An introduction to WMS metrics
"In God we trust, all others bring data."
- W. Edwards Deming
In conference rooms, describing our WMS objectives, we use imprecise business words. We want “better” performance from distribution. We expect that our new software would “improve” operations. We hope to see success go to the “bottom-line”. But on the day after go-live, how do we know unequivocally that the world is improving?
Good businesses have reliable metrics on the items that drive their success. Average businesses measure things that are easy to measure. The first step in selecting the right WMS metrics, then, is to understand deeply what role distribution plays in your organization.
Is distribution’s most critical contribution to ensure that every customer has a problem-free buying experience? In that case, you will want to concentrate on external, customer-facing measurements:
- Perfect order – what % of orders shipped on time, full quantity, with correct documentation?
- % shipped complete
- % fill rate – what % of orders were completed within the market’s expectation?
- Customer retention – what % of customers are ordering for more than the first time?
- Order cycle time – ship date (time) minus order date (time)
In your organization, is distribution viewed as a necessary, but not strategic part of the business? If so, cost control and cost reduction are probably your success drivers. You might want to measure the following metrics using your WMS:
- Productivity – output per man-hour
- $/unit shipped – this is a powerful metric if you ship mostly the same sort of units (pallets. barrels, boxes, etc.) If you have multiple units, then product mix changes can render this measure useless.
- Warehouse cost/revenue dollar – helpful for cyclical businesses as well as benchmarking against other companies
- Capacity utilization – what % of available resources are being utilized?
Is the value of your inventory so disproportionate to the cost of running the warehouse that inventory control determines your success? You may need to track
- Inventory accuracy – database count/physical count
- Inventory turns – annual cost of goods sold/inventory value
- Inventory obsolescence – how much inventory is at financial risk of never being sold?
Hopefully, you are picking up some common denominators about these measurements. First, they must be quantitative. Any two people measuring the same attribute must be able to arrive at the same answer.
Align your metrics with your strategy
Second, WMS metrics need to be aligned with the strategic mission of distribution. This doesn’t mean the mission can’t be a hybrid of the above categories (“highest possible customer satisfaction at the lowest possible cost”). But if the cost of operating your warehouse annually is a million dollars, and the annual cost of inventory losses is five million dollars, productivity is probably not your most important measure.
Lastly, the WMS metrics you use need to be “actionable”. If part of your distribution responsibilities is to calculate replenishment and avoid stock outs, then fill rate % and Inventory turns are relevant. If you just receive what is sent, and ship what is ordered, then you may want to focus more on internal metrics.
If you don’t measure it, you’ll never know if you’re getting better.
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