A warehouse can measure its efficiency by picking and tracking 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 (KPI). Once set, managers can gauge progress and success based on how close the warehouse comes to the target.
Think of benchmarking as creating a point of reference for competition. Sometimes that competition is the warehouse’s own past performance in regards to a certain metric. Other times it might compare its performance to that of similar companies, or against the 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 regarding operations and best practices.
Key takeaways:
Benchmarking that involves measurable data (metrics or KPIs), is quantitative. Progress is indicated when a desired number or ratio is achieved. For example, a decrease from the previous month’s number of returns due to mis-picks is a successful outcome, indicating that things are moving in the right direction. However, not reaching the benchmarked target for the number of orders filled per day, means there is room for improvement and needs looking into.
Qualitative benchmarks are based on best practices or techniques. They are measurable, but not in the same way that pure data can be measured. Examples might be information tied to a customer satisfaction survey, or working toward a goal to automate a process fully.
Both quantitative and qualitative benchmarking are useful, and almost all businesses use a combination of both. The important thing is that the benchmarks used are relevant to the goals the company hopes to reach.
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. Warehouses can gain a strategic, operational, and financial advantage by understanding where they are now compared to where they were previously, or where they could be. The goal might be to beat competing businesses 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 of 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 only 90 orders are picked on a regular basis, a number of different things could be going on:
In this case, setting and monitoring a benchmark is 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 or launching new inventory management procedures.
The issue with an unmet benchmark can also be with the benchmark itself. In our example, perhaps the employees are working as efficiently as they can, and 100 orders per hour is simply unrealistic. Managers may choose to add more staff or invest in new equipment.
In the opposite scenario where the 100-order benchmark is reached easily on a consistent basis, the manager may need to adjust it upward, setting 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.
Metrics by themselves are bits of data. Combine them and you get key performance indicators. Either one can be a useful benchmark, 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. However, creating a KPI is more meaningful. In this example, that might mean calculating the percentage of baskets to attempts. Making 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 over time. The warehouse is competing with itself, looking for improvement in any time frame it chooses—daily, weekly, monthly, quarterly, or annually. This is an example of an internal benchmark because the competition is its own metric.
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 return data points from their various locations. Again, the comparisons are internal.
If the basketball player starts to use other players’ stats as a benchmark, that is an external benchmark. Similarly, a warehouse can look to the performance of similar companies or industry leaders to help them set a benchmark for their own success.
Internal data is almost always easier to gather than external data. Warehouse management software is the powerhouse that allows managers to track virtually any internal metric they choose with ease. WMS tracks real-time inventory and order fulfillment metrics that can be configured into any number of KPIs. With automation tools such as barcode scanners the software can provide reliable data to measure current productivity, and reports that give a clear picture of how well the team is reaching its benchmarks.
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.
The choice to track internal or external data (or both) depends on the benchmark’s purpose. Internal will help uncover inefficiencies and drive improvement. External benchmarks will determine how well the company stacks up within the marketplace.
Benchmarking works best when it is based on a well-thought-out plan. Assess goals, decide on the metrics and KPIs that will measure those goals, and gather data using a robust warehouse management system. These tips will help benchmarks stay relevant:
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.
Want to dig deeper into how Infoplus metrics and benchmarking can improve your warehouse efficiency? Our whitepaper Comprehensive Guide to Warehouse Metrics, KPIs and Benchmarks is a good place to start.
Book a demo today to find out how Infoplus can help you measure your progress.
