Key performance indicators, more commonly known as KPIs play a key role in helping an organization define and measure its progress towards the defined goals. Once the mission has been analysed and the goals have been defined, KPIs are put in place for measuring the organization’s progress.
KPIs are measurements that can be quantified and agreed to beforehand. KPIs vary across different organizations and industries, and stay for a long time without changing often. They reflect the goals of the organization and are critical to organization’s success.
Importance of KPIs
“Why do we need KPIs” is an important question that comes to mind when we talk about key performance indicators. Following are some reasons why KPIs are required.
Once the organization’s goals are set, there should be some way to assess the organization’s performance so that its progress towards the defined goals can be measured. This performance cannot be improved unless it can be measured.
Every business requires a score card to keep track of its performance
Benchmarking helps identify your performance compared to your previous performance as well as against your peers.
KPIs in a warehouse
Warehousing is a dynamic business which requires close monitoring. A warehouse generates huge amount of data that can be productively utilized. In today’s world, warehousing is a highly competitive business with demanding customers. Most times, the customers define KPIs as part of service agreement.
Choosing the criteria for defining the KPIs is an important process. Different industries/business models require different measurements. For example, KPIs for 2PL warehouse will be different from that of a 3PL warehouse; Similarly, a FG warehouse’s KPIs will be quite different from that of a RM warehouse. Hence, before defining a KPI, relevant parameters need to be measured for a specific warehouse. It is good to identify the various key processes in a warehouse and attach a KPI to the specific process. KPIs must always align with business requirements.
The Supply Chain Operational Reference (SCOR) model, a product of the Supply Chain Council, provides a framework that links business processes, best practices, metrics and technology features in a unified structure. SCOR identifies over 200 KPIs for the purpose of monitoring the overall performance of the supply chain. These form the top level or the Level 1 performance metrics. It also defines focused metrics to help specific processes improve. These form the level 2 and 3 metrics.
Following are some of the top level performance attributes and the associated metrics. Most of these performance metrics can be applied to measure the performance of a warehouse processes as well.
Top Level Metric
|Supply Chain Reliability||Delivery Performance|
|Perfect Order Fulfilment|
|Supply Chain Responsiveness||Order Fulfilment Lead Times|
|Supply Chain Flexibility||Supply Chain Response Time|
|Supply Chain Costs||Cost of Goods Sold|
|Total Supply Chain Management Costs|
|Warranty/Returns Processing Costs|
|Supply Chain Asset Management Efficiency||Cash-to-Cash Cycle Time|
|Inventory Days of Supply|
Note*: The links provided belong to third party. PALMS does not take any responsibility for the material posted in third party websites.
Following may be some key performance areas to consider for a warehouse and metrics to measure these performance areas.
KPIs to analyse Business Performance
Business performance of an organization is normally measured by the revenues and profits it makes and the various costs it has incurred. As such, some of the KPIs for business performance may be
- Gross Profit = (Revenue – Cost of Goods Sold)
- Net profit = (Gross Profit – Operating Expenses – Taxes and Interest)
- Costs (various costs such as inventory, labour, machinery etc.)
KPIs to analyse Operational Efficiency
The efficiency with which a warehouse operates is decided by how well various factors such as people, machinery, inventory, skill sets and processes are managed. Some of the KPIs for measuring warehouse operational efficiency may be
- Utilization (space, labour, equipment, etc.)
- Wastage (wastage of inventory due to expiry or other reasons, man hours, skills etc.)
- Fulfilment (timely order fulfilment, percentage of order fulfilment, accuracy of order fulfilment etc.)
KPIs to analyse Safety and Health-related Incidents
Health related issues have taken as much priority as business performance in recent times. They are usually assessed in terms of safety measures taken to prevent theft, machinery related accidents, human safety, accidental fire etc. Some KPIs for measuring these issues can be
- Accidents related
- [Lost time (in hours) due to accidents (including fatalities)] / (no. of hours worked)
- (No. of fatalities)/(no. of hours worked)
- Health related
- Health and safety prevention costs within the month
- Percentage of products/services assessed for health and safety impacts
KPIs to measure Eco-friendliness
This is another area that has taken a priority equal to that of business performance and operational efficiency. In most countries, organizations are bound legally and are held responsible for corporate social responsibility. Some KPIs in this area may be
- (CO2 tonnes/employee/month)
- Greenhouse Gas (GHG) emissions/employee/month
- Renewable energy usage
- Percentage of materials used that are recycled input materials
- Total on-site created energy
BI Dashboards to visually track KPIs in real time
PALMS™ Analytics is powered by QlikView, the fastest growing Business Intelligence (BI) product in the world. Clear visibility of KPI through powerful, interactive Business Intelligence & Analytics dashboards is the significance of this version. PALMS™ Analytics phenomenally improves a warehouse’s analytical capability by offering a performance management platform that truly helps you control costs, maximize profitability and boost your business results.
Yogesh, a technology visionary with 12 plus years of experience, has tremendous exposure in planning and executing enterprise level business solutions for varied industry verticals. Yogesh, an engineering graduate started his career in mainframe & midrange systems and has delivered & deployed various high end projects for global customers. He co-founded Technoforte software in the year 2000 and since then is the architect of Technoforte’s technical team.