How to Align Warehouse KPIs to Your Company's Strategic Goals

The best warehouse is the one that most effectively helps the business reach its objectives.

There’s plenty of advice about which metrics are the most important for warehouses to track. But none of it matters if you’re not clear on what the business as a whole needs to achieve.

Once you have that, it’s fairly straightforward to loosely define a warehouse performance strategy:

The next problem is the actions that can move the needle on these strategies might not be obvious. For that, we need to go down another level and get more granular.

Warehouse Performance Metrics for Financial Health

Even when the business is doing well, there are many reasons why a CEO could want to tighten budgets. It might mean being able to get better credit terms from the bank, or they might be looking into making a major investment in new equipment or properties.

Whatever the underlying motivation, warehouse managers often find themselves on the front lines. They are expected to cut expenditure even in the midst of increased demand or a shortage of permanent staff.

In this situation, it’s a good idea to track a few KPIs that take into account these other variables. That way what your report shows is not just ‘what it costs’ but ‘why it costs’:

• ↓ Inventory Carrying Cost- Calculated as [carrying costs] in a given period divided by [total value of inventory]. When the result is 1 (100%) this shows that holding the inventory for the given period is long enough to lose the company money.
• ↓ Process Efficiency- The number of employee hours required to carry out a given process on a given volume of inventory.
• ↓ Order Fulfillment Cost- Simply divide your total expenses in a given period by the number of orders received to get this average cost to fulfill an order.

Another useful approach is to isolate the sources of unpredictable costs, especially those that might be reduced with the help of capital investment:

• ↓ Truck Detention Fees- The total amount payable to carriers or suppliers in a given period due to excessive wait time in the yard or at the loading dock
• ↓ Cost of Each Operation- An analysis that splits up total warehouse running costs into major process areas, i.e.: picking, storing, shipping, receiving, etc.
• ↓ **Maintenance Costs -**Viewed as a percentage of overall operating costs, this figure can demonstrate the need for urgent investment in equipment.

GovernanceKPIs for Warehouse Managers

In times of change, businesses typically face more scrutiny from the government, investors, creditors or even from customers.

Warehousing isn’t usually the first place executives worry about. But an astute warehouse manager can be proactive and put data collection at the heart of their operations. That way, when it comes to audits, concerns over business resilience, or heightened attention from the media, executives have some reliable knowledge in their back pocket:

• ↓ Shrinkage- The financial value of inventory that is no longer accounted for due to theft, error or damage
• ↑ Transparency of Reporting- How frequently are your KPIs measured, how often are they reviewed by senior management, and who has access to the data?
• ↑ Precision & Accountability of Reporting- Are each of your KPIs specific, measurable, actionable, relevant and time-bound? Does each KPI have a clear owner?

Safety and sustainability initiatives also need to start with data:

• ↓ Recordable Incident Rate- A legal obligation, but going above and beyond requirements and measuring as much data as possible can also give the business valuable governance tools
• ↓ Energy and Water Consumed- A blunt and easy-to-take measurement that quickly reveals one of the biggest ways a facility can reduce its carbon footprint
• ↓ Volume of Physical Waste Produced- A more complex environmental factor to try to reduce, but easy to track and can reinforce the case for capital investment

Warehouse KPIs that Support Rapid Growth

Business success sometimes brings logistics chaos. It’s tempting to hunker down and wait until the senior leadership is ready to invest in additional facilities or expansions that can take the pressure off.

But waiting is a mistake. Logistics should not be a barrier to growth.

• ↓ Labor Efficiency- The number of employee hours required to carry out a given process on a given volume of inventory.
• ↓ Time to Receive- The gap between inventory arriving at the loading dock and being put away and ready to ship.
• ↑ Dock Door Utilization- The total hours of docks in use for all dock doors as a percentage of maximum capacity. This figure is often low because the majority of trucks arrive at the beginning or end of the day.

