5 Key Warehouse KPIs & How to Achieve them

In today's rapidly evolving business landscape, a warehouse isn't just a place for storing inventory — it's a vital hub that can significantly impact a company's efficiency, productivity, and bottom line. As the nerve center of many businesses, ensuring optimal warehouse performance is paramount. One of the best ways to measure, monitor, and manage this performance is through Key Performance Indicators (KPIs). These metrics offer your business a clear picture of how your warehouse operations are functioning, highlighting areas of success and pinpointing those in need of improvement.

Whether you're a seasoned warehouse manager or just beginning to explore the world of warehouse metrics, this article will guide you through the essentials of setting up effective warehouse KPIs. Dive in to unlock the potential of data-driven decision-making and elevate your warehouse operations to the next level.

What is a warehouse KPI?

Before diving deep into setting up warehouse KPIs, let's first clarify what a warehouse KPI is.

A Key Performance Indicator (KPI) is a quantifiable metric that companies use to gauge or compare performance in terms of meeting their operational and strategic goals. When referring specifically to warehouses, a warehouse KPI is a measurable value that helps businesses understand the effectiveness of their warehouse operations. These indicators provide insights into different aspects of the warehouse, from inventory accuracy and order fulfillment rates to employee productivity and equipment downtime.

Main purpose of warehouse KPIs

Warehouse KPIs play a pivotal role in optimizing operations and driving growth. Their main purposes include:

• Track Performance: By regularly measuring and comparing these metrics, businesses can ascertain whether they are on track to achieve their warehouse goals or if adjustments need to be made.
• Improve Efficiency: Recognizing inefficiencies through KPIs allows businesses to address bottlenecks or problematic areas, streamlining processes and ultimately saving time and money.
• Drive Decision-making: With data-backed insights, companies can make informed decisions that can lead to optimized operations, improved customer service, and greater profitability.

Now that we understand the importance and purpose of warehouse KPIs, let's discuss which ones are crucial and what targets to set.

5 key warehouse KPIs & what to target

When it comes to warehousing, many professionals will agree with the sentiment that there are countless KPIs depending on specific operational interests and goals. However, a recurring theme in the warehousing industry is that the essence of its function often boils down to costs. Warehousing predominantly operates as a support function, and in most cases, it doesn't inherently add direct value to the product itself. With that perspective, costs play a pivotal role in determining the efficiency and efficacy of a warehouse.

Given this context, one of the most critical KPIs to monitor is the Average Cost Per Order. This indicator provides a comprehensive overview of the cost efficiency of warehouse operations. But deriving this all-encompassing metric is not as straightforward as it might seem. To calculate the Average Cost Per Order, several other significant KPIs need to be taken into account:

1. Order lead time

• Order lead time: How long does it take from the moment an order is placed until it's ready for shipment? Shorter lead times often indicate higher efficiency but can also impact costs differently.
• Concrete example: If an order placed at 1 PM gets shipped by 5 PM the same day, the order lead time is 4 hours.
• Target: As short as possible without compromising accuracy or quality. For many operations, aiming for an order lead time of under 24 hours is desirable. For businesses with a "same-day delivery" promise, the target can be as short as a few hours.

2. Cost per location per piece

• Cost per location per piece: This KPI gives an insight into the storage costs associated with each item. It's essential for understanding the overheads related to inventory storage.
• Concrete example: If monthly storage expenses amount to $5,000 and there are 10,000 items stored, then the cost per location per piece is $0.50.
• Target: As low as possible while maintaining inventory quality and security. Depending on the industry, storage method, and geographic region, a target range might be $0.10 - $0.70. It's crucial to benchmark against industry peers and continually work on optimizing storage costs.

3. Error rate

• Error rate: Mistakes in the warehousing process, whether they're related to picking, packing, or inventory management, can lead to increased costs due to rework, refunds, or lost sales.
• Concrete example: If 20 orders had errors out of a total of 1,000 orders processed in a week, the error rate for that week is 2%.
• Target: Aim for a rate as close to 0% as possible. An acceptable error rate might be under 1%, but this can vary based on the complexity of the warehousing operations and the cost implications of errors.

4. Return rate

• Return rate: High return rates not only imply potential errors in the order fulfillment process but can also significantly increase the cost of operations due to restocking and handling returns.
• Concrete example: If you shipped 500 orders in a month and received 25 returns, the return rate is 5% for that month.
• Target: Typically, a lower return rate is better, especially if returns are due to errors in the fulfillment process. An acceptable target might be under 2-3% for many industries. However, industries with high variability in customer preferences (e.g., fashion) might have inherently higher return rates.

