3PL and Warehouse KPIs: Improvement through Auditing and Automation

It would be impossible to see your success, if there was no way to measure it.  One of the ways to see if your KPIs are in order and to address the challenges of your logistics right away, is through a WMS audit. This blog post will break down how audits serve as an entry point for many other positive tweaks that you can apply to your 3PL business.

Key Performance Indicators (KPIs) play a pivotal role in warehouse management, serving as essential tools to measure the overall performance of a warehouse operation. These performance metrics provide valuable insights into various aspects of warehouse activities. By tracking KPIs through warehouse management, your company can:

• measure resource utilization;
• identify areas for improvement;
• optimize processes;
• make informed decisions;
• enhance operational productivity.

In the dynamic and competitive landscape of supply chain management, having a comprehensive set of warehousing management KPIs ensures that your facilities remain responsive, agile, and capable of meeting customer demands in a timely and cost-effective manner. Overall, the use of KPIs in warehouse management is indispensable for fostering continuous improvement and ensuring the sustained success of the entire supply chain.

Key Performance Indicators are critical metrics to assess the efficiency of 3PL operations. They increase transparency and foster accountability. Let’s look at the top ten warehouse and 3PL KPIs that help measure the productivity of your third-party logistics.

Does the recorded amount of inventory items match their actual physical presence in the warehousing facility? Inaccurate inventory can lead to over-ordering or under-ordering, resulting in added expenses and customer dissatisfaction. Accurate inventory data also aids in optimizing storage space and reducing carrying costs, enhancing overall cost-efficiency.

With this KPI, the margin of error is pretty tight. The ideal range is 98%-100%, but human errors and lack of oversight can cause certain items to get misplaced. To make your inventory as accurate as possible, run a WMS audit to optimize inventory locations and brainstorm improvements in stock counting procedures.

While inventory accuracy refers to the listed number of items in a given facility, order accuracy branches out into various types of items that can get mixed up, damaged or lost on their way to the client. High order accuracy ensures that customers receive:

• the right product;
• the right quantity of product;
• the right condition of the product;
• sometimes, the correct time of delivery.

This KPI has profound impact on customer satisfaction and operational efficiency.In an era where customer experience is a top priority, exceptional order accuracy is non-negotiableIf this KPI of yours is below 95%, the most likely culprits are incorrect picking & packing, or mislabeling. It’s important to pinpoint areas of frequent errors and refine order verification processes. Enhanced training program for your staff, focused on order fulfillment procedures, is also a good idea.

Customers expect swift and predictable order fulfillment, and if you cannot provide it, they will go to your competitors. Monitoring and optimizing order cycle time enables 3PL providers to meet these expectations. Faster order cycle times lead to shorter cash-to-cash cycles, freeing up capital and reducing carrying costs.

With this KPI, the faster the better. If your order cycle time is too long, check inefficient picking routes, delays in receiving, and processing bottlenecks. Remember to regularly analyze your workflow, optimize picking routes, and suggest improvements in order processing speed.

What percentage of warehouse space are you capable of using? By maximizing this number, providers can lower storage costs, reduce the need for additional facilities, and pass these savings to their clients. It also enables more accurate demand forecasting and inventory management, allows for faster order processing and fulfillment. Insufficient usage of warehouse space may cause:

• confusing routes for your employees (resulting in increased packing time and risk of workplace injury);
• missed opportunities to place robots and machines;
• unfulfilled potential for storage space and a self-inflicted state of constant understocking as a result.

Utilize as much of your warehouse as possible – ideally, 80%-90%. However, poor layout design and inefficient storage solutions may stand in your way. Identify underutilized spaces, recommend optimal storage solutions, and suggest layout redesigns for better space utilization.

