Labor is continual challenge for most every business. Outside pressures from other businesses, as well as state governments are continually driving up labor costs. In many areas, distribution and manufacturing sites have grown exponentially. These cost increases will have a direct impact on your fulfillment cost per order.
Warehouse managers must be as efficient as possible with all processes to eliminate wasteful labor and address warehouse efficiency. Additionally, companies must always be thinking about continual process improvements to drive down operating costs - especially with labor.
One way to manage warehouse operations and use labor efficiently is with Key Performance Indicators (KPIs). Warehouse KPIs allow management to understand the current operating baseline as well as trends. These metrics also shed light on customer satisfaction, on time deliveries and potential issues.
These warehouse KPIs should provide valuable insight on trends such as:
- Dock to stock cycle time, receiving process and customer order cycle times
- Order accuracy and fill rates
- Cost per order fulfilled and warehouse costs as a percent of sales
- Productivity across the fulfillment process
- Inventory turnover, inventory accuracy and potential issues with inventory levels
- Customer expectations versus performance of the warehouse operations
- Effectiveness of inventory management processes
Unfortunately, many companies still do not have employee productivity metrics for the distribution center and fulfillment operations. Measuring productivity, and paying for increases in productivity, will benefit the employee and make more profit for you.
KPIs enable a warehouse manager to remain objective when determining the strongest workers. These valuable insights are critical for making informed decisions. Faster order fulfillment, while controlling costs and meeting customer demand are typical key drivers
Here are 11 considerations for establishing employee productivity measurements:
1. Understanding Which Warehouse KPIs to Begin With
When considering where to implement warehouse KPIs for improving employee productivity, and making informed decisions, you can start by asking yourself the following questions:
A. Operational Efficiency:
- Where are the biggest bottlenecks in the current warehouse processes?
- Which tasks take longer than expected, and why?
- Are there specific areas where errors or delays frequently occur?
- How do we currently track the order accuracy rate in the distribution center?
B. Employee Performance:
- Which warehouse workers consistently outperform or underperform compared to their peers?
- Are there noticeable patterns in absenteeism or tardiness that impact productivity?
- How do employees adhere to warehouse safety protocols, and are violations common?
- Are there tasks that some employees struggle with more than others like the picking process or receiving process?
C. Cost Management:
- Which operational costs are most variable, and why?
- How much is spent on overtime, and is it consistent with the workload?
- Are there trends in labor costs relative to productivity in high labor areas like the picking process?
- What are the major drivers of inventory holding costs?
- How is dead stock affecting the distribution center capacity and utilization?
D. Process Improvement:
- What processes have the highest error rates, and what is the impact of these errors?
- Are there redundant tasks that could be streamlined or automated?
- How often do equipment breakdowns occur, and what is their impact on workflow?
- What changes could have the biggest impact on the fulfillment process?
- What is the biggest negative impact on the fulfillment rate?
E. Resource Utilization:
- How efficiently are warehouse resources (e.g., equipment, space) being utilized?
- Are there periods of overuse or underuse of key assets?
- How is inventory being managed in terms of inventory turnover and stock levels?
- Where is space utilization most impacted in the operations?
F. Customer Satisfaction:
- How frequently are there issues with order accuracy or on time shipments?
- What feedback do customers provide regarding order fulfillment and package damages that could have been avoided?
- Are there particular points in the process where customer satisfaction dips?
- What other customer service levels are declining due to fulfillment?
- What are customer surveys saying, or other indicators of dissatisfied customers?
G. Long-Term Trends:
- What long-term trends in productivity or cost have emerged in recent months?
- How do seasonal fluctuations impact productivity, and are we prepared for them?
- Are there any emerging technologies or practices that could improve productivity?
These questions can guide you in identifying the most critical areas for implementing KPIs, helping you to prioritize where to start for maximum impact.
2. Scrutinize Data Feeding Key Performance Indicators
Clean data feeding warehouse KPIs is critical. Even though a warehouse management system is supplying the majority of data, there is cost related data that comes from finance. This data can be "lost in translation" and create issues if the data is clean.
Scrutinize the data from all systems. Ensure that its accurate, timely and easily accessible. Warehouse KPIs and metrics can only be as granular as the data. It is difficult, if not impossible, to have metrics tracked daily if some of the data is only available on a summarized weekly basis.
Companies need to work towards developing a single version of the truth. This means that all stakeholders agree to the data being used, and the calculations that make up the warehouse KPIs.
Warehouse management systems can provide real time transactional data. Whereas some other data, like payroll data might be summarized weekly, and come from an older system. Some data may be stuck in spreadsheets, exported from other systems.
Regardless, your key performance indicators are only as good as the data utilized.
3. Engineered Standards vs Warehouse KPIs and Metrics
Engineered labor standards establish expected work performance levels of warehouse employees through detailed time studies and analysis. This is usually expressed as expected units of work to be completed over a given time period.
Examples are units picked per hour and cartons packed per hour. Engineered standards can be costly to establish and maintain. If your company does not yet collect departmental and employee productivity start with the productivity workbook previously discussed.
For those just beginning on their journey of implementing metrics and benchmarking, keep the initial approach simple and straight forward. Then graduate to more complex engineered standards as you see a clear justification.
