45% of the technology that companies are investing in, relates to a warehouse systems. This is to reduce storage inefficiencies that have previously led to high costs due to waste, including:
- Motion Waste — Not knowing where an item is stored, leading to unnecessary movement of employees and machines to locate it.
- Waiting Waste — The time lost when store and business activities are at a standstill due to warehouse inefficiencies.
- Defects — Storing raw material carelessly resulting in defects that affect the quality of the final products. Finished goods can also be contaminated if kept wrongly.
- Overproduction — Not knowing the quantities stored, which lead to the loss of customers or purchasing the products from competitors.
This is why firms have opted to invest in technology that can help them save their limited resources by reducing such wastes. For this to be efficiently done, store managers have to set their warehouse management systems (WMS) in the most optimal way possible.
Here are some metrics you should consider for an efficient storage strategy.
1. Lead Time
This is the duration taken between receiving an order and delivering it as per the customer's request. It includes the time used for activities such as picking, packing, and shipping (shipping is, however, not usually under the control of the store manager, so it is not a considered metric).
An efficient warehouse should have a very low lead time, depending on the products ordered. Managers can reduce their lead time by;
- Hiring competent staff
- Designing the warehouse efficiently.
- Having reliable demand forecasts from the sales team
- Streamlining the picking and packing processes.
2. Inventory Turnover Rate
How much time does it take for you to run out of all the products from a specific order? This metric helps you divide slow-moving and fast-moving goods, helping you arrange the warehouse more efficiently. Stock with the fastest turnover rates should be placed closest to the door so that the warehouse team can get to these products faster, reducing motion and waiting wastes.
The metric also helps improve the efficiency of the warehouse, especially when the space is limited. High turnover often means increased revenue from the product, so storing slow-moving inventory takes valuable shelf room from the more profitable alternatives.
3. Stock Shrinkage Rate
Shrinkage Rate is the inventory lost within the warehouse because of theft, damage, or miscounting. According to the National Retail Security Survey, the average shrinkage rate was about 1.38% across retail warehouses around the country in 2019.
If the rate is too high, you need to put additional stock security measures to prevent employee theft. You could also decide to stop storing a particular type of inventory if they are frequently damaged because the store doesn't have an acceptable way to store or transport the product.
4. Carrying Cost of Inventory
This is the total cost of storing the inventory. It is an accumulation of all the costs that can be traced to the product from the time it gets to the warehouse to the time it is shipped out. These costs include;
- Receiving costs
- Storage cost; including all indirect costs the warehouse incurs
- Packing costs
- Any opportunity costs suffered for storing the inventory.
The carrying cost of an item reduces the product's margins, so inventory managers should reduce it to the bare minimum in order to make profits. This can be done by making the warehouse activities and processes more efficient and eliminating any wastes.
Important Metrics You Should Consider When Implementing a Warehouse Management System
An efficient store is an important part of running a successful business today, which is why most firms are adopting warehouse management systems. Implementing this automation requires using the above key metrics to create processes and actionable statistics from which you can judge the technology's success.