Warehouse Key Performance Indicators

The performance indicator or key performance indicator (KPI) is a measure of performance of the business in order to benchmark against the competition and explore the possibility to improve in order to gain competitive advantage.  Warehousing function is a very critical within any supply chain.  If the products do not move seamlessly within supply chain business would face serious service-related challenges.  Hence, it is necessary to drive the performance of the warehouse through key performance indicators.  Further, in a continuous improvement environment, it is essential to benchmark against the industry standards in order to drive improvements.

What is Benchmarking?

“Benchmarking is the process of comparing one’s business processes and performance metrics to industry bests and/or best practices from other industries.” Benchmarking is essentially a process to measure a business’s processes against the competition, world standards or the business itself.

How do we benchmark and why?

The benchmark scope typically includes productivity, quality, time, and cost. The objective of this activity is to improve from learning the performance measurement in order to execute things better, faster, and cheaper.  The benchmarking effort is driven by a desire to evaluate business processes to see if they may be improved. The resulting improvements should then be related to how those improvements may be implemented to help a company better meet the requirements of its customers.

Operating cost break-up in a typical warehouse:

As you can see from the below-given pie chart (source: a recent survey of warehousing professionals) that the order picking is the most expensive operation and it is directly linked to customer satisfaction.  Any wrong pick would lead to an unhappy customer.  In order to drive improvements, it is very important to identify the cost distribution and identify improvement areas.  Generally, the improvement activities are identified based on cost or productivity linked activities.  The order pick activity is both highly labour intensive and 50% of warehouse costs were spent on this activity.

How to determine KPIs?

People, Cost, Space and Systems drive the performance inside the warehouse.  Hence, generally, warehouse KPIS are based on the above-mentioned drivers and focused on activity in order micromanage the performance.  The following activities are common in any warehouse:

1. Receiving;
2. Put-away;
3. Storage;
4. Pick-n-Pack;
5. Shipping

Receiving:

The receiving activity is fundamental to warehousing function. Unless the merchandise is properly received, it will be very difficult to handle all other subsequent functions. The receiving function allows warehouse operators to receive product against a purchase order, and against an Advanced Shipping Notice (ASN) that has been received via Electronic Data Interchange (EDI). Receiving process could include goods physically received at the warehouse and stored or directly delivered at the customer site or cross-docked.

The relevant KPIs for receiving function should include the following:

1. Cost – Cost of Receiving per receiving line;
2. Productivity – Volume received per man-hour;
3. Utilization – Receiving Dock door utilization %;
4. Quality – Accurate receipts %;
5. Cycle Time – Time taken to process a receipt.

Put-away:

Once receiving activity is completed, the accepted merchandise has to be stored in a location that is convenient to retrieve for further action.  This process is called put-away and this is the just reverse of order pick function.  We have different types of put-away processes.

• Direct Put-away – Put-away directly to primary or serve locations.
• Directed Put-away – Put-away directed by Warehouse Management System.
• Batched and sequenced Put-away – Received material sorted and put-away processed in batches to maximise the efficiency.
• Interleaving – Combine put-away and retrieval to avoid empty travel.

The KPIs for this activity should include the following:

1. Cost – Cost per put-away line;
2. Productivity – Put-away per man-hour;
3. Utilisation – Utilisation % of labour and equipment;
4. Quality – Perfect put-away %;
5. Cycle Time – Time taken for each put-away.

Storage:

Broadly we have two types of storage systems and they are manual storage and the second one is automated storage and retrieval system (AS/RS).  Again within manual storage, we have six different types of storage and they are:

1. Block stacking – “Units loads stacked on top of each other and stored on the floor on the storage lanes.”
2. Stacking frames – “are either frames attached to standard wooden pallets or self-contained units made up of decks and posts.  Stacking frames are portable and enable users to stack material several loads high.”
3. Single-deep selective pallet rack – “is a simple construction of metal uprights and cross-members providing immediate (pick-face) access to each load stored (that is, no honey combing).”
4. Double-deep rack – “are mostly selective racks that are two pallets position deep.”
5. Drive-in rack – “extend the reduction of aisle space begun with double-deep rack by providing storage lanes from five to ten load deep and three to five loads high.”
6. Drive-thru rack – “is merely drive-in rack that is accessible from both sides of the rack.”

The KPIS for this activity would include:

1. Cost – Storage cost per item;
2. Productivity – Inventory per sq. foot;
3. Utilization – % Location and cube occupied;
4. Quality – % Location without inventory discrepancies;
5. Cycle Time – Inventory days on hand.

Pick-n-Pack:

This activity again can be broadly divided into two parts.  First one deal with case picking and the second one deal with small item picking.  Further case picking can be classified into three categories.  The first one is known as Pick-face palletizing where warehouse operator palletizes at the pick-face as he/she traverses the picking tour.  The second one is downstream palletizing where cases are picked onto conveyors and sorted at the staging area.  The third one is direct loading where the cases were conveyed directly into the truck.

Further, the small item picking can be classified into three categories.  The first one is known as picker-to-stock, where the picker moves around to pick the cases.  The second one is stock-to-picker.  In this case stock was sent to the stationed picker through AS/RS machine. The third one is known as automated item picking.  In this process items are automatically dispensed into shipping cartons or tote pans.

The relevant KPIs for this activity would include:

1. Cost – Cost of picking per order line;
2. Productivity – Order lines picked per hour;
3. Utilization – Picking labour and equipment utilization %;
4. Quality –  Perfect picking lines %;
5. Cycle Time – Order Pick cycle time per order.

Shipping:

Shipping is the last step in warehouse activity in handling shipping goods to the customer or handling stock transfers.  This process is the origin to moving product from point A to point B.

The KPIs for this activity could include:

1. Cost – Cost of shipping per order;
2. Productivity – Order process for shipping per man hour;
3. Utilization – Utilization of shipping docks in %;
4. Quality –  Perfect shipping %;
5. Cycle Time – Shipping time (from the time order picked to physically movement of the truck) per order.

“Continuous improvement is better than delayed perfection.” Mark Twain

The above are the broad KPIs identified for each activity inside the warehouse.  Warehouse operations profile could change based on the product handled.  For instance, in a FMCG/Retail warehouse, the order picking could be manual whereas in the aerospace industry the order picking is totally automated and AS/RS is in operation.  The volume of labour deployed, the cost of operations and capital equipment deployment largely depends upon the product handled in the warehouse.  Hence, the KPIs are to be customised based on product profile.  In my opinion, the warehouse is the most happening place in any business and there is huge potential for improvements in the areas of productivity, cost and avoiding accidents which could result in operational disruption.  Activity based costing would help to monitor warehouse cost behaviour against the budgeted expenditure.  Process mapping and time and motion study will help the business to improve the productivity. The KPIs should be tangible and measurable improvements that can be identified and achieved.  I strongly believe that KPI setting is the stepping stone for performance improvement.

Cartoon Source: www.offthemark.com