As a warehouse supervisor, you are already aware that warehouse management is complicated! Keeping all the “moving parts” operational whilst ensuring the safety of staff and customers can be a logistical nightmare. There’s the obvious: movement of inventory and employees performing different tasks. Then add in warehouse equipment to oversee, to say nothing of clients and suppliers – sometimes it may seem like there’s little chance of measuring anything.
At Dexter’s, we understand the problems that warehouse managers confront and have put together a short list of “measurables” otherwise known as Key Performance Indicators, or KPI’s to help you gain a better understanding of your busy environment.
KPI’s have been around for a long time – in fact, they can be traced back to the Wei Dynasty in China during the 3rd century! Apparently, they used a 9-rank system to evaluate the performance of the royal family. One presumes that they didn’t lose their heads if the rice in the warehouses was eaten by rats…
So, given all the different operations in a modern warehouse and the endless number of different KPI’s for different industries, how do warehouse supervisors go about making sense of the confusion? Here’s some we believe will be helpful in creating an efficient warehouse operation that will have a significant effect on your company’s bottom line.
- Inventory Accuracy
Let’s start with the most obvious. Never did you ever hear a customer say they were pleased to find a product was out of stock after Joe in Sales assured them you had 10 Gizmos out the back! Inventory Accuracy is vital to customer satisfaction. Well duh! Of course, it is. So how and CAN you even measure this? Sure! Firstly, you need a baseline! Does your database inventory align with a physical stock take? If you are constantly having to tell Sales that there are no Gizmos in stock or there’s only 3 not 10, then an accurate stock take is in order. From there, increasing the frequency of cycle counts and investing in more efficient inventory systems could reduce the amount of revenue lost due to inaccurate stock and increase customer (and Sales Team’s) satisfaction. To measure this, simply divide the stock in your electronic system by the physical stock take – the closer the result to 1, the more accurate your inventory.
KPI – Aim for a 1. If your number is high, then try to improve by small amounts each quarter until you reach 1.
- Inventory Turnover
There’s no point cluttering up your warehouse with stuff you don’t sell. That’s just a stupid waste of money and space. Keep close tabs on this by tracking the frequency by which products are turned over. The less time something spends on your racks, the more it justifies its place! (Of course, if you are running out of space, then Dexter’s have some answers for that too!) This ratio can be calculated two ways: by dividing the number of sales by the average inventory OR the cost of goods sold by average inventory. A high result indicates strong sales, a lower one means there’s some problems.
KPI – Aim for the highest result possible by culling dead stock and keeping a close eye on fast selling, high value products. The winner takes all!
- Pick Accuracy
Again, this might seem to be completely obvious. Inaccurately picked orders equal dissatisfied customers, which equals disgruntled customer service staff, and moreover angry management. You don’t want to lose your job because Mario constantly picks Widget A instead of Widget B. There are many things you can do to improve this and Dexter’s can provide warehouse solutions to help you reach your KPI’s for order accuracy. To measure this, simply divide the total number of orders minus incorrect item returns by the total number of orders. (Total number of orders – incorrect item returns/total number of orders).
KPI – Aim for 1 – perfect accuracy and the best customer experience your company can provide!
Receiving occurs when your warehouse accepts delivery of stock that must then be processed, sorted and stored. There are at least three metrics which can easily be tracked to provide you with an overall idea of your warehouse efficiency score. KPI’s like Receiving Efficiency (the speed and accuracy with which delivered goods are receipted in), Cost of Receiving per Line (a measure of efficiency per item) and the Receiving Cycle Time (how many man-hours per item it is taking). Measured and tracked regularly, these will give you a very good picture of your overall warehouse productivity. In addition, these indicators can be improved over time, by implementing good warehouse design principles and use of proper equipment such as forklifts and attachments, hand trucks and lifters.
KPI – Aim for the best possible outcomes, by implementing incremental changes that, over time, have huge benefits.
- Cost of Carrying
This is the amount of money a business spends on owning, storing and holding stock. It represents just how long your business can continue storing Widgets A, B and C before you begin to lose money. Don’t get emotionally attached to Widget C’s if they aren’t selling, even if you did like them in Lime Green😊. It seems that no-one else did and now you need to find a solution to rid yourself of dead stock. Carrying costs can be calculated by dividing your total carrying costs by your average inventory costs. Carrying costs are items such as insurance, wages, safety systems, rent/mortgage and taxes etc. Keep this number as low as possible to ensure that your business remains cash strong.
KPI – Add all your carrying costs and divide by your average inventory value. Too high a number indicates that you may be carrying too much dead stock!
- Safety First
And last, but not least, you must be able to “measure” the safety of your customers and employees. Simple metrics such as accident-free days and incentives for staff are the perfect way to measure and profit by the measurement! At Dexter’s we carry a full range of safety signage and equipment that will enable you to provide the safest warehouse possible. In addition, there are many resources available to help you ascertain exactly which New Zealand Government regulations you need to be aware of. Visit Worksafe NZ
KPI – Aim for 100% accident-free weeks, months and years.