The warehouse KPIs your brand tracks can provide you with valuable insights into how well your workflows and teams are working and how efficient your processes are. Each major warehouse KPI that can be tracked highlights a different aspect of your performance and provides you with key information you can use to improve your efficiencies.
Since each metric looks at a different aspect of your brand and performance, you need to determine which factors to use when you are exploring a specific topic or area that may need improvement or refinement. When you’re hoping to support rapid growth or to scale your brand, a few KPIs stand out above the rest and will provide you with the insights you need to succeed.
Warehouse KPIs provide valuable insights for growth and scalability
You already know how useful Key Performance Indicators are in tracking your overall progress and determining how effectively you’re reaching your goals. Narrowing your focus and examining those specific KPIs that support robust growth and scaling can help you determine if you’re truly keeping up with growth well or if your team is just hanging on.
Some of the most important metrics to track when you’re thinking of scaling up – or experiencing heavy growth – include
Ideally, you’ll be ahead – and thinking about your warehouse KPIs that support healthy scaling before you actually need them. Not everyone is able to work so far in advance, though.
If you’ve been struggling with growth and scaling, then a thorough and immediate examination of the metrics below is essential. Every day you operate without the insights that these KPI figures can bring is a day full of stress and anxiety, and a potential interruption to your cash flow.
Signs you may be struggling with growth and scalability
When should you take a look at those important warehouse KPIs? Ideally you should pay special attention to them when you begin to scale your brand, but in some cases, growth can happen so swiftly that you end up struggling to keep up.
This situation may be great for sales and revenues but can wreak havoc on your fulfillment and warehouse processes.
According to Forbes magazine, growing too quickly can put a lot of pressure on your brand and could even cause issues in key areas like warehousing, fulfillment and customer service. Here are a few signs that you need to look at the KPIs that reflect your ability to grow and scale well:
- Your sales team is way ahead of orders and fulfillment – and you’re worried about getting caught up
- Your customers are beginning to pressure you about deliveries
- You’ve had to do some rapid hiring, and may not have hired the right people – just to fill roles
- Your customer reviews are falling
- You feel like you are constantly behind
- You have cash flow problems related to fulfillment
- You’re canceling orders you can’t keep up with or fulfill
Growth is great, but if you’re experiencing some or all of the conditions above, the warehouse KPI metrics that support healthy scaling and growth are absolutely essential for your brand.
Tracking warehouse KPIs that support healthy scaling and growth
Whether you’ve decided to prepare for growth in advance, and want to see where you stand or you’ve identified some problems with growth in your own brand, the following KPIs will give you the insights you need to scale your operations in a healthy, successful way.
KPI #1: on time shipments
If your customers aren’t getting their deliveries on time now, how will you manage when you have more orders hurtling through your system? You need to know how effective your team is at shipping orders out and that those orders are leaving your facility in a timely manner.
If you’ve seen an increase in customer complaints, canceled orders or late shipments, then this warehouse KPI is one you need to familiarize yourself with.
How On Time Shipments are calculated:
# of orders on time/total # of orders shipped = on time shipments
You should know what percentage of your orders ship on time; be aware that different categories, shipping methods or sales channels may have different on time shipment rates. Tracking this over time allows you to spot any signs that are concerning and to take action when you need to.
If you review this metric and see that you have a problem before you scale up – you need to address it before you focus on growth. More orders coming into an already burdened system won’t help you get things out on time, and could increase the number of cancellations and complaints you receive.
For eCommerce brands, this is a particularly important metric to study as you move towards peak selling seasons. Reviewing and focusing on on-time delivery is essential before the busy holiday season, but also before any seasonal influences that impact your industry.
According to the National Retail Federation, the winter holidays still rule retail, but back to school, Halloween, Valentine’s Day or Mother’s Day may also be important for your brand. Knowing when peak selling times are coming and addressing on-time delivery issues will allow you to make the most of these bountiful selling seasons.
KPI #2: inventory accuracy
It’s already on your radar, because Inventory Accuracy is already one of the most important KPIs a brand can track. Not surprisingly, Inventory Accuracy also impacts your ability to scale and grow effectively.
If you don’t know what you have on hand now, you’ll struggle even more when additional products begin to arrive and you attempt to scale up your fulfillment operation.
Measure your Inventory Accuracy:
Database inventory count / physical inventory count = inventory accuracy
This metric is a reflection of what you think you have, meaning what is showing in your database system, measured against your actual physical inventory count. You need to be able to rely on the information in your database to prevent stockouts, overselling and other unfortunate scenarios.
As with other important warehouse KPIs for scaling, you will likely find that some areas and zones are more efficient at tracking inventory than others.
Depending on your findings, you may discover that one part of your workflow or warehouse outperforms the others – use this to boost the effectiveness of your processes and to ensure you’re truly ready to scale your business.
