MODULE 1&2: Warehouse Operations Management

LESSON2: • Facility Development

• Warehouse Performance/Productivity Management

INTENDED LEARNING OUTCOMES

At the end of this module the students must be able to:

1. Know the steps in warehouse layout process.
2. Learn how to improve warehouse performance and efficiency.
3. Know the importance of productivity management.

Developing an Effective Warehouse Layout Process

One of the basics of operating a well-run warehouse is the foundation of a well thought out
warehouse layout. A layout that provides a solid base can lead to improved productivity and control of
the accuracy of the overall operation. Conversely, a poor layout can lead to a myriad of issues and
concerns.

There are as many opinions as to the best way to develop a warehouse layout or the actual final
layout design. We will address one simple approach that should lead to an effective layout for your
warehouse. The word “warehouse” means different things to different people. For the purpose of this
post, we mean a One of the basics of operating a well-run warehouse is the foundation of a well
thought out warehouse layout. A layout that provides a solid base can lead to improved productivity
and control of the accuracy of the overall operation. Conversely, a poor layout can lead to a myriad of
issues and concerns.

There are as many opinions as to the best way to develop a warehouse layout or the actual final
layout design. We will address one simple approach that should lead to an effective layout for your
warehouse. The word “warehouse” means different things to different people. For the purpose of this
post, we mean a building that stores inventory and processes order requirements for retail, catalog, e-
commerce, or manufacturing business segments.

Regardless of whether you have an existing building and want to change the layout, expand what you
have, contract what you have, or move to a new facility, all of the same steps in the process apply.
One of the basics of operating a well-run warehouse is the foundation of a well thought out
warehouse layout. A layout that provides a solid base can lead to improved productivity and control of
the accuracy of the overall operation. Conversely, a poor layout can lead to a myriad of issues and
concerns.
There are as many opinions as to the best way to develop a warehouse layout or the actual final
layout design. We will address one simple approach that should lead to an effective layout for your
warehouse. The word “warehouse” means different things to different people. For the purpose of this
post, we mean a building that stores inventory and processes order requirements for retail, catalog, e-
commerce, or manufacturing business segments.

Regardless of whether you have an existing building and want to change the layout, expand what you
have, contract what you have, or move to a new facility, all of the same steps in the process apply.

Steps in the Layout Process:

Gather key metrics and develop a set of layout requirements,

Prepare a general functional “block diagram” of the layout,
Develop and review possible layout options and agree on the general layout diagram, and
Decide on the best features from various options and develop a final detailed layout.
Although these steps may sound simple, they require a great deal of planning and resources to
complete effectively. Additional information about these steps follows.

1. Data Gathering and Requirements Development

The following list of metrics and information are used to plan and develop a warehouse layout. This
represents the most common information, but there is always additional required data based on any
unique features of the business model. This is the key step to developing a workable layout.

Product Characteristics
 Number of SKUs by channel
 Item cube/dimensions by SKU
 Weight by SKU
 Master Pack by SKU

Items that require

 Stacking or special handling requirements
 Environmental control
 Special security
 Oversized or weight handling accommodations

Order Profile
By channel:

 Lines and units per order

 Boxes/order
 Number of orders/day
 Peak and Average
Unit or Master Case Movement or Sales by SKU
 Cubic velocity
 Total annual movement
 Seasonality or peak ratios

Inventory Levels by SKU

 Units, Pallets, $s, and/or Master cases for Peak and Average

5 Year Growth Plan By Channel

 Total Sales $ planned by year
 Growth assumptions by category
 Try to project future requirements and any changes that might occur to teh warehouse
requirements or mission.

Special Functions to be Performed:

 Personalization
 Gift Wrapping
 Kit or de-kit
 Labeling
 Assembly
Returns
 % Sales and number of exchanges and returns processed

Receiving
 units, cases or pallets per day
 QC process requirements
 Staging Requirements
 Pack stations required (number
 Shipping Stations required (Number)
 Desired # of days inventory on hand in primary (standard target is 1 week)

2. Develop a General “Block Diagram” Layout

Identify the major functions in the warehouse and then quantify the amount of space each will require.
This estimate is based on considering the business model to be used and the processes under
consideration. These factors and the requirements data will point to an estimate of the space
required. The exact space and layout will come later. Start with the largest areas (usually reserve
storage and picking), and then fit other areas in as needed.

Develop an overall block layout showing the approximate size of each area and their positioning
relative to other areas in the warehouse and considering the overall operating concept that will be
utilized. The size can be approximated using the number of each type of storage and pick units
required along with approximate sizing of other peripheral areas.

The typical operation areas found in most warehouses are:

  Receiving
 Shipping
 Reserve Storage
 Picking
 Packing
 Returns
 Manifesting
 Value Add Services
3. Agree on General Layout Concept
Agreement should be reached on the general warehouse operation to be employed and the general
size and relationship of the key functional areas. The type of material handling equipment to be
utilized will help define the details of the aisle sizing and the storage equipment to be used. The type
of processes to be utilized have to be defined before a good layout can be finalized. The level of
automation and future growth requirements are considerations to be made within this step also.
One of the key metrics to be used to size the pick line is the cubic velocity of each SKU. This along
with the desired number of days in the pick slot will define that area of the warehouse. The second
most important metric will be the number of inventory units that have to be stored and their
characteristics. Both if these areas should be sized and designed with utilization factors being
considered.

