In order to determine how well a business is doing, key performance indicators (KPIs) are used as a measurable value that demonstrates how effective a company is at achieving key business objectives.
In short, businesses use KPIs to evaluate their success at reaching goals.
KPI metrics vary from industry to industry, depending on the focus of that business. During peak season there are certain metrics that every business needs to track.
Peak season is the part of the year where businesses make the majority of their revenue and sales due to specific events in a particular market. Holiday season is the most common example of a peak season, and affects almost all businesses in the retail industry. Many retailers experience an increase in demand because of shopping holidays like Cyber Monday, Black Friday, and Christmas. However, there are industries that experience peak season during other parts of the year as well.
As aforementioned, peak season brings in the majority of a business’s yearly revenue. So, you’ll want to make sure that the KPI metrics tracked during this time will provide valuable insights about your business performance. In this article, we’ll uncover the 7 KPIs you should focus on for peak season.
1.Inventory Accuracy
Just as the name suggests, inventory accuracy is the measure of how accurate the inventory listed in your database is to the actual physical inventory you have in your warehouse or distribution center. While this may be the most obvious metric you should be tracking, it is often the most neglected.
A high rate of inaccuracy in inventory can lead to unexpected issues like:
- Backorders
- Customer dissatisfaction
- Higher inventory cost
- Inaccurate product listings
The best supply chains and warehouses have exceptionally high levels of visibility over inventory. Your inventory accuracy can be improved by conducting regular cycle counts across all warehouses and storage facilities.
For best practices, try to avoid doing cycle counts by hand on Excel spreadsheets. While this is a good way to store data, it does not protect against inaccurate inventory counts due to human error. For best practices, we recommend using an inventory or warehouse management system that tracks inventory through barcode scanning to maximize efficiency.
Database Inventory Count / Physical inventory Count = Inventory Accuracy
2. Back Order Rate
A warehouse’s back order rate is a good KPI for indicating the success of a business’s forecasting purchases and inventory supplies. A high back order rate means your customers are forced to wait while you attempt to fill their order, which will adversely affect customer satisfaction and retention in the long term.
This KPI is closely related to the inventory accuracy KPI and percentage of out of stocks. During peak season, a sudden spike in demand will understandably lead to a temporarily high back order rate for any given item, but this can be mitigated with proper planning and precautionary steps, like safety stock.
You can decrease you back order rate with more accurate forecasting and monitoring of your warehouse’s inventory to sales ratio. Having a high inventory accuracy rate will naturally help improve this KPI.
Orders Unfilled at Time of Purchase / Total Orders Placed = Back Order Rate
3. Order Picking Accuracy
Another important KPI metric for peak season is order picking accuracy. Inaccurate orders can result in inventory being returned, increased shipping time, increased shipping cost, and other issues that result in decreased sales and profits. Order picking is the most expensive and difficult warehouse process and should be taken seriously.
By automating processes and avoiding unnecessary workflows, businesses can expect to eliminate waste and streamline orders with utmost efficiency. Accuracy and speed are the two most important measures for order picking. The more accurate order picking is the more overall pick times improves which increases order fulfillments.
Total Number of Orders / Perfect Order Rate = Order Picking Accuracy
4. Rate of Return
This is one of the most important KPIs during peak season. High rates of return are a clear sign that there is an issue with your supply chain. This metric should be aggressively tracked, and when done well, will identify causes for returns, damages, late deliveries, and many other underlying warehouse issues.
Number of Units Returned / Number of Units Sold = Rate of Return
5. Inventory Turnover
Inventory turnover measures how many times per year your warehouse is able to go through its entire inventory. As you know, high inventory turnover is a good thing. However, looking at inventory rates also helps gauge future forecasting needs for peak season. By looking over past inventory turnover during peak season, you will gain a better idea of how much inventory you will need on hand for the upcoming year.
Cost of Goods Sold / Average Inventory = Inventory Turnover
6. Units Per Transaction
Depending on your industry, the units per transaction method may be another KPI metric to track this peak season. This number may or may not change over time based on what it is that you sell. This metric is designed to point out any correlations between products that you may have overlooked.
For example, after implementing this metric you may notice that when someone orders a hair brush they almost always order hair jell as well. You can use this information to improve the customer’s checkout experience by offering a special promotion on that item or you may discover that you can increase warehouse layout efficiency by moving those items closer together. Regardless, this is a great metric to add to your peak season list.
Number of Units Sold / Number of Transactions = Units per Transaction
7. Perfect Order Rate
This KPI is the metric used to track how many orders your warehouse successfully delivered without incident. That means how often the correct item is shipped on time and received in good condition by the customer who placed the order.
You can improve your perfect order rate by sticking to the 10 tips you need to know about warehouse management. Using a warehouse management system (WMS) to keep track of your inventory allows users to identify potential problems as they arise and fix them at the source. WMS systems catch imperfect orders before they leave the warehouse and are shipped to consumers.
Orders Completed Without Incident / Total Orders Placed = Perfect Order Rate
Conclusion
Defining and improving these KPIs after each peak season will put your warehouse in a position to increase performance and effectively drive cost savings in all areas of the supply chain. Lean practices combined with management systems, like SkuVault, help identify errors or inaccuracies before orders leave the warehouse.
Looking for more KPIs to help keep your business on track? See our post on warehouse KPIs to get started.
