Efficient warehouse management is key in ensuring seamless order fulfilment—as it affects how quickly and efficiently you can fulfil customer orders. It includes storing, tracking, and processing inventory in the warehouse or a fulfilment centre.

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The question here is—how can you tell if a warehouse is operating efficiently?

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To assess your warehouse's performance, you need a set of quantifiable metrics—Key Performance Indicators (KPIs). These KPIs can help online businesses evaluate performance, set benchmarks, and take corrective measures to steer their business in the right direction.

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In this blog, you will learn why measuring Warehouse KPIs is important and what the top 10 warehouse KPIs ecommerce businesses should track.

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Why measuring warehouse KPIs is important?

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Warehouse KPIs can help ecommerce businesses to analyse the efficiency of an ecommerce warehouse. They can also simplify the monitoring of crucial warehouse operations. These KPIs also help to identify possible issues, manage risks, and find ways to improve fulfilment operations.

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Here are some of the reasons why you should track warehouse KPIs:

• Monitoring warehouse KPIs improves warehouse productivity.
• Addressing the parts of your warehouse operations that require improvement can reduce expenses.
• Running an ecommerce warehouse smoothly and efficiently can help you ensure seamless and timely order fulfilment.
• Ensuring accuracy in warehouse operations can help you delight customers.
• Analysing the current returns trend can help speed up the returns management process.

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Top 10 warehouse KPIs ecommerce businesses must track

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1. Inventory Turnover

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Inventory turnover is a KPI used to measure the number of times inventory is sold completely in a given time period. It helps you understand how well you are turning your inventory into sales. Inventory turnover is calculated by the following formula:

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Ecommerce businesses should measure their inventory turnover to:

• Determine in how much time inventory is sold over a period
• Analyse blockage of working capital (inventory)
• Predict and manage accurate inventory levels
• Prevent high maintenance and carrying costs
• Evaluate the risk of inventory becoming obsolete or expired
• Implement an effective sales plan

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2. Order accuracy rate

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The order accuracy rate is a KPI used to determine how many orders are shipped to the customers with no errors. These errors include mispick of an item, wrong item quantity, a damaged or malfunctioning item, and more. Order accuracy rate is calculated by the following formula:

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Ecommerce businesses can track their order accuracy rate to:

• Identify error-prone processes
• Take corrective actions and improve order accuracy
• Enhance customer experience and customer retention

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3. Inventory ageing

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Inventory ageing (also known as the average age of inventory and inventory days on hand) is a KPI that enables you to determine how long SKUs (Stock Keeping Units) remain in your warehouse before a sale. In simpler terms, it tells us how many days it takes a brand to sell its stock. Inventory ageing is calculated by the following formula:

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Ecommerce businesses can track their inventory ageing to:

• Understand how fast inventory is selling
• Identify slow-selling products
• Analyse the risk of inventory becoming obsolete
• Formulate an effective sales plan

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4. Order Picking Accuracy (OPA)

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Order Picking Accuracy (OPA) is a KPI that is defined as the total number of orders picked and verified to be accurate before shipment divided by the total number of orders picked over the same period of time. Order picking accuracy is calculated by the following formula and denoted as a percentage:

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Ecommerce businesses can track their order picking accuracy to:

• Measure the effectiveness of picking
• Identify error-prone processes
• Take corrective actions to increase accuracy
• Improve customer experience and build loyalty

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5. Inventory Shrinkage

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Inventory shrinkage is a KPI that signifies when actual inventory levels are less than the inventory levels recorded in the books of accounts. The shrinkage occurs because of unforeseen or unexpected circumstances like manual errors, fraud, robbery, shoplifting, damage, and more. Inventory shrinkage is calculated by the following formula:

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Ecommerce businesses can track their inventory shrinkage to:

• Measure the variance in actual and recorded inventory
• Figure out the reason for shrinkage
• Prevent the loss of inventory and overselling

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6. Inventory carrying cost

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Inventory carrying cost is a KPI that refers to all the expenses a business incurs to stock and hold inventory over a period. It includes expenses incurred from storing, transporting, and handling inventory and labour costs incurred in those processes. It is represented as a percentage. Inventory carrying cost is calculated by the following formula:

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Ecommerce businesses can track their inventory carrying cost to:

• Analyse the total cost incurred to store inventory
• Identify reasons for high carrying cost
• Take corrective measures to reduce carrying cost

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7. Out-of-stock rate

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Out of stock rate (OOS) is a KPI that is used to measure the products that are out of stock when the customer places an order. Out of stock rate is calculated by the following formula:

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Ecommerce businesses can track their out of stock rate to:

• Identify how many times OSS results in a loss of sale
• Ensure timely inventory replenishment
• Drive and increase ecommerce sales

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8. Late dispatch rate

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Late dispatch rate is a KPI that refers to the orders that are dispatched late, i.e. after a predetermined time. This causes delay in shipping and order delivery. Late dispatch rate is calculated by the following formula:

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Ecommerce businesses can track their late dispatch rate to:

• Ensure orders are picked, packed and shipped on time
• Adhere to the SLAs (service level agreements) of marketplaces
• Avoid penalties and breaches
• Deliver orders on time and increase customer satisfaction

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9. Rate of Backorders

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The backorder rate is a KPI that measures how many orders are unable to be fulfiled at the time a customer places them and must ship them later. This KPI is closely related to inventory shrinkage and out of stock rate. The backorder rate can be calculated by the following formula:

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Ecommerce businesses can track their backorder rate to:

• Identify inefficiencies in inventory management
• Ensure timely inventory replenishment
• Deliver orders on time to customers
• Increase customer satisfaction

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10. Return rate

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Return rate is a KPI that refers to the frequency at which customers return their online orders. The ecommerce return rate is an important metric as it highly impacts customer satisfaction and revenue. The return rate is calculated by the following formula:

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Ecommerce businesses can track their return rate to:

• Measure customer satisfaction
• Identify the reasons that drive returns
• Determine order accuracy
• Take corrective measures to minimise ecommerce returns

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Bottom line

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KPIs serve as a guidepost to help you measure your warehouse operations and strive towards achieving your strategic goals. They give you a realistic look at the long-term health of your business, from risk factors to financial visibility. By tracking your KPIs, you can understand where your warehouse management is lacking so that you can streamline your processes for better efficiency and ensure that your business grows for years to come.