From OTIF to stock turn: KPIs for measuring warehouse performance.
No matter your goal — whether it’s maximising product flow, smoothing receipt and putaway processes, or creating an efficient picking system — you need to be able to measure the performance of your business in order to identify where you need to improve.
While these may be laudable objectives, they are too intangible to measure. That’s where key performance indicators (KPIs) come in. By monitoring and reporting essential metrics within your warehouse (or any business for that matter) you can get real-time quantifiable metrics that provide factual testimony to the success — or otherwise — of your warehouse operations, and give you accountability for your actions. As a result, you can dig deeper and find root causes that may be holding you back, so you can figure out exactly what you need to do to work more efficiently.
When combined with an effective warehouse management system, monitoring your KPI metrics could see your business run much more smoothly, benefiting your bottom line as well as customer satisfaction.
While you can measure a wide range of KPIs, we recommend focusing on a few key metrics as a starting point. Ideally, these should be spread all across different areas of the warehouse, so you can get the widest and most accurate view.
Here, we’ll discuss in more detail the importance of measuring your KPI metrics, as well as how to measure them. We’ll also introduce you to the seven KPIs you should be monitoring as part of your everyday processes, along with our tips for improving each one. We’ll cover:
What are KPIs?
Sometimes referred to as a business performance measurement, a KPI can make or break a business. They not only allow the day-to-day monitoring of performance, but also permit the identification of areas for improvement, and give an insight into the overall profitability of the business.
The hierarchy of KPIs.
KPI hierarchy corresponds to the hierarchy in the organisation. The generally accepted categories for this hierarchy are: strategic, tactical, and operational. By first understanding KPI hierarchy, and how it relates to the different levels of staff throughout the business, relevant measures can be identified and provided to your workforce. This gives them the information they need to contribute towards the company goals.
Strategic objectives and metrics are the top-level methods of measuring business performance. These metrics will usually provide performance information to senior management and stakeholders within the business to enable decisions about policies and objectives. They directly relate to the overall profitability, success, and sustainability of the company.
Some strategic objective examples include:
- Financial: Revenue, spending, and financial growth
- Growth: Company expansion
- Training and development: Staff training and tools
- Warehouse processes: Efficiency and optimisation
- Customer-focused: Customer service and delivery
As strategic objectives are higher level, and therefore have a number of influencing factors, further drill-down is often necessary to identify areas for improvement and diagnostics.
Strategic measures may be based on a wide variety of areas. For example, financial information may be captured to understand return on investment or percentage growth in certain areas. Or perhaps a set of specific KPIs may be identified that are directly linked to a company goal or objective, such as overall delivery performance, using OTIF (on time in full) data, or customer satisfaction.
At a more detailed level, tactical measures are used by senior and departmental management to monitor operations over a shorter period — typically weeks, months or quarters. As these measures are “closer to the action”, they are used to track and identify trends in performance, as well as to quantify the effect of an adjustment to the operation. They are generally derived from the company’s key processes and determine the effectiveness of each stage over a period of time.
Some tactical objective examples include:
- Increasing production
- Expanding the workforce
- Optimising delivery performance
- Optimising picking and packing
Tactical measures are often based on operational performance at a departmental level. For example, in the warehouse, measurement could be based on picking performance. Out in the field, drivers may be assessed on delivery performance, and in customer services, the effectiveness of calls taken might be measured.
More detailed again, operational performance measures are the day-to-day metrics used to help run the business. They directly relate to operational processes and usually track the influencing elements of tactical performance results. Generally measured across short periods of time (shifts, days, or weeks), these metrics provide “front line” managers and supervisors with the information they need to control operations on a daily basis.
Some examples of operational performance measures include:
- The performance of an individual or shift
- An individual’s progress towards a goal
- The packing performance on a line
- The percentage of total orders completed for the day
How can you identify your KPIs?
It’s important to note that not all KPIs will be relevant to your business, and you could be wasting resources tracking information that you don’t need. But how do you work out which KPIs you should be tracking?
There are five steps to identifying your KPIs. These are:
1. Define your key goals and objectives
The first step to identifying your KPIs is working out your true business goals. Less is usually more, and choosing a few key goals, instead of many small ones, will make the data much easier to track and keep on top of. Around two to four KPIs is usually a good amount to aim for. These could be anything such as increasing your number of sales or improving your delivery times. Then, you can use these goals as a basis for your targets.
For example, many supply chain companies will have delivery on time in full (OTIF) as a principal KPI. However, offering excellent service to customers as a key goal does not necessarily mean the company will be successful. Having an exceptionally high service level might gain you an excellent reputation, but if you have high operating costs to obtain it, it may be unsustainable in the long term.
