This is a topic I think about at least twice a year, so this is not my first pass at it. What motivates me the most is the “speed of change” we find ourselves in and the need to adopt the most useful metrics. It’s common to drop some measurements and replace them with others that are more relevant in today’s changing business environment.

Operational metrics allow organizations to set and monitor benchmarks, facilitating the identification of areas directly impacting costs and customer satisfaction. The goal is to search for and identify areas for improvement.

Warehouse and logistics functions are typically inundated with metrics; some are unique to each type of operation, requiring careful consideration of the essential ones. However, they usually begin with such performance factors as overtime, fulfillment speeds and accuracy rates.

So, it is important to prioritize a core set of metrics that align with cost and service level objectives, allowing us to understand the trade-offs between desired operational execution, cost optimization and service delivery.

Of course, the first step is having access to accurate data on current operations; it is impossible to improve an operation that is not measured.

Many companies realize that their existing technology, including many with older or more traditional/early warehouse management systems (WMS), may not handle the agile requirements and the demand for real-time actionable data. You must upgrade your WMS to capture and measure this. The quicker you pivot and adjust processes to improve performance, the faster you can take advantage of new improvement opportunities.

Once you identify your metrics, measure them consistently and manage them effectively.

Gartner, a research and advisory firm, has done a great service for distributors, recently reporting on some of the top and most commonly used operational metrics to improve warehouse and distribution center (DC) performance:

• Warehouse capacity utilization;
• Inventory accuracy;
• Shipped order accuracy;
• Time from dock to stock;
• On time, in full;
• Order processing time;
• Inventory shrinkage rate;
• Order fill rate;
• Employee turnover rate;
• Warehouse and DC cost as a percentage of sales.

Taking a closer look, these can be assigned to categories such as: 

• Capacity;
• Process quality;
• Completeness;
• Productivity/timeliness;
• Cost.

It’s a well-rounded group — and all are important criteria in contributing to the “perfect order.” Initially, however, some prioritization will be required.

I’d like to add a few of my own: *

• Transaction cost per order line picked;
• Total lines per man-hour;
• Actual cost to deliver.

* The results of these three metrics can be very insightful. Also, they sometimes can be real shockers to your perceptions of reality. It’s why they are the first metrics I request from my clients when opening a warehouse improvement assessment engagement. It almost immediately helps develop a picture of further assessment needs and the metric priorities. It won’t be the same for every operation.

Metrics Implementation

From a project and improvement framework perspective, appropriate metrics implementation includes five steps that operations management leadership should demonstrate:

1. Active leadership. Define and prioritize your agenda and what you will measure at every metrics review meeting. Show your commitment to those metrics, monitor them personally, provide goals guidance and support and foster a team performance culture.

2. Ownership. Conduct regular (meaning scheduled and consistent) metric review meetings that drive accountability. Have the metrics owners provide feedback and potential solutions. In particularly difficult situations, consider employing the lean tactic of the five whys (solving for root causes).

3. Colleague engagement. Nurture a continuous improvement mindset. There are always improvements to be made. Things change! Fully engage warehouse colleagues who perform the work during corrective action sessions. A full understanding of actual operations challenges and seeking improvement suggestions can deliver innovative results. 

Keeping communications transparent fosters a sense of accountability within the team — motivating them toward achieving the desired objectives. It also promotes desired behavior and a mechanism to help employees be aware of how well they meet expectations.

4. Corrective actions. Use timely and, where possible, real-time data. Again, this is another good juncture to use the five whys to identify the underlying causes. Develop a detailed action plan, including the specific steps, timelines and resources required to take the necessary corrective actions. Keep track of progress and repeat the steps, reprioritizing as needed.

5. Caution. Ensure that you don’t find yourself in endless discussions about the numbers with no real actions, outcomes or impact on results (it’s a situation I often witness). 

Warehouse operations encompass activities that are discreetly executed but also interdependent in supporting overall efficient operations. Yes, it’s about receiving and put-away, cross-docking, picking, packing, custom value-added activities, shipping/dispatch, freight loading, etc. — and potentially several other critical activities.

However, the misalignment of metrics can lead to higher costs and reduced productivity, negatively impacting customer satisfaction.

All good reasons to focus on a prioritized, continuous improvement agenda, one that drives operational excellence.