
When putting together an order for a customer, the accuracy to which the order is fulfilled is crucial. Incorrect orders and individual product amounts can lead to inventory being returned to shelves and can massively increase costs. As mentioned above, implementing different strategies and software such as RFID and other inventory tracking systems can reduce the amounts of incorrect product from being shipped in the first place before it ever reaches the customer.
Perfect Order Rate
While managing inventory within your warehouse operations helps to reduce problematic shipments before they even leave the distribution centre, tracking how many orders you have delivered without incident can assist you in identifying areas of concern where you can anticipate them in the future.
Monitoring these KPI’s or any others that you define as critical to your operations is essential to improvement to your supply chain. Tracking these metrics and optimizing them when possible, can improve cost savings and lead to fewer mistakes during distribution.