There are many types of warehouse operational metrics you can use to measure the order throughput, inventory accuracy, cost of departmental operations and customer service.
For 34 years, F. Curtis Barry & Company has assisted clients in defining key metrics, how to measure the operational performance and implement best practices.
Continual process improvement is a principle many companies subscribe to, but they don’t have reliable data to measure productivity of current processes. Process improvement should begin with this principle: “If you have not measured it, you cannot improve it.”
That’s an observation the famed British physicist, Lord Kelvin, made about scientific experimentation and operational improvements over 100 years ago. That concept of measurement became a principle of modern-day industrial engineering and now lean management principles.
Key Benchmarks To Measure
Here are some key ways to consider benchmarking your operation. Some of the categories of metrics to consider are cost per order, service level metrics, initial order fill rate, inventory and process accuracy, and department productivity to name a few. Here are more details to help you develop your measures and reporting.
Cost Per Order (CPO)
Fully loaded cost per order in warehouse operations includes direct labor, indirect labor, benefits, occupancy, packing supplies, telecom and credit card processing. It does not include shipping and handling revenue or shipping costs. It distorts comparability between companies.
From a cost per order, cost per line and cost per unit shipped perspective, here are 8 metrics companies should measure.
Selected warehouse service levels
In this blog, there are five selected service level metrics from six companies for fulfillment, which apply to all warehouse operations regardless of type of business. These companies offer a wide range of ecommerce channel available products. We see a wide range of standards and results within distribution operations. What are the service level metrics you measure, and what are the standards and results achieved consistently?
Initial Customer Order Fill Rate
While initial customer order fill rate is an inventory control metric, it is helpful to illustrate how in-stock and available product dramatically affect fulfillment performance and customer service.
The initial order fill rate is the percentage of customer orders shipped complete in 24 hours (or whatever your shipping standard is). The following shows good performance for initial order fill rates for these selected ecommerce categories:
- Advanced fashion: 70% to 80%
- Re-orderable apparel: 80% to 90%
- Gifts/home: 85% to 95%
- Business supplies: 98% to 100%
Does your company have the essential merchandise planning, purchasing and inventory control systems needed to deliver high customer service though optimized item availability? Here is a blog discussing the important system features for systems.
Inventory and Process Accuracy
In general, bar coding the specific locations of all products in the warehouse and using bar codes in the majority of warehouse’s processes are the best ways to increase accuracy, timeliness and capture data online. Barcoding is one of the prerequisite technologies involved in automating fulfillment centers. Here are some benefits:
- Conventional non-barcoded inventory and processes: 98.0% to 99.5% accuracy
- Bar-coded: 99.8%–99.9% accuracy
If you have not adopted bar code technology in every warehouse process, you are missing ways to reduce warehouse costs considerably. Read more about the potential for decreased costs while increasing accuracy using bar codes here.
Department Productivity Benchmarks
Most companies, especially small to moderate sized businesses, do not have the data collection and measurement processes in place to measure productivity by department and employee. This is where the improvement happens. It should be a goal of every operation so that you can set realistic goals for productivity improvement and to make better use of your labor and assets used in fulfillment. To help you measure department productivity, here is a spreadsheet for measurement by department. Note that there are some measures identified by channel (retail, ecommerce, manufacturing, wholesale).
Report Employee Productivity
As we conduct operational assessments of multichannel companies, we find many companies do not openly share their warehouse KPIs and results with employees. Many don’t even have a formal, weekly process for capturing, reporting and posting department KPIs and employee results. Here are eight key considerations to improving productivity.
How to Start A Benchmarking Program
There are many different ways benchmark warehousing. Here is a mini-case study of how one company started their internal benchmarking program.
Create Historical Measures
To get started, we recommend that you define a small group of metrics initially. Determine the data source and reliability, and get those being reported on a regular basis. A warehouse management system that has a data repository can simplify the development of these measures. If you don’t have that capability, then many metrics will require weekly time by a business analyst to capture, validate and report the results.
One of the most important objectives to pursue is to compare performance and KPIs historically. For example, compare KPIs year over year or current month compared to last year. Developing these KPIs is essential to continued process improvement and seeing how costs and performance improves.