In this case, a more realistic company goal may be to create a profit of £2m per year, increasing by 10% in the following years. So, we need to consider what will affect this goal in order to understand what KPIs to use.
2. Understand contributing factors
Once you’ve identified your company goals and objectives, you then need to work out what measures are influencing them. This means you know exactly which metrics to track in order to find room for improvement.
Here’s a basic example:
Using the objective we mentioned above, one of your company goals is to create a profit of £2m per year, increasing by 10% in the following years. If we consider at a basic level what contributes to this goal, we have:
- Sales creation: Your ability to sell and provide sales growth
- Pricing and costs: The ability to create profit on sales
From these contributing factors we can drill down further into these areas of the business:
- Sales creation: Marketing, advertising, customer services, quality control etc.
- Pricing and costs: Distribution, manufacturing, buying, market analysis etc.
Looking at manufacturing as a specific area, there may also be other factors to take into account. For example, at a high level, one of the indicators chosen may be average cost per unit, as it provides a good measure of cost management in the area. However, by focusing solely on cost per unit, quality control may take a hit, affecting sales creation. Therefore, a quality element KPI should also be included in the reporting for the area.
By understanding these relationships between factors, and towards the goal as a whole, you can identify KPI indicators that cover all the important activities of the business. They can be set so that they are in line with the hierarchal structure of the company, from strategic to operational level.
3. Analyse performance and consult with staff
Before setting targets, it’s important to understand current performance levels. This information provides a point of reference which future performance can be compared against. It can also help you set realistic targets in the future.
When performing this task, you may need to make certain assumptions that will enable the production of performance data. For example, if detailed staff hours are unavailable, then perhaps the average shift length may be used. It is imperative that this data is well-documented, as it will need to be taken into account when used for comparison in the future.
4. Set targets
Once you’ve got a good idea of your current performance, you can now set targets for the future. These must be considered in relation to the factor they contribute to and should be realistic. To ensure your targets will be achievable, careful consultation needs to take place with the staff members they affect.
In business, SMART target setting is a useful tool that can help you set achievable goals. Make sure any business goal you set out to accomplish is:
S — Specific
M — Measurable
A — Agreed upon
R — Realistic
T — Time-based
Remember, targets should be a challenge that encourages improvement, but you should always provide staff with an opportunity to discuss your targets to ensure acceptance.
Finally, the targets should be clear to all of those involved. Not only will this help to provide focus, but it will also give your business the best chance of achieving them.
5. Maintain visibility, report, and review
Measuring your KPIs will only be effective if you keep your eyes on the ball. This will give everyone accountability, so staff should routinely be reminded of performance and progress towards targets. Use reporting tools and data to update and review staff, to ensure performance is maintained. This also means you can work out who is hitting targets, and who may not be.
You may also need to update your targets once they’ve been met, so a regular review of your KPIs is necessary to ensure relevance.
What is receipt accuracy?
Receipt accuracy is a measure of supplier performance and warehouse receiving performance. It’s an inbound evaluation that shows how accurate the orders you receive from your suppliers are. It tells you if you received the right goods and if you booked them in correctly.
This KPI not only evidences that you are receiving the correct stock and the right quantities of it, but it can also show other parameters. For example, it could be used to check that the correct batch or serial numbers have been received, expiry dates are within acceptable timescales, whether stock is damaged, properly labelled, or even whether it has been received on time or on the right day.
A poor receipt accuracy means that you may be left with erroneous inventory that you can’t move, which in turn can lead to customer service issues. For example, if your expiry dates aren’t in range, then this can mean product wastage and out-of-stock issues for customers. This will also cost you valuable time and money as you make up for product wastage.
If you haven’t received the right products, then you won’t be able to fulfil customer orders on time, resulting in longer lead times and reduced customer satisfaction. It also impacts forecasting and planning. If you’ve not received the orders correctly, and you then can’t supply your own customers, stock discrepancies will result.
How to measure receipt accuracy.
To calculate your receipt accuracy, take a look at the percentage of supplier purchase orders that have been correctly received in full, compared to the total number of orders accepted. So, your receipt accuracy formula would look something like:
Receipt accuracy score = (Total number of orders received correctly and in full ÷ Total number of orders accepted) × 100
So, if you’ve accepted 2,000 orders, and 1,955 of those were correct, then your receipt accuracy calculation would be:
(1955 ÷ 2000) x 100 = 97.75%
You may also want to break this down into smaller metrics, such as the percentage of orders that arrived on time, or those that came properly labelled. Don’t forget to compare it to your order details so you can see whether any wrong stock is a result of the sender or an internal error.
