Performance Parameters

A warehouse is an integral part of a supply chain and its objectives should align with those of the overall supply chain of a firm. In the absence of a goal congruence, the element of risk in sub­optimizing the operations of a warehouse at the expense of performance of the overall supply chain will creep into the system. The objectives of a warehouse are to be quantified for measurement to check and rectify the operations in case of deviations. The most common parameters that indicate the efficiency and effectiveness of warehouse operations are discussed below.

Stock Turn-Over Ratio This is a ratio of value of sales volume in a given time to value of stocks in that period. For example, sale value of goods supplied from a warehouse was INR 100 lakhs last year and the average inventory level at any point of time during last year in the warehouse was INR 10 lakhs. Then this ratio works out to be 10. The more you turn out the stocks, the better the efficiency and effective utilization of warehouse space. In Japan, auto giants have achieved a stock turnover ratio of 60 while in India it is between 20 and 30.

Warehouse Cost-to-Sales Ratio This ratio has a direct link with the throughput of a ware­house or goods handled. Higher the volumes, lower will be the fixed cost of operations, which is distributed over the number of units dispatched. A lower ratio indicates the efficiency of a warehouse.

Warehouse Cost per Unit Handled The ratio indicates the total warehouse cost incurred divided by the number of pallets or boxes handled during the period. The higher ratio indicates the lower throughput or lower material handling efficiency of warehouse operation.

Occupancy Rate of Warehouse Space This ratio indicates the actual space used as a percentage of warehouse storage space available throughout a year. The average of the ratios taken periodically throughout the year will indicate the occupancy rate.

Source: Sople V.V (2013), Logistics Management, Pearson Education India; Third edition.