Benchmarking Your Warehouse Performance

A warehouse can measure its efficiency by picking and following certain relevant metrics. But data points mean little unless they are compared to something. Benchmarking is the practice of setting expectations and goals for each metric and key performance indicator, then gauging progress and success based on how close the warehouse comes to the target. 

Think of benchmarking as creating a point of reference for competition. A warehouse might compete against its past performance in regards to a certain metric, against other similar companies, or against their industry as a whole. Studying benchmarks allows a manager to see clearly how their warehouse is measuring up to—or not quite meeting—its goals. This knowledge then gives them a basis for making strategic decisions. 

Key takeaways:

1. Metrics and KPIs are more meaningful when combined with benchmarking.
2. Benchmarks provide a point of reference for competing with other companies or one’s own past performance.
3. Benchmarking works best when it is planned out with the company's goals in mind, uses real-time data, and is revisited and revised when necessary.

Quantitative vs. Qualitative Benchmarks

Benchmarking that involves metrics and KPIs, in other words, measurable data, is quantitative. Progress is indicated when a certain number or ratio is achieved. For example, a decrease from the previous month’s number of returns due to mis-picks can be considered a success. Not reaching the benchmarked target for the number of orders filled per day, however, needs looking into. 

Qualitative benchmarks are based on best practices or techniques. They are measurable, but not in the same way as pure data can be. Examples might be information tied to a customer satisfaction survey, or working toward a goal to fully automate a process.

Both quantitative and qualitative benchmarking are useful, and almost all businesses will use a combination of both. The important thing is that the metrics the warehouse is measuring are relevant to the goals it hopes to reach.

What You Can Learn From Benchmarking

Benchmarking, in simple terms, provides tangible evidence of how well the warehouse is operating by setting standards and goals. These standards measure things like speed, accuracy, cost, safety, errors, damage, or customer satisfaction.

Benchmarking is all about goals and improvement. By understanding where they are and comparing it to where they could be, warehouses can gain a strategic, operational, and financial advantage. The goal might be to beat the competition, or their own past performance. Either way, benchmarking provides a measurable way to continually improve, find and fix problems, and justify business decisions such as adding staff or investing in new equipment.

Let’s say a warehouse has 10 pickers and measures their efficiency with the KPI orders picked per hour. The manager’s research indicates they should be able to pick 100 orders each hour, or 10 orders per employee. 

If, on a regular basis, only 90 orders are picked, a number of different things could be going on:

• There could be a disorganized warehouse setup
• Pickpaths or picking methods might not be efficient
• Workers could need additional training
• Certain parts of the process might benefit from automation
• Items might be out-of-stock
• The benchmark of 10 orders per employee might be unrealistic

In this case, the value of setting and monitoring a benchmark is in pointing out that a problem exists somewhere in the process. The manager can then dig deeper to find exactly where there is a deficit and find a solution. The data making up the benchmark can be the basis of strategic decisions such as reconfiguring the warehouse layout, launching new inventory management procedures, or investing in new equipment.

On the other hand, if the 100 order benchmark is reached easily on a consistent basis, the manager can adjust it upward and set a new goal for the team. If management is fine keeping the benchmark where it is, they could instead reassign one of the pickers to another role.

Choosing Which Metrics and KPIs to Benchmark

Metrics by themselves are bits of data. Combine them and you get key performance indicators. Either one can be benchmarked, as long as the data gathered, and what it compares, teaches something relevant to the warehouse. 

Let’s look at an example. Imagine someone practicing their basketball skills. There are several different ways to measure how good they are at making baskets. 

Perhaps they set a goal of 10 baskets each day. This is a simple example of benchmarking a metric. But creating a KPI is more meaningful. In this example, that might be making a certain percentage of shots. Making those 10 shots out of 20 instead of out of 100 changes the person’s perception of success.

A comparable situation in a warehouse would be setting a benchmark for the percentage of orders returned. This can be an internal benchmark, simply comparing performance over time. The warehouse is competing with itself, looking for improvement in any time frame it chooses—daily, weekly, monthly, quarterly, or annually. 

Our basketball player might decide to set a benchmark for each type of shot: Free throws, layups, and jump shots. In terms of the warehouse, this could translate into the different reasons why products are returned. Or, they could track and compare data points from their various locations. Again, the comparisons are internal.

Perhaps the basketball player starts to use other players’ stats as a benchmark. This external benchmark would be the same as a warehouse looking to similar companies or industry leaders for their performance goals to help them set a benchmark for their own success.

Internal and External Benchmark Data

Internal data is almost always easier to gather than external data. A good WMS allows managers to track virtually any internal metric they choose with ease. 

For external data, trying to find an individual peer company to share their data might be difficult, but not impossible. Some companies may publish blogs or articles where they mention data to highlight their success.

An alternate source is an organization such as WERC (Warehousing Education and Research Council) that gathers and publishes reports of KPIs across a number of different industries. Some companies look to consultants who know their industry even when data is not publicly available. They can often help warehouse managers develop realistic and meaningful benchmarks.

Internal and External Benchmark Data

Benchmarking works best when it is based on a well-thought-out plan. Assess goals and decide on the metrics and KPIs that will measure those goals. These tips will help benchmarks stay relevant:

• Real-time data and timely metrics are best, especially if the benchmarks exist to point out anomalies and irregularities. This allows for problem detection and solutions to happen right away.
• Measure what can be controlled. Metrics can measure anything, but not everything is relevant, and some information might actually skew the results. For example, managers benchmarking the cost per order at two warehouses might need to exclude costs that are very different due to geographic location, such as property taxes or utility costs.
• Drill down when it makes sense. Benchmarks might not be relevant across the board, so some attention to detail is needed. For example, picking and packing reams of paper will go much quicker than packing delicate glassware. They need different benchmarks.
• New situations require new benchmarks. Installing new, automated equipment or having to cut staff will change the speed, accuracy, cost, and other factors in a warehouse. While it's good to measure the effects of new things, other benchmarks may need to be adjusted accordingly. 
• Pick the right comparisons to benchmark. Make sure that external benchmarks make sense. The basketball player in our example would get easily discouraged if we used Steph Curry’s stats as a benchmark, for example. Likewise, the local coffee shop that compares its numbers to Starbucks.
• Revisit benchmarks periodically. The goal of benchmarking is continual improvement. Managers should never just ‘set it and forget it’.

It is not enough to just pick metrics or KPIs to track. Those data points are most useful when used as the basis for benchmarking. Benchmarks help warehouses align their data with their goals and define what it means to be successful.

Book a demo today to find out how utilizing Infoplus can help you manage your inventory, get control of your warehouse, and track performance to predict trends and prevent errors.