4. Context of Metrics
One warehouse KPI by itself may provide an incomplete picture. An example of this would be orders per man hour. If this metric were to decline, management would become concerned. Now consider if you had a metric that reflected that the average units per order was increasing. This would provide context as to why one metric is going down, while the other is increasing.
This highlights the need to consider one metric in context with other metrics. Two examples of metric clusters that help to understand the overall context.
- Orders/man hour with units per order and lines/order.
- Fulfillment cost/order with units/order and lines/order.
5. Goal Setting and Monitoring
One of the most important aspects in implementing warehouse KPIs is to understand the short term and long term trends, and whether improvements are being made. It is important to set realistic goals with your improvements.
Companies can't expect a 50% improvement in a given metric within short periods of time. Its incremental improvements that should be gained, reported and championed throughout the organization.
Some significant changes can be seen right away. For example, you may make capital investments in warehouse automation or storage systems which yield increased warehouse productivity. However, most times its implementing changes in a warehouse management system or changing some manual processes.
Set realistic goals and measure how you are doing against these goals by using key performance indicators. Once these goals are met, determine what is needed to maintain this level of warehouse productivity. In some cases, you will need to determine your next incremental goal as you work towards your intended target.
It should be a continual evolving process, tracking your metrics over time; productivity measurement is an on-going process in itself.
6. Reviewing Warehouse Performance Metrics
Each metric is going to provide a different perspective. It is important to consider the nature of the metric, what it is telling you etc. Many operational metrics are important to review throughout the day while others are ones that should be reviewed weekly, monthly or even quarterly.
Daily metrics tend to be those like picks per man hour, orders per man hour. These give you a view into how well the operations are performing on a daily basis. Some companies will evaluate metrics such as fulfillment cost per order or order accuracy on a weekly basis.
For other companies, their business may be more consistent, and these are reviewed monthly. The frequency must be based on your unique dynamics and profiles. Many companies will often look at fulfillment cost as a percent to sales on a quarterly basis.
It's important to remember that well managed operations have a good cross section of metrics they look at daily, weekly, monthly and quarterly. They understand that if some metrics begin to decline on a weekly basis that it will affect the monthly view - same is true with the quarterly view. Without this, you will most certainly end up with surprises in your warehouse metrics.
7. Work to Standards Not to the Workload
There is a little know phenomenon called Parkinson’s Law. So, what is Parkinson's Law? Essentially, Parkinsons Law states that "work expands so as to fill the time available for its completion".
A prime example would look like the following. Let's say that it took 6 pickers to pick 2,100 orders in an 8 hour shift. The next day the same 6 pickers pick 1,800 orders in the same 8 hour shift. Most everyone has seen this, no change in the types of orders, or the lines and units - just few orders picked in the same amount of time.
The reason for this is almost always that the warehouse operators are working to the workload versus a standard. If they know they have all day to complete 2,100 orders, and its going to be tight, they will get it done. However, the next day they know they can go a little easier. So why have workers dictate the pace of work to be completed?
Instead, have them work to a standard. Complete the picks based on the standard. The additional time at the end of the day could be better used for other tasks such as replenishments, cleaning work areas, or kitting products, etc. This eliminates inefficient warehouse labor overall.
8. Time Horizon for Developing Trends
Once you have metrics in place, you will be collecting valuable data that will pay off tremendously. Now the biggest challenge will be to not rush to judgement. To truly understand benchmarking trends, you will need to keep and track this data for extended periods of time.
This may mean tracking certain metrics for months before truly seeing all the various cycles that can truly define a trend. Companies will find significantly more benefit by watching metrics and data from one peak season to another. This allows the operations to witness the peaks and valleys of transactional movements as warehouse efficiency will have peaks and valleys.
9. Making Metrics a Part of Daily Life
Often times companies collect and report on metrics, yet no one knows why it is being done, or who even looks at the metrics within the organization. You can't just post results and expect warehouse operators to understand the importance, or why they should care.
Consider the following approaches with your warehouse metrics:
- Integrate them into your daily meetings with the warehouse staff.
- Discuss the good, the bad and the goals. Get buy in from the workers, help them understand why the metrics are important.
- Developing an approach that addresses feedback from the workers in the process.
- Determine who needs additional training and coaching based on the results.
- Post results daily, weekly, monthly, etc. Please these in prominent locations and recognize top performers for their achievements. The same is true with those warehouse operators that are most improved.
- Metrics and key performance indicators are not punitive activities. These must be viewed as a way to improve all the operations and company performance. If they are viewed as punitive, you will most likely have a very negative response and outcome.
Your objective is to fairly measure and coach for improvement. Develop a coaching and review process with your managers. Build in time to review with individual employees about their productivity versus your established standards and individual goals for them. This is the heart of warehouse productivity improvement.
Once you’ve got measuring warehouse productivity measured figured out fairly, celebrate and post the results in common areas like breakrooms. Try not to overdo the reporting with too many charts. Done in a positive way, this should create friendly competition.
Summary
Data-driven decisions are critical to any well managed, productive warehouse operation. A good warehouse consultant can help you understand which metrics to consider, and what rate of returns on capital costs are most impactful for warehouse productivity.
Key metrics will help correct items and space utilization. Consider a good cross section of inventory KPIs, operational and cycle time KPIs, and cost KPIs. Managing the warehouse space, labor costs and warehouse throughput will be greatly improved over time with the right key warehouse productivity metrics.
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