Start Measuring These Warehouse Efficiency Metrics Today, for Better Productivity and Improved Processes
H. James Harrington, world-renowned quality guru and author of more than 40 books on lean management and process improvement, famously wrote:
“Measurement is the first step that leads to control and eventually to improvement. If you can’t measure something, you can’t understand it. If you can’t understand it, you can’t control it. If you can’t control it, you can’t improve it.”
Measuring and tracking warehouse efficiency metrics is essential for warehouse managers hoping to gain a deeper understanding of warehouse operations management, enhance control over daily workflows, and implement process improvements that drive efficiency, profitability, and customer satisfaction.
To help you get started, we’ve put together a list of 28 warehouse efficiency metrics you should start measuring today.
Warehouse Financial Efficiency Metrics
Revenue is the total amount of money that your warehouse operation receives from customers in a given time period. Warehouse managers can track revenue by adding the values of all orders received and fulfilled by the warehouse during a given time period.
Tracking monthly or annual revenue allows you to start measuring the efficiency and profitability of your business, as well as budget more effectively for expenses. You can also break down revenue by customer or by SKU to gain a better understanding of which customers or SKUs are most important for generating cash flow.
Expenses for your warehouse operation include rent, utilities, security, administration, labor and equipment, as well as materials and inventory costs. Warehouse managers should have a clear understanding of their monthly operating expenses, as well as how those costs break down between the various categories.
3. Handling Cost Per Unit
To calculate Handling Cost Per Unit, determine your total operating expenses over the past 12 months and divide by the number of units of inventory your warehouse handled in the same period. Keeping your handling costs down with efficient warehousing processes reduces your overall expenses and increases per-unit profitability.
4. Profit Margin
The profit your warehouse earns each year is equal to your total annual revenue minus expenses. For example, a warehouse with $5 million revenue and $4 million expenses would have earned $1 million in profit.
To calculate the profit margin, divide profit by revenue and multiply by 100. In our example, profit margin may be calculated as ($1 million) / ($5 million) * 100% = 20%
The ultimate goal of process improvement in the warehouse business is to drive profitability and increase margins by implementing changes that increase revenue and reduce operating costs.
5. Profit Per Employee
You can calculate Profit Per Employee by taking your total profits and dividing by the number of employees in your warehouse. A warehouse with $1 million in annual profits and 20 employees would have a Profit Per Employee of $50,000.
The Profit Per Employee metrics gives warehouse managers a high-level view of overall worker productivity. When individual workers are more productive, a warehouse can earn greater profits with fewer workers, resulting in high Profit Per Employee.
Warehouse managers can increase productivity in the warehouse by improving warehouse processes (receiving, putaway, order picking, etc.) or investing in technologies like battery-powered mobile workstations that help workers execute tasks faster and more efficiently.
Warehouse Receiving Metrics
6. Damaged Shipment Rate
How often do damaged shipments arrive at your loading dock? The only way to know is to track the total number of damaged shipments as a percentage of all shipments you receive – otherwise known as your Damaged Shipment Rate.
If you’re losing productivity or struggling to maintain inventory levels because of damaged shipments, it might be time to switch suppliers – or ask your supplier to use a different carrier when shipping to your warehouse.
7. Per Line Receiving Cost
The cost of receiving an order depends on the number of workers doing the receiving work, their hourly wage rates, and how long it takes to receive the order. After determining the cost, you can calculate the Per Line Receiving Cost: just divide the total cost by the number of lines on the order.
This metric essentially quantifies the per-unit cost of receiving inventory into the warehouse. The faster your team can execute the receiving process, the lower your Per Line Receiving Costs will be.
8. Receiving Accuracy
As part of the receiving process, employees in your warehouse need to verify that inventory you receive matches your order. If mistakes in this area are overlooked, you could end up with incorrect inventory counts that don’t get corrected until you have an order you can’t fulfill – then you’re on backorder and your customer isn’t happy.
You can increase receiving accuracy by using warehouse computer carts to access inventory management software, double-check shipments, and update inventory counts directly at your warehouse unloading dock.
