In warehouses, managers often gather massive amounts of performance related data, but can often find that they can apply only a small amount of it toward making progress in productivity or customer service. To keep themselves from becoming overwhelmed with data, managers should learn to identify and focus on the most useful pieces of information to gather, report, and apply to the warehouse.
Understanding Warehouse Metrics
The tools or modules found in warehouse management systems (WMS) can capture key data points over a specific period of time and report or display it as graphs and trends that support the underlying data. This can make it much easier to quickly identify problems you may be experiencing in your systems. When beginning to implement new measurement tools and practices, consider beginning with what matters most to the customer-perfecting the order. This is something that every warehousing strives for. The perfect orders occur when customers consistently receive the correct product on time, undamaged, and with the correct documentation. With nearly error-free shipments, customer satisfaction increases and customer support costs drop. This is why tracking warehouse metrics is so critically important because it allows for more control and change. When customers have an issue with the order they receive, they notify the distributor. The distributor tracks the error in the WMS with specific codes assigned to categories like warehouse pick accuracy, delivery times, and invoice accuracy. This data is calculated together to determine the metrics of the perfect order.
Tracking and Enacting Insights from Warehouse Metrics
There are far more warehouse metrics to take under consideration when evaluating a warehouse’s order performance.
- Fill Rate: This is data that measures lines shipped versus lines ordered by a customer. The fill rate encompasses more than warehouse performance, it also depends on ordered items being readily available and in stock. When looking from the perspective of the customer, fill rate represents the service level provided by the distributor.
- Ship to Promise: This is the way of measuring the speed of order filling while the shipping accuracy rate measures the accuracy of order filling through the eyes of the customer.
- Customer Retention: Charting the number and percentage of customers during prior time periods who are also customers in the current time period is how warehouses implement this metric method. Depending on the frequency rate the customer purchases, longer time periods provide more meaningful measurements. Over several years, you can chart the trend of increasing or decreasing retention.
- New Customers: This charts the number and percentage rate of new customers per time period. New customers are ones who bought in the current period but did not purchase during any previous time period.
Using Metrics to Manage Inventory
Once order metrics are in place, it’s time to consider the key metrics for tracking and managing inventory. With the right tools, distributors and wholesalers know exactly what product is in the warehouse and any given time and where it’s located. Greater inventory accuracy and control results in less dead stock, higher turnover rates, and better data for financial planning. Some of the key inventory metrics are:
- Inventory Accuracy: This measurement is typically derived from cycle counts and is used to identify any discrepancies among product. This is a function within a WMS that automatically counts a set of inventory on a scheduled basis.
- Inventory Turnover: This is a means of measuring purchasing management and timeliness of vendor returns. It refers to the number of times inventory cycles or turns over each year.
- Expense Controls: This method is particularly important to CFOs. Specifically, this data looks at the total costs in the warehouse as a percent of company sales. Warehouse costs generally include labor (whether direct or indirect), benefits, supplies, equipment and equipment maintenance, rent, utilities, and depreciation. It can also measure transportation and logistics costs as a percent of sales and as sales shipped by each employee per hour.
Once the metrics and data points have been gathered, it is much easier to establish a realistic idea of productivity standards. Use this to consider benchmarking the warehouse cost structure and productivity per person compared to other distributors. Performance depends on a variety of unique factors such as expectations of the customer and automated materials handling infrastructure. Consider leveraging these metrics by applying new variables as you see fit and chart the impact they make to accurately demonstrate the contribution of the warehouse to the company.