4. Develop a Detailed Warehouse Layout

After you agree on the general layout, it is time to develop the details around the layout concept. This
is the step where you plan all aspects of the layout with the best detailed information available. The
exact sizing and shape of all storage media will be utilized. This is necessary to make sure you are
factoring in obstructions, such as building columns, in the most advantageous way possible.

The exact positioning of racking and shelving have to be developed to insure that everything will fit
when implemented. If you have access to a CAD (Computer Aided Design) program and process, this
can be invaluable in expediting the process and making changes as needed.

Use CAD/CAM or consultants with that technology to generate multiple variations of layouts for
departments, merchandise flow, rack positions, conveyor, sortation systems and material handling.

While you develop the layout there are a few principles that apply to many situations:
 maintain flexibility and scalability in the layout design.
 Consider possible expansion options to minimize disruptions when they occur.
 Plan for both peak and average conditions and provide plans for future growth and possible
business changes.
 Use a variety of pick location sizes and types and reserve storage locations as needed.
 Minimize congestion by considering aisle width, dock and staging areas, and overall product
flow.
 Use conveyors for transport where feasible.
 Utilize the cube when developing storage media picking layout options.
  Apply a level of automation that fits the situation.
 Make sure that any process changes required to support the proposed layout can be
accommodated by the Warehouse Management System functionality available, if you are
using one.
 Involve the warehouse employees to get their first hand ideas on the best layout options.

General thoughts
The following are some final general thoughts on the layout development process:
 Clearly define objectives and requirements depending on your growth, time
 Coming up with the right layout is not an easy “slam/dunk” process. There will be many
differences of opinion among staff and maybe senior management about what to do.
 A key thing is to be systematic in how you approach the layout. Develop as many potential
options as seem appropriate.
 Gather and use as much data and info as possible to arrive at the most workable solution.,
 There’s not “one right answer” generally.
 Develop multiple layout iterations using CAD/CAM technology. Usually the final layout is a
series of compromises.
The layout development process can be a time consuming and complicated one. By applying
some structure and common sense to the process along with proper information and expertise; an
effective layout can be attained. (Barry, n.d)

How do you measure and improve warehouse performance and efficiency?

Warehouse performance and efficiency are crucial factors for any international logistics operation.
They affect customer satisfaction, inventory accuracy, operational costs, and environmental impact.
But how do you measure and improve them? Here are some tips and best practices to help you
optimize your warehouse processes and systems.

1. Define your key performance indicators

2. Implement warehouse management software
3. Apply lean and green principles
4. Train and motivate your warehouse staff

Define your key performance indicators

Identifying and defining key performance indicators (KPIs) is a necessary first step for reflecting your
warehouse goals and objectives. These KPIs can vary depending on industry, product, and customer
requirements; however, some common ones are order accuracy, order cycle time, inventory turnover,
space utilization, and labor productivity. Establishing benchmarks and targets based on historical
data, industry standards, or customer expectations is also important for monitoring performance and
identifying gaps and opportunities for improvement.
Implement warehouse management software

One of the most effective ways to measure and improve warehouse performance and efficiency is to
use warehouse management software (WMS). This system automates and integrates various
warehouse functions, such as inventory control, order fulfillment, picking, packing, shipping, receiving,
and reporting. WMS can reduce errors and delays by providing real-time information and guidance to
your staff, optimize space and layout with algorithms and data, increase productivity and flexibility
with barcode scanners or robots, enhance visibility and traceability by tracking every movement and
transaction in your warehouse, and generate insights and analytics with data on your KPIs.
Additionally, WMS can be integrated with other systems like ERP or TMS to create a seamless
supply chain network.

Apply lean and green principles

Applying lean and green principles is another way to measure and improve your warehouse
performance and efficiency. Lean focuses on eliminating waste and maximizing value in processes,
while green encourages reducing environmental impact and promoting sustainability. The benefits of
applying these principles include lower costs, higher quality, better customer service, improved
employee engagement, and a positive reputation. Practices such as 5S, Kaizen, value stream
mapping, just-in-time, and reverse logistics can help you implement these principles. 5S is a method
to organize and standardize your warehouse space and equipment, Kaizen is a method to identify
and solve problems and implement small improvements, value stream mapping is a method to map
and analyze your warehouse processes for waste and inefficiencies, just-in-time is a method to
synchronize inventory with customer demand, and reverse logistics is a method to manage the return
or recycling of products and materials.

