Definition & types of warehouse KPIs
In business administration, KPIs or Key Performance Indicators are values that show how effectively companies achieve their respective business goals. In general, these key performance indicators can be divided into the following two areas:
- Absolute figures: These only include directly quantifiable actual conditions at the time of measurement. This reduces the strategic significance of the figures, which is why they are mainly used to calculate ratios.
- Ratios: Here, a percentage share is given, which results in a high degree of comparability (e.g. the share that empty storage locations occupy of the total storage area).
For both types of KPIs it is important that they are measurable values that can be tracked at any time. Comparisons with values from previous measurement periods allow to draw conclusions about the success of the applied business strategy. This means that the KPIs directly indicate how well a company is performing in achieving its own goals. It is obvious that in most cases the aim is to reduce inventory costs - while always ensuring full product availability.
Warehousing1 picks up the top 7 warehouse KPIs at this point and explains how these can help to correctly calculate inventory levels and guarantee success along the supply chain.
What makes warehouse KPIs so important?
While the topic of warehouse KPIs is extremely relevant for companies that have their own warehouse locations, with the increasing outsourcing of logistics processes it is becoming more and more interesting for external service providers as well. Warehouse KPIs ensure that warehouse performance can be optimized and that warehouse stocks are at a balanced level - in other words, that there is no over- or understocking.
Since numerous KPIs can be defined and specified, especially for warehouse stocks, it does not make sense to orientate oneself on every single existing key figure there is on the market. Therefore, it is important to pick the right parameters for your company and to be able to evaluate them profitably in a subsequent analysis. In addition, it can make sense to measure specific KPIsfor individual sub-areas of your operative business. Thus, a supply chain manager is interested in different values than e.g. someone from the controlling department. If you select the indicators in advance, more meaningful reports can be created to actually help your company to drive its business model forward.
In addition, it can make sense to measure specific key figures for individual sub-areas of your operative business. A supply chain manager, for example, is interested in different values than someone from the controlling department. If you select the indicators in advance, you can create more meaningful reports that help your company to advance its own business model.
What tasks do warehouse KPIs actually fulfill?
When dealing with inventory KPIs, it is particularly important to define in advance where you can intervene if, for example, the goals you have set for a particular quarter are not (yet) achieved. This assumes that the figures are constantly used for process optimization in order to be able to intervene concretely in the processes.
In addition, KPIs are starting points for your employees to help them estimate how efficiently they have implemented their tasks. This has a positive effect on work morale and can act as a motivational factor. As a result, the entire company is geared towards growth and enables targeted work along the supply chain.
However, in order to be able to use the KPIs, your company needs IT systems that can provide data for evaluation within seconds. Modern technologies based on AI, for example, process even large amounts of data without any problems and provide you with consolidated data in the form of relevant data records. As a rule of thumb, always carry out evaluations under the same basic conditions. This also includes the frequency of data queries. Dynamic data such as the distribution of free and occupied storage locations can be used daily to optimize the flow of goods.
The top 7 warehouse KPIs at a glance
- Inventory turnover
Calculation formula = cost of goods sold / average inventory for the same period
This key figure indicates how often you turn over your stock within the measurement period. It is advisable to look at the inventory turnover rate at product level. This allows suppliers to analyse exactly how efficiently you store your goods. A low inventory turnover rate is often an indication of SKU overstocks, to which you should respond with inventory adjustments. Excessive numbers are also not optimal, as they indicate high capital commitment or investment in your inventory - when you could be using your capital elsewhere to grow your business.
- Inventory intensity
Calculation formula = end-year's inventory / total business assets
This KPI calculates the ratio of inventories (in the formula e.g. raw materials and supplies (RMS)) to inventory turnover. Lagerumsatz.
- Average stock level
Calculation formula = (opening stock + 12 closing stock) / 13
This key figure depicts the average inventory level in the course of a fiscal year and can be calculated as a quantity or value - e.g. in euros.
- Inventory range
Calculation formula = average stock / average consumption per period
This KPI indicates, how long the average stock level is sufficient at average consumption within the measuring period. This means that you can also calculate the value for a specific key date, such as a Christmas holiday.
- Average replenishment lead time [days]
Calculation formula = average order preparation time + average delivery time + average inspection, storage and provision time
This KPI indicates how long it takes for your warehouse to provide the goods. It should be noted, that changes in inventory have a direct proportional effect on the time taken.
- Safety stock coefficient
Calculation formula = safety stock * 100 / average stock
The safety coefficient is the ratio of the safety stock to the average stock. It tells you how much the capacity utilization of your warehouse may decrease before a critical limit is reached and you should increase your capacities if necessary.
- Storage space utilization ratio
Calculation formula = occupied storage space * 100 / total available storage space
The storage space utilization ratio indicates the proportion of your storage space that you actually use for storage. To illustrate: The greatest storage utilization is possible in form of a block storage, where the degree of utilization is usually around 80%. The remaining 20 % consist of the free aisles between the storage areas.
Warehouse KPIs are important to create an overview of business goals and their achievability. It is essential to create a separate KPI catalogue for specific business areas or departments in order to track department-specific goals. This is used to be able to carry out a systematic analysis of the capital tied up in inventory. In this way, you do not lose sight of your individual goals and can maintain your growth course.
Warehousing1 aims to provide you with consolidated data analysis and optimise logistics processes via our cloud-based customer and partner platforms. Using smart systems, fast data integration and a uniform interface, you can easily read and implement the key figures you need for your inventory management. Arrange a non-binding consultation with one of our account managers today via our contact form.