9. Receiving Productivity
Receiving productivity is a measure of how much inventory your warehouse employees can receive in a given time period. To calculate productivity, divide the total quantity of inventory received by the number of labor hours it took to receive the inventory. If your warehouse received 3,000 units of inventory in 18 labor hours, your receiving productivity would be 167 units per hour.
10. Receiving Cycle Time
Receiving processes differ between warehouse operations. Once a new shipment of inventory arrives at the loading dock, it must be verified, counted, and sorted for putaway. The average amount of time it takes to execute this receiving process is known as Receiving Cycle Time.
Faster Receiving Cycle Times indicate a high level of productivity in the receiving area of your warehouse.
Warehouse Putaway Metrics
11. Putaway Accuracy
Storing inventory in the right location in your warehouse ensures that it can be found when it’s time to fulfill an order. Putaway accuracy measures how frequently your employees are putting away new inventory in the correct spot.
To calculate Putaway Accuracy, divide the number of accurate Putaways by the total number of Putaways during a given time period.
12. Putaway Productivity
Just like Receiving Productivity, Putaway Productivity is a way of measuring how efficiently your employees are completing Putaway tasks in the warehouse. Putaway Productivity is measured in items per hour, so you’ll want to track how many items are being put away in the warehouse for each labor hour that’s being allocated to putaway.
13. Putaway Cycle Time
Putaway cycle time is the average time it takes for an employee to put away a single item of inventory in your warehouse. One of the best ways to accelerate putaway cycle times is to re-organize your storage layout so that items with the highest turnover are stored near the unloading docks and can be put away quickly as they enter the warehouse.
Warehouse Inventory and Storage Metrics
14. Inventory Accuracy
Inventory accuracy is a measurement of how accurately your warehouse is tracking inventory levels. You can calculate inventory accuracy by looking at quantities of inventory tracked in your inventory management system and comparing it to actual quantities of inventory present in the warehouse (measured through regular spot counts).
Accurate inventory tracking is important for managing your safety stock and maintaining the inventory levels necessary to promptly fulfill orders as they are received.
15. Inventory Turnover Rate
Inventory turnover rate is a metric that describes how frequently inventory in your warehouse is being sold. The best way to calculate your inventory turnover is to determine the total number of sales for the entire warehouse (or a given SKU), then divide by the total quantity of inventory for the entire warehouse (or the chosen SKU).
Higher inventory turnover rates mean strong product sales, but they also mean that you’ll have to carefully manage inventory levels and keep ordering new inventory to avoid backorders.
16. Inventory Carrying Cost
Inventory carrying cost is the total amount of money that your warehouse operation spends every month to store inventory. Measuring your inventory carrying costs by SKU can help you determine which slow-moving (or non-moving) SKUs should be removed from the warehouse to create space for higher velocity goods.
17. Inventory Backorder Rate
SKUs on backorder are not present in the warehouse at the time of purchase, resulting in fulfillment delays that degrade the customer experience. Supply chain disruptions are sometimes unavoidable, but warehouse managers are ultimately responsible for projecting future demand, anticipating lead times, and ensuring that inventory is available in the warehouse to support fulfillment.
Backorder Rate can be calculated as the percentage of total orders that can’t be completely fulfilled due to SKUs on backorder.
18. Inventory-to-Sales Ratio
Inventory-to-sales ratio is another one of the important warehouse efficiency metrics to track. You can calculate this ratio by dividing your remaining inventory at the end of the month by your total number of sales for the month.
If your warehouse is accumulating inventory faster than you can sell it, you can adjust by ordering less inventory or working to accelerate sales. If your inventory levels are trending down, you may want to increase your order sizes to avoid potential fulfillment delays in the future.
Shrinkage is the difference in value between the inventory logged in your warehouse management system and the inventory that is physically present in the warehouse. Shrinkage happens when inventory in the warehouse is misplaced, stolen, damaged, or mistakenly shipped to a customer. Measuring shrinkage can help warehouse managers identify and mitigate the causes of lost inventory.