Train and motivate your warehouse staff

The last but not least tip to measure and improve your warehouse performance and efficiency is to
train and motivate your warehouse staff. Your staff are the backbone of your warehouse operations,
and their skills, attitudes, and behaviors can make or break your success. To ensure success, you
should provide regular and relevant training on policies, procedures, systems, and safety standards.
It's also important to communicate clearly with your staff on goals, expectations, feedback, and
recognition. Furthermore, empower and involve them in decision making, problem solving, and
improvement activities. Additionally, reward and incentivize them for their performance,
achievements, and suggestions. Finally, create a positive and supportive culture that fosters
teamwork, collaboration, and innovation. Investing in your staff will improve their competence,
confidence, and commitment which can help optimize your warehouse performance and efficiency.
( linkedin, 2023)
What Is Productivity Management and Why Is It Important in 2024?

Productivity management is an organizational setup or framework that helps individuals and teams
improve productivity. Productivity measures how efficiently an organization or its employees convert
inputs, like labor and capital, into outputs, like goods or services. Managers use goals, incentives,
development, and communication strategies to enhance employee performance and help them
increase their productivity.
This productivity maximizes the business’ gains either directly – through improved productivity and
quality – or indirectly – by retaining the best talents, upskilling them, and providing additional
responsibilities.

Well-managed teams come out with increased productivity. On the other hand, poor productivity
management can be one of the biggest reasons for lackluster employee performance and
engagement.

How Does Management Affect Productivity?

Studies show that good management can significantly boost productivity, and increase market value
and growth, and withstand adverse situations like a recession. The actions of managers and the
enterprise can decisively influence the realization of productivity of the business.

Managers play a vital role in improving and maintaining productivity levels in their teams. A Gallup
study points out that as much as 70% of the variance in employee engagement can be attributed to
management. A good manager will have a clear understanding of the skill levels of each team
member, their strengths and weaknesses, and work with them to ensure the best output from each of
them. Managers also consider teams. Stress levels and mental well-being and extends support when
needed.
What Is Productivity Management and Why Is It Important in 2024?
By Ishan Gaba
Last updated on Nov 24, 202333680
What Is Productivity Management and Why Is It Important in 2024?
Table of Contents
What Is Productivity Management?How Does Management Affect Productivity? Importance of
Productivity in the WorkplaceProductivity Working From Home (WFH)Benefits of Increased
Productivity View More
As the world adapts to the new normal in living and working, improving productivity is the biggest
challenge organizations are facing worldwide. The hybrid work model and an ever-evolving company
tech stack have made it hard for employers to manage employee productivity during the pandemic.
Productivity Management can help individuals and teams improve productivity. This article will
discuss Productivity Management, why it is important, and effective tips to help you create a
successful productivity management system.

Your journey to becoming PMP certified is easy with Simplilearn's PMP Certification. Get started by
enrolling now.
As the world adapts to the new normal in living and working, improving productivity is the biggest
challenge organizations face worldwide. The hybrid work model and an ever-evolving company tech
stack are making it harder for employers to maintain employee productivity. This is where productivity
management comes in.

In this blog, we will talk about the basics of productivity management, why it is important, and
practical tips to help you create a successful productivity management system.

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What Is Productivity Management?
Productivity management is an organizational setup or framework that helps individuals and teams
improve productivity. Productivity measures how efficiently an organization or its employees convert
inputs, like labor and capital, into outputs, like goods or services. Managers use goals, incentives,
development, and communication strategies to enhance employee performance and help them
increase their productivity.

This productivity maximizes the business’ gains either directly – through improved productivity and
quality – or indirectly – by retaining the best talents, upskilling them, and providing additional
responsibilities.

Well-managed teams come out with increased productivity. On the other hand, poor productivity
management can be one of the biggest reasons for lackluster employee performance and
engagement.

How Does Management Affect Productivity?

Studies show that good management can significantly boost productivity, and increase market value
and growth, and withstand adverse situations like a recession. The actions of managers and the
enterprise can decisively influence the realization of productivity of the business.

Managers play a vital role in improving and maintaining productivity levels in their teams. A Gallup
study points out that as much as 70% of the variance in employee engagement can be attributed to
management. A good manager will have a clear understanding of the skill levels of each team
member, their strengths and weaknesses, and work with them to ensure the best output from each of
them. Managers also consider teams. Stress levels and mental well-being and extends support when
needed.

Importance of Productivity in the Workplace

Highly productive employees help a company achieve its goals. Productivity boosts morale and
creates a company culture of excellence, resulting in an improved workplace environment.

When a company is highly productive and successful, incentives like pay hikes, bonuses, medical
insurance, etc., are made available to the employees. It motivates employees and advances their
careers as the company flourishes.
For every company, productivity in the workplace is an essential aspect that the top management
must understand in order to enjoy success.

Productivity Working From Home (WFH)

Studies by Upwork show that productivity in WFH is higher than in working from an office. On
average, employees who work from home save 10 minutes less on non-productive tasks and are
nearly 47% more productive than those working in the office. Plus, they are more consistent, work for
more hours, and manage to get more done. With the world discovering alternate ways of remote
working, productivity can actually be better working from home.

Benefits of Increased Productivity

Following are the benefits that can be derived from increased productivity:

 Effective utilization of resources results in increased production volume and lesser cost of
production.
 Reduced time-to-market, better quality assured
 Less overhead costs
 More profits to stakeholders
 Higher per capita income generated
 Helps achieve overall growth and prosperity of the business

How Can You Manage Your Team’s Productivity in the Workplace?

