Why Your Order Fulfillment Operation Needs to Be Measuring KPIs
How do you know if your business is improving the way that it ought to be? Some might say, “When revenue goes up.” Others, “When orders increase.” Others still, “When margins improve.”
All of these are valid points, which allow someone to frame the performance of their operation. Where they fall short, though, is in their scope. They are focused on a particular number—revenue, or orders, etc.—which is used to determine success or failure. But this is a shallow analysis, and one that doesn’t offer much in terms of guidance.
Free Guide: Top Order Fulfillment KPI Indicators
What, for example, should be done if revenue is down? If you rely on that one number, you won’t have an obvious answer other than, “Sell more!”
That’s why it is important, regardless of the specifics of your business of operation or industry, that you are measuring certain key performance indicators (KPIs). In addition to helping you track your performance over time, they offer some guidance beyond “sell more.”
How KPIs Offer Guidance for Your Operation
A good way to effectively measure how your operation is functioning is by using key performance indicators (KPIs). These are the numbers that your business performance should be measured against so that you have a clear sense of what your baseline performance is, and whether or not you are improving according to goals.
These measurements can also act as an early alert to flagging performance, calling attention to areas of concern before they become larger problems.
And when issues do arise, the numbers offer some guidance towards a solution. Whereas “Revenue is down” might translate into a vague solution of “Sell more,” a more targeted metric will lead to a more targeted solution. “Orders picked per hour have lagged” turns into a discussion about adding labor or efficiency-boosting technologies, etc.
It has been said that numbers don’t lie. While you can spin words different ways to mean different things, numbers reflect a cold, hard truth. Either your operation is meeting its goals or it isn’t.
Below are some areas in your order fulfillment or materials handling operation that you should be regularly tracking. If you aren’t already doing so, then it is crucial that you begin. By doing to, you will develop a baseline against which you can measure the operation moving forward.
Important KPIs for Order Fulfillment:
- Order accuracy rates
- Orders picked per hour
- Lines picked per order
- Inventory accuracy
- Average order fulfillment time
- Non-value-added activities
- Cost per order
- Cost per unit shipped
- Cartons replenished per hour
- Inventory turn rates
- Storage utilization
- Equipment downtime
- Scanner read rates
- Picking error rates
- Damage rates
- Shipping error rates
You Can’t Improve What You Don’t Measure
If the goal is to improve and win, then one must track the necessary indicators that reflect performance and change. A serious runner records and tracks her distances and times. A quarterback tracks his completions, yards, and touchdowns.
Can you imagine Tiger Woods playing in a tournament, but not keeping score? Or trying to follow baseball without any statistics?
The point in this all is, of course, that you can’t improve what you don’t measure.
While this point seems to be obvious to us in regards to the sports and hobbies we play and watch, many times we surrender to working day to day at our business without tracking and measuring important indicators of how effective, productive—and ultimately how successful—we are being.
When you track something, you get a clear and unbiased picture of reality. Then, and only then, can you:
- Properly set goals
- Understand how long they should take to achieve (a measurable time frame)
- Know what needs to occur to make this change happen.
Without measuring each of these areas, you are leaving your business, and livelihood, up to words like “hope,” “try,” and “I’m not sure what happened.”
The Bottom Line
Once you have a handle on these and other KPIs specific to your business or industry, you can then move confidently toward improving these areas with potentially immediate changes, as well as plan toward larger scale modifications, improvements, and enhancements where you clearly measure and receive increased ROI.
- Romaine has spent over 30 years involved with organizations looking to optimize their distribution, manufacturing, and warehousing operations. Focusing on the customer’s processes, automation and business model, Romaine has helped dozens of organizations improve profitability by reducing labor, floor space, errors and inventory while improving accuracy, inventory turns and cut-off times.
Within the industry trade association, MHI, Romaine has taken numerous leadership positions including: Chairman of the Automated Storage & Retrieval (AS/RS) Group, Chairman of the Order Fulfillment Council of America, Chairman of the Warehouse Execution Systems Group and was one of the originators of the Carousel and VLM Product Section Group. He has also spearheaded the efforts to create the first ANSI industry safety standards for horizontal carousels.
Romaine is a frequent editorial and information contributor to hundreds of publications, blogs and online publications and has been a speaker at dozens of Supply Chain, Logistics, Lean and Facility organizations and functions. Just a few include the Parcel Forum, Institute of Industrial Engineers (IIE), Promat, North American Material Handling, Modex, National Mfg Week, Southern California Plant Operations, NJ Material Handling Assoc., Applied Ergonomics, Warehousing Education & Research Council (WERC), Lean Manufacturing Conference, Council of Supply Chain Management Professionals (CSCMP), NeoCon, Health Information Distribution Association (HIDA), National Catalog & Operations (NCOF), CSCMP and more.
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