As the saying goes, “You can’t improve what you don’t measure.”

Key performance indicators (KPIs) are an essential tool used by the world’s best warehouse managers to measure and improve their operation. A KPI is simply a metric that gives you a performance pulse for the most critical parts of your operation that you hope to uphold or improve. Typically, teams will track KPIs in spreadsheets or software designed specifically for automating metric-tracking for you.

In the world of supply chain management, there are a 5 main categories of KPI that matter – each representing a different part of your operation:

• Inventory

• Order Management

• Putaway

• Receiving

• Safety

Here’s a quick cheat sheet for calculating top warehouse KPIs:

Inventory

• Carrying cost of inventory

  = total carrying costs / overall inventory costs

• Inventory accuracy

  = inventory tracked by WMS or IMS / inventory physically present

• Inventory to sales ratio

  = average inventory value / net sales

• Inventory turnover

  = cost of goods sold / average value of inventory, where Average inventory value = (beginning inventory value + ending inventory value) / 2

• Shrinkage

  = (cost of inventory tracked by system / cost of inventory physically present) / cost of inventory tracked by system

Order Management

• Backorder rate

  = total # of backorders / total # of orders

• Cost per order

  = total cost of fulfillment / total # of orders

• Fulfillment accuracy rate

  = total # of orders completed without issues / total # of orders received

• On-time shipping rate

  = total # of orders shipped on-time or ahead of time / total # of orders shipped

• Order lead time

  = average time from order placement to customer delivery

• Picking accuracy

  = (total # of orders - total incorrect item returns) / total # of orders

• Rate of returns

  = (total # of items returned / total # of items sold) * 100

• Total order cycle time

  = average time from order placement to shipment‍

Putaway

• Accuracy rate

  = total # of items put away correctly / total # of items put away

• Putaway cost per line

  = total cost of putaway / total # of items

• Putaway cycle time

  = average time to put away a single item

Receiving

• Cost of receiving per line

  = total cost of receiving / total # of items in each receiving line

• Receiving cycle time

  = total time spent sorting received stock / total # of items received

• Receiving efficiency

  = total inventory received / number of staff work hours

Safety

• Accident per years

  = # of accidents per year

• Time since last incident

  = amount of time since last incident

Ultimately, KPIs are just the first step to monitoring and improving your operation. It can be overwhelming to juggle all of these metrics at once and figure out what to optimize. In a future post, we’ll be discussing a helpful framework for setting OKRs (objectives and key results) – a framework for setting, prioritizing, and achieving major milestones with your team.