Key performance indicators (KPIs) help identify and define progress towards defined business goals. Although KPIs vary across businesses and industries, they are vital to the success of an organization.

Why exactly are KPIs so important?

They reflect your business goals and mission, providing ways to measure your company’s performance over time. If you don’t have a standard to measure how you’re doing, you can’t identify areas that need improvement.

KPIs are essentially a performance scorecard, consisting of benchmarks that can gage progress towards your company’s goals, identify areas that need improvement, and compare your performance to that of your competitors

It’s ultimately up to you to tailor KPIs to your unique operations. However, if you need help to get started, refer to the Supply Chain Operational Reference (SCOR) model. The Supply Chain Council put together a list of 200 standard KPIs to monitor overall supply chain performance.

The following are six important KPIs that will help your warehouse operate more efficiently and effectively.

1) Inventory turnover

Inventory turnover is important to your business because it measures the frequency at which you sell out your inventory.

Since your company likely has a significant amount of money tied up in inventory, you need to know what’s being sold and what’s not. It’s essential to know if you’re stocking items that have become obsolete or are simply not selling. Not only are you burdened with the cost of carrying inventory, you’re not making any money, either. In addition, slow-moving inventory takes up valuable shelf space and significantly decreases warehouse efficiency.

Thus you’ll want to track your customers’ buying behaviors and tweak your purchasing habits accordingly, shooting for a higher inventory turnover rate.

2) Cost of carrying inventory

The carrying cost of inventory metric is the cost of storing inventory over a certain timeframe. When you have inventory taking up warehouse space, it comes with an array of costs, such as labor, risk/insurance, storage and freight.

With a firm grasp on this KPI, you can figure out how much profit your current inventory will really bring and limit write-offs and write-downs. It’s also a smart idea to find ways to control carrying costs.

3) Receiving efficiency

Another KPI that can make or break your warehouse is the efficiency of your receiving area; don’t ignore it for other seemingly more important areas of the warehouse.

From the space your workers need to the rate at which inventory is counted, deficiencies in receiving can cause a negative domino effect in your organization.

4) Put-away

The put-away KPI is not always the easiest to measure, but it’s not impossible. Factors to consider are:

  • Accuracy rate
  • Cost per item put away
  • Time it takes from receiving to pick location
  • Man hours

5) Inventory accuracy

The best way to measure inventory accuracy is to compare how many items are in stock to what’s actually recorded in your database. Doing this on a regular basis ensures that bookkeeping practices are in order.

If inventory tracking is off, you’ll experience unnecessarily high costs, inventory inaccuracies and a drop in customer satisfaction levels.

Paul Huffaker of Racesource, a custom manufacturer of vehicle components for the racing industry, knew the woes of inaccurate inventory counts all too well.

“Maintaining an accurate inventory count on Excel was time consuming and error ridden,” he said. “Often I would reorder or manufacture parts I already had simply because I didn’t know I had them, which was an unnecessary cost.

After doing some research, Huffaker chose a solution that used barcodes to track his inventory. The technology easily integrated with his company’s current system, and within its first day of use, the company experienced positive results such as more effective inventory tracking and improved ordering habits.

If you find inaccuracies tend to be the norm in your inventory counts, integrating a barcode inventory management system can solve those problems for your business, too.

6) Order picking/packing

In your operations, you may find that order picking is the most expensive and difficult process. It is often the most labor intensive and tends to be more complex than other processes. However, the picking/packing KPIs are significant since customer satisfaction depends on it.

Five important KPIs for order picking include the following:

  • Cost per line item picked
  • How may orders picked per hour
  • Costs of picking labor
  • Use of packaging and other consumables
  • Order cycle times

Since shipping’s main focus is customer service, measure for accuracy and speed. Another excellent metric is percentage of perfect pick lines.

As a small business owner, you walk a fine line between success and failure during your first five years in business. Needless to say, understanding the real cost of your inventory is crucial to survive in today’s marketplace.

It’s an absolute necessity to know the KPIs important to your unique business. They’re directly related to the efficiency of your supply chain and the quality and demand of the inventory you carry; they also let you know if your buying habits are on trend.

When each of these is at the optimal level for your business, customers will keep coming back.