What is a good receipt accuracy score?
Of course, the ideal scenario for any warehouse is to achieve a 100% receipt accuracy, but this is unlikely. Even with the smoothest warehouse operations in the world, the odd blip is bound to occur now and again. For this reason, we’d say a receipt accuracy score of 99.9% is more achievable. You can certainly make your receiving incredibly efficient if you can get it to these sorts of levels.
Equally useful is to set a minimum target within your warehouse management system. If you dip below this target, it will trigger an investigation into what’s going wrong and how it can be rectified.
How to improve receipt accuracy.
So, what if your receipt score is lower than you’d like? If your score is not as high as you had set out to achieve, then you will need to ascertain whether you have a supplier problem or an internal problem.
Working with your suppliers and using a number of tools can help you to improve your receipt accuracy scores, both from the supplier side and from an internal perspective. Using an advanced warehouse management system, like K.Motion, can improve your receiving, as it allows you to quickly book in supplier shipments, and checks if the right product has been received and in the correct quantities, as well as batch, serial, and expiry data.
It may also be helpful to use advanced shipping notice (ASN), which is a notification of a pending delivery that can enhance receipt from suppliers. ASN receiving will let you know when a shipment is pending, as well as particular details of the shipment, such as the weight, number of units, type of packaging, and batch and serial numbers. This allows you to accept what your supplier sends you electronically, leaving you to book it in and process it much faster.
Being able to accept your order in advance also means you don’t have to allocate labour to that shipment, as warehouse operatives don’t have to check, count, and log all the data into the system — your WMS will do it all for you.
Having trust in your supplier is an essential part of this, though. If something is wrong and the order you receive is not right in some way, then it can have a knock-on effect on the rest of the warehousing process.
What is receipt performance?
Receipt performance, also called receiving efficiency, is an inbound measure in the warehouse that assesses the speed of booking in goods. It expresses the number of lines and quantities received per person, per hour. This specific business performance measurement can be used to identify issues with inbound delivery processing, show where process improvements can be made, and determine labour requirements.
In some industries, like food or pharmaceuticals, there is a wealth of information that needs to be logged when products are received. Not only are the general line details needed, like SKU numbers and quantities, but often additional info such as batch or serial numbers, expiry dates and so on.
Logging all this supplementary information can be mandatory where compliance with certain standards is required. It’s understandable that this sort of detail is required in highly regulated industries like pharma, but many markets have their own standards and compliance requirements.
For example, for a business that supplies timber products to large DIY retailers may need to track batches of timber that are Forest Stewardship Council (FSC) compliant. This is so it can provide proof to those clients and their end consumers that the timber is FSC-certified. Compliance tracking like this can slow down receiving, and it’s an especially onerous process where data needs to be manually recorded. It can really hinder booking-in times, resulting in warehouse inefficiency
How to measure receipt performance.
If you want to measure receipt performance, you will need to make assumptions on some key factors in advance. For example, that a receipt is equivalent to a single line received, what your working hours are, how long your operatives take for lunch or breaks, and that time booking in does not include the put away.
Then, your measurement equates to the volume of stock received compared to the number of hours worked. So:
Receipt performance = Volume of stock processed ÷ Number of man hours
For example, if you have five employees each working a 40-hour week, and they’ve processed 10,000 units, you would calculate:
5 x 40 = 200 total hours 10,000 ÷ 200 = 50 units per hour
As you have all the information regarding shift patterns and length, you can also provide a breakdown per operative if you want to assess individual productivity levels.
What is a good receipt performance score?
There’s no one-size-fits-all good receipt performance score. Receipt performance is really company-specific and will vary dramatically according to industry. The best thing to do is to measure it frequently and consistently. You then have a benchmark and can see over time if you have improved.
How to improve receipt performance.
If you think your receipt performance scores can be improved, you firstly need to ensure you have put into place best practices for your industry. This can include having the appropriate number of operatives assigned to receipt, checking orders against purchase orders, prioritising receipt, and so on.
But, the most significant improvements in receipt performance are seen when the process is automated. It’s the human, labour-intensive tasks that take the most time, so a level of automation can really increase the speed of receipt.
One way of doing this is to employ barcode scanning. This eliminates keying in all the data manually. Boxes or pallets can be labelled with linear barcodes that hold all the relevant data. A quick scan brings in not only the product code and quantity, but also the batch numbers, expiry dates, catch weights and more. The data can be imported straight into the WMS, saving a huge amount of manual keying time.
