This is the second of three articles around measuring the health and performance of your fulfillment operations.
As we discussed in our first article, measuring and tracking your key performance indicators (KPIs) will allow you to judge the health of the firm's operations, identify trends, and identify opportunities for improvement. This article identifies metrics used for the inbound and outbound movements from your fulfillment center and your inventory integrity.
Inbound Metrics
This category of crucial performance indicators refers to any metric related to the product coming into the warehouse. These metrics are often overlooked, unmeasured, or neglected. Still, because your operation is dependent on the inventory it has on hand, it should be viewed as having the same urgency and importance as all other KPIs.
Receiving efficiency: Receiving efficiency is a metric used to evaluate warehouse workplace productivity when receiving stock. Volume / (Number of Man Hours) = Receiving Efficiency
Cost per line: In receiving, the cost per line KPI is used to measure the cost to receive a line item on a purchase order. The higher the cost per line, the less efficient a warehouse's receiving process. (Total Cost of Receiving) / (Total Line Items) = Cost per Line
Receiving Cycle Time: The receiving cycle time reflects the total amount of time it takes to process a delivery. (Total Time for Delivery) / (Number of Deliveries) = Receiving Cycle Time
Outbound Metrics
Outbound metrics relate to the status of orders as they leave your facility. While customer metrics are related to metrics that specifically impact your customer, outbound metrics focus on measuring your processes' efficiency. By understanding these metrics, it may be possible to improve your labor processes, become more efficient, and ultimately boost your bottom line.
Order Cycle Time: The average length of time it takes from when a customer places an order until they receive it. (Time the order was received by customer – Time the order was placed) ÷ Total number of orders shipped
Perfect Order Percentage: This KPI is the percentage of orders that move through the fulfillment process with no errors or deviations. It includes taking charge correctly, allocating inventory immediately, delivering undamaged products on time with an accurate invoice. (Percent of orders on time) X (Percent of orders shipped complete) X (Percent of orders shipped no damage) X (Percent of orders with correct documentation.)
Orders Picked Per Hour: This number measures order fulfillment and shipping productivity in lines per hour per person. (Number of orders Picked and Shipped)/(Numbers of hours by Fulfillment Staff) = Orders Picked Per Hour
Order Fill Rate: Partially filling an eCommerce order is one of the quickest ways to lose an online sale. Order fill rate refers to the percentage of immediately — and completely — fulfilled orders by available stock. (Number of Orders Shipped in Full) / (Number of Orders Placed ) × 100 = Order Fill Rate (%)
Inventory Control
Inventory control relates directly to the quality of your inventory. Only with an accurate picture of available inventory can you be expected to communicate accurate timelines to your consumers.
Inventory accuracy: The accuracy of your physical inventory should correspond with that listed in your data, but, realistically, there is often a disparity between the two in any large distribution center. A high inventory inaccuracy rate can result in unexpected back orders, dissatisfied customers, and, ultimately, higher overall costs. (Database Inventory Count) / (Physical Inventory Count) = Inventory Accuracy
Inventory Shrinkage: Inventory shrinkage is a KPI used to monitor inventory loss due to theft, damage, clerical error, lost items, obsolescence, or supplier fraud. Shrinkage is calculated by comparing recorded inventory against actual physical inventory to pinpoint any discrepancies. (Cost of Recorded Inventory – Cost of Physical Inventory) / (Cost of Recorded Inventory) = Inventory Shrinkage
In our next article, we will discuss KPIs associated with the financial health of your operation.
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