It’s never easy leading a team in the workplace. However, if handled tactfully, you can make your
team accomplish significant goals and take their productivity to a whole new level.

As a leader, you need to give your teammates enough opportunity to grow, make mistakes and learn.
Encourage them to work in unison towards a common goal.

Practical Tips for Improving Team Productivity

Let’s discuss how to empower your teams to be more productive:

Give Ownership to Team Members

Let your team members make their own decisions and make them accountable for their work. This
instills a sense of responsibility in employees regarding work, making them aware that their decisions
can affect the performance of the entire team. Your trust can help build your team members’ self-
esteem.

Make Proper Communication

One of the key factors that improve team productivity is effective communication must prevail in a
team. Communication helps team members understand their responsibilities and reduces the
chances of confusion within the team, which can affect overall productivity.

Identify the Strengths and Weaknesses of Your Team

As a manager, you have to know the knowledge, skillsets, and talents of teammates to allocate tasks
accordingly. Making each member use their strengths will improve workplace productivity
significantly.

Use Project Management Tools

Numerous project management software are available that play an essential role in boosting
teamwork and productivity. Selecting the right project management tool can help effective work
management and increase collaboration between teammates.

Reward Your Employees

Employees work best when their efforts are appreciated and they are given incentives. Implement
incentive programs in the form of cash, free vouchers, lunch-outs, paid holidays, etc., to keep your
employees motivated.

Give Constructive Feedback

Introduce performance review and constructive feedback process in the team. There’s no way
employee efficiency will improve if the employees do not know they are being inefficient in the first
place. Hence, constructive feedback is essential to improve team productivity.

How to Create a Successful Productivity Management System

Many managers find difficulty defining job responsibilities, leaving employees with vague ideas about
what’s expected of them and how to be most productive. To get an accurate measure of your team’s
efforts, you need to look at various factors in addition to time and effort.

Consider focusing on the following:

Quality
Whether your employees produce tangible or intangible assets, align their work with performance
metrics so that there’s a distinct way to assess their work quality.

Impact on the Organization

Some projects might not have any particular metrics; however, they produce intangible results that
positively impact your company. These impacts can be an improvement in employee engagement,
helping other employees work better, and improving public awareness of your company.

Insights Gained
Often, the failure of a project can yield unexpected insights that your team can utilize to make
rectifications in their approach as they move ahead. These kinds of failures should be considered
productive in helping your team reach its goal of producing innovative work.

Types of Errors Made

Mistakes can deter progress. However, instead of being judgmental, you should assess whether the
teammate made mistakes out of being careless or dealing with a complex task where they could not
clearly figure out what was the right thing to do. Reprimand your employee if it is the former,
especially if the mistake’s repeated. But, if not, discuss the decision-making process with your team
and help them come up with ideas to avoid similar situations in the future.

How Independently They Worked

Everyone’s time in the organization is valuable. If an employee keeps on asking questions and
seeking detailed feedback before making any constructive effort to solve their problems themselves
that can negatively affect others productivity.

Consider each of these factors and other relevant ones to create a performance evaluation sheet of
your teammates where you can assign a point value to each factor. Assign weights to each factor
depending on its priority level. Find each employee’s productivity score by applying the weight of the
point for each metric; this will reflect your company objectives. ( Gaba, 2023)

Key Order Fulfillment KPIs Explained

Order fulfillment is the process of fulfilling a sales order to the customer’s specifications and delivering
goods as promised. As consumers increasingly move online to shop, it’s more important than ever to
get order fulfillment processes in order.

Technology such as radio frequency (RF) scanning and cloud-based warehouse management
software has made it much easier to accurately track and record the data around the order fulfillment
process and track key performance indicators (KPIs).

There are many order fulfillment and inventory KPIs a business can measure depending on the
complexity and maturity of its processes. This article explores some common and helpful metrics.

How Do You Measure Order Fulfillment?

Order fulfillment is the process of fulfilling a sales order to the customer’s specifications and delivering
goods as promised. It involves six steps:

 Receiving goods from suppliers

 Storing goods in the warehouse
 Processing and packing
 Shipping
 Delivery to customers
 Processing returns if necessary
By tracking metrics related to these steps, your business can benchmark order fulfillment processes
against past performance as well as against other similar companies.
What Order Fulfillment KPIs Should I Measure?
Each year, the Warehousing Education and Research Council (WERC) surveys hundreds of
businesses about which metrics they use and groups them in five categories: customer, operational,
financial, capacity/quality and employee. The “DC Measures” benchmarking study looks at key
warehousing and distribution performance metrics.

Its most recent survey showed that companies are shifting focus from measuring employee
productivity to measuring operations. The top KPIs reflect that there is a push to fill orders on time
with the correct quantities. Companies are increasingly planning for inventory and safety stock,
focusing on employee safety and engagement and maintaining relationships with key suppliers.

Key metrics companies are tracking include order picking accuracy, warehouse capacity and on-time
shipments. Inventory management software can help drive profit and customer satisfaction while
efficiently managing stock and inventory.

