Warehouse management has a lot to do with balancing two competing needs: speed and accuracy. If you manage a warehouse, you typically want your people to work as quickly as possible without injuring themselves or causing damage to products. At the same time, if you achieve speed at the cost of accuracy, your business will experience customer complaints and costly restocking and re-delivery procedures.
Warehouse productivity is a measurement of how well you manage this conflict, together with factors like on-time delivery and warehouse utilization. The industry’s professional association, The Warehousing Education and Research Council (WERC) studies this issue, among many others, that affect distribution companies.
Their DC Measures 2019 annual benchmarking study highlights the importance of warehouse productivity. Here are the top five metrics from the report:
1. Order Picking Accuracy (percent by order)
This metric shows how accurately warehouse employees pick products for orders. Order picking accuracy can drop with multi-part orders, where the employee has to pick products from multiple bins. The metric is also a measure of the quality of order picking instructions. For example, if the order says “Product X,” but the employee finds two bins, each with Product X in a different color, this creates a problem. He or she can take a guess at what color is needed, and then have the company suffer the consequences of a return. Or, the employee can send the order back for confirmation, which creates churn and delay.
2. Average Warehouse Capacity Used
A warehouse is a financial asset. As a result, its rate of capacity utilization is an important number for senior management. If a company is only using 10% of its warehouse capacity, that’s a problem. It means they’re paying for the rent and upkeep of unproductive space. This may seem like an easy-to-spot problem, but with multiple sites and changing seasonal inventories, it can be difficult to measure accurately without the right software and procedures.
3. Peak Warehouse Capacity Used
It’s also helpful to know your peak warehouse capacity utilization. The number itself can be revealing, like if it’s too low. But, unless its 100%, then there’s room for improvement. Peak warehouse capacity used is a target, a basis for doing better. If the number was 70% last year, then maybe this year, it could be 75%.
4. On-time Shipments
Shipments reaching customers on-time is a critical success metric for warehouses. It’s important on its own, because it reflects if the warehouse doing its job right. However, late shipments also create hidden costs and difficulties elsewhere in the business. They cause customer service calls and complaints. They cause package tracking and other wastes of time. Ultimately, late shipments can damage your brand and cause customers to defect.
5. Inventory Count Accuracy by Location
Are the inventory counts accurate in each location? This is another stealth issue that is more important than it looks. If there are fewer items in a bin than the system says there should be, that might indicate theft or unreported damage. The results of miscounted inventory include unforeseen stockouts and fulfillment problems that negatively customer attitudes.
Strong warehouse productivity metrics arise out of good management overall, but also by means of software. This is especially true for business with extensive product catalogs and high rates of inventory turnover. Software and related technologies, like barcode scanners and RFID readers contribute to tight measurement and control of warehouse operations.
We work with many distribution businesses on the implementation of Acumatica Cloud ERP for distribution and warehouse management. This software solution enables you to measure the five key warehouse productivity metrics described above, along with many others. If you want to learn more about how Acumatica can help your distribution business function better, let’s talk.