A great example of this is in the pharmaceutical industry, where companies can use 2D matrix barcodes — like QR codes — which hold even more information. This can include a wide range of data, including serial numbers of individual packs of tablets. This level of coding helps distributors to meet and comply with the record-keeping required by the Falsified Medicines Directive (FMD), a set of Europewide standards for drug tracking.
While not relevant to all industries, it’s clear that in many cases the compliance and regulation needs dictate that a level of technology is an absolute must for those distributors that want to optimise their performance.
Getting receipt performance right also corresponds to delivery. A distributor’s OTIF score depends on three vital components of the supply chain all working as they should: purchasing, the warehouse, and the delivery operation.
What is OTIF?
OTIF is a measure of your outbound operation that mainly measures customer satisfaction. But it also contains a wealth of information and is a good headline measure of the effectiveness of a company’s supply chain. Essentially, OTIF measures the percentage of orders that are shipped on time and in full, meaning the customer gets everything they ordered, on the day they expected to receive it.
OTIF is generally used to cover the entire supply chain, and therefore, as delivery to the customer is the final step, then delivery OTIF is an indicator of performance across the whole supply chain. But the term OTIF is also used at various stages in the supply chain, preceded by the activity it describes. So, for example, you can have “supplier OTIF”, “receipt OTIF”, “picking OTIF”, “despatch OTIF” and “delivery OTIF”.
Although OTIF can be used throughout the entire chain, when it is looked at as a whole, it corresponds to delivery. A distributor’s OTIF score depends on three vital components of the supply chain all working as they should: purchasing, the warehouse, and the delivery operation.
OTIF identifies where process improvements in final delivery or within the warehouse are required and where there are any stock issues. It measures the contribution and balance of all three of these aspects of your supply chain in delivering your orders to your customers on time.
First off, the items being ordered need to be in stock. If they’re not, your customer is not going to get them on time, and your OTIF record will worsen. So, to help contribute to a good OTIF figure, your buying needs to be efficiently planned.
Even if the items are in stock, then there are elements within the warehouse that could prevent the order from going out on time. For example, you might have staff shortages, meaning the order may not get picked on time. Or perhaps the order didn’t come in on time to meet the cut-off for the correct delivery. Orders need to be shipped on time, and within tolerance, to be delivered when you have promised they will.
Finally, even if the items are in stock, and picked and packed and ready to be dispatched on time, then the carrier still has to get it to the customer on time and undamaged. All manner of disruptions or hindrances could affect this. Remember, an efficient transport management system can help you plan and track your deliveries, even if you’re working with a third-party logistics provider.
How to calculate OTIF.
Your OTIF score is usually the percentage of orders delivered on time and in full, compared to the total number of orders shipped. So, the OTIF formula would be:
OTIF score = (Number of deliveries made on time and in full ÷ Total number of deliveries) x 100
For example, if you’ve shipped 500 orders, and only 325 of them were delivered on time and in full, your OTIF calculation would be:
(325 ÷ 500) × 100 = 65%
What is a good OTIF score?
Of course, all distributors will want to achieve the perfect 100% score. But there are too many variables and chance events that could affect this. And sometimes it’s best not to aim for 100% delivery OTIF as this can add unnecessary costs into the supply chain.
The target needs to be a business decision based on what will be considered acceptable to the customer, considering the product or services provided. For many companies therefore, the target scores might be:
- A lines: 95–99%
- B lines: 85–95%
- C lines: 99–100% (where there is a differently worked delivery time strategy)
How often should you measure OTIF?
Most distributors will measure OTIF on a daily basis. And certainly, if there is a problem, it is vital that you have the figures so that you can analyse if there was perhaps an isolated issue on a certain day that then skews the figures for the entire month.
Tracking the daily trends can also tell you a lot. For example, if you’re trending downwards then something is wrong and you will need to investigate and drill down to find the root of the issue.
Even better is real-time intelligence. Expert distribution operations use real-time analysis to gain an early warning if there are any issues. If all aspects of your supply chain are not working together, or if there is a breakdown, then the customer will be impacted, and your reputation and future revenue could suffer.
How to improve OTIF.
OTIF is a great marker of supply chain performance. If your score is low, or if it is trending downwards, then you have issues that you urgently need to resolve. If this is the case, firstly you need to delve further into the three main areas — purchasing, warehouse, and carrier — to identify where the problems are.
Technology can help enormously too. Warehouse management systems such as K.Motion can improve warehouse efficiency. For example, when an order hits, it can immediately identify if you have the right level of staffing to pick it in time. And the integrated forecasting and inventory planning tool, Valogix, will ensure you have the right level of stock to be able to fulfil the order.
