Warehouse Management System KPIs
Originally published on March 3, 2022 by Logiwa Marketing, Updated on August 19, 2022
You’ve got your warehouse operations up and running, and your business is growing. But you know there is room to improve your efficiency, increase savings, and better serve your customers. That’s where warehouse management system KPIs (key performance indicators) come into play.
Our WMS is loaded with tools to help you measure your warehouse performance, serve your customers better and grow your operations.
In this guide, we’ll explore:
- What Is WMS?
- Why Do We Need to Track WMS KPIs?
- Top WMS KPIs
- Receiving and Put-Away KPIs
- Receiving Efficiency
- Put-Away Accuracy
- Shipping KPIs
- Storage KPIs
- Inventory Carrying Costs
- Backorder Rate
- Picking KPIs
- Equipment KPIs
- Return Process KPIs
- Rate of Order Returns
What Is WMS?
Warehouse management systems manage warehouse or distribution center operations. Their primary functions are to manage and keep track of inventory in your warehouse by tracking incoming and outgoing products. Tools include barcode scanning, inbound operations (receiving and directed put-away), and outbound operations (order picking and packing and order shipment).
Logiwa’s WMS software also includes electronic data interchange (EDI) to standardize communication between suppliers and buyers. An open and easy-to-connect API allows you to interface with your stores, marketplaces, websites, or other warehouses and vendors all in one system.
Why Do We Need to Track WMS KPIs?
Data is great, but it can be overwhelming if you don’t know what it means. Knowing what information is essential to help your business improve and grow is vital.
When thinking about key performance indicators for your warehouse, it’s all about your products and stock. KPIs can include inventory accuracy, shrinkage, carrying cost of inventory, inventory turnover, and inventory to sales ratio. Keeping an eye on supply chain KPIs relevant to your operations can help you understand and improve your warehouse efficiency.
Inventory reports in the Logiwa WMS are based on warehouse best practices and the most frequently used and requested KPIs. Plus, our reports are fully customizable with the Business Intelligence service of your choice, or you can use our built-in service.
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Top WMS KPIs
Logiwa’s WMS focuses your KPIs in six buckets:
- Receiving and Put-Away
- Return Process
Let’s look at each one and how they can benefit your warehouse operations.
Receiving and Put-Away KPIs
From speaking with delivery drivers, unloading the trucks, counting boxes, and inspecting for damage, to putting items on your shelves, your “dock-to-stock” time is the top receiving KPI in the industry. The length of time it takes to get items off a truck and onto a shelf affects everything in the supply chain. Understanding these KPIs allows you to see where your receiving and put-away processes are doing well and where they need some help.
You can calculate your receiving efficiency by dividing your volume of received goods by the number of labor hours for the same timeframe. As your warehouse staff becomes more experienced, your receiving efficiency will increase. If your numbers are on a downward trend, it may be time to reexamine your receiving process.
The putaway KPI looks at how accurately your employees put items on the shelf. The goal for this KPI is having employees put inventory away correctly the first time, all the time. If you aren’t seeing 100% in this KPI, search for patterns in put-away errors suggesting a learned mistake or mixing up similar products.
KPIs in this category can include order cycle time or how long it takes a customer’s order to ship once they place an order. The less time spent on this process, the better. If your order cycle times are on the higher end, there may be issues in your picking, packing, or shipping workflows.
Storage KPIs are all about how much it costs to keep products on your shelves. Since inventory is capital, these KPIs are necessary to keep an eye on.
Inventory Carrying Costs
One of the most important KPIs in this category is your inventory carrying cost. This measurement tells you how much you spend to store your inventory. Storing inventory ties up your capital, so you’ll want to keep this number as low as possible.
To calculate your carrying costs, divide your carrying costs by your overall inventory costs.
Another important KPI in this category is your backorder rate, which measures unfulfilled warehouse orders. This number would be 0% in a perfect world, but it depends on how quickly you can restock your shelves.
You can calculate your backorder rate by dividing the number of delayed customer orders by the number of total customer orders. Multiply this number by 100 to get the percentage.
Many customers ordering items online are searching for a particular product. Receiving the wrong item is not only frustrating for your customers but costs you and your clients money. Improving your order picking productivity and accuracy will lower costs and create happy customers.
Order picking accuracy can be calculated by subtracting the number of incorrect item returns by the total number of orders. Then, divide that number by the total number of orders, and multiply it by 100 (to get the percentage).
WMS solutions can help you organize and accurately keep track of your inventory by improving your picking and packing processes to help you maintain a perfect inventory. Using a WMS can reduce fulfillment issues caused by human error and provide better insights into available inventory, replenishment and fulfillment needs, and potential inventory issues.
Knowing how efficiently your warehouse equipment is used and correcting any issues can save you time and money over the long term. Your equipment utilization rate will show the percentage of material-handling equipment used during the put-away or pick and pack processes.
Return Process KPIs
Product returns are an unfortunate reality of business-to-business or direct-to-consumer sales. Whether someone orders the wrong item, was sent the incorrect item, or the item is damaged or not to their liking, you will have to deal with returned items eventually.
Rate of Order Returns
In this category, the primary KPI you should be concerned about is the rate of order returns, calculated by dividing the number of returned items by your total shipped items. This calculation can be filtered further to calculate the number of damaged items returned by dividing the number of damaged returns by your total number of shipped items.
Determining how quickly you can put returned items back on your shelves or the speed at which you can deliver the correct product to a customer are also essential pieces of data to consider.
Your warehouse operations need to be functional and efficient to meet growing demand and evolving customer needs. Measuring key performance indicators in various areas will allow you to make adjustments and improvements where and when they are needed. Logiwa’s WMS software is easy to use, easy to set up, and provides you with the data you need to grow your operations.
To learn more about Logiwa’s WMS and tracking your KPIs, schedule a demo with one of our experts.
What is a Warehouse Management Systems KPI?
A warehouse management systems (WMS) KPI analyzes a specific process or part of a warehousing operation and its ongoing results to indicate how well certain processes are doing in comparison to past metrics. WMS KPIs apply to most warehouses, even though they operate differently from one another, and allow for ongoing evaluations based on previous benchmarks.
Are Warehouse Management System KPIs Necessary to Grow?
Most would argue, yes. If you want to be able to make informed decisions and improve your warehouse operation’s overall performance, you need to be able to track measurable goals – and that requires the use of KPIs. To expand any fulfillment operation and meet the increasing demands of consumers, you need to be able to optimize your output and efficiency. Measuring key performance indicators gives you a competitive edge, and is the only dependable way to consistently monitor and eliminate inefficiencies that may arise in your supply chain or fulfillment process.
Which KPI is the Most Important for Warehouse Management Systems?
KPIs aren’t necessarily comparable. Most KPIs are useful or beneficial to warehouses in some way, even though each warehouse operation runs in their own unique way. That said, each KPI focuses on one aspect of your operations, and without one area succeeding… others will face setbacks, as well. Examine your operation’s current struggles to determine which KPI to focus on. That KPI will benefit your individual needs most.
How Do Warehouse Management System KPIs Benefit Growth?
As your warehouse or 3PL operation moves towards becoming a fulfillment network, you inevitably take on more inventory, customers and facilities. With that expansion, comes the expectation that you will be able to maintain high levels of efficiency. KPIs are the only way to monitor your operational speed, accuracy and profits. Failure to identify present or potential risks can lead to inventory problems, poor fulfillment experiences, and setbacks that derail further progress.