Millennials and Gen Z, the latest generations of potential buyers, make for the most environmentally conscious shoppers, and it is likely that Generation Alpha will continue the trend. If E-Commerce companies want to survive this evolution of client behavior, upgrading to a more sustainable workflow is a matter of “when”, not “if”. According to a Descartes Research Report, 50% of consumers are interested in eco-friendly delivery, and 54% would agree to a longer delivery time if it meant their order is more sustainable. However, only 38% of consumers are content with the current state of sustainable delivery practices. The delay in adoption of environmentally conscious warehousing and freight is costing companies money and wasting the potential to build a loyal customer base.

The Rate of Return (RoR) is vital for 3PL due to its critical insights into the efficiency and cost-effectiveness of a provider’s operations. A high RoR indicates:

• customer satisfaction;
• repeat business;
• long-term partnerships.

A low RoR reflects cost savings in terms of reduced product returns, re-stocking, and associated handling expenses. RoR serves as a barometer of a 3PL provider’s performance, helping them to maintain a competitive edge. The ideal range is below 2%. Incorrect shipments, damaged goods, or unpleasant customer service will likely negatively affect your RoR. To offset such effects, investigate root causes of returns, improve packaging and handling, and enhance order accuracy.

This KPI shows the time it takes for incoming goods to go from the receiving dock to being available for stock or distribution. Efficient Dock-to-Stock Cycle Times are crucial for optimizing warehouse operations and ensuring that products are available for order fulfillment promptly. A shorter cycle time means:

• faster access to inventory;
• reduced risk of stockouts;
• timely deliveries:
• minimized storage costs;
• reduced handling;
• streamlined inventory management.

A cycle that takes 24 hours or less is considered optimal. Delays in receiving processes, and inefficient put-away procedures can poke holes in your tightly-run ship. Use the data to analyze receiving workflows, optimize put-away procedures, and improve dock scheduling.

Accuracy is not just a metric; it is a direct reflection of a 3PL provider’s reliability and commitment to customer satisfaction. It also plays a crucial role in maintaining inventory integrity, cost-efficiency, and the overall reputation of the provider. The perfect result is 99-100%, but human errors can add up to order picking inaccuracies. Identify the mis-picks, enhance pick verification, and increase training for pickers.

Employee productivity converts into operational efficiency and defines your overall performance. Productivity of the workforce is a critical factor in meeting customer demands while maintaining cost-effectiveness. Efficient employees can handle a higher volume of orders, reducing cycle times and ensuring on-time deliveries.  Each business has its strategies to measure employee productivity, but the general principle is: the higher, the better. If your workplace morale is low, it might be high time for some teambuilding activities, staff education or bonuses to motivate your people. These solutions will result in increased productivity and ultimately benefit both the 3PL provider and their clients. Assess individual performance, improve training, and optimize workflow.

The condition and uptime of equipment have a big influence on operational effectiveness. This KPI helps 3PL providers monitor the health and performance of their equipment, enabling them to schedule preventive maintenance and repairs proactively, minimizing costly breakdowns and downtime.  It is crucial to keep your equipment downtime rate below 5%, but if that poses a serious challenge, then a WMS audit can help. It will reveal the areas with a lack of maintenance or equipment malfunctions. As a result, one can also suggest preventive maintenance schedules and recommend replacements or upgrades.

This metric measures the cost to process and fulfill each order; labor, transportation, warehousing, and overhead. Monitoring and optimizing the CpO is essential to maintain healthy profit margins while offering competitive pricing to clients. Lowering the CpO not only improves the financial health of the 3PL provider but also enhances their value proposition and market competitiveness. The average cost per order varies from industry to industry, with businesses trying to keep it as low as possible for maximum profitability. Inefficient operations and high overhead costs can stand in the way of minimizing your expenses.

There are many ways to measure the productivity of your logistics and cracking the numbers on your warehouse KPIs is a solid starting off point. If any of these metrics goes awry – your money is on the line. With so many things to measure and tweak for maximum performance, the task of perfecting your logistics may feel overwhelming. One relatively simple way to do so is an operational audit for your WMS.

Innovecs has just updated our selection of logistics services. We are entering a new era with a high focus on supply chain optimization through innovative technology, and you can blaze this trail standing by our side. Learn more about our operational audit services and feel free to reach out to us with any questions.