Managing a warehouse is a challenging responsibility at any time of the year, but during the run-up to the festive period, such an assign
ment becomes even more difficult.
Receiving goods, updating inventory, picking, packing, shipping and everything in between needs to be looked after.
All of that hard work is only for a single purpose, and that is to ensure your customers are receiving their goods when they ask for them and in the correct way.
This is precisely why warehouse Key Performance Indicators are absolutely crucial – particular at this time of year. Being able to understand what went right and what could be improved helps to improve your preparation at Christmas and into the future.
On the other hand, failing to fully understand and measure warehouse performance means that it’s next to impossible to actively improve and achieve the efficiency you desire.
In this latest post, we’ll walk through seven essential warehouse KPIs.
KPI One: Efficiency in Receiving
Any warehouse operation starts with receiving and logging incoming physical stock.
Although it sounds like a pretty simple task, the difficulty comes when you factor in:
– Various new stock deliveries every week.
– Items in good condition returned by customers.
– Items in bad condition returned by customers.
– Return to vendor items.
Receiving is the face of the business, and such an important element of the warehouse must be made accountable with its own set of KPIs. This can be achieved by monitoring the time it takes to receive stock, log it and store it.
Of course, bear in mind that Christmas is a busy time, so the findings from this period won’t be useful during non-seasonal parts of the year, but will come in handy next time festive preparations begin.
Timestamps are perfect for this purpose and can be used to record the different steps in the process:
Step One: How long has it taken to receive stock?
Step Two: How long has it taken to log it?
Step Three: How long has it taken to store the stock?
Doing this for every delivery means you can begin to compare averages and understand where, if any, improvements can be made.
KPI Two: Picking Precision
Picking precision is a vital KPI.
Order picking can often be one of the most complex jobs within the warehouse. Even a small mistake will mean customer returns, which costs money to rectify as well as impacting customer satisfaction.
Having an excellent organisational structure is the first step to gaining control and ultimately minimising mistakes and increasing efficiency.
Making the most of warehouse racking and shelving will make it easier to separate products into the right homes, which results in less hassle and heightened productivity within the team.
In order to calculate picking precision this equation can be used:
PICKING PRECISION = (Total No. Of Orders – Incorrect Item Returns | Total No. Of Orders) x 100
KPI Three: Carrying Cost of Inventory
The longer you’re carrying your stock, ultimately the more money it costs the business. But you can only know how much once you put a quantifiable number in place as one of your KPIs. This is essential around Christmas time given the higher stock levels you’ll be carrying.
Carrying cost of inventory is a KPI which shows you exactly how much it costs the business to keep hold of its stock over a particular time frame.
This metric allows you to truly understand how much profit your stock will actually generate. It also gives the people in charge more power to make better purchasing and forecasting decisions in the future.
Carrying costs of inventory means adding up all costs associated with storing your stock over a given time period – in this case, it will probably be between September through to January. These could include insurance, storage space, employees and handling equipment.
CARRYING COST OF INVENTORY = (Average Inventory Value | Total Carrying Costs) x 100
KPI Four: Stock Turnover
Stock turnover is another vital KPI for warehouse management and is quite closely related to carrying cost of inventory.
It is essentially the frequency at which you sell out your stock. Which in context, means how fast you sell and ship your inventory after it’s been put into storage.
The faster you can mobilise your stock and get it out the door, the less it costs to store, and the more money is made, which is why it’s so important to monitor.
Keeping track of performance using this KPI means further insight into how popular certain products are, which can inform your buying strategy for next Christmas. It gives you a chance to see items that aren’t moving and need to be cleared by putting a reduction strategy into place.
You can figure out your stock turnover using this formula:
STOCK TURNOVER = Cost of Goods Sold in a Time Frame | Average Inventory Value
KPI Five: Return Rates
The rate of return determines how often customers are sending back items, a metric that grows in importance over the festive period.
This clearly offers a good idea of how satisfied your customers are. But the only way to truly gain valuable insight from this KPI is to separate the ‘reason for return.’
From this, you can understand whether it’s worth purchasing anything like this again, and how to ensure these high returns aren’t going to turn into a recurring issue.
Determine several reasons for returns and use this formula to analyse each:
RATE OF RETURN = No. of Units Returned | No. of Units Sold
KPI Six: Backorders
The rate of return determines how often customers are sending back items, a metric that grows in importance over the festive period.
This clearly offers a good idea of how satisfied your customers are. But the only way to truly gain valuable insight from this KPI is to separate the ‘reason for return.’
From this, you can understand whether it’s worth purchasing anything like this again, and how to ensure these high returns aren’t going to turn into a recurring issue.
Determine several reasons for returns and use this formula to analyse each:
RATE OF RETURN = No. of Units Returned | No. of Units Sold
KPI Seven: Delivery Times
Order delivery times is, of course, the average time it takes for customers to receive their items.
Because of companies like Amazon, quick delivery has become something of an expectation rather than a nice bonus all year round, so it pays to try and move things along quite quickly.
As long as items also arrive in the condition they left your warehouse, optimising your delivery period can impact order cycle time, a more general KPI, but a useful one nonetheless which can tell you the time lag between customer orders.
There are many different KPIs to consider, but once you’ve put these into place, you can begin to see where further leaks you may need to plug.
If you have any questions about warehouse procedure, the Christmas rush, or any of our other products, then don’t hesitate to contact us on 01280 825740 for more information.