Finally, our own suite of Springboard applications can assist: Springboard Ship enables carrier integration, and – if you manage your own fleet – Springboard Delivery is a route planning and proof of delivery application. To find out more, take a look at our whitepaper on Springboard Delivery for SAP Business One.
What is pick performance?
Pick performance (also called the pick rate) is an outbound measure that calculates the number of lines or quantities picked per person per hour.
It expresses the degree of outbound productivity in a warehouse, allowing distributors to benchmark themselves and gauge how well they are doing as an operation. It can also be used to compare the performance of individual operatives against each other. Some distributors use the pick performance data to help set labour standards. They do this by undertaking an internal benchmarking and setting this against their expected performance levels. They then publish these as targets for their staff to perform against.
The pick performance KPI therefore identifies performance issues and where process improvements might be made. It also allows warehouse operations to figure out how long certain picking operations will take.
How to measure pick performance.
Pick performance can be measured in a variety of ways. It can be tracked at the order level, showing how long it takes to pick an entire order, or it can be measured by lines, units, or individual items.
The choice of which to measure will depend on the operation and its type of stock. Small items at a low level will be faster to pick than large items stored high up and needing a forklift to retrieve them, for example. So, considering the usual make up of orders will allow the best metric to be identified.
However, whichever metric you choose to track, the formula will be the same:
Pick rate = Lines, units, or items picked ÷ Hours of work
For example, if you have five workers each working an eight-hour shift, and they’ve picked a total of 500 units in that shift, then your pick performance can be calculated by:
5 × 8 = 40 500 ÷ 40 = 12.5
What is a good pick performance score?
Again, an optimum KPI score for pick performance will depend very much on the type of operation. For example, picking small items like jewellery might see as many as 200 lines or picks per hour per person. But when picking pallets, packaging, or timber, or where manual handling equipment is necessary, an operative might only manage 15 picks an hour. And for some companies, it may take hours or days to pick one order.
It is, however, possible to benchmark against similar companies. When our team here at Balloon One helps companies to benchmark, we will always choose comparative industries or operations — otherwise the data can be meaningless — but this KPI is best used as an internal measure for comparing operatives against each other. Alternatively, companies can carry out an internal assessment of how long picking might take on a “good day”, with someone who is known to be proficient and productive, in order to give a good benchmark level to aspire to.
How to improve pick rate.
There are a variety of ways that pick performance can be improved.
Cluster picking: This is where a picker will travel around the warehouse picking multiple orders simultaneously. For example, they might be instructed to take five products out of a certain bin and place three in one box and two in another.
Pick and pass (or zone picking): This method sees pickers allocated their own zone. They pick their orders within their area and then, if required, pass the order to another picker in another zone. This keeps operatives working in one particular area and limits time-consuming movement around the warehouse. In sizeable warehouses, a staged pick can be added to this process to improve performance further. This is where components of the order are simultaneously picked by different staff and are then brought together in one location.
Improved warehouse layout: Another improvement method would be to make sure that products are located in the most efficient positions in the warehouse on receipt. Usually, this is achieved by calculating the “velocity” of products through the warehouse; that is, how regularly they are picked, or what velocity is used. From this, products can be graded as to whether they are fast- or slow-moving goods and can be positioned accordingly. This allows picking to become far more efficient as it avoids warehouse workers having to travel too far for the popular products.
Improved order distribution: The way that orders are distributed is also important. Ordinarily, picking orders that include slow-moving products, where those items might be placed high up in the racking, would mean interrupting the pick to fetch a forklift. Sometimes it may be more productive to separate the orders or lines, segregating them into different types. So, one person can pick the products that are at height and needing a forklift, while another concentrates on the ground-level picks. This doesn’t spoil the flow of order picking in the warehouse
Cartonisation: Some warehouse management systems have the ability to store product dimensions, and from this, calculate the number of boxes required. This cartonisation method informs pickers how many boxes and labels they need to take with them before going out to pick. In this way, pickers don’t have to return to a packing desk to get more packaging if the products don’t precisely fit that which they took with them. In addition, when integrated with a carrier system, cartonisation allows the carrier label to be printed as the picking label, removing the further step of labelling with a carrier label once picked.
Significant pick performance improvements are very possible with incremental changes over time. One Balloon One customer improved their picking performance by more than five times over the course of about two years. Typically, the implementation of a WMS brings a 20–30% improvement in overall warehouse performance as well.
What is cycle count accuracy?
Cycle count accuracy is an inventory measure. It shows the percentage of cycle counts that have zero adjustments — that is, how often a cycle count is wrong. It helps identify stock accuracy, supplier accuracy, and process improvements.
