In the light of ongoing supply chain concerns, port delays, and container constraints, most companies can benefit by viewing supply chain optimization in terms of inventory utilization. That comes with a significant focus on your warehouse as a lifeline for the supply chain. Smooth processes there can help iron out wrinkles elsewhere, while problems can create ripple effects faster than before.
So, modern business risk mitigation prioritizes the ability to fill orders by understanding the inventory and capabilities of each warehouse. Here are five metrics you can use to keep this focus and continually hunt for improvements.
1. Order lead time
Start your warehouse metrics journey with order lead time. Knowing how long it takes your customer to receive an order once placed can tell you a lot about overall supply chain effectiveness. See if you’re meeting promised delivery dates. Ask how much time happens before the pick-and-pack process begins. Determine if you’re waiting on inventory or adjusting allocations sub-optimally that lead to longer lead times.
Lead times impact your customer satisfaction and retention rates. Making people wait too long is an easy way to lose their business. You can also run into issues around customers expecting a two- or three-day turnaround, when you instead offer two-day shipping after a week of order processing time.
And finally, measuring order lead time will help you understand inventory requirements. Reducing lead time will help you utilize inventory faster, potentially reducing storage needs and costs. At the very least, you’ll understand space utilization and identify how much extra inventory you can carry if you’re facing supplier-side uncertainty.
2. Perfect order rate
The perfect order rate metric tells you how many orders are sent out accurately, on time, and not returned because of quality issues. One way to optimize your supply chain is to reduce the number of returns. That kind of inbound traffic takes up space and significant labor while also harming profitability on your sales.
Introducing multiple checks during the pick-and-pack process can improve your perfect order rate. Analyzing packaging and reviewing the reasons for past returns helps verify that you’re shipping in safe, appropriate boxes or containers. Barcode scanning backed by order management software helps pickers and packers stay accurate.
Satisfied customers are also more likely to be repeat customers. Those buyers make your revenue more predictable, helping you forecast correctly, resupply at the proper amounts, and always have enough staff and product on hand to fill orders. Being able to rely on those customers makes overall supply chain optimization easier.
3. Receiving efficiency
Delays can kill your supply chain optimization efforts. Perhaps the most prominent area for warehouse delays is receiving. Some warehouses approach this metric at a rudimentary level: receiving SKU volume divided by total labor hours. That’s a start but not a helpful stopping place.
Instead, you’ll want to set a metric for how quickly teams place shipments in your available inventory. At the same time, receiving efficiency should take inventory accuracy into account. You can improve efficiency in a few ways. First, track inbound shipments and share this information across your teams. Then, staff appropriately based on those containers and give teams both the equipment and physical space needed to offload items and start the putaway process.
A related measure to help you understand this efficiency is the time trucks spend at your dock. Delays at the dock slow down the rest of your operations. In some instances, you’ll face accessorial charges when you’re the cause of the delay — typically an existing backup or labor shortage. Detention charges not only cut into margins, but carriers and partners track them. Having repeat issues can cause them to reduce availability or decline working with you, further harming your supply chain optimization.
4. Inventory accuracy
The many different processes of your supply chain all cost money to start. Placing product orders, refilling packing materials, hiring staff, and so on, each has sustained costs. Inventory drives those costs through two components: what you have and what you need.
Getting inventory counts correct in real-time helps you maximize other spending by giving you an accurate understanding of both the have and need. Having this correct helps you restock in time to fill orders while minimizing storage and labor costs. You keep stock on hand to not lose hungry customers, but you’re also less impacted by spoilage or damage from stock sitting.
Inaccurate counts may mean you accept orders you can’t fill, experience extended delays for backorder items, or restock too much and have goods you can’t move. Storage costs and the likelihood of shrinkage rise. Poor inventory control also means teams may be putting goods in the wrong location so they can’t be used, further eating capital as you replace “lost” items and reduce available shelf space.
Improve your accuracy and the forecasts that rely on this data with regular checks of your stock and databases. Cycle counting, barcode scanning, and spot checks during a SKU’s peak order season can all help you stay correct.
Don’t just make inventory accuracy a metric on a dashboard or scorecard. Create a benchmark and seek out regular improvements. Look for ways to move your accuracy from end-of-day to real-time. Check processes for receiving to see if there are delays. Seeking improvements in this space helps you maintain accuracy and generates a more reliable warehouse and business.
5. Warehouse capacity
Finally, you’ll want to think about the physical space you’re using. Warehouse capacity gives you a helpful snapshot of your space and regularly tracking it can make it easier to plan your inbound shipments.
Look at the average warehouse capacity used to see how much space you need and what is generally available. This may help you mitigate some of the inventory uncertainty many faced in 2020 and now. If you’ve got racks and shelves open regularly and available capital, consider upping safety stock if inbound containers are taking longer than expected. Yes, you’ll tie up more capital in inventory and related storage costs, but you reduce the risk of stockouts and unfillable orders.
Regularly monitoring capacity will also help you plan for your peak season, typically Q4. Very general rules of thumb say average capacity used should be around 90% to 92.5%. That gives you space for the peak to reach roughly 100%. Being too high during off-peak times may indicate it’s time to expand. Being too low could signal a more significant business concern or a need to outsource to a 3PL to avoid unutilized space expenses.
Having the right physical space, based on usage, helps a business protect margins on each SKU. Too much space means unnecessary storage and property costs. Not enough space makes errors more likely during every step of the fulfillment process and increased risks of damage and shrinkage.
For all metrics mentioned, you’ll want to review your current operations with a critical eye. Don’t just track these items. Use them to build better business decisions. They’re each a smart place to start for optimizing your supply chain and the products that make it run.
