KPIs (Key Performance Indicators) for warehouse management are performance indicators, useful for assessing the efficiency of the company’s logistics and identifying strengths and weaknesses related to stock management. By expressing measured performance in a numerical and therefore objective form, KPIs allow you to:
- Prendere decisioni consapevoli basate su dati oggettivi.
- Planning activities and coordinating resources (personnel and equipment) for the management of operational flows;
- Monitor logistics trends, productivity and the level of service provided, also making comparisons with previous periods;
- Identifying critical aspects and strategic opportunities for improvement;
- Make conscious decisions based on objective data.
In this article we see what the main KPIs for logistics are and why keeping track of them makes warehouse management more efficient.
Fundamental KPIs for designing LCS Group’s tailor-made solutions
Keeping KPIs as a reference is fundamental for improving productivity and increasing service quality. For more than thirty years in the intralogistics sector, LCS, starting with data analysis, designs and implements warehouse management solutions that optimise performance.
Logistics KPIs measure the performance of a wide range of processes, including warehousing operations, picking activities, inventory management, shipping, delivery, transport. In the following paragraphs, we elaborate on the main indicators examined by LCS, related to:
- Rotation index
- Stock breakage index
- Stock lead time
- Warehouse occupancy rate
- Incoming or outgoing handling
- Reliability of deliveries
- Puntualità della consegna
The rotation index
The stock rotation index indicates the number of supplies of a certain commodity in a certain period of time (usually a year, but can also be a quarter or a quarterly period). It then calculates how many times, in a given time period, the stored goods complete the entire business cycle (sale, exit from the warehouse and collection).
The presence of high-turnover goods is an advantage for the company, as more product handling reduces storage costs.
The formula for calculating the rotation index is as follows:
Inventory rotation index = cost of sold goods / average stock held.
Stock breakage index
The stock breakage index shows the amount of unfilled orders because there is not enough stock to meet demand. In fact, stock breakage means the depletion of a particular commodity in the warehouse. This KPI is important because it assesses the company’s ability to respond to demand and identify inventory management problems.
A low break-up index means that the company is able to deliver to customers efficiently.
This is the formula to calculate it:
Stock breakage index = surplus stock value / stock value
Wearhouse Lead Time
The KPI ‘Lead Time’ calculates the time between the beginning and the end of a production process. In a company, lead time can take on different time dimensions depending on the areas, for example:
- Procurement lead time: the time it takes to receive from suppliers the material to be used in production processes or the goods to be resold.
- Production lead time: the time taken by the manufacturer to complete an order after the generation of a production order.
- Warehouse lead time: the time taken by logistics to receive, store, handle, pick and ship goods.
In the management of a warehouse, monitoring lead time is important to avoid out-of-stocks and failure to fulfil orders, which can lead to slow delivery of goods to the end customer.
The formula for calculating this index is as follows:
Warehouse Lead Time: Actual Lead Time / Expected Lead Time
Wearhouse occupancy rate
This warehouse management KPI calculates the amount of floor space occupied during goods receipt and delivery operations.
The value of the index must not be too high, otherwise it means that a part of the goods in the warehouse is not located on the shelves but occupies the aisles, effectively slowing down storage and retrieval flows.
The formula for this performance indicator is:
Warehouse occupancy rate = space occupied / total space
This KPI is closely related to the following one: the incoming or outgoing handling rate.
Incoming or outgoing handling
Warehouse movements are the set of operations related to the movement of goods to be stored. They can be of two types:
- Incoming movements (warehouse loading activities), which include purchased goods or customer returns;
- Exit movements (warehouse unloading activities), which include, for example, the sale of goods, returns to suppliers and warranty replacements.
Keeping track of these allows one to assess the functioning of the warehouse.
The following formula applies:
Incoming (or Outgoing) Movement Index = Number of incoming (or outgoing) rows / total movements per day
Reliability of deliveries
Achieving maximum efficiency in the handling of every order received is crucial for improving the company’s image and increasing sales. Delivery reliability is therefore one of the most important KPIs for warehouse logistics.
It measures the quantity of orders processed, dispatched and delivered without problems, e.g. order errors or damaged goods. A good delivery reliability index shows an efficient corporate supply chain and translates into satisfied customers and loyalty.
This is the formula for calculating this indicator:
Delivery Reliability = Number of incorrect deliveries / number of total deliveries
Punctuality of delivery
This index makes it possible to calculate the quantity of orders sent complete and carried out within the delivery time agreed with the customer.
In logistics, delivery time is measured from when the order is prepared for delivery to when it is delivered to the customer. A company performs well when all orders (or a large number of them) are delivered correctly and on time. The objective is therefore to reduce the average time between preparation and delivery without deteriorating service quality.
The formula to calculate this KPI is:
On-time delivery index = Orders delivered on time / total orders delivered
LCS Group and customized management solutions
Through KPI analysis, therefore, the warehouse management activity is measured and evaluated as a whole. This requires functional solutions: LCS Group offers customers tailor-made and reliable industry software with simple and intuitive interfaces to control and optimise process automation.
This improves business performance and provides customers with a fast, efficient and top-class service. For more information, contact LCS by following the link. Together we will design the best solution for your logistics.