Warehouse KPIs and Balanced Scorecard

Learn how to track the warehousing process from receiving to shipping. Find a template of a strategy map with trending improvement initiatives and performance metrics.

In this article, we analyze warehouse effectiveness challenge on two levels:

• Process level with the focus on efficiency and effectiveness metrics
• Strategy level that helps to align warehouse activities with the company’s overall goals

Warehouse Process KPIs

Warehouse activity is associated with certain established process steps ^[1]. These steps are an excellent base for the process-oriented performance metrics.

Possible measurement points in this case are:

• Financial metrics
• Effectiveness (productivity) metrics
• Utilization metrics for equipment and storage
• Quality metrics
• Cycle time metrics

Respectively on each step, these evaluation parameters are adjusted to the process step.

Receiving

• Financial metric: Cost of Receiving (Total Cost of Receiving / Total Line Items).
• Effectiveness metric: Receiving Labor Productivity (Volume of goods received per warehouse employee per hour).
• Effectiveness metric: Receiving Efficiency (Inventory received per hour).
• Utilization metric: Dock Utilization.
• Quality metric: Receiving Accuracy.
• Cycle time metric: Receiving Cycle Time (Time for Delivery / Total Number of Deliveries).

Put-away

• Financial: Putaway Cost Per Line (Total Cost of Put Away / Total Line Items).
• Effectiveness: Putaway Productivity (Stock per warehouse employee per hour).
• Utilization: Putaway Space Utilization (Equipment and space utilization).
• Quality: Putaway Accuracy (Inventory Put Away Correctly / Total Put Away).
• Cycle time: Putaway Cycle Time.

Storage

• Financial: Storage Costs (as index of Service costs, Damage costs, Obsolescence Costs).
• Financial: Cost of Inventory
• Financial: Cost of Carrying (Cents per dollar spent on inventory overhead).
• Effectiveness: Storage Productivity. Volume of inventory per m2
• Utilization: Space Utilization (Space occupied / total space available).
• Quality: Inventory Shrinkage ( (Recorded Inventory Cost – Physical Inventory Cost) / Recorded Inventory Cost).
• Quality: Inventory Accuracy ((Inventory According to Records / Physical Inventory) * 100).
• Cycle time: Inventory Turnover.

Preparation (Pick & Pack)

• Financial: Pick and Pack Cost.
• Financial: Cost of returns.
• Effectiveness: Picking Productivity (Order lines per hour).
• Utilization: Use of Packaging Materials.
• Utilization: Equipment Dock Utilization.
• Quality: Picking Accuracy (Total orders – Returns due Wrong Item) / (Total orders).
• Quality. Returns rate (Units returned / Units sold)
• Cycle time: Pick and Pack Cycle Time (Travel time for pickers).

Shipping

• Financial: Shipping Cost Per Line
• Effectiveness: Back Order Rate (Orders unfulfilled immediately / Total orders).
• Utilization: Dock Utilization
• Quality: Shipping Accuracy (% of orders delivered without errors).
• Cycle time: Average Time to Customer (Lead Time, Average time to deliver once the order was placed).

Benchmark Data

The scorecard template includes some benchmarking data obtained from:

• “2015 Warehousing Education and Research Council (WERC) DC Measures Report” ^[2]
• fcbco.com
• Warehousing 2020

Use this data as a starting point for your research. The final numbers depend a lot on your market conditions.

When finding benchmarks for your indicators, make sure that you follow the same approach to measurement and the compared organization.

A starting point for any benchmark is your own historical data.

Quality Metrics

Quality metrics are implemented on each step of the warehousing process. A general formula is focused on finding the number of correctly served items compared to the total number of items.

An interesting question is how the warehouse manager could estimate the number of correctly served items. The two possible control points are:

• Customer complaints (for example, as measured by returns)
• Random checks of the items

In the Quality KPIs article, we have discussed various approaches that organizations can use to measure and improve quality.

Safety Metrics

The classical process-oriented approach doesn´t include safety metrics explicitly, but it is obvious that safety should be a main priority of warehouse managers.

For this reason, on the strategy map below, we have a separate “Safety” theme.

In the strategy map section below, we will discuss some ideas for safety initiatives. For now, I´d like to pay attention to the specific setup of safety metrics.

The performance function for the “Safety equipment used” should be binary. This means that the metrics can be in the green zone (have 100% performance) only if 100% of the used equipment is adjusted to the current safety standards.

The Safety standards awareness metric should have a specific performance function as well. It allows a certain margin between 100% awareness due to the normal fluctuations in staff and standards change, but the scale should be much more aggressive compared to a standard line growth function.

The idea is to align safety initiatives with overall strategy of the organization. A Balanced Scorecard strategy map is an excellent business tool to do this. Check out an example of the Safety Strategy Map that we discussed before.

Strategy Scorecard

I see several reasons why the warehouse should have a properly designed strategy scorecard.

