Measure What Matters

• Inventory Accuracy to identify product discrepancies. This measurement is typically derived from cycle counts, a function within a warehouse management system (WMS) that automatically counts a subset of inventory on a daily demand or on a scheduled basis.
• Inventory Turnover measures the management of purchasing and timeliness of vendor returns. It is the number of times that inventory cycles or turns over per year.

The next recommended area of measurement, and the one that matters most to the chief financial officer, is expense control. Specifically, these data look at the total cost of the warehouse as a percent of company sales. Warehouse costs typically include direct and indirect labor, employee benefits, supplies, operating equipment and maintenance, rent, utilities, and depreciation.

Expense control also measures the cost of logistics (transportation) as a percent of sales, as well as sales and lines shipped per warehouse employee per hour.

Once enough warehouse transaction data points have been accrued, it is easy to establish some realistic productivity standards. Consider benchmarking the warehouse cost structure and productivity per person against other distributors. Or, benchmark against industry survey results such as the annual survey conducted by Georgia Southern University and the consultancy Supply Chain Visions.

As a practical matter though, measuring progress against the targets a warehouse manager has set for his/her own operation is most useful. This is because performance is dependant on a variety of unique factors. It varies depending on processes, specific customer expectations, type of items (weight and cube) and automated material handling infrastructure.

Over time, consider leveraging these key metrics by applying new variables. For example, a warehouse employee incentive might spark a dramatic improvement in the “perfect order” numbers. Chart the impact. And continue to seek only those key data points that truly demonstrate the contribution of the warehouse to the company.

About the Author: Eric Allais is the president and CEO of PathGuide Technologies, a provider of warehouse management solutions for wholesale and industrial distributors across North America. For more information visit www.pathguide.com.