Warehouse KPIs, Warehouse KPIs, and Warehouse KPIs

Here's a great summary of some of the more important warehouse KPIs that should be measured on a regular basis.

One key aspect here is as you read the summary, measuring the KPI is only part of the role of a warehouse manager, If the KPI falls below expectation or business standard, an investigation or analysis of WHY needs to be implemented, understanding WHY this KPI has not met target and being able to put a plan/project or change in place to change the result next time around is far more important than constantly just measuring the number.

Managing a warehouse comes with many challenges and opportunities. The best warehouse managers will track key performance indicators relentlessly, and use them to iterate and improve their operations.

There can be a lot of overlap between KPIs used in a warehouse with inventory and fulfilment focused KPIs.

Inventory KPIs

Warehouse Shrinkage

Definition: The percentage of warehouse inventory that is listed in records but is not physically in the actual inventory.

Formula: (Cost of Recorded Inventory – Cost of Physical Inventory) ÷ Cost of Recorded Inventory

What it means: When excessive, may mean that you have a problem with inventory damage, theft, miscounting, or supplier fraud (when a supplier bills for more products than it sends), and that a thorough investigation should be performed.

Inventory Accuracy

Definition: The percentage of inventory that is tracked and physically present.

Formula: (WMS Inventory / Physical Inventory) x 100

What it means: This is the accuracy of your tracked inventory (usually through your WMS) compared to physical inventory in the warehouse. This number is usually close to 100%, but can be off if inventory theft, damage, or fulfilment isn’t tracked properly.

Inventory Turnover Rate

Definition: A ratio that shows how many times inventory was sold and replaced during a specific time period.

Formula: There are two calculations that will show your Inventory Turnover Rate:

Sales ÷ Average Inventory or Cost of Goods Sold ÷ Average Inventory

What it means: This KPI tells you how fast you are selling your inventory. It’s often measured against the turnover rate of industry averages. When your turnover rate is low, it indicates you have weak sales and excess inventory. A higher ratio shows that you have either strong sales or it could indicate that you are giving customers large discounts.

Cost of Carrying Inventory

Definition: The percentage representing cents per dollar that is spent on inventory overhead each year.

Formula: Carrying Costs ÷ Overall Inventory Costs

What it means: This KPI tells you how much you will spend (as a percentage) to hold and store your inventory annually. When you need to reduce your cost of inventory it’s important to reduce your inventory by eliminating obsolete, slow-moving, or dead stock inventory.

Receiving KPIs

The biggest thing to realize about receiving is that if it is done poorly, slowly, or inaccurately, it will have a ripple effect and make every other part of inventory or warehouse operations more difficult.

Warehouse Inwards Goods is the first instance that new inventory enters a warehouse, so it’s important that it’s done quickly, efficiently, and error-free.

Use these KPIs to track that.

Cost Per Line

Definition: the cost to receive a line item on a purchase order.

Formula: Total Cost of Receiving / Total Line Items

What it means: The higher this number is, the less efficient your receiving process is.

Receiving Efficiency

Definition: volume of inventory received per hour worked

Formula: Volume / number of man hours

What it means: this metric determines how productive employees working in receiving area. A lower score means employees might be hampered, need additional help, or are being negatively affected by some other factor. Remember working within a GMP compliant warehouse, receiving and checking of goods with QA (quality assurance department) adds to the complexity and time line, this can also be measured as time spent in quarantine.

Receiving Cycle Time

Definition: the amount of time it takes to process a delivery.

Formula: Total Time for Delivery / Number of Deliveries

What it means: If deliveries are taking a long time to process, then it may be advantageous to reduce the number of deliveries, or reschedule them so that receiving has more time to process each delivery.

Put Away KPIs

After inventory is received, it needs to be located/put away These KPIs measure the effectiveness of that process.

Accuracy Rate

Definition: the percentage of items put away accurately the first time.

Formula: Inventory Put Away Correctly / Total Inventory Put Away

What it means: A simple metric to calculate, this measures the knowledge and processes of employees putting away recently received inventory. This should be as close to 100% as possible, and if it’s not, you can diagnose where it’s going wrong and fix it to speed up the whole process.

Put Away Cost Per Line

Definition: the cost to put away a line of items.

Formula: Total Cost of Put Away / Total Line Items

What it means: Usually measured in man-hours or a dollar figure, this metric can help target areas for cost reduction in the put away process by highlighting inefficiencies. If this is too high, the put away process will need to be improved.

Put Away Cycle Time

Definition: the amount of time it takes to put away items on average.

Formula: Total Time for Put Away / Total Time

What it means: This metric measures the average time it takes to put away an individual item. It can be tweaked by rearranging the warehouse for faster put away, or training employees on the most efficient way to complete this task.

Fulfilment KPIs

Picking Accuracy

Definition: the accuracy of picked orders

Formula: ((Total Number of Orders - Incorrect Item Returns)/total number of orders) x 100

What it means: Picking the right products is a hugely important part of warehouse operations. If this number is low, then chances are an employee isn’t doing their job properly, or there isn’t a set process in place.

Rate of Customer Returns

Definition: The percentage of items returned compared to total items sold.

Formula: Items Returned / Items Sold

What it means: Clearly, this number should be as low as possible, but that is almost never possible. The important thing is to dig into why items are being returned. Damaged or late deliveries are under your control, whereas product issues or fraud may not be, but are important to take into account.

Warehouse Safety KPIs

Safety first is a good methodology to follow. While safety won’t necessarily increase profits or efficiency, it can reduce costs, create happier employees, and foster a healthy work environment.

Many of these warehouse safety metrics are trailing indicators - they measure the outcome, not the input. They won’t measure the number of times trainings are had or the adherences to safety regulations - they will measure the negative effects had on warehouse safety after they’ve occurred.

Leading indicators measure the proactive activities that contribute to good safety practices. For instance, holding monthly trainings or requiring certifications.

Time Since the Last Accident

Definition: the number of days since the last accident occurred.

Formula: Number of days since the last accident

What it means: Get this number as high as you can and keep aiming to get it higher. Since this is the main trailing indicator of warehouse safety, it’s a good benchmark for how safety training and follow through is working.

Time Lost Due to Injury

Definition: the amount of time that would otherwise have been spent working.

Formula: Lost Time in Hours Due to Accidents / Total Number of Hours Worked

What it means: If an employee is injured on the job and unable to work, they are unable to contribute, and other resources need to be called in, overtime offered if necessary, and

Accidents per Year

This one is pretty self explanatory - it’s the number of accidents that occur in a year. You want 0, but nobody is perfect, and accidents are just that - accidents. They’re not intentional. A high accidents per year could signal larger issues in workplace safety.