Your warehouse operations touch nearly every part of your business. A well-organized warehouse keeps the fulfillment process running smoothly, ensuring customers receive the right products on time. It also helps control costs by eliminating wasted space, minimizing manual labor, and reducing errors that lead to returns or re-shipments. Efficiency creates a safer, less stressful work environment for workers and clearer visibility for managers.
Poorly run warehouses result in delayed orders, unhappy customers, and increased fulfillment costs. Even a confusing warehouse layout can force your workers to spend more time packing and shipping orders, driving up labor costs.
Improving warehouse efficiency not only saves money but also strengthens the entire supply chain and sets the foundation for long-term growth. This guide will show you some ways you can improve warehouse efficiency, reduce waste, and build a fulfillment system that scales as your business grows.
Metrics to help you measure warehouse efficiency
- Picking accuracy
- Order cycle time
- Inventory turnover
- Dock-to-stock time
- Storage utilization
- Labor productivity
By measuring efficiency metrics via your warehouse management system (WMS), you get a clear picture of what’s working and what needs improvement. Here are some key performance indicators (KPIs) specific to warehouse management:
Picking accuracy
Picking accuracy is the percentage of orders shipped correctly (the correct orders divided by total orders times 100 to convert the figure to a percentage). Based on studies, a 96% accuracy rate is often cited as the baseline. If your picking accuracy rate falls below that, walk through your order picking process. Is the warehouse layout intuitive? Do warehouse employees have the right tools, like barcode scanners, and does your inventory management system support real-time inventory tracking? Inventory accuracy facilitates picking accuracy, ultimately leading to fewer returns, higher customer satisfaction, and lower operating costs.
Order cycle time
Order cycle time—which varies significantly by industry—measures the average time it takes to process an order, from receiving the purchase to shipping goods out the door. Track your fulfillment process step by step. Watch for bottlenecks in packing, labeling, or waiting on material handling equipment, like forklifts or conveyor systems. Ask your warehouse staff where they see delays pile up. Those patterns show you exactly where to focus your improvement efforts.
Inventory turnover
Inventory turnover—which also varies by industry—tracks how quickly stock is sold and replaced. Calculate it by dividing the cost of goods sold by average inventory levels. Compare historical sales information and inventory data to spot trends. Are you overstocking items that tie up cash, or running too lean on fast-moving products? A healthy turnover rate keeps stock from tying up cash, becoming obsolete, or spoiling.
Dock-to-stock time
Dock-to-stock time measures how long it takes for new shipments to move from the receiving dock into your warehouse and become available for sale. Observe your warehouse floor receiving area closely. Are there delays in logging in shipments? Do warehouse employees have clear procedures for inputting inventory tracking data into the warehouse management software? Two to six hours is a solid target, although it may run longer for small businesses.
Storage utilization
Storage utilization is the percentage of storage capacity in use, with rates of 80% to 85% considered optimal. Walk the warehouse floor and evaluate how storage areas are organized. Empty shelves or underutilized areas waste valuable storage space. Look for opportunities to add pallet racks or vertical shelving systems to increase storage density and make better use of the available floor space.
Unlike standard shelving, which only occupies the lower portion of a floor space, vertical shelving systems extend upward, making use of unused ceiling height. This allows you to store more inventory in the same footprint, increasing storage density.
Labor productivity
Labor productivity measures the number of orders fulfilled per labor hour. Compare employee productivity across teams, shifts, or even different tasks. Are warehouse employees trained in lean supply chain practices, which incorporate strategies such as just-in-time inventory and eliminating activities that don’t add value? Or are they losing time because of inconsistent methods and excessive manual labor? Technology solutions like scanners, conveyor systems, or more advanced warehouse management systems can transform productivity metrics.
How to improve warehouse efficiency
- Rationalize warehouse layout
- Improve inventory management
- Implement a warehouse management system
- Use data for continuous improvement
- Plan for seasonality and build redundancy
Improving warehouse efficiency doesn’t require sweeping changes all at once. Even a few carefully executed strategies can deliver benefits when they combine smart design, accurate data, and proactive planning. Here are five approaches, with insights from Telescope, a company that designs and sells corporate swag and gifts:
1. Rationalize warehouse layout
A well-planned warehouse layout shortens the order picking process and reduces wasted movement. Organize your aisles for easy access. Position your material handling equipment to avoid wasting floor space, and design your layout to flow logically from receiving to shipping. Bring warehouse workers into the process early—their direct experience with the layout makes them invaluable partners, and their involvement increases the likelihood they’ll adopt new processes.
2. Improve inventory management
Using storage capacity effectively saves money on storage costs and avoids tying up money on idle inventory. The goal is to keep space utilization at about 80% to 85%, which includes maintaining safety stock to handle spikes in demand without sacrificing efficiency.
Managing stock and storage capacity helps reduce order cycle time, improves responsiveness during seasonal peaks, and makes your business more resilient when faced with supply chain disruptions. Consider adding more vertical shelving units for slow-moving products, keeping fast-moving products closer and easier to access, and using a first-in, first-out (FIFO) strategy to keep seasonal inventory from becoming obsolete.
3. Implement a new warehouse management system
A modern warehouse management system is central to maximizing warehouse efficiency. WMS platforms provide real-time inventory tracking, giving warehouse managers better visibility into inventory levels and staffing needs. Technology paired with smart layout and warehouse staging delivers both speed and precision in your warehouse operations.
If your current WMS isn’t serving your needs, consider more advanced software solutions that scale, like Easyship or ShipHero. For example, you might find that your WMS was sufficient when you were only selling within your own country, but you need more robust capabilities now that you’re selling internationally.
4. Use data for continuous improvement
Monitoring returns, exchanges, and restocks can reveal hidden inefficiencies. For example, Telescope discovered that a certain garment was frequently returned because it ran large, and customers were unaware of the sizing, founder Chloe Sapienza says on a Shopify Masters podcast. After identifying the pattern, the company revised product specifications, which reduced returns, cut warehouse operating costs, and improved customer satisfaction.
5. Plan for seasonality and build redundancy
Many businesses face seasonal surges—especially during holidays. Without planning, these peaks can overwhelm warehouse systems and staff. Modeling volume in advance, cross-training employees, and building in redundancy can help you manage those peaks.
Telescope prepares its team long before the holiday rush. “From front of house to back of house, we prepare our team mentally months in advance,” Chloe says. “We make sure that everyone understands that the demands are going to be different during the holiday season.”
The company also builds overlap in scheduling employees in case someone is sick or suddenly unavailable. “We have sort of built in redundancies during that time to make sure that we don’t have any delay in processing,” Chloe adds.
Warehouse efficiency FAQ
What are the 5 ways of improving warehouse efficiency?
The five core strategies for warehouse efficiency are rationalizing the warehouse layout, improving inventory management, implementing a warehouse management system (WMS), using data for continuous improvement, and planning for seasonality with redundancy. Each strategy targets a different aspect of warehouse operations: space, systems, processes, and people.
How do you calculate warehouse efficiency?
There is no single formula for warehouse efficiency, but several KPIs provide a clear sense of your performance. Some of the popular ones are picking accuracy, order cycle time, inventory turnover, dock-to-stock time, storage utilization, and labor productivity. By tracking multiple metrics, you can get a good picture of both speed and accuracy across your warehouse.
How do you measure warehouse storage capacity?
Storage capacity is measured as storage space used divided by total storage space times 100 (to convert the figure to a percentage). Most efficient warehouses aim for 80% to 85% space utilization to balance speed of order fulfillment with flexibility for future demand.