Historically, warehouse operators might have undertaken a complete stock take once or twice a year. But at that sort of scale, the warehouse needs to be shut down, as you can’t have people picking the items while they are being counted. Plus, a huge stock take is very time-consuming. So, in between these full inventory counts, stock levels can become inaccurate. That’s where cycle counting comes in.
Cycle counting is counting just parts of the inventory. For example, a company might check the stock levels in two of the aisles, or perhaps a full product group. Counting little and often, rather than counting everything in one go, means the warehouse can remain operational because it doesn’t take too long, and the warehouse system has a live database view of stock levels.
How to calculate cycle count accuracy?
A cycle count accuracy KPI measures how often there is a discrepancy in a location. The results will indicate if there are problems, and if so, how these can be further investigated. Where there is a great deal of inaccuracy, a warehouse might have a theft issue. Or small amounts of inaccuracy could mean process problems, such as putaway methods being misunderstood by operatives, or issues with supplier ASNs being wrong.
There are three ways it can be expressed, and each one has their own cycle count accuracy formula:
Firstly, you can check how much of the stock is accurate and express it as a percentage using the formula:
Cycle count accuracy = (Amount of accurate stock ÷ Total amount of stock) × 100
So, if 10 out of 100 cycle counts are wrong, that gives a 90% accuracy, which means 10% of your cycle count is wrong. The calculation would be as follows:
(90 ÷ 100) × 100 = 90% cycle count accuracy
Alternatively, a weighted measure can be calculated by working out the percentage difference between the actual number of units, compared to the number there should be. This shows how inaccurate the cycle count is by measuring the discrepancy.
Cycle count difference = [(Number of units there should be – Actual number of units) ÷ Number of units there should be] × 100
100 – Cycle count difference = Cycle count accuracy
This figure can be measured across all stock. For instance, if there are supposed to be 200 units in a bin, but there are only 196, it’s 2% out, and the calculation would be as follows:
[(200-196) ÷ 200] × 100 = 2% difference 100 – 2 = 98% cycle count accuracy
Cycle count accuracy can also be measured in value. This looks at the value of the stock inaccuracy and therefore provides weight to the measurement, especially where higher-value goods are concerned.
To calculate cycle count accuracy by value, you can use the following formula:
Cycle count value difference = (Value of the actual stock ÷ Value of inventory there should be) × 100
So, if your inventory should amount to £10,000 but your data shows that it actually amounts to £9,500, the calculation would be as follows:
9500 ÷ 10000 = 0.95 × 100 = 95% cycle count accuracy
What is a good cycle count accuracy score?
An absolutely perfect cycle count accuracy score would of course be 100% — that is, zero inaccuracy. A warehouse manager would always be aiming for a perfect cycle count accuracy. But in the real world, this is rarely the case and generally there’s often a small inaccuracy. However, it’s very possible to achieve high rates of accuracy — 99+% for example.
What’s more reasonable for distributors though, is finding a value that they are happy with. And if they haven’t tracked this KPI before, establishing a benchmark is vital before embarking on any improvement programmes.
How to improve cycle count accuracy.
Simply employing a warehouse management system will improve your stock accuracy. We always see an increase when we deploy a new WMS for a customer. And if the system is used properly, there shouldn’t be any inaccuracy — theft aside, of course. One of our clients, Camlab, saw its stock taking accuracy increase from 75–80% to 90%.
The WMS tracks all movements, and where handheld scanner guns are used these monitor every transaction, like picking or receiving. This gives stock precise traceability and lessens the chance of errors. For example, if an operative picks from a bin and the system is expecting that to use the last of the stock, it will automatically trigger the worker to do an empty bin check. Adding in spot checks like this here and there only adds to the accuracy across the warehouse.
Because the staff are following the scanners, rather than relying on memory as to where the stock to be picked is located, there is also less chance of human error. The operative is less likely to misread the product, so won’t just pick what they think is the correct one.
Having a stock count schedule planned in advance will also help improve accuracy. A cycle count routine can be created within the WMS, perhaps configured so that only certain products are pinpointed for stock counting. Some distributors might only count their high value or frequently picked products, for instance.
Discrepancies can also be identified by undertaking an audit process on outbound orders. This is an additional checking phase that spots any picking inconsistencies.
One of the KPIs you choose to look at in your business may be how well you’re using your available space. This is called space utilisation, and we’ll answer all of your questions about it below, including:
What is space utilisation?
Space utilisation is an inventory measure. It shows the percentage of bins in a warehouse that contain stock.
