There is an old adage which says if you don’t measure you can’t manage. This is true up to a point. The fact is that these measures have to be SMARTER – Specific, Measurable, Achievable, Relevant, Time related, Evaluated and Reviewed regularly. (Yemm 2013).
There is no point in measuring areas which you can’t do anything about or where the cost of measuring is going to be greater than the likely savings to be achieved.
The measures also have to be in line with the company’s strategy going forward – hence Relevant.
Although Deming (2000) was initially credited with the quote about measuring and managing he actually states that “managing by results is like looking in the rear-view mirror”. He states that many important things that must be managed cannot be measured. However we do need to know where we are before we can improve on performance to get where we want to be. He also stated that be improving quality you automatically improve productivity.
Table 1 below shows some examples of key performance indicators that can be applied in a warehouse. It is not suggested that all of these measures are introduced. Choose the ones which are important to you as a company and those of which are important to your customers.
Table 1 – Examples of Warehouse related key performance indicators
| Key performance indicator | Description |
| Cost indicators | |
| Average cost per unit shipped (£) | Total cost of warehouse operations / total units shipped |
| Warehouse costs as a percentage of cost of goods sold | Total cost of warehouse operations / Cost of Goods sold (as per the P & L statement |
| Warehouse costs as a percentage of sales | Total cost of warehouse operations / Total sales (as per P & L Statement) |
| Cost per order shipped | Total cost of warehouse operation / Total orders shipped from warehouse |
| Actual cost per activity | Actual cost by activity / Expected (budget) cost |
| Productivity indicators | |
| Orders picked per hour | Orders picked and packed / Total warehouse labour hours |
| Product Lines picked per hour | Lines picked and packed / Total warehouse labour hours |
| Items picked per hour | items picked and packed / Total warehouse labour hours |
| Pallets picked per hour | Pallets picked per hour / Total warehouse hours worked |
| Cases picked per hour | Cases picked per hour / Total warehouse hours worked |
| Service indicators | |
| On time despatch | Total orders shipped on time / total orders shipped |
| Order fill rate | Orders filled completely / Total orders shipped |
| On time in full first time | Orders filled completely first time and delivered on time / total orders |
| Damage free shipments | Damage free items shipped / Total items shipped |
| Paperwork accuracy | Orders shipped with correct paperwork / Total orders shipped |
| Order accuracy | Orders shipped without errors / total orders shipped |
| Line accuracy | Lines shipped without errors / Total lines shipped |
| Order cycle time | Actual ship date – customer order date |
| Internal order cycle time | Actual order ready time – customer order receipt time (hours) |
| Perfect order completion | Orders shipped on time, in full, damage free, with correct paperwork / total orders shipped |
| Dock to stock time | Time taken from vehicle arrival to input onto sales system |
| Utilisation Percentage | |
| Operator hours | 100 x Labour hour used / Labour hours available |
| MHE utilisation | 100 x MHE hours used / MHE hours available |
| Picker utilisation | 100 x Actual case pick rate achieved / expected cases to be picked |
| Pallet locations | 100 x Pallet locations occupied / Pallet locations available |
| Environment | |
| Total CO2 | Total CO2 emissions produced by the warehouse over a period |
| Safety indicators | |
| Accident record | Time lost through incidents as a % of total working days |
| Accident record | Number of days since last reportable incident |
| Other measures | |
| Workforce turnover | Number of operatives leaving / total number of operatives |
| Inventory days on hand | Average inventory value by item / Average daily item usage |
| Inventory count accuracy | Items in correct locations in correct quantity / total number of locations |
| Inventory days of supply | Current total inventory value / (Total annual cost of goods sold / 365) |
| Inventory shrinkage | Items lost and damaged / total items in stock (in quantity or value) |
References
Deming W E, (2000) The New Economics 2nd Edition MIT Press Cambridge Massachusetts
Yemm, Graham (2013). Essential Guide to Leading Your Team : How to Set Goals, Measure Performance and Reward Talent. Pearson Education. pp. 37–39. Retrieved 04/11/2014
This is an extract from The Logistics and Supply Chain Toolkit (2014) by Gwynne Richards and Susan Grinsted, Kogan Page, London.
