Introduction to Warehouse KPIs

As a warehouse manager, you'll know how important it is to run a smooth and efficient warehouse operation. To do this, it is essential to monitor and review performance regularly through your warehouse KPIs (key performance indicators). Warehouse KPIs analyse a specific process or operation and give you regular results that can be compared to understand how well that process is performing and take steps to improve if necessary.

Assessing warehouse operations using KPIs allows you to easily benchmark performance to track trends, gauge efficiency across all areas, uncover potential bottlenecks, manage risk, and more.

Despite each warehouse having unique functions and operations, the essential warehouse metrics discussed in this guide can be applied to almost all warehouse settings. You likely won't need to use every KPI to achieve your warehouse goals. Instead, select the most relevant to your operations and objectives.

We've divided the 14 top warehousing KPIs discussed in the guide into four warehouse KPIs categories: inventory, receiving, putaway, and order management.

Warehouse inventory KPI examples

Examples of warehouse inventory KPIs relate to the stock of stored products in your warehouse. They are the best way to monitor how your inventory moves and cover areas such as turnover, carrying cost, inventory-to-sales ratio, and shrinkage.

1. Inventory turnover rate

Inventory turnover is the frequency at which you sell your inventory or how quickly stock is sold and shipped. A higher value suggests solid sales, and a lower value may indicate weak sales.

Inventory management software will be able to calculate inventory turnover for you, but you can also calculate it using the two formulae below:

• Number of sales made / average inventory.

• Cost of goods sold / average inventory.

Inventory turnover is one of the warehouse metrics you want to keep high and continue increasing over time. The faster you move stock, the less it costs to store and, therefore, the greater the profit margin. It also gives you granular insights into the popularity of certain items or product lines, which can be used to inform future buying decisions.

How to improve: it is possible to improve inventory turnover by improving inventory forecasting methods.

2. Carrying cost of inventory

The carrying cost of inventory is another essential warehouse KPI for inventory management and is closely tied to inventory turnover. The more extended inventory stays in a warehouse, the more it costs a business. It is helpful to be able to attribute a quantifiable number to this cost as one of your warehouse management KPIs.

Total carrying cost is the sum of everything a company costs to hold its stock over a specific timeframe. This includes capital, storage costs, equipment and software, materials, and taxes.

The most relevant way to measure the carrying cost of inventory is as a percentage of overall inventory value:

Carrying cost of inventory = (total carrying costs / average inventory value) x 100

Working out carrying costs this way better indicates how much profit the current stock is truly bringing and what impact warehouse performance is having on this.

How to improve: The carrying cost of inventory can be improved through warehouse automation, reducing labour costs and providing more accurate forecasting to limit the time inventory sits in the warehouse.

3. Inventory to sales ratio

The inventory-to-sales ratio is one of the most important warehouse metrics, showing the ratio of remaining inventory at the end of the month to the sales made during the same month.

This KPI is beneficial for warehouse management as it can help predict cash flow issues before they become a problem by highlighting rising inventory levels and falling sales. It also identifies the amount of stock left at the end of the month, which feeds into calculating the amount of stock to purchase to continue sales and avoid backorders.

The inventory-to-sales ratio is calculated by dividing the remaining inventory at the end of the month by the sales made:

EOM inventory balance/sales for the month

4. Inventory Shrinkage

Stock shrinkage is a measure of inventory inaccuracy. It is defined as excess inventory recorded in accounting but no longer physically available. This can occur for several reasons, including theft, damage, or miscalculation. This warehouse KPI represents the value of inventory lost due to these factors.

It is calculated using the following formula:

(Cost of recorded inventory – cost of physical inventory currently present) / cost of recorded inventory

Warehouse receiving KPI examples

Warehouse receiving is the process of a warehouse accepting a delivery of stock that then has to go through processing, sorting and finally, storage. Warehouse KPIs for receiving include efficiency and cycle time.

5. Receiving efficiency

Any warehouse operation starts with the receiving and booking of incoming stock, so ensuring this is as efficient as possible will benefit the whole process. Receiving sounds simple on paper, but it can become disorganised and inefficient, especially if it involves multiple new stock deliveries each week, customer returns of both good and damaged items and stock to return to the vendor.

This vital process should be tracked and measured with warehouse key performance indicators to ensure it remains efficient during busy spells or periods of growth. This is achieved by measuring the time taken for received stock to be counted, booked, and ready to put away.

Receiving efficiency = volume of inventory received / number of staff hours worked.

It is essential to record the exact timestamps of all delivered stock and then another timestamp as soon as it is ready to be put away. Then, an average for the month can be calculated and compared to previous performance.

How to improve: receiving efficiency can be improved by systemising the process, training staff on efficient receiving practices, and creating a unique SKU system for product variants and warehouse bin locations for quick organisation and putaway.

Employing a mobile barcode scanning system is a great way to help streamline receiving and drastically improve your warehouse receiving efficiency.

6. Receiving cycle time

Warehouse receiving cycle time is the total time it takes for goods to be received, checked, unloaded, recorded, and stored in a warehouse.

To calculate warehouse receiving cycle time, first the time of order entry, the time goods arrive at the warehouse, the time for goods to be checked and unloaded, the time for goods to be placed in warehouse storage, and the time for goods to be picked up by the customer should be measured.

