Purpose of the lesson
Measure actual warehouse and facility performance against approved targets and develop an improvement plan where performance does not meet requirements.
Practical outcome
By the end of this lesson, you must be able to:
- Measure picking on-time-in-full performance.
- Monitor warehouse damage and shrinkage.
- Measure stock accuracy.
- Evaluate inventory placement and slotting.
- Calculate employee productivity.
- Measure equipment utilisation.
- Calculate warehouse cost per unit.
- Compare actual results with targets and budgets.
- Develop and monitor a performance-improvement plan.
1. Gather the required information
Obtain:
- Warehouse operational plan
- Approved performance targets
- Customer-order and picking schedules
- Picking-completion records
- Inventory records
- Physical stock-count results
- Damage and return records
- Shrinkage reports
- Warehouse layout and slotting plan
- Employee attendance and labour-hour records
- Equipment operating records
- Downtime and maintenance reports
- Warehouse budget
- Actual warehouse costs
- Units received, stored, picked or dispatched
- Previous performance reports
Use data from the same facility and reporting period.
2. Validate the performance data
Before calculating performance:
- Confirm the reporting period.
- Verify that all applicable transactions are included.
- Remove duplicates.
- Confirm SKU and order references.
- Reconcile system and manual records.
- Check units of measure.
- Confirm approved exclusions.
- Record missing information.
- Retain an audit trail of corrections.
Do not calculate results from incomplete or incompatible data without recording the limitation.
3. Measure picking on time and in full
A picking task is successful when the correct complete order is picked by the required completion time.
Use:
Picking OTIF = Orders picked on time and in full ÷ Total orders due for picking × 100
Example:
- Orders due: 200
- Orders picked on time and in full: 182
Picking OTIF = 182 ÷ 200 × 100 = 91%
A late but complete order does not qualify. An on-time but incomplete order also does not qualify.
Picking-performance record
| Order | Required completion | Actual completion | Required quantity | Picked quantity | OTIF |
|---|---|---|---|---|---|
| ORD-101 | 06:00 | 05:45 | 500 | 500 | Yes |
| ORD-102 | 07:00 | 06:50 | 400 | 350 | No |
| ORD-103 | 08:00 | 08:20 | 300 | 300 | No |
4. Measure warehouse damage
Record products damaged during:
- Receiving
- Put-away
- Storage
- Replenishment
- Picking
- Packing
- Staging
- Loading
Use:
Damage rate = Units damaged in warehouse ÷ Total units handled × 100
or:
Damage-free handling rate = Undamaged units ÷ Total units handled × 100
Categorise damage by:
- SKU
- Warehouse area
- Process
- Shift
- Equipment
- Cause
- Value
Separate warehouse damage from damage received from suppliers or caused during transport.
5. Measure shrinkage
Shrinkage is the unexplained difference between recorded and actual inventory after authorised movements and adjustments have been considered.
Use:
Shrinkage quantity = Recorded stock − Physical stock
Shrinkage rate = Shrinkage quantity ÷ Recorded stock × 100
Example:
- Recorded stock: 10,000 units
- Physical stock: 9,850 units
Shrinkage quantity = 10,000 − 9,850 = 150 units
Shrinkage rate = 150 ÷ 10,000 × 100 = 1.5%
Investigate both shortages and unexplained excess stock.
6. Measure stock accuracy
Stock accuracy evaluates how closely the inventory records match the physical count.
A location-based calculation is:
Stock accuracy = Accurate stock records ÷ Total stock records checked × 100
If 470 of 500 counted records are accurate:
Stock accuracy = 470 ÷ 500 × 100 = 94%
Define the accepted quantity tolerance before classifying a record as accurate.
Stock-accuracy register
| SKU | System quantity | Physical quantity | Variance | Accurate within tolerance? |
|---|---|---|---|---|
| SKU-01 | 500 | 500 | 0 | Yes |
| SKU-02 | 300 | 285 | −15 | No |
7. Evaluate inventory placement and slotting
Slotting places inventory in storage locations that support safe, accurate and efficient handling.