Ensure your brand is ready for growth by tracking the right KPIs
Another KPI related to inventory accuracy is your stockout rate or ratio. You need to know what your rate is, because stockouts represent lost opportunities for sales and revenues. When an item is in stock and available in your warehouse, but your database shows you as out of stock, your website will reflect what the database says – not your physical inventory. A customer who wants to order an item can’t, because the item will appear to be out of stock. This is a lost sale, and if your stockouts scale up alongside your business growth, you could end up losing a lot of revenue over time. Worried about stockouts? Learn how a stock safety program can help you avoid this unfortunate scenario.
Since these factors are so critical, you need to know the information you are working with is accurate and you need to be easily able to view it. We help brands get the powerful insights they need to succeed and the information they need to scale up in an effective way. Contact us to discover what the easy to use and robust reporting tools of SkuVault can do for you. You’ll love being able to grow your brand and operations without worry and without running into some of the most common barriers to effective growth.
KPI #3: weeks on hand
How much stock do you have on hand, and how much do you need? Depending on your industry, you may have a specific target you are striving for when it comes to Weeks on Hand metrics.
Ideally, you should have enough stock on hand to fulfill orders if there is a disruption in your supply chain or you are otherwise unable to get fresh stock. If a shipment to you is damaged, the inventory items you receive are flawed or you are unable to stock them for any reason, you should have stock on hand that can be used for orders.
Weeks on Hand is always important, but since scaling up your sales means that your orders will be flowing at a different rate, you should be aware of how this metric is changing over time.
The amount of stock that constitutes a “weeks worth” of orders will change as your sales rate increases, so you could end up with fewer weeks on hand than you expect. The best way to find this out is to check your metrics and respond accordingly – the worst way is to run into a problem with a critical product or inventory item and then discover you can only ship orders for three more days.
Track your Weeks on Hand via KPI reporting with SkuVault software. You don’t have to monitor this daily, but you should be aware of trends and that your needs will change as you scale your business up.
KPI #4: carrying cost
What does it cost you to store each unit of stock over time? Carrying Cost includes the storage space the piece takes up, the insurance, labor and other factors needed to secure it and any other costs you carry.
You need to know what this KPI metric is now and track how it performs over time. Your carrying costs impact your profitability as well – the more you pay to store and stock an item in your warehouse, the less profit you’ll end up with when it sells. Your carrying cost is directly tied to the amount of safety stock you should keep on hand.
If you are scaling up your operations, you may need to have more safety stock on hand than usual, simply because you are moving inventory more rapidly than usual.
You should know the carrying cost for your most popular items; while this cost will not change when you scale up (because the per-item cost will be the same) if you are bringing in more items, then your overall costs could go up. You also need to weigh the cost of storing items versus the risk of not having them on hand to sell; if you are scaling up and not sure how rapidly you will grow, carrying cost will let you know how much it will cost you to be prepared.
KPI #5: rate of return
Your Rate of Return (or RoR) is the percentage of orders or items that you sell that are returned to you. You should watch this metric when you scale your business up, because the way that you accomplish that growth could impact your return rates.
Rate of return is calculated with the following formula:
Number of units returned / number of units sold = rate of return
Check your rate of return before you begin efforts to scale up your brand – and check this warehouse KPI again when you begin to see growth. If your rate of return remains steady, then you’re successfully scaling your business without impacting customer experience, at least when it comes to products and your customer service.
If you review your rate of return KPI and find that the percentage has grown as you handle more orders, then you will need to look a little more closely.
You should research and determine where the increase is coming from. Are more customers complaining that goods sold are not performing? Are there late shipments that result in seasonal items arriving after the needed date? Are items arriving broken? Each of these questions suggests a different problem:
- An increase in returns due to the actual goods could mean that your inventory or items are no longer the same quality. If you’ve changed suppliers or formulas to facilitate growth, you customers may reject the changes, resulting in higher return rates.
- If your items are being returned because they are not received in time, the extra growth may be straining your team’s ability to pack and ship orders in a timely manner.
- Are items arriving damaged or broken? If you’ve switched to a different supplier for your shipping supplies or you’ve recently hired new shipping staff, a review of your processes and items is in order.
- Do you have a new sales channel? It could be one with a naturally higher return rate or simply a poor match for your brand.
- Have you switched to B2C from B2B? Selling to customers is very different from selling to other brands, so you will see changes in all your KPIs, including this one.
- Are you getting many returns that mention the item was not as expected? Make sure your website, written copy and sales photos match the actual product and are a good representation of what the buyer can expect.
If specific product lines or products are being returned and you haven’t made any changes, the supplier or manufacturer of those items may have.
It’s time to review the problematic inventory items to be sure there are no quality changes you’re not aware of. Your rate of return may fluctuate throughout the year, and know that some times of year are more return heavy than others.
According to the National Retail Federation, more returns happen in January than any other month – these are directly related to the bustling holiday shopping season just a month before. Seeing a jump in your return rate after a busy selling season is not alarming, but seeing a jump in returns over last year’s rate at the same time could be. Tracking this metric ensures you know where you stand and that you understand “why” your customers are rejecting purchases.
Contact SkuVault today to schedule your personal demo and let us show you how we can help you track your warehouse KPIs.