5. Simplified Average Cost Per Order

This KPI provides an overview of several key warehouse operation expenses, offering a simplified snapshot of the average cost to process an order. It's important to note that while this calculation incorporates various costs, it does not account for all possible expenses, such as initial investment costs. Therefore, this should be viewed as a basic approximation rather than a comprehensive figure.

Formula:

(Simplified) Average Cost Per Order = (Total costs from Order Lead Time + Total costs from Cost per Location per Piece + Total costs from Error Rate + Total costs from Return Rate) / Total number of orders

Concrete Example:

• Order lead time: Assume maintaining a 4-hour lead time costs $10 per order.
• Cost per location per piece: Storing items for each order costs approximately $0.50.
• Error rate: If rectifying each error costs about $15, with a 2% error rate on 1000 orders, the total error cost is $300 (20 errors x $15), averaging $0.30 per order.
• Return rate: Processing each return at $20, with a 5% return rate on 500 orders, leads to a total return cost of $250 (25 returns x $20), averaging $0.25 per order over 1000 orders.

Combining these costs:

(Simplified) Average Cost Per Order = ($10 + $0.50 + $0.30 + $0.25) = $11.05

In this example, when considering the selected KPIs, it costs the warehouse an average of $11.05 to process an order. Remember, this is a simplified calculation and does not include all potential costs, such as initial investments and other variable expenses.

All put together, please bear in mind that these targets provide a general benchmark, but individual businesses should adapt them based on their specific needs, challenges, and industry standards. Depending on the intricacies of a specific warehouse operation, there might be many more KPIs to consider, such as shipping costs, labor costs per order, or costs associated with equipment downtime.

In conclusion, while there are myriad KPIs to consider within a warehousing context, understanding the comprehensive cost dynamics, as encapsulated by the Average Cost Per Order, provides an invaluable perspective. By delving into the KPIs that contribute to this overarching metric, warehouse managers can make more informed decisions, optimizing for both efficiency and cost-effectiveness.

While identifying KPIs is important, understanding how to prioritize them effectively is equally crucial. Let's explore how to approach KPI prioritization.

How to prioritize KPIs: Quality over quantity

When prioritizing KPIs, it's essential to recognize that more isn't always better. KPIs should emerge from specific challenges or issues; they're tools to diagnose and measure problems. Often, understanding one KPI might necessitate setting up others, creating a chain of interlinked metrics. However, a guiding principle in this complex landscape is simplicity. Despite the myriad of potential KPIs, the most pivotal ones—those that truly gauge business health—should be concise enough to fit on a single page. This focus ensures not only clarity but also actionable insights. Thus, while the allure of measuring everything is strong, discerning selection based on genuine challenges yields the most value.

KPIs in small vs. large warehouses

Should you prioritize KPIs differently depending on the size of the warehouse? The answer is no. Warehouse KPIs remain uniform across small and large warehouses. However, the challenges differ in scale. In larger spaces, pinpointing issues becomes intricate due to increased complexity. While inefficient processes can ripple more prominently in expansive facilities, the foundational KPIs guiding both small and large warehouses are consistent.

Having identified and prioritized KPIs, we now need the right tools to track and measure them accurately.

Tools for tracking and measuring warehouse KPIs

Navigating through the complexities of warehouse management necessitates a robust system for tracking and measuring KPIs to maintain streamlined operations. Today's landscape offers an assortment of advanced tools designed to extract valuable insights from warehousing activities, empowering businesses to make well-informed strategic decisions.

1. Unify Analytics

Unify Analytics stands out as a premier tool crafted for enterprises utilizing the AutoStore system. It excels in transforming complex data into actionable insights through an intuitive performance analysis dashboard and swift data processing capabilities:

Performance Analysis Dashboard: This feature provides a visually intuitive display of key metrics, statistics, and analytics, showcasing operational trends of various modules. Noteworthy metrics include:

• Run times: This vital metric not only offers managers a clear view of how long specific tasks take within the AutoStore system but also counts the movements of certain parts, like the run time of a robot or direction changes. This provides valuable insights for predictive maintenance, indicating when certain parts should be changed after being used for a set amount of time. This dual functionality aids in identifying bottlenecks and areas ripe for improvement.
• System uptime: Keeping tabs on system uptime ensures the continuous operation of the AutoStore system. Maintaining high uptime is essential not just for continuous operation but also for minimizing the periods of inactivity among employees, thereby optimizing productivity and profitability.
• Bin presentation per port per hour: This metric primarily reflects the effectiveness of processes at each port and the performance of employees overseeing these operations. It serves as a measure of operational efficiency at the port level, rather than providing insights into inventory movement.