Check whether:
- Fast-moving items are easily accessible.
- Heavy products are placed safely.
- Frequently ordered products are near dispatch.
- Similar-looking SKUs are separated.
- Hazardous or incompatible products are segregated.
- Temperature-sensitive products use suitable storage.
- Location capacity is not exceeded.
- Product dimensions suit the location.
- Pick paths minimise unnecessary travel.
- Stock-rotation requirements are supported.
Slotting-compliance checklist
| Criterion | Compliant | Non-compliant | Evidence or action |
|---|---|---|---|
| Fast-moving stock in accessible locations | |||
| Heavy stock stored safely | |||
| Incompatible products separated | |||
| Location capacities observed | |||
| Stock rotation supported |
Measure:
Slotting compliance = Compliant locations ÷ Locations inspected × 100
8. Measure human-resource productivity
Select an output measure relevant to the activity.
Labour productivity = Units processed ÷ Labour hours used
Example:
- Units picked: 6,000
- Labour hours: 50
Labour productivity = 6,000 ÷ 50 = 120 units per labour hour
You may also measure:
- Orders picked per employee
- Lines picked per hour
- Pallets received per labour hour
- Units packed per labour hour
- Cost per labour hour
- Overtime percentage
Compare similar activities, shifts and product types fairly. High output should not be achieved by sacrificing safety, quality or accuracy.
9. Measure equipment utilisation
Equipment utilisation shows how much of the available equipment time was productively used.
Equipment utilisation = Productive operating time ÷ Available equipment time × 100
Example:
- Forklift available: 80 hours
- Productive operating time: 60 hours
Equipment utilisation = 60 ÷ 80 × 100 = 75%
Record separately:
- Productive operating time
- Idle time
- Breakdown time
- Maintenance time
- Waiting time
- Unavailable operator time
Very high utilisation may indicate insufficient spare capacity or inadequate maintenance time.
10. Measure warehouse cost per unit
Include applicable costs such as:
- Labour
- Building rental
- Electricity
- Equipment
- Maintenance
- Packaging
- Technology
- Security
- Damage and shrinkage
- Contracted services
Use:
Warehouse cost per unit = Total warehouse operating cost ÷ Total units handled
Example:
- Actual warehouse cost: R600,000
- Units handled: 120,000
Cost per unit = R600,000 ÷ 120,000 = R5.00
Compare it with the budget:
Cost variance per unit = Budgeted cost per unit − Actual cost per unit
A negative result indicates that actual unit cost exceeds the budget.
11. Prepare the warehouse scorecard
| Performance area | Target | Actual | Variance | Status |
|---|---|---|---|---|
| Picking OTIF | 97% | 91% | −6% | Below target |
| Damage rate | ≤0.5% | 0.8% | 0.3% over | Below target |
| Shrinkage | ≤0.3% | 1.5% | 1.2% over | Below target |
| Stock accuracy | 98% | 94% | −4% | Below target |
| Slotting compliance | 95% | 90% | −5% | Below target |
| Labour productivity | 120 units/hour | 110 | −10 | Below target |
| Equipment utilisation | 80% | 75% | −5% | Below target |
| Cost per unit | R4.50 | R5.00 | R0.50 over | Below budget |
Use the organisation’s approved direction of measurement. For example, a lower damage rate is favourable, while higher stock accuracy is favourable.
12. Identify performance gaps
For each measure:
- Confirm the target.
- Calculate actual performance.
- Determine the variance.
- Identify the affected process.
- Assess the operational and financial effect.
- Prioritise the response.
- Record the evidence.
