How are you leveraging your WMS KPIs? The answer can dictate your level of success in ecommerce and direct-to-consumer (DTC) fulfillment operations performance.
As the dust settles on the 2022 peak season, it’s time to evaluate the performance of your fulfillment operations to improve efficiency, increase savings and better serve customers. The right data and KPIs helps you measure performance and the bottom-line impact.
An intelligent WMS provides a vast amount of data that unlocks valuable insights into your operations, so it’s important to determine which metrics to track closely in order to unlock rich data insights.
Why Track WMS KPIs?
Knowing what information to measure is essential. For your DC or FC operations, it’s all about products and stock. Standard WMS KPIs can include inventory accuracy, shrinkage, carrying cost, inventory turn and inventory-to-sales ratio. Keeping an eye on supply chain KPIs helps you understand and improve warehouse efficiency.
Let’s unpack a few WMS KPIs:
Receiving and Putaway
Dock-to-stock time is critical, affecting the entire supply chain. Understanding receiving and putaway KPIs highlights where receiving processes are strong and where improvements are needed.
Within the receiving and putaway categories, these are also important to track:
This tracks the health of your receiving area. As your staff becomes more experienced, receiving efficiency will increase. If your numbers trend down, it may be time to reexamine your receiving process. You can calculate this metric by dividing inventory received by the number of staff hours worked.
Receiving Cycle Time
This WMS KPI measures the processing time of newly received merchandise. If your receiving cycle time is lengthy, it can signal the process needs improving. It’s calculated as total time spent on processing newly received stock divided by total number of received items.
The putaway KPI tracks how accurately employees get items on the shelf by measuring the ratio of correct putaways to total putaways. The goal is to have inventory put away correctly the first time, every time. If this KPI isn’t consistently measuring at 100%, search for patterns in putaway errors that could indicate learned mistakes or product mix-ups.
Putaway Cycle Time
This is the average time needed to store one item from your inventory. The typical format for this metric is dividing time spent on putaway by the total number of items in a putaway task.
This category measures order cycle time, or how long it takes an order to ship once it has been placed. If this metric is on the higher end, there may be issues with picking, packing or shipping workflows.
Within the shipping category, these are important to track:
On-Time Shipping Rate
This WMS KPI indicates performance on sending out orders on time or in advance. It is a good gauge to look at when assessing SLAs and planning labor for a given day. You can calculate this metric by dividing the number of orders shipped on time or in advance by the total number of orders shipped.
Total Order Cycle Time
Total order cycle time calculates the time it takes from when an order is placed until when it ships. This includes all intermediate steps, such as downloading the order, picking, packing and prepping for shipping.
Storage KPIs reveal the costs of keeping products on shelves. These KPIs are necessary to monitor, especially inventory carrying cost or storage cost. This ties up your capital, so you want to keep this metric as low as possible. Calculate it by dividing your total carrying costs by your overall inventory costs.
Another important storage-related KPI is backorder rate, which measures unfulfilled warehouse orders. In a perfect world, this number would be zero but this metric depends on how quickly shelves can be restocked. This is calculated by total backorders divided by total number of orders.
Inventory turnover, or simply inventory turn, measures how frequently your inventory is sold in a given period, calculated by dividing your total sales by your average inventory. Higher values indicate stronger sales, while lower values highlight weaker sales.
Shrinkage inventory is a KPI used to track inventory losses from human error, misplaced items, theft, supplier fraud and receiving inaccuracy. Shrinkage is calculated by identifying any discrepancies between recorded inventory and actual physical inventory.
Receiving the wrong item in an ecommerce order is not only frustrating for customers, but also expensive for your business. Improving order picking productivity and accuracy will lower costs and create happier customers.
WMS solutions help organize and accurately track inventory by improving picking and packing processes. An intelligent WMS can reduce fulfillment issues caused by human error and provide better insights into available inventory, replenishment, fulfillment needs and potential inventory issues.
Here are key metrics related to picking performance:
Picking Accuracy measures how accurately items are picked for orders.
Picking Efficiency averages how many items are picked per hour for a given period. The higher the number the better.
Picking Cycle Time indicates how long it takes for an order to be picked on average.
Fulfillment Accuracy Rate is one of the most important KPIs as it shows how accurate your operations are to fulfill orders received.
Return Process KPIs
Returns are a reality of DTC sales. Whether someone orders the wrong item, receives incorrect or damaged merchandise or the item is simply not to their liking, efficiently managing the returns processes minimizes your costs.
Within returns, the primary KPI is the return rate, calculated by dividing items returned by items sold then multiplying by 100. It’s also important to determine how quickly returned items can be put back in stock and how quickly the correct product can be delivered to a customer.
Data is your friend, not foe
By embracing WMS data, you gain rich insights into your fulfillment operations and the ability to measure, monitor, analyze and improve efficiency and costs across your business. All of this is critical to ecommerce success.
Today’s competitive landscape, high customer expectations and razor-thin profit margins require systems that keep supply chain operations highly functional and efficient to meet growing demand. Measuring KPIs enables you to quickly adjust and improve where necessary to optimize your business performance.
Erhan Musaoglu is the founder and CEO of Logiwa