Rapid data processing: Unify Analytics is adept at handling large volumes of data with remarkable speed, presenting findings in a user-friendly format that eliminates the need for extensive training.

Reporting: The tool goes above and beyond by offering comprehensive reports filled with crucial operational data, enabling immediate action and strategic planning.

In essence, Unify Analytics serves as a pivotal tool in the arsenal of warehouse management, ensuring that businesses can navigate the intricacies of their AutoStore operations with precision and agility.

2. Intelligent ERP systems

Beyond specialized tools like Unify Analytics, the broader world of Enterprise Resource Planning (ERP) systems offers robust capabilities for tracking warehouse KPIs. Modern ERPs, equipped with advanced analytics, can provide:

• Economical KPIs view: ERP systems, with their integrated approach to business processes, can offer insights into a wide array of cost-related metrics. This encompasses everything from direct operational costs, such as labor and equipment, to indirect overheads and energy expenses.

Choosing the right tool often depends on the specific requirements of a warehouse operation. However, platforms like Unify Analytics and intelligent ERP systems are leading the way in offering actionable insights that can shape the future of warehouse management.

Equipped with the right tools, an employee-centric approach becomes the backbone of achieving these KPIs. Let’s explore how.

Achieving warehouse KPIs: Employee-centric approach

Achieving warehouse KPIs is a task deeply rooted in the involvement and understanding of employees. They stand as the primary drivers of these crucial metrics. Without context, merely setting performance targets can seem arbitrary to them. For true commitment and motivation, employees need to perceive the broader company strategy. They must comprehend the 'why' behind each KPI — understanding its significance to the overall organizational goals.

Hence, supporting employees is equally pivotal. Introducing automation can enhance their capabilities, ensuring they meet the KPIs more effectively. While individual metrics are essential for each employee to focus on their daily tasks, top managers should maintain a broader perspective, ensuring all KPIs align with overarching company objectives.

Furthermore, to successfully juggle multiple KPIs in warehousing, decentralization is key. By distributing responsibility, each employee can hone in on specific metrics related to their role. This approach ensures that every level of the organization works in harmony, leading towards the collective achievement of company goals.

Achieving warehouse KPIs with the AutoStore System

The AutoStore system, with its automated and compact nature, can effectively contribute to achieving KPIs in warehouses:

• Cost per stored piece: AutoStore excels in space utilization, reducing storage requirements significantly. With customer testimonials, such as Styleboom, highlighting that AutoStore occupies only 1,300 m² to store the same volume as a traditional manual rack system occupying 4,500 m², substantial cost savings per stored piece are achieved.
• Cost per order: Employee productivity is another area where AutoStore shines, with 14 employees achieving the same number of orders as 80 to 90 employees in manual storage. This workforce optimization substantially reduces the cost per order, with a typical amortization time of less than 3 years. Low service and maintenance costs, coupled with low energy consumption, reduce the overall cost per order, making AutoStore an economical choice.
• Order lead times: In contrast to person-to-goods solutions, the goods-to-person approach of AutoStore significantly reduces order lead times, making operations more efficient. Learn more about how the AutoStore system lets Knuspr be confident in keeping their customer promise of delivering in three hours or less as standard.
• Error & return rates: Error rates are drastically reduced in AutoStore due to software-guided picking and the provision of a single product at a time. Additional technologies like scanning, weight checks, and guided picking further enhance picking accuracy, which, in turn, minimizes return rates.
• Sick leave rates: The system's ergonomic design also helps improve employee well-being, reducing sick leave rates attributed to work-related injuries, especially those affecting back and muscles.
• System uptime: The high uptime and reliability of AutoStore, characterized by a lack of single points of failure, further contribute to cost reduction, as downtime is a costly issue for many automated systems.
• Picking speed: In addition to the reliability of the system, AutoStore can increase picking speed over a longer period of time compared to manual processes at the workstations. Read more about how AGRAVIS Raiffeisen achieves 200% increase in picking speed with AutoStore.
• Energy savings: The system's energy efficiency, minimal infrastructure requirements, and reduced employee count all contribute to sustainable KPIs, aligning with a holistic view of warehouse automation. The warehouse of Berggård Amundsen is an eco-friendly solution as it includes an AutoStore system and is powered by the sun.

