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An operating warehouse is a treasure chest filled with data — a requisite to identifying overarching trends and implementing informed changes. That said, you don’t need all of it. Quite the contrary, actually — you need to make strategic decisions on which data you’ll collect and use, and which you’ll ignore.
Each warehouse operates in its own way, with a unique set of strategies and objectives. That’s why warehouse managers need to precisely outline the data they need to meet their goals and keep on improving. How do they know what to collect? How do they build a strong foundation for warehouse optimization? It all comes down to defining the warehouse’s key performance indicators (KPIs).
Defining KPIs with warehouse operations in mind
Warehousing expert Ken Ackerman identified four main areas to measure the warehouse’s efficiency: reliability, flexibility, cost, and asset utilization. Each of them encompasses a distinct set of KPIs. Not all will be relevant to the unique needs of the warehouse, customer base, and business objectives. Knowing which ones to pick comes down to knowing the strategy and values of the company.
Supply chain expert Kate Vitasek created a system for defining sets of KPIs within companies, where each department receives specific metrics and objectives to follow. In turn, these metrics become part of a larger target, creating a unified entity that, despite being composed of different aspects, works towards an overarching goal. For example, if the warehouse manager is looking into reducing the overall time a package spends in the warehouse, a different set of metrics will be applied to forklift operations (such as improving picking accuracy) compared with packing and shipping (such as the packing speed). Nevertheless, both work towards a common, companywide goal. In this way, KPIs stem from knowing and understanding the business’s strategy and objectives.
Here are some pointers for determining exactly which KPIs the specific warehouse or business department should focus on:
Choose implementable KPIs.
Make sure that datasets include and form identifiable patterns and trends. This will allow warehouse managers to track and react to any shifts and changes in the warehouse. If a KPI doesn’t do that, consider changing it. The end goal of measuring something is for it to allow the team to drive positive change. There’s no point in measuring a metric that stays the same. A metric that’s all over the place and shows no pattern is similarly useless.
Align, align, align.
Interdisciplinarity and variety as well as mutual alignment of data-based insights can, according to Forrester, significantly help companies uncover new opportunities for growth. That’s why it pays to work with a larger target applicable to the entire warehouse, but is composed of numerous smaller, department-specific KPIs. Make sure, however, that all of the components fit together — that is, all the KPIs should all align so that they work towards the same goal.
Pick influenceable and achievable metrics.
What’s the point of measuring the average value of orders coming through the warehouse? It depends. The values of that metric could be far outside of the manager’s control and depend on things that happen outside of the warehouse — marketing, seasonal demand, or customer habits, to name a few. A better way to measure the efficiency of the warehouse would, for example, be to see the average time between the arrival of a package and assigning it to a truck for further shipping. That way, the manager can better explore measures that will reduce this time. When picking a KPI, ask if the solutions in place can influence it, and if it can be achieved. If the answers are no, leave it out and focus on things that can be changed.
Appoint KPI “owners.”
Warehouse managers are in charge of the overarching objectives. It makes no sense for them to be watered down trying to control each KPI. They’re also not likely a specialist in every area of warehouse operations — they’re neither a forklift cart driver or a packing engineer, for instance. That’s why, along with picking KPIs, it’s also important to appoint their owners — people who can be trusted with interpreting and implementing the metrics and data. That said, you still have to work as a team.
Don’t overdo it.
Yes, it may be tempting to measure everything and get as much data as possible in an attempt to learn all there is about the warehouse’s operations. Keep in mind, however, that not all KPIs are worth measuring or relevant to the business’s unique situation. Another case in point: To get something out of data, you need to process it, which may take up a huge chunk of time, money, people, or processing power. Getting it the first time is very onerous, if not impossible. By continuously evaluating them, however, they can show some relevant trends that can be influenced.
Know what similar companies are measuring.
