Efficient, accurate order fulfillment and timely shipping are the cornerstones of success for ecommerce businesses and third-party logistics (3PLs) providers. Yet, many brands and 3PLs lack insight into critical distribution metrics to help determine how well order fulfillment and warehouse management operations are performing.
The reality is, if you’ve been hesitant to implement a warehouse management system (WMS) or enhance your existing fulfillment technology stack, you may be working harder, not smarter, and setting yourself up for a competitive disadvantage that makes managing daily warehouse operations more challenging than it should be. Without this insight, it can be nearly impossible to identify areas of improvement and implement process improvements that ultimately lead to time saved, decreased expenses, and increased customer satisfaction.
In fact, a study by McKinsey and Company found that organizations that use data-driven analytics experience above-market growth, with earnings before interest, taxes, depreciation, and amortization (EBITDA) increasing between 15-25 percent.
What are warehouse distribution metrics?
Warehouse distribution metrics provide an objective performance overview and help identify improvement areas, optimize resource allocation, benchmark against industry standards, and monitor trends. Analyzing these metrics can help your teams make data-driven decisions that increase efficiency and improve customer satisfaction while decreasing your expenses.
Why You Should Track Distribution Metrics
Warehouse managers and operators should closely track and analyze distribution metrics to improve operational efficiency, make better-informed decisions, and constantly enhance performance. By understanding the importance of these metrics, you can increase productivity, lower costs, and enhance your better customer service levels. If you rely on outsourced order fulfillment from a logistics provider, tracking these metrics is crucial for assessing performance against service level agreements (SLAs).
Here are some benefits of tracking these metrics for your warehouse:
Identify areas of improvement
Monitoring metrics like inventory turnover rate, picking accuracy, and cycle time highlight areas for improvement, allowing you to pinpoint bottlenecks and implement targeted strategies to streamline processes and reduce costs. This information can help you optimize inventory placement for faster picking, select the right warehouse location for faster ecommerce shipping times, or identify underperforming areas that impact cycle times. This data-driven approach helps optimize all of your storage and distribution operations.
Make more informed decisions
Tracking important distribution metrics is crucial for informed decision-making (and managing 3PL relationships) based on data-driven insights into performance trends. This approach empowers warehouse managers to adjust workflows, staffing levels, and inventory management practices to meet changing demands and customer expectations. By analyzing trends over an amount of time, you can also gain predictive power. For instance, you may have previously relied on estimated guesses to adjust staffing levels for seasonal fluctuations. However, with historical distribution metrics, you can obtain insights to set precise staffing requirements. This data can also help forecast future inventory needs and optimize storage space, ensuring efficient resource allocation.
Increase performance and accountability
When your employees clearly understand the metrics you track, why, and how their roles contribute to your company’s success, they may be more likely to align their efforts with your goals and work toward continuous improvement. Regularly monitoring distribution metrics also helps your teams establish realistic targets and benchmarks for performance evaluations, which can create a culture of accountability within your operations.
The Top 11 Distribution Metrics to Track
Key distribution metrics shed light on your warehouse’s strengths and weaknesses. When you track the correct metrics, you can make more informed decisions. Here are some metric types every logistics manager should know about:
1. Inventory Turnover
Purpose: To determine how often inventory is sold and replaced within a specific period (for example, yearly, quarterly, or seasonally).
Why It’s Important: A higher turnover rate indicates operational efficiencies. Slower or lower turnover rates signal processes that need improvement.
What You Need to Know: The cost of goods sold by the average inventory value over the specified period.
2. Inventory Carrying Costs
Purpose: To determine average cost to hold inventory, including warehouse space, personnel expenses, insurance and other coverage, and financial impact of products becoming outdated.
Why It’s Important: Lower carrying costs increase your bottom line.
What You Need to Know: Storage costs, warehousing expenses, insurance and other coverage premiums, and potential losses caused by carrying outdated or unneeded inventory.
3. Inventory Accuracy
Purpose: To calculate the difference between recorded inventory and actual stock on hand.