In conclusion, AutoStore offers a comprehensive solution to enhance various KPIs in warehouse automation, ranging from space efficiency and reduced labor costs to improved accuracy and employee well-being. Its contribution to sustainable KPIs underscores its role as a transformative force in modern warehousing. With KPIs in place, an employee-centric approach adopted, and an understanding of the capabilities of AutoStore, the next step is to determine how frequently the KPIs should be reviewed for optimal results.

Get in contact with our experts to learn how AutoStore can help to achieve your warehouse KPIs.

When and how often to review warehouse KPIs

When considering how often to review warehouse KPIs, it's essential to recognize that not all KPIs are created equal. The frequency of review is inherently tied to the significance of the particular metric in question.

For some KPIs, real-time monitoring is paramount. Having them available live allows for instantaneous reactions to any fluctuations or anomalies, ensuring swift corrective actions and minimizing potential disruptions. These might be metrics related to sensitive operations where delays or issues could have immediate and substantial impacts.

On the other hand, some KPIs, while important, might not demand such instantaneous oversight. These can be reviewed on a more periodic basis, be it daily, weekly, or even monthly, depending on their relevance and potential impact on operations.

In essence, the cadence of reviewing warehouse KPIs should align with their importance and the operational urgency they represent. Balancing real-time oversight with periodic reviews ensures that the warehouse remains responsive while also strategically aligned with its long-term objectives.

Yet, while internal review is vital, it's essential to remember that warehouse KPIs are also influenced by external factors.

The interplay of external factors on warehouse KPIs

Warehouse KPIs don't exist in isolation. They are continually influenced by a myriad of external factors that shape the operational landscape. Energy costs, labor rates, and taxation, for instance, significantly affect metrics like the cost per order. A surge in energy prices or an uptick in taxation can inflate operational costs, consequently impacting profitability and efficiency KPIs.

Furthermore, broader socio-economic conditions, such as a country's employment rate, also exert influence. A scarcity of available labor due to high employment can push warehouses towards automation. In such scenarios, the inability to recruit sufficient manpower necessitates investment in automated systems to ensure business continuity.

In essence, while warehouse KPIs provide an internal snapshot of operations, they are intrinsically tied to and influenced by the broader external environment, emphasizing the need for adaptability and foresight in warehouse management.

Conclusion: Mastering warehouse KPIs in a changing landscape

Warehouse Key Performance Indicators (KPIs) stand as the lighthouse in the complex seas of operational management. They are equally relevant to both small and large warehouses, providing insights that help identify inefficiencies and chart the course for improvements. However, these metrics, while intrinsically tied to internal operations, are also at the mercy of various external factors, such as energy costs, labor rates, and broader economic shifts.

Regularly reviewing and understanding the nuances of these KPIs is crucial. But it's equally important to recognize their dynamic nature and be prepared for the influences from the outside world. By prioritizing KPIs and equipping employees with the context and tools they need, warehouses can maintain a pulse on their operations, making timely adjustments and staying ahead of challenges.

In essence, while the landscape of warehousing continually evolves, with a firm grip on relevant KPIs, businesses can navigate uncertainties and ensure sustained operational excellence.

FAQ

What are the 5 KPIs for warehouse automation?

In the context of warehouse automation, it's crucial to monitor specific metrics to ensure optimal performance. The top five KPIs include:

• Order Lead time: This measures the duration between the receipt of an order and its shipment, indicating the efficiency of the automated system.
• Cost per storage location: A reflection of the expenses associated with each storage spot, helping in cost management and optimization.
• Performance per workstation: Evaluates the productivity of each automated workstation, shedding light on areas that may require improvements.
• Availability: This KPI assesses the uptime of automation equipment, crucial for maintaining uninterrupted operations.
• Storage lifetime: Indicates how long items are stored, essential for understanding inventory movement and potential stagnation.

What is an example of a warehouse KPI?

One of the primary metrics that warehouses often rely upon is the "Cost per order." It provides insight into the expenses associated with processing each order, aiding in cost management and efficiency improvements.

What are the key performance indicators as measures of warehouse efficiency?

For gauging warehouse efficiency, two pivotal indicators stand out:

• Cost per order: Reflects the overall expenses linked to processing an order, from picking to shipment.
• Order lead time: Measures the time taken from receiving an order to its dispatch, indicating the speed and efficiency of the fulfillment process.

By closely monitoring these KPIs, warehouses can identify areas for enhancement and ensure they operate at peak efficiency.

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