It’s important to consider that growth isn’t driven only by internal processes. One of the most valuable ways a warehouse can support business growth is by maintaining excellent relationships with carriers, suppliers, and customers:

• ↓ Average Truck Dwell Time- How long a driver needs to wait at your facility before they can get back on the road. Reducing this benefits everyone in your supply chain.
• ↓ Carrier or Supplier Phone Calls Per Day- An unconventional metric, but one that illustrates how much time and effort is wasted coordinating shipments that could be automated.
• ↓ Carrier Problem Rate- Simply counting the number of issues with partners that impact your own performance or the customer experience. If this number is high it’s either time to change carriers, or drastically change the way you communicate with them.

Measuring Warehouse Performance in Terms of Processes and Systems

Businesses that want to stay competitive in the long-term have to examine their processes closely, and root out inefficiencies.

At this level of detail, the focus starts to shift from ‘measuring performance’ to ‘measuring how well we can measure performance.’ Instead of asking ‘how long does it take to put away’, we ask ‘how long does it take for us to change when we see that putaway is taking too long?’

This is the kind of systems-based thinking that made Toyota successful. To bring that philosophy into the 21st century, we also need to take a measure of digital maturity and ‘readiness’ for technological change:

• ↑ Process Change Success Rate- Each time you implement an operational change, note the intended outcomes and track the results against this benchmark.
• ↑ Software Adoption Rate- How many employees could produce more value if they use a given tool, and how many employees actually use that tool?
• ↑ WMS Function Utilization- Count the number of relevant capabilities of your WMS software. How many of them are actually used?

The disadvantage of these metrics is they can be vague. There are a few more tangible indicators that can provide some insight into the systems effectiveness of the warehouse:

• ↓ Errors by Volume- The proportion of inventory volume that needs additional action due to errors in a given process, during a given period. Closer to zero indicates better process accuracy.
• ↑ Space Utilization- Calculate how productive the building is as an asset by dividing the volume of inventory stored by the total area of physical space.
• ↑ Process Optimization Rate- Create a rigorous framework of each type of action that is performed in a complete cycle. How many of these steps have been analyzed and optimized for efficiency?

The Warehouse Metrics that Contribute to Customer Satisfaction

When it comes to customer satisfaction, the most obvious factors are speed and accuracy of fulfillment. But there are others: when customers have a problem, the business needs to diagnose the cause. A well-prepared warehouse can streamline that process.

• ↓ Incorrect item returns per order- The most reliable measure of picking accuracy. When it hits zero, you can estimate your picking accuracy is close to 98%.
• ↓ Total Time to Ship- Best measured from the moment an order is the warehouse’s responsibility until it has arrived with the customer. This takes into account both warehouse and carrier performance, because the latter can be affected by loading dock practices.
  • It can be insightful to measure this twice, based on working hours only and again based on a 24/7 clock, to measure the potential impact of expanded schedules
• ↓ **Backorder Rate -**The most valuable metric to tie together customer experience with forecasting accuracy. Can alternatively be calculated excluding products that are unavailable due to supplier issues.

Some less common and more complex metrics include:

• ↑ Complete Inspection Rate- How frequently is a thorough inspection process carried out on inbound or outbound loads?
• ↑ Perfect Order Rate- What proportion of orders arrive on time with full documentation and result in neither a return nor a customer service ticket?
• ↑ Ordering Experience Maturity- A simple multi-point scale that measures the extent to which customers can be informed with stock data. E.g.::
  • 1 - Customers can unknowingly order out-of-stock items
  • 2 - Customers are informed whether items are available or not
  • 3 - Customers are warned about low stock levels of a given item
  • 4 - Customers can receive automated alerts when an item is back in stock
  • 5 - Customers are provided with delivery estimates for items on backorder

Culture and PersonnelKPIs for Warehouses

If your business aspires to be a people-centered organization, relying heavily on temporary staffing agencies is not a viable approach in the long term.