A certain amount of empty space in a warehouse is good thing, as this allows for optimisation. It’s that free space that makes it easy for products to be moved around. But it is also important not to waste space. A warehouse that has an excessive number of empty bins is not the most economical. Empty bins not only take up essential space, but also signify that there is out-of-stock product, meaning no revenue can be derived from those particular SKUs. Using the space utilisation KPI can identify improvements that will lead to holding the optimal amount of stock across the warehouse.
The more efficient warehouses are those that minimise the utilised space that is needed to fulfil customer orders. It is vital to first identify under-used space, so that a warehouse manager can determine how it can be better utilised. For example, if a distributor is bringing in new product lines, it would help to understand how much available space there is, and therefore if there is the capacity to store them.
How to measure space utilisation.
For space utilisation, a count of bins with stock will be made. That will then be expressed as a percentage of the total number of bins in the warehouse. So the KPI essentially measures the number of bins with product in. But it can also be expanded to use volumetrics to see how much of the space is used.
So, your space utilisation formula would be:
Space utilisation = (Occupied space ÷ Total space) × 100
For example, if you have 50,000sq ft of warehouse space, but have only used 45,000sq ft, then your calculation would be:
(45,000 ÷ 50,000) × 100 = 90% space utilisation
What is a good space utilisation score?
There is no optimum level of stock utilisation. It all depends on what is stocked, how large it is, and how frequently it is picked. However, you will need to bear congestion in mind. Above around 85% capacity, there is little free space and the movement and picking of stock becomes restricted. Each pick or replenishment might then require several actions until it can be successfully completed.
Understanding the flow and utilisation of product in the warehouse is key to optimising it. A high level of utilisation will mean a large percentage of items are in stock. This can only be deemed to be a good score if the stock turnover of those goods is also high, and they are not simply being stored for a long time without being sold. This means money is not being tied up in stock for too long.
The space utilisation KPI will also identify the empty bins in the warehouse. Empty bin reporting helps to indicate how much available space there is. This KPI can be used in conjunction with a check of stock spread, which shows whether stock is spread out across the warehouse. For example, if the same products are stored in multiple locations, they can be moved and allocated to the identified empty bins. This optimisation of the inventory can reduce travel time for pickers in the warehouse as the stock is not too spread out.
How to improve space utilisation.
Warehouse management systems can help with assessing the space utilisation in a warehouse. These tools can identify spread out stock, and the volumetrics functionality can analyse the size of products and identify areas that can be freed up for other stock.
This analysis can also identify if different sized bins would be better for certain products. It’s very common that not all products carried are the same size, so why have uniform bins to hold them when variable sizes would be more efficient?
What is stock turn?
Stock turn rate (or stock turnover rate) is an inventory measure that looks at how long stock takes to be sold.
How quickly your stock is being sold helps to identify whether you’re hanging on to too much stock. Excess inventory is, by and large, never a good thing in a warehouse, as it means that too much cash is tied up in inventory.
One benefit of tracking stock turn as a KPI goes hand-in-hand with expiry date tracking. Distributors that handle food and other goods with “sell by” or “use by” restrictions can manage expiry dates if they track stock turn.
Balloon One has many customers in the food and drink and pharmaceutical industries, for whom expiry date management is important. One such customer has been proactively managing obsolescence, and actively identifying items nearing their shelf lives. They put the product into marked promotional areas in the warehouse so that it could be discounted. The WMS system they use automatically notifies them which stock to move. Once the stock is in the promotions area and has been assigned a promotional code, it is much more prominent and noticeable to the sales team, making it more likely to get sold rather than wasted.
The stock turn KPI also identifies sales performance, showing which products are selling well. A business will want to stock more of the top-selling items than the slow movers. Holding on to too much slow-moving stock will increase the money a distributor has tied up in stock, which in turn can have an impact on income and profitability.
So, the stock turn KPI can identify where utilisation improvements can be made. Slow-moving stock can be promoted or discounted, while the placement or storage of fast-moving items can be optimised to speed up picking and packing.
How to calculate stock turn.
The stock turn ratio shows the number of times that stock has been sold in a year, using the following formula:
Stock turn ratio = Number of items sold ÷ Number of items in stock
For example, if a distributor has 50 items of a SKU in stock, and in the past year it has sold 485 of them, then the stock turn calculation would be:
485 ÷ 50 = 9.7
This means that the inventory will have turned over 9.7 times in that 12-month period.
What is a good stock turn score?
Low stock turnover would suggest that sales are weak and excess stock is being held, while a high stock turn ratio points to stronger sales or higher discounts. How quickly a business sells its stock is a key indicator of its business performance.