While each warehouse business faces plenty of unique challenges, be it their specific product or customer base, there are probably many things that they share. Layout issues, picking strategies, or optimizing for seasonal demands — these are all common warehousing issues. What are other similar businesses in the industry measuring? Ultimately, the company should refrain from letting the competitors’ actions guide its own. Their experiences can help as benchmarks, but keep in mind the unique requirements of the business. What works for an apparel company’s warehouse probably won’t work for a warehouse processing large home appliance units.
Keeping the team in mind: Introducing and visualizing KPIs in the warehouse
Once the KPIs have been outlined, it’s time to go a step further — that is, introducing and implementing them in the warehouse. Supply chain experts R. Moseley and Kate Vitasek outlined some pointers that companies should keep in mind when introducing new KPIs. Note that these should be considered along with how the company uses data visualizations or business intelligence (BI) dashboards:
Make sure the KPIs are measurable.
For KPIs to work, they need to be tied to something tangible — a number, percentage, or time. Without that, there’s no way to identify trends, successes, and areas for improvement. This will also help in building effective dashboards and using data to optimize warehouse operations.
Define the purpose of the BI/warehouse dashboard.
A dashboard can serve a plethora of purposes. Try to think of who will be using it, what problems it will solve, or what data you’ll need to create it (also, which warehouse KPIs should be measured to get this data). This will help the team in conceptualizing and customizing the dashboard.
According to a report by Forbes Insights, only 34% of BI users (out of 400 surveyed senior IT and business professionals) were able to achieve better or faster results using ready-made dashboards or other types of data visualizations. That’s why conceptualizing and customizing a dashboard is an important step, as it will greatly enhance the warehouse team’s ability to understand and implement its results.
Make sure everyone’s on board.
A dashboard is supposed to highlight what needs to be done and what goes well. It’s about ensuring smooth navigation through the processes occurring in the warehouse. Do the same when putting a dashboard together. Make sure that accessible wording is used and a clear hierarchy of KPIs is displayed. The same Forbes Insights report notes that data governance should not be in the hands of the few. Instead, it should be available to anyone who can use and benefit from it. The dashboard should be developed in a way that’s accessible and digestible.
Recognize that less is more.
This doesn’t just mean picking a set of KPIs relevant to the department — it also refers to the dashboard itself. The key is to make it readable. A case study of India-based Bajaj Auto, the world’s third largest motorcycle manufacturer, found out that a centrally managed data program, where organizational units only had access to the data that concerns their operations, managed to reduce administrative costs by 50% and increased follow-up calls to prospects by more than 50%.
The findings highlight the importance of focusing on presenting department-relevant information and objectives in a clear way. It’s all about keeping the displayed KPIs relevant to the departmental objective and users of the dashboard, effectively trimming down the content to the essentials. Nevertheless, business departments should still know what’s going on in the warehouse — the overarching objectives and the ways they’re contributing toward their achievement.
Staying on top of the warehouse
Actively evaluate the KPIs and their impact on warehouse operations. Do they reveal trends and areas for improvement? Can positive changes be introduced based on the indicators that are measured? If not, consider swapping them out.
A similar thing goes for BI or warehouse dashboards. A dashboard used on a Monday meeting can already be obsolete by Thursday. That’s why it’s crucial for any warehouse manager to keep a steady influx of fresh data. This will not only allow the dashboards to be updated so that they reflect the company’s ever-changing business. It will also give a chance to fine-tune strategies, identify trends, and see whether or not the KPIs are actually useful.
Lingaro Group’s supply chain analytics practice provides data engineering and advanced analytics services for logistics, warehousing, and transportation that enable enterprises to drive cost efficiencies and enhance service levels and operational efficiency. Lingaro helps organizations use data to gain end-to-end visibility in their supply chain that, in turn, enables them to accurately forecast demand, enhance resilience and responsiveness, maximize inventories, optimize resource allocation, streamline routes, minimize waste, and generate savings.
To learn more about how to effectively define and track KPIs for warehouse operations, download our white paper by filling out the form below.
