Measure What Matters

Identify and focus on the most useful metrics in order to make your warehouse better and demonstrate its contribution to the overall company


It's a common scenario: A disgruntled customer calls stating his order was botched and the complaint gets forwarded to (or should we say the finger gets pointed at) the warehouse. It's easy to blame the warehouse, especially when it does not have an efficient way to isolate the cause of a shipping error. And it's easy to blast those who last touched the shipment before it left the building, unless there is a trusted audit trail.

Today's warehouse managers often accrue massive amounts of performance data, but commonly find that little of it is truly applicable toward making productivity gains or improvements to customer service. Instead of becoming overwhelmed with more data, managers should identify and focus on the most useful metrics to gather, report and apply.

By using tools or modules often found in many of today's leading warehouse management systems, key data are automatically captured over a specified time period (such as one month) and displayed and reported as graphs and trends supported by the underlying data. This should make it easy to quickly identify problems — if the right things are being measured.

When taking on the task of implementing new measurement tools and best practices, consider starting first with what your customers care about most — the Perfect Order. Every warehouse strives for perfect orders in which customers consistently receive the right product, on time, undamaged and with the correct documentation. With virtually error-free shipments, customer satisfaction increases and customer support costs decrease.

The Perfect Order is typically considered to be a calculation of the error-free rate of each stage of a purchase order. When a customer has a problem with an order received, they notify their distributor. The distributor then tracks the error with “reason codes” and assigns the reason codes to categories such as Warehouse Pick Accuracy, On-time Delivery and Invoice Accuracy. For example, Warehouse Pick Accuracy might have five errors out of 10,000 lines, therefore accuracy is 99.95 percent. If On-time Delivery is 99.2 percent, Invoice Accuracy is 96 percent, Shipped without Damage is 99 percent and Order Entry is 99.8 percent, then the total Perfect Order metric is 94.04 percent.

Several additional recommended metrics to consider when evaluating a warehouse's order performance include:

  • Fill Rate measures Lines Shipped versus Lines Ordered by a customer. Fill rate encompasses more than just warehouse performance because it also depends on ordered items being in stock and available. From the customers' perspective, Fill Rate is the service level a distributor can provide.
  • Ship-to-promise measures the timeliness of order filling, while Shipping Accuracy measures the accuracy of order filling as viewed by the customer.
  • Customer Retention charts the number and percentage of customers during the prior time period that are also customers in the current period. Depending on the frequency of purchase, longer time periods such as six months or a year will provide a more meaningful measurement. Over several years the trend of increasing or decreasing retention can be charted.
  • New Customers charts the number and percentage of new customers in each time period, where a new customer is one who bought in the current period but not in any preceding time period.

Once these order metrics are well in place, consider key metrics for tracking and managing inventory. With the right inventory tools, distributors and wholesalers know at all times exactly what's in the warehouse, where it's located and when it needs to be replenished. With greater inventory accuracy and control there is less overstock/deadstock, higher turnover and better data for financial planning.

Key inventory measurements include:

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