It’s hard for any single company to do everything superlatively well. At some point, most businesses face the decision of whether to keep all operations in-house, or to outsource some functions such as warehousing and fulfillment to specialist partners in order to focus on their own core competencies.
If you’ve opted to outsource your warehousing to a third-party logistics (3PL) provider, it’s important to monitor your KPIs just as you would if you’d kept those functions under your own roof. A major benefit of outsourcing is to benefit from a specialist’s efficiencies, and you’ll need to verify that this is what you are, indeed, receiving.
Warehouse Management System Metrics
The supply chain industry has evolved a number of well-defined metrics over the past several decades, so maintaining watchful oversight of your partner’s operations doesn’t require you to start from zero and create your own criteria.
The Warehousing Education and Research Council (WERC), an industry organization centered around best practices, provides a useful list of those metrics on its website. The list contains several dozen measurements, divided into eight categories. In practice, the Council’s own 2019 industry survey shows that twelve of these measurements are especially important. Conveniently, it also provides benchmarks for “best in class” operations, those that fall within the highest twentieth percentile. The twelve designated measurements are:
Order picking accuracy: Prevents errors prior to shipment. Best in class operators average 99.89 percent or better.
Average warehouse capacity used: Calculated over a window of time that’s meaningful to your operation, typically a month or a year. Top operators average 92.54 percent of available capacity.
Peak warehouse capacity used: Capacity usage during user-defined peak seasons should reach 100 percent.
On-time shipments: The percentage of your orders that leave the dock within the planned time frame. If your warehouse is best in class, that should be 99.7 percent or better.
Inventory count accuracy by location: Accuracy of your physical inventory, as compared to “book” inventory reported by enterprise systems such as WMS. This should be 99.89 percent or higher.
Percentage of supplier orders received damage free: Damage-free orders expressed as a percentage of your total orders received. The target is 99.5 percent or better.
Order fill rate: The percentage of customer orders fulfilled from available stock. For best in class operators, it should be 99.75 percent or better.
Percent of supplier orders received with correct documentation: Orders with complete, correct documentation as a percentage of total orders. This should be 99.2 percent or better.
“Dock to stock” cycle time: Time from the arrival of goods at your dock to the moment they’re correctly put away and entered into your inventory management system. The target is two hours or less.
On time ready to ship: Percentage of orders on the dock; packaged, correctly documented and ready for pickup, within the planned time frame. This should be 99.8 percent or better.
Part-time workforce to total workforce: The percentage of part-time and casual employees required to meet operational targets, continually or during peak seasons. This should be zero, in best in class warehouses.
Cross-trained percentage: The number of employees trained for more than one job or function, expressed as a percentage of total employees. The goal is over 90 percent.
Utilizing the Metrics
Whichever group of performance indicators you choose to work from – there are similar lists available from industry players and training institutions, among others – your next step is to determine how, and how often, you’ll assess your warehouse management partner’s performance. For example, you might choose to ongoingly monitor a short list of key metrics like the one above, then conduct periodic reviews that take a deeper dive into your partner’s operations.
Ideally, this will require little effort on your part. Superior warehouse management software should make the necessary analytical data available to you in (or near) real time, either in raw form or with performance indicators already calculated.
Considering Your Path Forward
In business as in personal life, relationships don’t necessarily last forever. If your current warehousing partner isn’t able to provide you with key performance indicators in a timely fashion, or if they fall short of best-in-class performance on your chosen metrics, it may be time to ask whether you’ve outgrown your partner’s capabilities.
If the numbers point toward a new partner, consider Taylored Fulfillment Services. With its state of the art warehouse management software and nationwide distribution network, Taylored provides best-in-class services to businesses of all sizes, from independents working out of a home office to massive enterprises including Costco, Amazon and Walmart. Contact us for a consultation and learn how we can improve your operational efficiencies.