Why It’s Important: High accuracy reduces order fulfillment errors and prevents lost sales.
What You Need to Know: Regular cycle counts compared to inventory records.
Hot Tip: Leverage technology like barcode scanning that tracks inventory in real time and aligns that data with sales, order fulfillment, and returns for faster, automated, stress-free cycle counting.
4. Picking and Packing Accuracy
Purpose: To understand the total orders picked and packed correctly.
Why It’s Important: Accurate picking and packing decreases returns, improves customer satisfaction, and saves time and money caused by error correction.
What You Need to Know: Compare picked items to order fulfillment details to determine how many were picked and packed incorrectly.
5. Order Cycle Time
Purpose: To determine the average time it takes to process an order, from receipt to shipment.
Why It’s Important: Shorter cycle times mean faster deliveries and more satisfied customers.
What You Need to Know: The amount of time each order spends in various stages (picking, packing, transit time) and then determine the average.
6. On-Time Shipments
Purpose: To know the percentage of orders shipped on or before the promised shipment date.
Why It’s Important: Timely deliveries meet customer expectations and build trust and brand recognition.
What You Need to Know: Promised delivery dates and actual shipment dates.
7. Warehouse Utilization
Purpose: To get insight into the total percentage of available storage space not used.
Why It’s Important: Optimizing warehouse space decreases overhead and enables scalability.
What You Need to Know: Total available storage spaces, capacity of each storage space, and space currently occupied by product.
8. Average Storage Cost Per Item
Purpose: To determine the average cost of storing one inventory item for a specific time.
Why It's Important: Understanding warehouse storage costs can help you optimize space allocation and also help identify slow-moving inventory.
What You Need to Know: Total storage fees, total inventory stored, and timeframe (month, quarter, year, etc.).
9. Picking and Packing Expenses
Purpose: To understand the average cost of picking an order from storage and preparing it to ship.
Why It's Important: Understanding picking and packing costs helps determine efficiencies and identify areas for improvement.
What You Need to Know: Total picking and packing costs and total number of orders fulfilled.
10. Order Fulfillment Cost Per Item
Purpose: To understand the average cost of fulfilling a single order, including storage, picking, packing, and shipping.
Why It's Important: With an accurate understanding of order fulfillment, you can develop more effective pricing strategies and profit margin forecasting.
What You Need to Know: Total order fulfillment costs (storage, picking, packing, shipping, etc.) and total number of orders fulfilled.
11. Back-Order Rates
Purpose: To understand how many orders aren’t immediately fulfilled because of inventory issues.
Why It's Important: Monitoring back-order rates helps ensure product availability, maintains customer satisfaction, and optimizes inventory management.
What You Need to Know: How many orders placed and how many back-orders during a specific timeframe.
How to Track Distribution Metrics Effectively
There are various methods of collecting data, ranging from paper-based records to manual spreadsheets and specialized warehouse management systems. However, if your business still uses paper or spreadsheets for data collection, now is the time to switch to an automated WMS to get real-time insights and comprehensive data analytics, with more accuracy, faster, and with less lift.
Here are four key strategies to help you track your distribution metrics most effectively:
Embrace automation
Ditching pen and paper for a WMS is a game-changer. A WMS automates data capture for metrics like picking accuracy, cycle time, labor usage, and storage utilization. You can also get real-time data about inventory levels, streamlined order fulfillment, and automated reporting—all within a single dashboard—so you don’t have to toil over endless spreadsheets and hard-to-produce and understand reports.
Collect and analyze data
Inventory tracking software is essential for gathering inventory management data. From turnover rates to carrying costs, an inventory tracking system can give you real-time insight into every item in stock, highlighting slow-moving stock and optimizing order replenishment. Look for a WMS with data collection and analytics capabilities so you have real-time insight into your workflows, but you can also look back at historical data and achieve more accurate forecasting.
