Improving your performance measurement

– in your warehouse operations

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Torsten Bech Andersson
Morten Damsø Pedersen
Mathias Staal Jørgensen

April 2019

The article was originally written by Thomas Skjødt.

In today’s business environment, customer service is no longer king – it is dictator! It only takes a single example of poor service to ruin your good image as a trusted supplier, who delivers on time and in full. In relation to this, customers get more and more accustomed to next-day delivery, and some even expect same-day delivery. These conditions, in addition to the fact that it is much cheaper to keep an existing customer than to find a new one, leave little to no room for under-performing in your warehouse processes. To succeed in today’s business environment, you therefore need to constantly stay on top of your warehouse performance.

The warehouse has a critical impact on the customer experience, when your customers are receiving their products. In this blog, we therefore provide you with insights on how to measure your warehouse performance to keep track of your ability to improve your customer service.

So, how do you choose the right performance measurement system for your warehouse operations?

First, you need to ensure that whatever key performance indicators you choose to measure, they need to be aligned with your company strategy and vision as well as the preferences of your customers. Too often managers find themselves choosing the key performance measures that are most used in the industry or the ones they find easiest to implement. Don’t be one of those managers. It is fine to look to the activities of others for inspiration, but always keep your own purpose in mind.

Secondly, you must ensure that the key performance measurements you end up selecting are SMART.

They need to be:

  • Specific so that it is clear what impact they achieve
  • Measurable so that you can put a value to it (how much/long/many ...)
  • Achievable and attainable
  • Relevant in relation to previous paragraph
  • Timely so that you know how often to measure

Once you have chosen your key performance measurements, how do you make sure they achieve the impact you seek?

You start by ensuring buy-in to the performance targets from key stakeholders, such as senior management and process owners. If you don’t get support from key stakeholders, replace the measurements. Also, ensure that the measurements are aligned with existing measurements in the organisation so that you work towards the same strategic goals and process. Nominate owners for each performance measurement to ensure it is kept alive and relevant.

When you have the needed buy-in and support for the performance measures, you need to make sure they are implemented in the daily operations of the warehouse.

To help getting to that outcome, you could …

  • Use a terminology that your staff understands and finds meaningful.
  • Make it clear what needs to be done to achieve a high measurement score.
  • Track the measurements and make the performance visible for the employees.
  • Conduct weekly meetings to discuss progress on each measurement.
  • Use benchmarks as goals to know how well you perform and where to improve.

Make sure that you act on the information provided in the measurements so that they stay relevant to the staff putting in their daily efforts to achieve them, but do not overreact to single measurement scores that are off track.

Now that you are on your way to setting up or improving your key performance measurements in your warehouse, you might need some examples to get you started

Make sure that you do not start with more performance measurements than you can manage to fully focus on the daily operations. So, start small, gather some success stories about your work with performance measurement and then escalate with more measurements, if needed.

In the table below, you will find some key performance measurements that could suit your warehouse operations and get you going towards achieving better customer service and business performance. We have added some benchmarking measures from the American consortium WERC as inspirational targets you could go for, however, remember that these benchmarks will vary from industry to industry and in relation to how automated your warehouse processes are.

Performance measurement Description WERC benchmark
On-time shipments (Orders delivered at requested time * 100) / total number of orders received > 99 %
Lines picked per hour Total lines picked / hours available > 34 lines
Order accuracy (Orders dispatched accurately * 100) / total orders received > 99.3 %
Dock-to-stock time Time from vehicle arriving at bay until goods are visible in the system < 6 hours
Cost as % of COGS Total warehouse costs * 100) / total sales revenue < 5%
Worker hours utilisation (Worker hours used * 100) / worker hours available > 85%
Storage area utilisation (Storage area used * 100) / storage area available > 84%
Damaged stock Items found damaged / (items dispatched per month * 100) < 0.25%
Stock location accuracy (Correct stock on locations / total number of locations) * 100 > 99%

Complexity in measuring the performance measurement should be handled by introducing underlying “leading” measurements

In the beginning, it can be hard to grasp some of these performance measurements, and a lack of data could make the calculations difficult. In these cases, you should break down the performance measurement to underlying “leading” measurements. Let’s take the “on-time shipments” as an example. If it is tedious to get the proof of delivery data from your customer to measure the on-time delivery, you can create some “leading” measurements, such as “number of orders received from customer within order deadline”, “number of orders shipped on time” and “number of orders where actual shipment time does not exceed the expected shipment time”. All these “leading” measurements can be easier to calculate, and they make up good indicators of how well our “lacking” measurement, which is the “on-time shipment” measurement, is performing, even though we cannot measure it accurately.

The above performance measurements are mainly what we could call business-related performance measurements, but you should also consider implementing more behaviour-oriented performance measurements, since these are equally important in achieving good customer service. The behavioural performance measurements are especially good at identifying how customers or other stakeholders perceive the service you provide. They can, however, be a bit more difficult to measure than the measurements in the above table, but a survey asking the customer to score you against what they perceive as being best in class could be a way to collect data to track your performance. Examples of questions in such a survey could be: How well do you deliver the service you promise? What is your ability to provide fast and helpful customer service? Are you a reliable and trustful supplier? These are some examples of where you could have your customers rate you on a scale and maybe provide input on where they see room for improvement. Consider making the questions short and to the point to ensure your customers do not feel they are wasting their time on redundant questions.

So, what is the message?

You can choose between a lot of different performance measurements for your warehouse operations, however, be aware that you should only use the measurements that support your business and customer requirements. Be selective and do not include more measurements than you really need. Once you choose the measurements, ensure that you define them SMART as described in this blog. Finally, you should put an effort into bringing the measurements to life in your warehouse by making them visible, tracking them and working actively with them so that your warehouse team sees the benefits of working towards achieving these measurements. Good luck!

Want to know more?

Please feel free to contact us if this blog has inspired you to take a closer look at how key performance measurement can help improve your warehouse operations. We are also happy to assist you in measuring performance, creating impact and achieving your objectives within supply chain management, inventory management, warehouse management solutions, warehouse management systems and operations.