Receiving cycle time = total time spent on sorting received stock / total number of received items

Warehouse putaway KPI examples

Putaway stores a shipment of products that have been delivered and received, ideally in the warehouse's most convenient and appropriate location. Warehouse putaway KPIs include accuracy rate and cycle time.

7. Putaway accuracy rate

The putaway accuracy rate calculates the portion of items that have been put away correctly for the first time. A value of 1 indicates that the accuracy rate is 100%, meaning no errors or mistakes have occurred. To calculate the accuracy rate of putaway, divide the amount of inventory that has been put away correctly by the amount of inventory that has been put away.

Inventory put away correctly / total inventory put away

8. Putaway cycle time

The putaway cycle time is another warehouse KPI related to stock storage productivity. It measures the average time it takes to put away a single item of inventory. Shorter putaway cycle times increase efficiency, and they can be improved by assessing the positioning of items and stock to reduce operative journey time.

Warehouse order management KPI examples

Order management encompasses all of the processes involved, from when your business receives an order from a customer to when the customer gets what they purchased. Warehouse KPIs for order management include picking accuracy, return and backorder rates, order lead time, total order cycle time, and fulfilment accuracy rate.

9. Picking accuracy

One of the most helpful warehouse KPIs is picking accuracy. Given that order picking can be one of the more complex warehouse operations, an incorrectly picked order means returned items and costs to correct the mistake.

Improving picking order accuracy can have a significant impact on both costs and customer satisfaction. To calculate this KPI, use the following formula:

(Total orders - incorrect item returns) / total orders x 100

From this, you will have a percentage of orders picked correctly.

How to improve: There are several ways of improving picking accuracy, such as reviewing your warehouse setup and organising it more efficiently and logically, investing in picking systems such as inventory management software, and investing in labour to minimise turnover and retain experienced pickers.

Learn more about how to enhance your picking and packing.

10. Rate of return

The rate of return is another simple yet handy warehouse KPI. It represents the frequency of items being returned by customers and gives a great insight into overall customer satisfaction.

The best way to use this warehouse management KPI is to attribute each item to a specific reason for return.

To calculate the rate of return, use the following formula:

(Units returned / units sold) x 100

If this rate starts to suddenly increase, the operations manager can investigate the exact reasons why this KPI may be flagging issues and develop strategies to resolve them.

Many returns may be coming in due to an incorrect item in the order, suggesting a review and improvement of the picking process. If returns are high due to buyer's remorse, it may be worth looking into the sales channel and product descriptions to ensure the information is accurate and does not mislead customers.

How to improve: to improve the rate of return, it is essential to segment return reasons and investigate accordingly, as well as ensure staff are regularly trained on systems and product catalogues.

11. Back order rate

Back order rate is a warehouse KPI that is especially useful for analysing forecasting and purchasing strategy.

A high backorder rate highlights many orders for items that aren't in stock. This can sometimes be temporary due to sudden, unexpected rises in demand, but a consistently high back order rate is likely due to either poor planning and forecasting or poor inventory tracking.

Back orders can lead to poor customer experience, making it an essential KPI for warehouse managers to monitor and take action if necessary. To calculate the backorder rate of a warehouse, use the following formula:

(Total backorders / total orders) x 100

How to improve: to improve the backorder rate, warehouse managers should aim to forecast demand using as much data as possible and implement best practices to prevent overselling. Multichannel listing software such as Mintsoft collects a wide range of data to provide a single source of truth, better inform warehouse managers on trends, and make forecasting more straightforward and accurate.

12. Order lead time

The order lead time warehouse KPI feeds into the backorder rate. This represents the average time it takes customers to receive orders once they are placed. A lower lead time generally equates to greater customer satisfaction, provided orders arrive on time and are correct.

How to improve: to improve order lead time, make sure you are managing orders in the best and most efficient way possible, whether that's through picking systems such as digital batch picking, using better shipping/carrier services, or bulk shipping orders to get a more significant number out of the door per day.

Optimising order lead time can affect another substantial warehouse KPI: total order cycle time.

13. Total order cycle time

Total order cycle time is the amount of time it takes to be shipped, starting when an order is placed. It comprises the processes that take place between those steps, such as accepting the order, picking the items, packing them, and preparing them for shipping. The shorter the amount of time, the more likely you are to have happy customers who return for further orders.

14. Fulfilment accuracy rate

This warehouse KPI calculates the number of orders that have been successfully fulfilled from start to finish, out of the total number of customer orders received. If this rate is low, it indicates that your warehouse management processes may need to be reviewed and revised accordingly to achieve greater efficiency, accuracy, and profitability.

You can calculate the fulfilment accuracy rate of a warehouse using the following formula:

Orders completed without issues / total orders received.

How to easily measure warehouse metrics with warehouse management software

Warehouse management is a complex and fast-paced task, with numerous KPIs across various areas to assess performance and identify problem areas before they affect profitability. To perform at its best, warehouse management software is strongly recommended. As well as providing a centralised platform for data collection and tracking warehouse KPIs easily, warehouses can benefit from automated workflows, optimised stock control, and advanced location management.

From mobile barcode scanning to cloud-based warehouse management software, Access Mintsoft offers a range of software solutions to ensure you are meeting and exceeding best practices.

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To transform your warehouse stock control, download our brochure to learn more about Access Mintsoft, or view our 4-minute demo.