An Illustrated Guide to Balanced Scorecard for Warehouse KPIs

February 25, 2023

The 4 Key Areas in Warehouse Management which houses Warehouse KPIs

With quite a number of Warehouse Key Performance Indicators (KPIs) to choose from, prioritizing those that matter most can be a challenge. You are a warehouse business owner and would like to set up a performance management system. Or it could be that you are a Warehouse Manager looking at revising and improving this year’s goals and measures but not sure where to start.

A Balanced Scorecard of Warehouse KPIs can guide and help you choose the most significant ones for your business.

What is a Balanced Scorecard for Warehouse KPIs and Inventory KPIs?

Described simply, a Balanced Scorecard is a management goal-setting strategy covering key areas in your entire Management System. It helps identify goals, KPIs, measurements and targets across 4 important areas in your warehouse operation or business.

Generally, the 4 Key Management Areas are:

Financial – This area points to cost-related goals (sales, direct costs) that impact bottom line or revenue. This can include overhead costs, inventory costs, sales, delivery costs and cost of returns.

Customer – What KPIs are considered important by customers?

These are goals that are perceived vital by end-users and can result to a satisfaction or dissatisfaction of clients. Others label this key area as “Quality”, though it can include indicators like Response Time under it.

Business Process (Internal Process) – Where should we excel in our internal operations?

This includes goals that improve operational efficiency. Commonly, it cites measures such as throughput, quality, internal costs, cycle time, etc. This is also referred to as “Internal Process”.

Personnel Growth – How do we improve, innovate and create value?

This perspective addresses manpower skills training and motivation. Efforts to innovate and improve products and services can also be classified under this perspective. The important thing is that personnel growth and motivation are recognized as invaluable assets to creating better value in any business operation.

Having goals and measures across key areas in your warehouse business helps ensure all bases are covered. For example, Financial goals are important, but also are Personnel Growth goals, especially for a process or operation that is dependent on human skills for the success of an activity.

With the Balanced Scorecard approach, you are sure to consider all vital intangible assets (value-creating assets) and incorporate these into your management system.

Illustrated Balanced Scorecard of Warehouse KPIs

Below is an illustration of how Balanced Scorecard can guide process of setting goals and warehouse KPIs/ inventory KPIs, give or take a few. These KPI’s are designed for the entire business operation. Sub-departments may come up with their own specific KPI’s in support of these main KPI’s.

Also, you may add more targeted warehouse KPIs and inventory KPIs to replace macro ones, but the idea is to keep the number of KPIs to an ideal range of 10-12 for every scorecard. A higher number can mean waste of resources tracking and measuring too many KPIs; a fewer number poses a risk of some important indicators not captured.

Handy Guide to Balanced Scorecard of Warehouse KPIs:

Perspective	Management Goal	Warehouse KPI	Measurement	Remarks
Financial	F1. Improve Return on Investment (ROI)	ROI (earnings for every dollar of inventory)	Gross Margin/ Inventory Cost	Shows return on profit on the capital invested on stocks
	F2: Reduce inventory carrying costs	Inventory Carrying Cost, %	Overhead Cost/ Total Value of Inventory x 100	Overhead costs include cost of expired or damaged goods.
	F3: Reduce Inventory Variance Cost	Shrinkage Or Shrinkage as % to Sales Value	Value of Inventory on Records – Value of Physical Inventory Or Shrinkage/ Sales x 100	A negative variance can indicate missing items or transaction errors
	F4: Reduce Delivery Cost	Delivery Cost, %	Distribution Cost/ Sales Revenue x 100	A lower ratio is favorable
	F5: Reduce Cost of Returns	Cost of Returns, USD Or Returns Rate, %	Cost of goods returned plus cost of handling return goods Or Units Returned/ Units Sold x 100	This is often associated with Delivery Accuracy.
Customer	C1: Achieve on-time delivery	On-time Delivery, %	On-time Delivery/ Total Delivery x 100	Usually aimed at 100%.
	C2: Fulfill purchase orders (PO’s)	Fulfilled POs, %	Closed POs/ Total Pos x 100
	C3: Reduce delivery lead time to customer	Delivery Lead Time, hrs (days)	Duration elapsed from the time order was placed.	Differs from On-time delivery. This KPI measures responsiveness – speed to serve.
	C4: Improve Delivery Accuracy	Delivery Accuracy, %	# of orders delivered without errors/ Total orders delivered X 100	This KPI balances Delivery Lead Time – fast service with quality.
Business Process	xxx	xxx	xxx	xxx