How to Measure Warehouse Performance

Warehouse Performance, Cost & Value Measures

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sense to spend $2,000,000 to take $6,000,000 out of inventory or to reduce inventory carrying costs by $2,000,000 per year at their 33% inventory carrying rate?” They shared that they had only tried to compute an ROI based on labor savings alone and had not considered inventory savings. That re-consideration launched one of the nation’s most successful retail supply chain strategies. 4. Shareholder Facing Metrics Our recommended categories of shareholder facing metrics are cost, productivity and utilization. 4.1 Warehouse Cost Performance The main cost categories to operate a warehouse are labor, space, material handling equipment, and warehouse management systems. Those add up to between 2% and 5% of sales for most companies. Ideally those cost categories will be analyzed across the activities of the warehouse in a warehouse activity-based costing program. In the example, a cost for each warehousing activity (receipt, putaway, store, pick, ship, load) is established. The activity costs become the basis for comparing third-party warehousing proposals; budgeting; measuring improvement; and menu-based pricing for warehousing services.

© Dr. Ed Frazelle, Author, World Class Warehousing | ALL RIGHTS RESERVED