20. Warehouse Capacity Utilization
Warehouse capacity utilization is simply a ratio between the total amount of space available in the warehouse and the total space being used to store inventory. Warehouse space is expensive to lease and a high capacity utilization indicates that space is being used efficiently.
If your business rents a 20,000 square-foot warehouse but only utilizes 40% of its storage capacity, you might consider moving to a smaller space or re-organizing the warehouse and expanding operations to make better use of your existing space.
Warehouse Order Picking Metrics
21. Order Picking Accuracy
Order picking accuracy is a warehouse efficiency metric that tells you how accurately items are being picked in the warehouse to fulfill customer orders. You can measure pick accuracy by tracking the total number of order picking errors and dividing by the number of items picked. Your warehouse should strive for an order picking accuracy of 100% – no mistakes!
22. Order Pick Rate
Order pick rate measures how quickly your warehouse employees are picking items to fulfill customer orders. You can measure pick rate by tracking the total number of items picked and dividing by the total number of hours spent on order picking during a specified time frame. Faster order picking lowers your labor costs and drives warehouse profitability.
You can improve pick rates by optimizing the warehouse storage layout, introducing technologies like mobile warehouse carts that drive efficiency in the order picking process, or switching to a faster order picking strategy.
23. Cost Per Item Picked
This warehouse efficiency metric can be calculated by measuring the total cost of order picking and labeling during a specified time period, then dividing by the total number of items picked. Warehouse managers should strive to reduce per-item order picking costs as much as possible with process changes that eliminate wasted time and labor in the order picking process.
24. Total Order Cycle Time
Order lead time is the average time between when a customer places an order and when the order reaches the customer. You can calculate order lead time by adding together your order cycle time and the average shipping time from your dock to the customer’s door.
The faster you can fulfill orders and ship them to your customers, the happier they’ll be – and the more likely they’ll be to order again in the future.
25. Perfect Order Rate
Perfect Order Rate serves as a North Star metric for high-performance warehouse operations. Perfect Orders are counted when an order is picked with 100% accuracy and delivered to the customer on time. A high Perfect Order Rate means that you’re consistently meeting customer expectations for both quality and speed of delivery.
Warehouse Shipping Metrics
26. Percentage On-Time Deliveries
When you’re shipping orders to your customers, you want to know what percentage of those orders are reaching their destination on time. To maximize customer satisfaction, warehouse managers should focus on achieving 100% on-time deliveries.
When shipments to customers are arriving late, warehouse managers need to know whether the shipper is causing the delays, or if orders are simply being filled too late to achieve on-time delivery.
If deliveries are late because of the shipper, it might be time to start shopping for a new carrier. Otherwise, warehouse managers will have to either improve the order picking process or change how they’re managing customer expectations when it comes to deliveries.
Warehouse Reverse Logistics Metrics
27. Order Return Rate
When an order is returned, your warehouse doesn’t just lose money on the refunded sale. Processing refunds and putting away the returned inventory is also time-consuming and costly. To keep these costs down, warehouse managers should measure order return rates, track the specific reasons why returns are happening, and strive to keep order return rates as low as possible – ideally at 0%.
28. Average Cost Per Return
In addition to measuring the frequency of returns, we recommend that warehouse managers also track the average cost of processing a return. Tracking this warehouse efficiency metric helps warehouse managers measure the real financial cost of upstream process deficiencies that lead to returns, and make the business case for process improvements that can help reduce the order return rate.
Optimize Warehouse Efficiency with the DTG Problem Solver Warehouse Cart
Implementing mobile computer carts in your warehouse brings people and technology to the point of task, saving time and reducing wasted steps while empowering your staff to receive, put away, count, and pick inventory from the warehouse with maximum efficiency. It also supports more complete measurement of warehouse efficiency metrics necessary for continuous improvement and streamlined processes.
DTG’s Problem Solver is a battery-operated mobile computer cart purpose-built to help you optimize every aspect of warehouse operations – from receiving, putaway, and storage, to order picking, packing, and shipping.
Ready to learn more?
Contact us for a free virtual demo and we’ll show you why the largest warehousing operations in America are using DTG mobile computer carts to lower costs and maximize efficiency.