What Are Some Order Fulfillment KPIs?

There are many order fulfillment and inventory KPIs a business can measure depending on the
complexity and maturity of its processes. Here are some common and useful metrics.

 On-time shipping percentage

 Total order cycle time
 Internal order cycle time
 Perfect order percentage
 Order picking accuracy
 Rate of return
 Fulfillment accuracy rate
 Percentage of orders received damage free
 Order documentation accuracy rate
 On-time ready to ship
 Dock-to-cycle time
 Inbound orders received
 Lines received & put away
 Inventory accuracy
 Average warehouse capacity used
 Peak warehouse capacity used
 Inventory count accuracy by location
 Part-time workforce to total workforce
 Cross-trained rate
 Order fill rate
 Orders picked per hour
 Lines picked & shipped per hour
 Distribution costs (as a percentage of sales)
 Distribution costs (per unit shipped)
 Inventory days of supply
 Average cost per order
26 Order Fulfillment KPIs
Some of the most popular metrics used by businesses measure customer satisfaction, warehouse or
inbound metrics, operations or outbound metrics and financial metrics.

Customer Metrics
Getting your products in the hands of your customers quickly and accurately is the ultimate goal. Here
are a few order fulfillment metrics to track for customer satisfaction.

1. On-time shipping percentage: How often do your orders get sent on time? This is the percentage
of orders shipped within the expected timeframe. Anything less than 93.4% is considered a major
improvement opportunity for the business

On-time shipments = Number of orders shipped on time / total orders shipped over same period ×
100

2. Total order cycle time: How long on average does it take after customers place orders for them to
receive them, including delivery time? People are impatient, and ecommerce consulting group
Econsultancy found that nearly half of potential online orders are abandoned if the estimated
delivery time was six or more days.

Total order cycle time = Number of days elapsed between when all customer orders are placed and
when customers receive product / number of orders in the time frame examined

3. Internal order cycle time: Similar to total order cycle time, this looks at how long it takes to
prepare, package and ship customer orders. It does not account for shipping time. This helps you
examine your own processes, without relying on whether customers choose a slower shipping
option or other shipping delays.

Internal order cycle time = Number of days elapsed between when all customer orders are placed
and when orders are shipped / number of orders in the time frame examined

4. Perfect order percentage: This metric examines how likely your company is to take an order
correctly, allocate inventory immediately, deliver the product on time and send an accurate
invoice. In the DC Measures survey, the median perfect order probability was 90.

Perfect order percentage = Percent of orders delivered on time × percent of orders complete ×
percent of orders damage free × percent of orders with accurate documentation × 100

5. Order picking accuracy: This measures how well your processes result in correct orders. This was
the most popular metric in the 2019 DC Measures annual benchmarking survey. Low numbers
here indicate that more incorrect orders are being shipped. Best in class companies reported
order picking accuracy percentages of 99.8%.
 Order picking accuracy = number of orders that are picked and verified to be accurate prior to
shipping / total number of orders picked that period × 100

6. Rate of return: Returns are lost revenue and costly to process. A high rate of return can be the
catalyst to do some digging and find out where the problem lies. Is something broken? Did the
shipment arrive on time? Or maybe there’s an issue with packaging? After identifying there’s a
problem, you can start to find solutions.

Rate of return = Number of orders sent back / total number of orders shipped
7. Fulfillment accuracy rate: An order is considered accurate if the right product is delivered on time,
to the right customer in the right condition.

Fulfillment accuracy rate = Total number of accurately filled orders / total number of orders shipped
during a particular period
8. Percentage of orders received damage free: Most orders should arrive to your customers
undamaged. This metric helps you track that. Try to keep this above 99%.

Percentage of orders received damage free = (Number of undamaged orders / total orders) × 100

9. Order documentation accuracy rate: What percentage of orders include the correct
documentation? This should be near 100%.

Order documentation accuracy rate = (Number of orders sent to customers with correct
documentation / total number of orders sent to customers) × 100

10. On-time ready to ship: This measures the percentage of orders ready for shipment with all
necessary documentation at the planned time. Best-in-class operations have 99.8% of orders
ready to ship on time.
On time shipment readiness = (Number of orders shipped on time / total number of orders
shipped) × 100

Warehouse or Inbound Metrics

Before products can be picked, packed and prepped for the customer, you first have to
receive, count and store them. Making the inbound process as efficient and accurate as
possible helps you save money while ensuring you have the products your customers need.

11. Dock to stock cycle time: This measures the time products are received from a supplier to when
they are put away and recorded in inventory management systems. This was in the top 10 metrics
in the DC Measures survey because it is a way to view the efficiency of dock management and
material handling at a glance.

Dock to stock cycle time = Sum of the cycle time in hours for all supplier receipts / total number of
supplier receipts
12. Inbound orders received: This metric tracks how many inbound orders are received per employee
each hour in receiving. Higher numbers indicate more efficient operation.
 Inbound orders received = Total orders processed in receiving / total person hours worked in
the receiving operation

13. Lines received & put away: Lines are all the items that make up a shipment received in your
warehouse. Sometimes the shipments are all the same product or stock, and sometimes it’s made
up of various, unrelated items. This measures order and warehouse efficiency.
Lines received & put away = Total lines received / total person hours required to correctly
store all stock in order

14. Inventory accuracy: By making sure the physical inventory matches what’s on the books or in your
inventory management software, you’re able to better fill customer orders on time.