However, a good stock turn score entirely depends on what goods you sell. If you’re in fast-moving consumer goods (FMCG), then your chocolate bars or washing powder will sell more quickly than if you’re selling cars, for example. Therefore, it’s important that you assess your business’s figures against those of a similar company.
Of course, short stock turn times are best for comestible items, as no-one wants to buy stale or rotting food. But with higher value stock, a slower turnover is expected. It’s here, though, that comparisons with other companies or with other product types can be useful.
How to improve stock turn.
Optimising your supply chain and logistics is of course key to improving stock turn. Any decent warehouse management system will be able to help identify slow-moving stock, which can then be put on promotion, just as our food and drink supplier does.
Reducing stock holding will also improve the stock turn ratio. A company that regularly reviews its slow-selling stock can then take measures to identify why it’s not moving, then perhaps adjust pricing or change marketing tactics. Keeping products in storage that aren’t selling is not only a waste of space, but also a hindrance to profits.
All staff should be aware of the KPI relevant to them, be it a senior manager level or an operative working on the shop floor. This visibility can be achieved in a variety of ways, which will be appropriate to different situations. For example:
- KPI reporting packages on various enterprise resource planning and warehouse management systems that can be tailored to the requirements of a manager. Using these tools, relevant data can be made easily available on the user’s configured homepage or via custom reports designed for them.
- ‘Dashboard’ packages, which provide a live representation of current performance. Often displays or indicators are fitted in operational areas, on production lines, and around the warehouse to focus attention on performance for workers.
- Mobile technology, such as scanning guns and mobile apps, can provide summaries of performance at relevant stages in the process to keep minds focused.
- Routine meetings where performance is reviewed can be an important tool. If the statistics are being monitored, then performance will often improve.
Time spent gathering information on a KPI that is no longer relevant is often wasted time. In addition, an irrelevant KPI can take attention away from a more important area of focus. As a result, you’ll want to regularly review the use of your KPIs. You may wish to consider reviewing the KPI less frequently or change the targets surrounding it if relevance reduces. It’s also important to ensure the decision is agreed on by all prior to the removal of a KPI.
Use KPIs to improve results.
There are many different approaches to improving results. Here at Balloon One, we frequently undertake consultancy projects for customers who want to improve performance but are unsure where to start. The usual procedure in these circumstances is as follows:
- Understand current and historic performance: The first stage for most companies is to start collecting the right information in KPIs. If no information has been collected, historic data can be sought in key areas to help identify where to improve.
- Analyse and benchmark performance: Now that a true gauge of performance has been achieved, this can be analysed to see where improvement should be made. A benchmarking exercise is a beneficial approach in these instances, whereby company performance is compared against another similar company. This allows an indication of the benefits of different practices and equipment to become apparent. With a number of clients in similar industries who are willing to share their data with us for benchmarking purposes, this is a key service we are able to provide to clients.
- Target area for improvement: Once an area for improvement has been targeted, we usually start by reviewing and mapping the process in detail. When performing our review, we generally look for the following:
- Waiting (time on hand)
- Unnecessary transport or conveyance
- Over processing or incorrect processing
- Excess inventory
- Excess motion
We also discuss the process with the relevant staff to gain their view on potential improvements. Just by having a fresh set of eyes reviewing the process, this exercise will often identify potential gains in productivity that are simple changes. In addition, this is often where the differences between the two companies involved in a benchmarking process become apparent and can help to identify the changes required.
- Identify potential improvement: From the process review, potential improvements — whether they’re in process, equipment, or technology — will be analysed to understand the potential return on investment. A decision can then be taken as to what is the best course of action to follow.
- Take action and review results: Once the improvement has been made, the results must be closely monitored to ensure the desired results have been achieved. If not, then further adjustment may be required.
- Continual improvement: Many businesses task their operational staff with a budget to meet and a set of targets surrounding improvement in their area. This has been shown to be an effective method of encouraging employee ownership of processes, continuously driving improvement.
Monitoring your KPIs is an essential method of measuring your business performance. The tips in this guide, along with our examples, should give you everything you need to move your company forward.
While you’re free to browse our online version, you’ll be pleased to know that we also have a hard copy PDF guide to implementing warehouse KPIs that’s free to download for offline viewing or print out to share with your co-workers.
For more information on how we can help your business identify and track its KPIs, or if you’d like to find out which supply chain management system is right for you, just take a look at our ‘working with you’ page, where you can book your free consultation. We offer a wide range of supply chain management solutions, including warehouse management systems, enterprise and resource planning, transport management systems, and automation, so there’s bound to be something to suit your needs and business goals.
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