Performance-gap register
| Performance gap | Effect | Priority | Required investigation |
|---|---|---|---|
| Picking OTIF below target | Late dispatch | High | Picking capacity and stock availability |
| Shrinkage above target | Inventory loss | High | Access and transaction controls |
| Equipment utilisation below target | Low output and higher cost | Moderate | Downtime and allocation |
13. Determine root causes
Investigate the underlying causes of poor performance.
| Performance issue | Possible root cause |
|---|---|
| Low picking OTIF | Poor wave planning, shortages or congestion |
| High damage | Unsafe storage, handling or equipment use |
| High shrinkage | Transaction errors, weak access control or theft |
| Low stock accuracy | Incorrect receiving, picking or adjustment records |
| Poor slotting | Outdated movement data or unsuitable locations |
| Low productivity | Poor layout, training gaps or inadequate staffing |
| Low utilisation | Breakdowns, waiting or poor equipment allocation |
| High cost per unit | Overtime, low volume, damage or inefficient processes |
Use verified evidence, observations and a method such as the Five Whys.
14. Develop the performance-improvement plan
| Performance gap | Root cause | Improvement action | Owner | Due date | Target |
|---|---|---|---|---|---|
| Picking OTIF 91% | Poor wave sequencing | Align waves with dispatch times | Warehouse supervisor | 15 August | ≥97% |
| Stock accuracy 94% | Unrecorded movements | Introduce scan confirmation | Inventory controller | 20 August | ≥98% |
| Damage rate 0.8% | Incorrect stacking | Retrain handling employees | Operations manager | 12 August | ≤0.5% |
Include:
- Immediate containment
- Permanent corrective action
- Required resources
- Responsible person
- Completion date
- Success measure
- Monitoring frequency
- Escalation point
15. Monitor improvement
Track the plan using:
- Daily operational reports
- Cycle counts
- Damage inspections
- Picking-progress reports
- Labour-performance reports
- Equipment logs
- Cost reports
- Follow-up audits
Verify that performance improves without creating new safety, quality or service problems.
16. Prepare the warehouse-performance report
Include:
- Reporting period
- Data sources
- Targets and actual results
- Variances
- Trends
- Root causes
- Operational and cost effects
- Improvement actions
- Responsible persons
- Due dates
- Remaining risks
- Recommendations
Practical task
You are provided with warehouse-performance reports, operational targets and budget information.
Complete the following:
- Validate the performance information.
- Calculate picking OTIF.
- Measure damage and shrinkage.
- Calculate stock accuracy.
- Assess slotting compliance.
- Calculate employee productivity.
- Calculate equipment utilisation.
- Calculate warehouse cost per unit.
- Compare each result with its target.
- Identify and investigate performance gaps.
- Develop a performance-improvement plan.
- Prepare a warehouse-performance report.
Required evidence
Include the following in your Portfolio of Evidence:
- Source warehouse plan and targets
- Data-validation record
- Picking-OTIF calculation
- Damage and shrinkage calculations
- Stock-accuracy register
- Slotting assessment
- Employee-productivity calculation
- Equipment-utilisation calculation
- Warehouse cost-per-unit calculation
- Warehouse-performance scorecard
- Performance-gap and root-cause registers
- Performance-improvement plan
- Monitoring records
- Warehouse-performance report
- Evidence of review or approval
- Completed observation checklist
- Learner declaration of authenticity
Competence checklist
| Assessment criterion | Competent | Not yet competent | Comments |
|---|---|---|---|
| Measure picking on time and in full | |||
| Measure warehouse damage against target | |||
| Measure shrinkage against target | |||
| Measure stock accuracy against target | |||
| Evaluate inventory placement and slotting | |||
| Measure human-resource productivity | |||
| Measure equipment utilisation | |||
| Calculate warehouse cost per unit | |||
| Compare actual costs with the budget | |||
| Identify material performance gaps | |||
| Determine root causes of non-performance | |||
| Develop a suitable performance-improvement plan | |||
| Monitor improvement actions | |||
| Prepare a comprehensive performance report | |||
| Submit complete supporting evidence |
Lesson Summary
To monitor warehouse and facility performance, validate operational data and measure picking OTIF, damage, shrinkage, stock accuracy, slotting, labour productivity, equipment utilisation and cost per unit. Compare every result with the approved target or budget and record material variances. Investigate the root causes of poor performance and develop a measurable improvement plan with assigned responsibilities and deadlines. Monitor the actions until the required warehouse service, accuracy, productivity and cost results are achieved.