Inventory accuracy = Number of counted items that perfectly match every aspect of the
record / total number of items counted

15. Average warehouse capacity used: This measures the average amount of warehouse space used
over a specific interval, such as a monthly or yearly window. Companies efficiently managing
warehouse space in the DC Measures survey hit 92.5%.

Average warehouse capacity used = (Amount of warehouse floor space used / total warehouse
space) × 100

16. Peak warehouse capacity used: Closely related, the KPI measures the amount of warehouse
capacity used during designated peak seasons.

Peak warehouse capacity = (Amount of warehouse space used / total warehouse space) ×
100

17. Inventory count accuracy by location: This KPI measures the accuracy of physical inventory in
relation to inventory reported in warehouse management and other inventory tracking software.
Best in class companies achieve 99.9%.

Inventory count accuracy by location = (Number of accurate inventory locations / total number of
inventory locations counted) × 100

18. Part-time workforce to total workforce: When your company doesn’t have enough employees to
meet demand, you may have to pay overtime or turn to seasonal, part-time or temporary workers.
This can be costly and inefficient. Keeping an eye on part-time to total workforce can help you
keep labor costs down.

Part-time to total workforce = (Part time employees / full-time employees) × 100

19. Cross-trained rate: Cross training employees increases productivity, helps employees progress in
their careers and protects against loss of knowledge from employee turnover.
 Cross-trained rate = (Number of employees trained in more than one area / total number of
employees) × 100
Operations or Outbound Metrics
After an order is placed, how quickly can you turn it around and get it in the hands of your
customer? There are a few metrics to help you track performance for this stage of warehouse
management and order fulfillment. Consider using an inventory management system to track,
measure and improve your operations.
20. Order fill rate: Track how many customer orders are fulfilled with available stock without placing a
backorder or missing the sale. This helps you fill orders quickly, keeping customers happy, and
can even stop them from turning to a competitor for quicker shipping.

Order fill rate = (Number of customer orders shipped / number of customer orders placed) × 100

21. Order fill rate: Track how many customer orders are fulfilled with available stock without placing a
backorder or missing the sale. This helps you fill orders quickly, keeping customers happy, and
can even stop them from turning to a competitor for quicker shipping.

Order fill rate = (Number of customer orders shipped / number of customer orders placed) × 100

22. Order fill rate: Track how many customer orders are fulfilled with available stock without placing a
backorder or missing the sale. This helps you fill orders quickly, keeping customers happy, and
can even stop them from turning to a competitor for quicker shipping.

Order fill rate = (Number of customer orders shipped / number of customer orders placed) × 100

Financial Metrics
Warehousing and order fulfillment costs need to be monitored to find opportunities for
improvement. It can be helpful to look at distribution costs as a percentage of sales, per unit
shipped and per order placed.

23. Distribution costs (as a percentage of sales): This metric considers all warehousing expenses
involved including receiving, putting away and storing the product. It also includes the costs for
fulfilling orders through picking, packing and shipping, as well as processing returns. As sales
increase or decrease, keep an eye on distribution costs. If there’s a spike, it could indicate an
issue that needs your attention.

Distribution of costs (as a percentage of sales) = Total distribution cost / total sales

24. Distribution costs (per unit shipped): Much like looking at the costs as they relate to sales, this
metric can be used a benchmark and monitored as more or fewer units are sold. When calculating
this, consider all warehousing expenses, including receiving, storage and preparing customer
orders.

Distribution costs (per unit shipped) = Total distribution cost / total units shipped
25. Inventory days of supply (IDS): On average, how long do you keep inventory before you sell it?
Benchmark against peer companies, as this metric changes by industry. For example, grocers
that sell perishable food would have a shorter IDS than a consumer electronics store. A shorter
IDS is what you’re after because it means you are selling your goods.

Inventory days of supply = (Average inventory value in a year / cost of goods sold in the year) × 365

26. Average cost per order: Total all warehousing costs, including receiving, storage, picking and
packing for the year. Divide that by the number of orders received. Keep an eye on this metric as
sales increase or decrease and watch for spikes. Compare against peer companies, and even
against other accounting periods; are costs remaining steady by quarter or even by month?

Average cost per order = total warehousing costs for accounting period / number of orders
received in the same period

Monitoring Order Fulfillment KPIs With Software

You can only start to improve your operations workflow after you understand and track it. With so
many moving parts and so much data to crunch, warehouse and inventory management software
can automate processes, as well as house all the data needed to track KPIs.

With warehouse management software, you can integrate with shipping partners, processing
returns and automate reordering inventory. After tracking order fulfillment KPIs, you can identify
problem areas and begin implementing improvements that will enhance customer satisfaction and
boost your bottom line. With warehouse and order fulfillment software, you can take control and
monitor inventory, order fulfillment and shipping costs to improve warehouse operations and labor
efficiency.

