Why relevant KPI is important in your warehouse

To measure the activity of a warehouse is crucial to evaluate if warehouse production is developing positively or negatively. To measure the relevant activity, you need a number of KPI in warehouse production that measures the efficiency and quality.

It is very important to have KPI that you can link to the financial figures. All activity in the warehouse has an economic impact. If you make a change in warehouse production, it will have impact in the financial report.

The prerequisites for warehouse production is mainly due to external factors. For example, the sales department change order structure in order to become more competitive. Deadlines for orders postponed later in the day or the discount rate for unit picking versus the pick of the multi-pack is removed. It can have major consequences in picking efficiency, later orders and more orders and order lines but to a lower value per line and order. The same applies to goods receiving and put away, if the purchasing department streamline their business and want to reduce the stock value they reduce the purchase quantity per article, it most certainly generates more goods receipts and more put away.

As a warehouse manager, it is extremely important to constantly monitor changes as described above because it is you who will be held accountable when logistics costs as a percentage of turnover increases or cost per order line or purchase line increases. Then you need to be able to give a good explanation to the senior management.

In a WMS there should be good opportunities to collect relevant data on all activities done. It’s very good if you set up a long-term database and loads data continuously from WMS. Then you can compile the data over time with tools like qlikview for example to analyze and evaluate the warehouse logistics.

Something that does not tend to be as easy to analyze is hours worked in the warehouse. The total number of hours for the entire warehouse is of course no problem compiling, but when it comes to breaking down these hours per activity or per department it is usually more problems. Especially if you have staff that are fluent and rotates the departments and tasks then it becomes particularly difficult to compile hours more in detail. There’s WMS that can handle these tasks, and I advocate investing in a WMS that manage to log hours in detail. It is extremely valuable when analyzing the efficiency and economic impact of changes in the warehouse. More established WMS have 3PL modules where you can put the cost of each activity in the warehouse. I think it is valuable not only for 3PL operations but for all warehouses, then it will be easier to demonstrate the economic effects of changes in both outbound and inbound streams.

It is popular or trendy to talk about measuring in real time and use the data in for example WMS modules that calculates need for resources or capacity planning. Personally I think that these tools are slightly overrated because these tools base their estimates on historical data. They do not specify how to become more efficient, but only the amount of hours you need to be on the same efficiency as yesterday. To be effective, it is you as a leader who must set the pace, these decisions is something that still needs to be done subjectively. But I have a great radical easy way to avoid subjective and that is to let the warehouse management (supervisors) itself perform all the tasks in the warehouse for a period to evaluate what is a reasonable pace. It also gives a great credibility to the staff when you present what is a reasonable performance for the staff. It may sound primitive, but is very effective.

Finally, you can measure how much you want, the art is to pick out KPI that are relevant to your business and link them to economic figures. A crucial factor is to be able to measure time by department and task. Personnel costs are one of the largest items in the budget at all warehouses, my advice is to put a lot of energy to get the time consumption in detail in the warehouse. Otherwise, it will be difficult to know where to put the focus to get the real efficiency gains.


Roberth Karlsson

One thought on “Why relevant KPI is important in your warehouse

  1. Let me rescue the last paragraph: Finally, you can measure how much you want, the art is to pick out KPI that are relevant to your business and link them to economic figures.
    The answer is a KPI I call Relative Efficiency, that compares the actual time for performing a task (or activity) to an expected one. Examples of real application in warehouse operations can be found in https://loypro.wordpress.com/2017/05/26/echar-a-andar-las-curvas-del-cambio-iiii/


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