Focus on communication and collaboration
Knowledge is power, so be sure to share key metrics with your team, not just the numbers but the how and why behind them. Help your employees understand how their roles impact these metrics and why it benefits them to help your business reach them. Use interactive dashboards to present the information in an easy-to-understand way and build a culture where everyone is focused on data to move toward collective success.
Prioritize on continuous improvement
The logistics market is evolving and complex, so your teams can’t get stagnant. Data analytics isn’t a one-and-done project. Continuously use insights to identify performance issues and implement targeted improvements. A/B test different strategies and focus on using distribution metrics as a differentiator. Staying on top of (and adopting) the latest warehouse technology trends can help you stay ahead of the competition.
By combining these strategies with the power of WMS and inventory tracking software, you can transform your warehouse into a well-oiled machine, confidently navigating the path to efficiency. Remember, the key lies in using data to monitor, act, adapt, and continuously improve. So, step out of the maze and embrace the metrics–your warehouse’s hidden potential awaits!
Calculate Your Distribution Success with Extensiv
The ROI of implementing a WMS with robust reporting capabilities is undeniable. Averitt Express, an Extensiv customer, reaped the benefits with a 25% reduction in labor costs, increased customer retention, and savings of 60 order picking hours each day after it switched from paper-based and manual processes to a warehouse management solution that collects and analyzes real-time data across its warehousing and order fulfillment operations.
Averitt isn’t an exception to the norm; it’s a shining example of how, with the proper tools and insight, you, too, can transform and automate warehouse operations, streamline processes, increase efficiency, and save time and money. The trick is understanding which data you need to capture and what to do with it.
Extensiv’s warehouse and order management solutions offer many features that will enable you to collect and analyze data, use out-of-the-box templates and review relevant reports easily, find improvement areas, and make data-driven decisions for optimal efficiency.
Here are a few ways Extensiv can help you optimize your distribution success:
Get real-time inventory visibility across multiple locations with data beyond mere product counts. Track inventory turnover, identify slow-moving stock, and optimize allocation to minimize carrying costs. This clarity ensures you’re investing in the right products and boosting your profit margin.
- Make it work for you: To decrease carrying costs due to overstocking seasonal items, you can use Extensiv’s inventory management tools to identify slow-moving stock during a specific season. By optimizing stock levels based on real-time data, you can reduce carrying costs and free up revenue for other investments.
Monitor order statuses, cycle times, picking accuracy, and shipping in real time. Use this data to streamline processes, reduce fulfillment cost and times, and eliminate delays, leading to happier customers and a greater competitive edge.
- Make it work for you: Let’s say you’re experiencing increased customer complaints about order delays. An order management tool can help you identify if you have issues with your picking and packing processes. By analyzing cycle times and pick accuracy data, you can optimize your picking routes and implement a pick-to-light system to reduce fulfillment time and improve customer satisfaction.
Customizable dashboards help you track KPIs and other metrics to analyze real-time data and compare it to historical values. This will help you identify how well you’re doing in reaching your goals. By identifying performance issues early on, you can make strategy adjustments to get where you want to be, long before you miss your objectives.
- Make it work for you: If your warehouse has inconsistent storage utilization across your locations, you can use Extensiv’s customizable dashboards to get real-time storage data to identify underutilized space or overages. By optimizing product placement and utilizing available space, you can improve storage utilization, decrease overhead, and improve operational efficiency.
Extensiv empowers you to contextualize your data. With access to industry benchmarks for key metrics, you can compare your warehouse performance with industry peers. This will help you set realistic goals and make plans to meet them.
- Make it work for you: Analyze metrics like picking accuracy against industry standards. The sooner you identify issues and implement plans to address them, the greater your chance of improving your accuracy rates, meeting industry standards, and decreasing fulfillment and shipping issues.
When it comes to getting the most out of your distribution metrics, remember, it’s not just about collecting data; it’s what you do with it. You can transform your warehouse operations and outperform your competitors by utilizing best practices and the comprehensive insights Extensiv provides.
Interested in learning more? Request a demo today!
