warehouse kpi

An Illustrated Guide to Balanced Scorecard for Warehouse KPIs

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The 4 Key Areas in Warehouse Management which houses Warehouse KPIs

With quite a number of Warehouse Key Performance Indicators (KPIs) to choose from, prioritizing those that matter most can be a challenge. You are a warehouse business owner and would like to set up a performance management system. Or it could be that you are a Warehouse Manager looking at revising and improving this year’s goals and measures but not sure where to start.

A Balanced Scorecard of Warehouse KPIs can guide and help you choose the most significant ones for your business.

What is a Balanced Scorecard for Warehouse KPIs and Inventory KPIs?

Described simply, a Balanced Scorecard is a management goal-setting strategy covering key areas in your entire Management System. It helps identify goals, KPIs, measurements, and targets across 4 important areas in your warehouse operation or business.

Generally, the 4 Key Management Areas are:

  • Financial – This area points to cost-related goals (sales, direct costs) that impact the bottom line or revenue. This can include overhead costs, inventory costs, sales, delivery costs, and cost of returns.
  • Customer – What KPIs are considered important by customers?

These are goals that are perceived vital by end-users and can result in satisfaction or dissatisfaction of clients. Others label this key area as “Quality”, though it can include indicators like Response Time under it.

  • Business Process (Internal Process) – Where should we excel in our internal operations?

This includes goals that improve operational efficiency. Commonly, it cites measures such as throughput, quality, internal costs, cycle time, etc. This is also referred to as “Internal Process”.

  • Personnel Growth – How do we improve, innovate, and create value?

This perspective addresses manpower skills training and motivation. Efforts to innovate and improve products and services can also be classified under this perspective. The important thing is that personnel growth and motivation are recognized as invaluable assets to creating better value in any business operation.

Having goals and measures across key areas in your warehouse business helps ensure all bases are covered. For example, Financial goals are important but also are Personnel Growth goals, especially for a process or operation that is dependent on human skills for the success of an activity.

With the Balanced Scorecard approach, you are sure to consider all vital intangible assets (value-creating assets) and incorporate these into your management system.

Illustrated Balanced Scorecard of Warehouse KPIs

Below is an illustration of how Balanced Scorecard can guide the process of setting goals and warehouse KPIs/ inventory KPIs, give or take a few. These KPI’s are designed for the entire business operation. Sub-departments may come up with their own specific KPI’s in support of these main KPI’s.

Also, you may add more targeted warehouse KPIs and inventory KPIs to replace macro ones, but the idea is to keep the number of KPIs to an ideal range of 10-12 for every scorecard. A higher number can mean a waste of resources tracking and measuring too many KPIs; a fewer number poses a risk of some important indicators not captured.

Handy Guide to Balanced Scorecard of Warehouse KPIs:

Perspective Management Goal Warehouse KPI Measurement Remarks
Financial F1. Improve Return on Investment (ROI) ROI

(earnings for every dollar of inventory)

Gross Margin/ Inventory Cost Shows return on profit on the capital invested on stocks
  F2: Reduce inventory carrying costs Inventory Carrying Cost, % Overhead Cost/

Total Value of Inventory

x 100

Overhead costs include cost of expired or damaged goods.
  F3: Reduce Inventory Variance Cost Shrinkage

 

 

 

Or Shrinkage as % to Sales Value

Value of Inventory on Records - Value of Physical Inventory

 

Or Shrinkage/ Sales

x 100

A negative variance can indicate missing items or transaction errors
  F4: Reduce Delivery Cost Delivery Cost, % Distribution Cost/

Sales Revenue

x 100

A lower ratio is favorable
  F5: Reduce Cost of Returns Cost of Returns, USD

 

Or Returns Rate, %

Cost of goods returned plus cost of handling return goods

Or Units Returned/ Units Sold x 100

This is often associated with Delivery Accuracy.
Customer C1: Achieve on-time delivery On-time Delivery, % On-time Delivery/

 Total Delivery x 100

Usually aimed at 100%.
  C2: Fulfill purchase orders (PO’s) Fulfilled POs, % Closed POs/

Total Pos x 100

  C3: Reduce delivery lead time to customer Delivery Lead Time, hrs (days) Duration elapsed from the time order was placed. Differs from On-time delivery. This KPI measures responsiveness – speed to serve.
  C4: Improve Delivery Accuracy Delivery Accuracy, % # of orders delivered without errors/

 Total orders delivered

X 100

This KPI balances Delivery Lead Time – fast service with quality.
Business Process B1: Improve Inventory Turn-over Inventory Turnover Cost of goods sold/ Cost of inventory Indicates how fast an inventory or SKU is sold and replaced
  B2: Improve Delivery Process Loading Time, hrs Loading Time Average
  B3: Improve Storage Process Efficiency % SKU Hit Total SKU Hit/

Total SKU System

X 100

Higher % preferred. Gives overview of inventory demand so that you can put right stock at the right time.
  B4: Increase Productivity Throughput rate, unit/hr Throughput/ Workhours Can include:

-Order lines picked per man-hour

-Orders prepared for shipment per man-hour

-Put-aways per man-hour

  B5: Increase Warehouse Utilization % utilization Space Occupied/

Total Space Available

x 100

Can include:

-Utilization of shipping docks

-Locations and cube occupied

-Utilization of Equipment Dock

Personnel (Growth) P1: Improve personnel skills Attendance to trainings, % Actual # of persons attended/

Planned # of target persons to be trained

x 100

 

Indicates how many of targeted individuals actually attended training.
  P2: Reduce employee turn-over Turn-over rate No of employees leaving/ Total employees

X100

This is an important measure as it translates to how much knowledge is flowing out and compensated by additional training costs
  P3: Improve employee participation Improvement suggestions, count per person Number of total suggestions/

Total # of employees

Measures degree of commitment of employees to improving processes

Want to download a pdf version of the Illustrated Guide to Balanced Scorecard for Warehouse KPIs?

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