To stay competitive in today’s economy, you have to operate on tight margins. And warehousing
costs can eat into profits and wreck your bottom line if you’re not careful. Monitor KPIs for
receiving, operations, outbound orders, customer satisfaction and financial measures. Inventory
management software is essential to gather, store and analyze the data needed for each of the
KPIs and improve your warehouse operations. ( Jenkins, 2023)

10 inventory management KPIs for effective inventory analysis

Inventory management KPIs for effective stock management

Managing inventory is a complex business. Lots of activities, processes and people are involved
in ordering, receiving, storing, picking and shipping items with the ultimate aim of keeping
customers happy with complete orders that are on time.

Inventory management KPIs are essential as they help analyze and track the performance of
inventory management activities and eliminate guesswork, e.g. how stock is ordered, managed
and turned. With a range of inventory management data, you can measure the progress of supply
 chain objectives and identify areas for improvement so you can make strategic, data-led
decisions.
With a wealth of KPIs available to help manage the performance of your processes, how do you
choose the right ones for your business? Which are the most important to ensure you’re on the
right track to optimum efficiency? Let’s take a look.

What inventory management KPIs should you track?

Every business is different and will be working toward different targets, but here are some tips for
selecting the best ones for you:
 Choose KPIs that will bring value and helpful information on improving your inventory
management effectiveness.
 Think about your strategic business objectives and choose KPIs that will support them. For
example, improving cash flow, customer service targets, growth strategies or profitability
objectives. If you’re planning your objectives, think about what information you’re missing
and what questions your board might ask so you can provide the answers.
 Don’t just focus on your internal environment. Think about your customers and their
satisfaction levels so you can ensure their return business.
 Consider whether your inventory management systems have the functionality to provide
these KPIs or whether you need to upgrade or invest in additional software.

How to set inventory management KPIs

KPIs need to be SMART – specific, measurable, achievable, relevant, and timely, so avoid setting
targets that are too broad and are difficult to quantify and measure. Instead of saying, “We’d like to
increase our stock turnover”, it becomes, “We’d like to increase our stock turnover by 2% by the end
of this year”.

KPIs will influence how employees carry out their jobs, so ensure the metrics you choose will promote
the right collaborative behavior and avoid any that encourage competition between departments.

Don’t forget that once your KPIs are in place, you need to track and communicate regularly across
your business. Your business or inventory management system should be able to help with this.
Employees need to understand their importance and how they’ve individually impacted performance.
Offer praise when you’re performing well and constructive feedback when performance needs to
improve to keep everyone motivated towards the same goal.

Inventory management KPI examples

1. Inventory turnover ratio
Inventory turnover ratio measures how quickly stock is sold and replaced (turned over) in a
predefined period – usually a year.

A common way to calculate an inventory turnover ratio is as follows:

Inventory turnover ratio = Cost of goods sold/Average inventory value

Average inventory value = (Opening inventory value + Closing inventory value)/2

Inventory turnover is a good indicator of the efficiency of your inventory management processes. A
higher turnover generally means greater efficiency. However, be careful not to simply lower inventory
levels across the whole warehouse to improve your turnover rate, as this could be at the expense of
order fulfilment. Read our eGuide on How to fix inventory turnover challenges for more tips.

2. Stock to sale ratio

The stock-to-sales ratio compares how much inventory you have available to sell versus what you
have already sold to check the health of your stock levels.

You can use this ratio to adjust your stock levels so they are continuously optimized to reduce holding
costs, improve cash flow, maintain high margins and reduce the possibility of stockouts.

Stock to sales ratio = inventory value/sales value.

3. Sell-through rate
The sell-through rate compares the total inventory sold with the total inventory received from a
supplier. This can help you understand your demand forecasting accuracy (which we discuss next),
highlight popular products, and mitigate storage costs, which all help you understand supply chain
efficiency.

Sell-through rate = (units sold/units received) x 100

4. Demand forecast accuracy

Aiming to get your demand forecasting as accurate as possible is critical to ensure stock availability,
maximize sales and keep customers happy while preventing excess stock.

This KPI analyzes how accurate your forecast was against actual sales. The smaller the gap between
what was forecasted and what was sold, the more accurate your demand forecasting. Accurate
demand forecasts improve your inventory turnover rates and lower your carrying costs.

There are many formulas for calculating demand accuracy, or demand error, including the Mean
Absolute Percent Error (MAPE) and Mean Absolute Deviation (MAD), which we explain in more detail
in our blog post on calculating forecast error.

If you’re struggling with demand forecasting accuracy due to the limited functionality of your ERP, you
should consider investing in inventory optimization software. An inventory optimization ERP plug-in
will not only dynamically forecast your demand but also provide data on the accuracy of your
forecasts and adapt them for the future.

5. Backorder rate
The backorder rate KPI keeps track of the number of delayed orders due to stockouts. It shows the
percentage of customer orders that cannot be filled at the time of placing.
If your orders often include multiple lines and shipments, you can also drill down into the actual line
orders for more accuracy.

