Key performance indicators for managing warehouse and distribution centre.

The Key Performance Indicators

Key Performance Indicators (KPI) are financial and non-financial metrics used to help an organization define and measure progress toward organizational goals.

In this case we will be focusing on the key performance indicators for managing warehouse and distribution centre. The KPI for managing warehouse and distribution centers will help outline the and define the key success factors.

Key performance indicators:

Inventory Accuracy

Processing check on physical inventory

Inventory Accuracy is having the quantity of an item agree with what is actually on the shelf in the warehouse.

Results of poor inventory accuracy :

Wasted Time: Sales person cannot rely on the figure that is recorded on the system. When he has to personally go down to check the stock himself, it wastes precious time, as it could be otherwise used to make transactions.

Wasted Money: Inventory lost in the warehouse, will in turn create losses for the company. Money has to be spent on acquiring back lost goods again.

Disappointed Customers: If you promise a certain material to a customer according to what the systems shows you. But you are unable to produce the amount in real stock, because the system and your inventory doesn’t tally, you would lose your reputation and be termed as being non-reliable.

Thus, Inventory accuracy is an important KPI. The more accurate the inventory records are, the more effective is the warehouse and distribution centre.

An example of inventory accuracy.

By bar coding and wireless technologies, it allows MDS to achieve greater accuracy and efficiency.

( http://www.tshinc.com/solutions/mdscompanion/mdswireless.html)

Space Utilization

This picture illustrates on how an effective storage system can help utilize space effectively.

Space Utilization is a measure of what and how space is being used. The utilization rate is a function of a frequency rate and an occupancy rate. It is important to optimize utilization. Effective utilization of space will allow the warehouse or distribution centre to function more effectively. The higher the space utilization rate, the more effective is the warehouse. Implementation of the ideal storage systems will enable us to have good space utilization. An example would be a vertical carousel system for small medical items. By implementing the right storage system, we will effectively utilize space. With increasing land costs, it is important to utilize space effectively and make good use of the total building volume. In conclusion, the higher the space utilization rate, the more successful and the more effective is the warehouse and distribution centre.

Here is a video explaining how Vertical Carousel System can help in utilizing space effectively.

Machine and labour utilization

Examples of machines. Left: Forklift and right Delivery Truck.

The higher the utilization rate on machines will mean that the per unit cost will be lesser. Thus resulting in savings for the company. Poor machine and labour utilization rate may be due to factors like high absenteeism, or large amounts of staff turning up late for work. This will result in low machine and labour utilization. Extra sums of money may even be spent to complete operations because of regular staff absenteeism. Staffs which are late might cost a company’s reputation as goods may not be packed and sent on time. Therefore, machine and labour utilization plays an important role is determining an effective warehouse and distribution centre.

Process Cost

Process Cost is the cost incurred for processes. The higher the process cost as compared to other warehouses and distribution centers, the more ineffective is the warehouse. If the process cost of a certain warehouse is higher, it means that the activities of the warehouse and distribution centre is not being managed well. Thus process cost proves to be an important factor to determine an effective warehouse and distribution centre.

Quality and Service

Customer service is no doubt and important factor in any industry. Quality and service will directly affect company if it is not of a proper standard. The reputation of a company will be affected if it does not provide good quality and service. Thus, it is important for a warehouse and distribution centre to not only produce quality, but also service. Hence, the effectiveness of a warehouse and distribution center can be measured by it’s quality and service provided.

Throughput level

Throughput level in this case will measure the productivity of a warehouse and distribution centre. If it has a high throughput level it will mean that the warehouse and distribution center is an effective and productive one.

Usefulness and Constraints

of the KPI

Usefulness

1) The Key Performance Indicators in the case help to give a guideline for warehouses and distributions centres to measure the effectiveness. The more a warehouse or distribution centre meets the guidelines of a KPI. The more effective and productive is the warehouse and distribution centre.

2) The Key Performance Indicators will help motivate staff to reach company goals. This is because it provides clear guidelines as to what will help improve the effectiveness. With this set of guideless, staff will have a goal to work towards to.

Constraints

1) Accuracy of measuring the effectiveness of a Key performance indicator. It may turn out to be inaccurate as it is difficult to measure it perfectly. The key performance measures of certain warehouses and distribution centers may be hard to measure.

2)It is also rather time consuming, as an extra effort has to be taken in order to measure the effectiveness of a warehouse or distribution centre in terms of the KPI. Extra manpower and research has to be done. This would in turn create more costs of the company.

3) It is also difficult to compare the KPIs of companies across different warehouses and distribution centers. This is because different warehouses and distribution centers will have different KPIs that they adhere to. This is so as different companies would aim towards different goals. Thus, it would be unfair to compare different companies will different KPIs.