1. It helps to describe a warehouse strategy, have a big picture view and know growth points.
2. It allows to align supply chain strategy with overall company strategy.
3. It focuses performance measurement efforts beyond simple process metrics.

Below, I’m following the logic of the Balanced Scorecard framework to create a strategy map template for the warehouse. If you want to learn more about the framework, I recommend this article to you. Additionally, consider connecting this warehouse strategy scorecard to a procurement scorecard, for example, by the “Inventory accuracy, %” indicator.

Finance Perspective

The financial goals of the warehouse are related to optimizing running costs.

Business goal: Optimize Costs

Lagging metrics:

• Shipping Cost Per Line
• Errors cost per type of error

Customer Perspective

The stakeholders of the warehouse can include suppliers, clients, warehouse team, logistic personnel. Respectively, the goals of the customer perspective can be formulated around the needs of these stakeholders.

There are two goals to map in the Customer perspective:

• Improve Efficiency and Productivity
• Improve Safety

Business goal: Improve Efficiency and Productivity

Metrics:

• Receiving Efficiency
• Inventory Turnover
• Receiving Labor Productivity

Possible initiatives:

• Omni-channel fulfillment centers

Business goal: Improve Safety

Metrics:

• Time lost due to injury
• Accidents per year
• Near miss issues reported

Internal Perspective

The goals of the internal perspective are supposed to answer the question: “How are we going to satisfy the needs of our stakeholders?” The improvements might be focused on the goals discussed in this section.

Minimize Errors via Automatic Data Collection

Metrics:

• Returns rate
• Accuracy Index (as measured according to accuracy indexes on all steps of the warehousing process)

The weights of the indicators that form the accuracy index can be equal or can be adjusted to the current strategy, for example, by giving a Shipping Accuracy higher weight compared to other indicators.

Additional metrics should be introduced when specific initiatives are implemented.

Possible Initiatives:

• Implement RF and RFID (radio-frequency identification)
• Hands-free order selection
• Operations according to the pace of customer demand
• Real-time location systems (RTLS)
• Real-time inventory control

The next business goal is:

Optimize warehouse processes

It can be validated by many effectiveness and utilization indicators.

A good measurement option is this general indicator:

• Cost of Carrying. Cents per dollar spent on inventory overhead.

Improvement initiatives to consider:

• Implement cross-docking
• Efficient returns process
• Sequential order picking process
• Regular pick path review
• Analyse material usage patterns
• LED energy-efficient lighting

Among the stakeholders, we have suppliers/vendors.

The Layout Reevaluation should be programmed to be updated with a certain period of time depending on the type of the products stored. In this example, it is updated Quarterly. Obviously, the value of this indicator cannot be inherited from the previous evaluations, and to reflect this, I’ve picked the “Entered values” option in BSC Designer software.

Effective and safe layout goal can be further supported with various improvement initiatives:

• Maximize vertical space
• Design ergonomic workspaces
• Behavior-based safety program
• Safe routes, traffic lanes, crash barriers
• External warehouse layout
• Evaluate storage equipment

Learning and Growth Perspective

In the learning perspective, we need to map goals that will help to focus learning efforts. What information about the stakeholders will help to make better decisions? What IT infrastructure will help to serve warehouse stakeholders better? What changes in management can lead to achieving internal goals?

The pillars of learning perspective are:

• Hiring the right staff
• Continuous learning
• Culture
• Technologies

On this warehouse strategy map the training goal is formulated as continuous learning.

Continuous learning

Possible initiatives are:

• Understand asset requirements in terms of infrastructure and equipment
• Analyze Picking Methodology
• Introduce 5S Lean Warehousing

Finally, the keystone of warehouse safety is Culture of safety with these initiatives aligned:

• Design facilities with safety in mind
• Train on safe logistics
• Strict standards for safety

The measurement part, in this case, can be represented by these metrics:

• Safety equipment used
• Safety standards awareness
• Near-miss reporting awareness

Final Word

A warehouse today should adapt to the fast pace of stock turnaround, new technological and logistical challenges.

In this article, we discussed the basic process metrics that will help to achieve excellence in warehouse operations, as well as an example of a strategy map template that will help to align warehouse strategy with the overall needs of the organization.

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What's next?

• Access templates. Sign-up with a free plan at BSC Designer for immediate access to 31 scorecard templates, including Warehouse Scorecard discussed in this article.
• Master skills. Check out free video tutorial for the Balanced Scorecard. Master your strategy planning and execution skills with Strategy Execution training.
• Automate. Learn what Balanced Scorecard software is and how it can make your life easier by automating strategy execution, KPIs, and strategy maps.

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References

Aleksey Savkin

CEO | Trainer | Author

BSC Designer is a Balanced Scorecard software that is helping companies to better formulate their strategies and make the process of strategy execution more tangible with KPIs.