A high backorder rate can indicate poor demand forecasting and planning and affect customer
satisfaction. It is calculated as:

Backorder rate = (Number of undeliverable orders/total number of orders)/100

6. Carrying costs of inventory

Inventory carrying costs or holding costs, include all the overheads (many hidden) you incur by
stocking items in your warehouse. These costs include:

Capital costs – all costs related to the investment in buying stock, e.g. the cost of the stock, the
interest on working capital and the opportunity cost of the money invested.
Storage space costs – a combination of the warehouse rent or mortgage and maintenance costs,
such as lighting, heating and air conditioning.
Inventory service costs – these include insurance, security, IT hardware and the cost of physically
handling the goods.
Inventory risk costs – costs that cover the risk of items losing value while stored, shrinkage, or
becoming obsolete.

The carrying cost of inventory is calculated by totaling the above overheads and dividing by the
average annual inventory cost. Holding costs are expressed as percentages; values typically range
from 15-20%.

You can improve this KPI with more efficient warehouse and inventory management processes. If you
can keep goods moving through your warehouse and avoid excess inventory and obsolete stock,
your carrying cost KPI will be in good shape.

7. Order cycle time

Order cycle time is a valuable inventory management KPI. It measures the time between a customer
placing and receiving an order. This isn’t the same as lead time, which is the time between placing
and receiving the order – it relates to the customer’s order. The lead time could make up part of the
order cycle time.

By analyzing this KPI, you can understand how efficiently you prepare and process orders. If you
have efficient processes or automation, you should be able to handle ordering frequently. The more
often you order, the less stock you need to carry, which reduces carrying costs and improves your
turnover ratio.

However, replenishment can be restrained by suppliers’ ordering stipulations regarding order

frequency and minimum order quantity.

8. Rate of return
This simple KPI tracks the percentage of orders that are returned.

Instinct tells you that you want to keep this KPI as low as possible, as it adversely impacts customer
satisfaction. However, in some industries, particularly retail and eCommerce, returns continue to
grow.

For effective inventory analysis, you should break this KPI down by reason for return to establish if it’s
a quality issue, the incorrect item was sent, or the result of a growing social trend, etc.

9. Order pick, pack and dispatch accuracy

These inventory management KPIs can be as top-level or specific as necessary and systems allow.
The process of locating items, packing and shipping them is the core function of most warehouses;
therefore, monitoring each stage’s efficiency is key to improving productivity.

Pick, pack and dispatch KPIs can reveal where your warehouse processes are robust and where they
require improvement.

10. Service level

At EazyStock, we believe that service level is one of the most critical inventory KPIs you can analyze
and track as it closely correlates with customer service. ( Severn, 2023)

Transportation Performance Measures

1. Definition and Broad Explanation
Transportation performance measures are metrics that quantify the effectiveness of transportation
operations and policy. These metrics allow for better management decisions and accurate mapping of
trends in the transportation industry. In order to develop meaningful performance measures, it is
important to consider who the data is for and what behavior will be influenced. Common measures
include transit time, safety, and costs. Recently, there has been an increased importance put on
sustainable measures as well.

2. Performance Measures

a.Transit time
Transit time is measured in a unit of time, usually days or hours. It measures the time it takes for a
shipment to travel from one facility to the next. Transit time is directly affected by the mode of
transportation selected as well as the shipping lane traveled and weather conditions.
 This map shows expected transit times of UPS deliveries from Seattle, Washington measured in days.

b.Safety

Transportation safety is often measured in the number of crash incidents over a specified time
period such as a month or year. This is an important measurement to minimize in order to cut
down on insurance premiums and lawsuit settlements. Crashes also damage the goods that
are being transported.

This figure shows the distribution of costs associated with collisions involving motor carriers.

c. Costs

Freight cost per unit shipped is a very common measurement of the management of transportation
costs. It is calculated by dividing the total amount spent on transportation in a given period by the
number of units shipped in the period. This measurement is affected by the mode of transportation
and the method of shipment such as overnight shipping or regular shipping. When goods need to be
shipped faster it generally raises this cost.

3. Sustainability

Many companies are incorporating environmentally and socially sustainable performance metrics in
their transportation management policies. Practices that protect natural resources and improve public
transportation and roadways are being enacted more frequently. These metrics provide a way to see
the trends across industries to a more sustainable growth pattern. (SCM wiki. 2012)
 Activity 1

Reference

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2. linkedin. (2023). How do you measure and improve warehouse performance and efficiency?
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warehouse-performance
3. Gaba, I. ( 2023). What Is Productivity Management and Why Is It Important in 2024?
Retrieved on January 03, 2024, from: https://www.simplilearn.com/tutorials/productivity/what-is-productivity-
management#
4. . Jenkins, A. ( 2023). Key Order Fulfillment KPIs Explained

Retrieved on January 03, 2024, from: https://www.netsuite.com/portal/resource/articles/erp/order-

fulfillment-kpis-metrics.shtml
5. Severn, J. (2023). 10 inventory management KPIs for effective inventory analysis
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management-efficiency/