As a distribution professional, you have several key performance indicators (KPIs) that act as quantifiable measurements of the success — or failure — of your business operations. Which warehouse KPIs are in your “Fav Five”? Here are mine, in descending order.
5. Returns processed
By this I mean returns processed as a result of incorrect product being shipped, or where the warehouse made a mistake. If you do not accurately track this metric, how do you know the effectiveness of your warehouse staff? You don't!
4. Inventory movement
When was the last time you took a long hard look at where your product is located within your warehouse? Most organizations don't do this regularly — and they should. Did you know that 20 percent of your products are picked for 80 percent of your orders, and that 55 percent of your pickers' and receivers' time is spent traveling to and from your locations? That's why this metric is on my list.
3. Employee turnover
From recent studies, 40 percent of employees polled said they were actively looking to change jobs. The average employee will be with your organization for four years or less. A warehouse employee will leave your company for less than 50 cents more an hour — less than $4 more a day. How do you reduce turnover? That's a whole other article, but keep in mind that employees don't leave bad companies, they leave bad managers.
2. Inventory accuracy
If your pickers and receivers spend 55 percent of their time traveling to and from your locations, and the product is wrong when they get there, what does that do to the productivity in your warehouse? Several things — all of them bad.
For one, it prevents receiving from being received and put away the day it arrives. It also means that returns may not be processed for weeks, and that orders will not be shipped 100 percent on-time. It can even prevent your warehouse from being cleaned.
When it comes to inventory accuracy, your KPI cannot be based on the results of your annual physical. The value of your inventory can be as high as 20 percent of your annual sales revenue. If this metric isn't in your Fav-Five, what you are measuring is irrelevant.
Organizations measure many things, but let's face it, the most important metric we all track is profitability. Without profit there will be no cash to grow.
We all know we measure what we value. And that is why we place such an emphasis on sales metrics. Now that you have my distribution center Fav-Five, it's time to think about your own. I'll leave you with one more thought: In a rising tide, no one notices the rocks on the bottom of the river. But when the water recedes and the rocks begin tearing up the bottom of the boat, everyone wants to know how those rocks got there. By then, it's too late. In a down economy, the water is definitely receding. Are there rocks under your boat?
Rene' Jones is the founder of Total Logistics Solutions Inc. (www.logisticsociety.com) which was recently named one of the top 100 supply chain and logistics providers for 2007. He is the author of the book, “This Place Sucks (What your warehouse employees think about your company and how to change their perceptions!)” He can be reached at firstname.lastname@example.org or www.logisticsociety.com.