Are you looking to improve the efficiency of your warehouse? Before applying some of our top efficiency-boosting solutions, it’s important to know exactly which issues your warehouse is facing. By analyzing the data and using the correct key performance indicators (KPI), you will be able to distinguish which areas of you warehouse are causing the most inefficiencies and apply an effective solution.
Courtesy of the warehousing experts at The Material Handler, here are the top KPIs everyone in the warehousing industry should know:
Inventory Carrying Cost
Inventory Carrying Rate x Average Inventory Value
This metric measures the costs associated with storing a particular item or set of inventory. It allows warehouse managers to determine which goods have the highest costs, something that is useful when placing orders.
Cost of Goods Sold/Average Inventory
This is one of the most commonly used metrics in warehousing, as it shows how long goods are stored for when compared to demand. This varies depending on the good being stored. Luxury goods, for example, will have a lower inventory turnover when compared to less expensive items. This stresses the importance of comparing your individual inventory turnover ratio against the industry average.
Rate of Return
Number of Units Returned/Number of Units Sold
This ratio is helpful for distribution centres. It provides a metric for the number of returned goods compared to sales for the same good. Generally, a lower ratio is better. Just remember that although this ratio is beneficial in identifying if you have an issue with returned goods, it’s still important to pinpoint the root cause. Perhaps there’s a batch of damaged goods or a wrong product description listed online. By finding the exact issue, you’re able to make the adjustments required for a long-term solution.
Perfect Order Rate
Orders Completed Without Issues/Total Orders Placed
The Perfect Order Rate measures how well your warehouse delivers a good, including picking the correct item, shipment, and the condition it’s received in by the customer. An optimal rate is 100%, but the industry average depends on what items you sell.
Total number of Orders/Perfect Order Rate
An efficient warehouse starts with a streamlined picking system. Errors in order picking result in loss of time and unsatisfied customers. Try to get this ratio as high as possible as part of your lean inventory practice.
Units per Transaction
Number of Units Sold/Number of Transactions
Units per Transaction is a metric commonly used in retail as a way of motivating employees. In your warehouse, you should aim to maximize this metric in order to streamline your operations and reduce shipping costs. This explains why many online retailers provide suggested additions to your purchase. The ease of doing this is largely dependent on your industry, as it’s most commonly seen with less expensive items.
The Material Handler is dedicated to providing your business with the necessary tools to boost your warehouse efficiency. Learn more about our warehouse logistical planning and request a free quote by calling 1-800-857-1315 today!