Warehouses in this scenario should measure themselves on how well they’re able to retain and develop their associates:

• ↑ Average Tenure of Associates- Include every employee and agency worker that attended at least one shift in a given period. Add up the time between the first shift and latest shift for each of them, and take an average.
• ↓ Absence Rate- Calculate rate of employee absence for all shifts in a given period. Include only unreported no-shows to get a measure of professionalism, communication and trust within your team, or include sickness as well to shift the focus to wellbeing.
• ↓ Overtime Hours- Taken as a proportion of total hours worked, this metric can demonstrate how far you need to go to achieve predictable schedules, which can have an enormous impact on employee wellbeing and retention.

As for the more complex wellbeing and development-based KPIs:

• ↑ Self-Reported Wellbeing- Can be gathered through a simple employee survey. For accurate results, it’s best to clarify that it’s not an employee satisfaction survey. Including questions about what changes in the workplace could improve wellbeing may unlock valuable insights.
• ↑ Training Sessions Attended- Can be taken as a raw figure per employee, or a proportion of training sessions that are available to them, depending on the structure of your organization. A simple indicator of whether employees believe there are development opportunities at your company.
• ↑ Competencies per Associate- Imagine the most skillful and effective warehouse associate possible. Make a list of competencies this person would have. On average, how many of these skills do your current team members have? How could they be developed?

Other KPIs for Your Warehouse to Consider

Other KPIs for Your Warehouse to Consider

Of course, there are more general operational key performance indicators that may be useful for warehouse managers with less visibility into overall business goals.

There are also times when qualitative observations are more helpful than strict SMART goals.

If the marching orders are as simple as improving overall inventory management efficiency, you may want to consider:

• ↑ Inventory Accuracy
• = Inventory Turnover or Sales Ratio
• ↓ Cost per Supplier or per SKU
• ↓ Cycle Time per Weight, Quantity or Value
• ↓ Dock to Stock Cycle Time
• ↑ Time since Last Recordable Incident
• ↓ Travelling Time between Productive Tasks
• ↑ Available Equipment Utilization
• ↓ Equipment Downtime
• ↓ SKU Density
• ↓ Damage Rates
• ↓ Returns Processing Time
• ↑ Energy and Utility Efficiency
• ↓ Carbon Footprint
• ↑ Real-Time Inventory Visibility
• ↑ Order Mix Optimization
• ↑ Predictive Maintenance Capability
• ↑ Predictive Staffing Capability
• ↑ Reverse Logistics Capability
• ↑ (Lean) Value Stream Mapping Clarity
• ↑ (Lean) Standard Work Adherence
• ↑ Effectiveness of Signage and Visual Management

When choosing between qualitative and quantitative metrics, it’s a good idea to consider the resources and technology available.

Typical metrics, such as inventory turnover and order accuracy, provide a solid foundation for evaluating performance and setting goals. Unconventional and innovative metrics, such as predictive maintenance and employee engagement, can provide a more comprehensive evaluation of performance and support continuous improvement.

A warehouse manager should choose a mix of both types of metrics to ensure a well-rounded evaluation of performance and support continuous improvement.

The best warehouse managers understand the interconnectedness of people, processes, and systems. They balance business needs with the desire to create positive experiences for employees, customers and suppliers. Prioritizing accountability while pursuing continuous improvement is one of the best strategies for achieving this balance fairly.

In the end, a successful warehouse manager is not only a master of logistics, but also a skilled leader who is able to cultivate a workplace environment where people thrive.

How DataDocks Helps Warehouses Measure and Hit Their KPIs

Most warehouses can only track their performance based on internal processes. These metrics don’t tell the whole story.

Warehouse managers need to start looking more closely at loading dock operations. Making shipping and receiving more predictable and measurable makes the entire cycle more efficient, and lays the foundations for real supply chain visibility. When it comes to reporting, it’s much more valuable to be able to account for why performance is at a certain level.

DataDocks transforms the way facilities interact with their carriers and suppliers, incentivizing partners to book appointments in advance and stick to them. In the process it collects a treasury of data and produces reports that show exactly where the bottlenecks are.

For an in-depth discussion of what DataDocks can do for your warehouse,book a demo with our team or call us on (+1) 647 848-8250.