The success of your business is partially dependent on logistics metrics that assess performance. This is why it’s crucial to handle your key performance indicators (KPIs), which are metrics used to measure the successes and failures of your supply chain.
This article will delve into the importance of KPIs for your business and how they operate to reduce transportation costs, identify bottlenecks, maintain operational efficiency and competitiveness with other companies.
What Does Logistics Involve?
The term logistics refers to the process of managing, storing and transporting goods to their final destination.
Logistics firstly involves order management. Order management is the procedure of capturing orders, tracking and fulfilling customer orders. This process commences when an item is purchased (placing an order) and finishes when the customer receives their order.
Proceeding this is supply chain management is the operation of the flow of goods. This process starts from raw materials, all the way to delivering the finished product to the customer.
Next on the list is inventory, which includes resources, products, supplies etc that are stored within a warehouse before they are sold and shipped to customers.
Following inventory is distribution which involves the movement of goods across various fulfilment centres that have been specifically allocated closer to the customer. In doing so, allowing the goods to be nearby when ready for shipping, lowering transit time and shipping costs.
Finally, fleet management refers to processes of overseeing a fleet of vehicles and assets, optimising efficiency and finding solutions to reduce risk and unnecessary costs.
What Are Key Performance Indicators (KPIs)
A key performance indicator (KPI) is the measurement of advancement towards a goal or against a set performance standard.
Metrics like enhancing order accuracy, percentage of orders, lead time, stock rotation, On Time In Full (OTIF), the number of shipments and so on are critical for achieving success for your logistics operation.
Why Are Logistics KPIs and Metrics Important?
It’s crucial to set and achieve key performance indicators (KPIs) in the logistics industry as it enables businesses to assess their performance and compare with other industry standards.
Tracking KPI logistics gives businesses access to data that shows where mistakes and spending are occurring. Knowing where improvements can be made opens the opportunity to enhance your business’ overall performance.
Unreliable logistics within an operation can negatively impact its foundation and the overall process of transportation.
Here are a few ways poor logistics can influence your business:
- Lack of customer trust
- Negative impact on business reputation
- Production delays
- Shipping delays
- Client relationship deterioration
- Higher costs
That’s why having a management system that (no pun intended) delivers can help enhance profits and customer satisfaction. Keeping your business in check at all times!
Supply Chain KPIs
In order to effectively measure the efficiency and cost of your supply chain, you’ll need to create and track KPIs that gives entire transparency of all activities and those relevant to individual supply chain elements.
The following areas include:
- Inventory management
- Order capture
- Supplier management
Cross-function KPIs can capture the end-to-end performance elements determined below:
- Inventory levels
- Gross profit
- Logistics costs
- Stock losses/damages
- Cost per goods sold
Too Many KPIs Within Businesses
It’s important to not have too many KPIs or KPIs that are seemingly impossible to achieve. KPI is a metric that focuses on a KEY component of the performance of your business, department or team performance.
Constantly scrutinising these parts of your supply chain is highly unrealistic. KPIs should consist of metrics that your team can keep track of. That way you can see how your supply chain is progressing.
KPI Logistics List
Here are a few examples of KPIs in logistics:
- Order Management KPIs
- Shipping time: refers to the period of time a company will take to ship an order on or prior to the date requested. This metric is essential to customer satisfaction
- Order accuracy: involves measuring on-hand inventory and order pick accuracy.
- Perfect order: measures the number of orders shipped without delays, damage or inaccuracies.
- On-time-in-full: is the number of shipments delivered in reference to the schedule and quantity when they were ordered.
- Number of shipments: how many loads your business has sent out in a specific time frame.
- Supply KPIs
- Lead time: is the measure of time between a customer ordering an item and when it actually arrives.
- Capacity utilization: is how much of a resource, whether it be production of goods or professional services, a business is using.
- Productivity: is the measure of how well the company is running.
- Inventory KPIs
- Customer backorder rate: is how often a business cannot fulfill an order,
- Inventory accuracy: measures how accurately your inventory records align with actual storage.
- Inventory turnover: is the measure of the number of times a business sells all their stock of a specific product.
- Inventory to sales ratio: measures the quantity of stock in comparison to how many sales are fulfilled.
- Distribution KPIs
- Trailer utilization rate: calculates how well businesses are loading their trailers.
- Warehousing costs: are a collection of metrics that covers expenses in regards to your warehouse.
- Average dwell time: refers to how long a carrier sits prior to being processed for pickup and delivery.
- Transport management KPIs
- Delivery time: measures how efficiently an entire order arrives.
- Average days late: is the number of days between when an order should have a arrived and when the customer received it.
- Truck turning: is the time frame in which a truck enters a space to pick up or deliver goods and when it leaves.
- Freight payment accuracy: is the amount of error-free freight bills in comparison to the overall number of freight bills within a specific period.
- Transportation costs: are the collection of metrics that monitor the price of an order from start to finish.
How To Create KPIs For Logistics And Warehouses
Identify goals for your business’ program
If you fail to plan you plan to fail. Setting goals is a great way to create direction and motivation.
By identifying goals for your business’ program, you and your team members know the direction you’re heading in.
Set achievable and realistic targets–from industry standards or your company data
Start realistic. There’s no point in assigning a target too easy to achieve–diminishing the challenge, and too difficult–making it almost impossible to achieve.
Set achievable and realistic targets influenced from industry standards or your own company data.
Establish a team
Creating a dream team that embodies the values of your operation is a great way to achieve success.
Hiring knowledgeable and hardworking team members will push your business to new heights, with the possibility of achieving higher KPIs.
Continually review KPIs
Continually reviewing your KPIs is a great way to keep on track and see where you’re hitting or missing the mark. If your team’s performance is lagging behind, you can keep on top and detect what issues are ensuing.
Identifying KPI Logistics
Shipping Time is the duration of time it takes for operations to transport an order on or prior to the allocated date. This metric is significant when it comes to delighting customers.
Companies also pair shipping time with on time shipping KPI.
Order Accuracy is the calculation of inventory and order pick accuracy. Not having strong order accuracy can subject businesses to delays in production sales, resulting in a loss of time and money.
On Time Delivery represents the number of shipments delivered in regards to the quantity and schedule allocated upon ordering. This is highly regarded as a customer-centric metric as it calculates how frequently a customer receives their order on time.
Shipment Frequency is the number of loads your operation sends out within a certain period. Keeping track of this allows businesses to optimise their resources and meet their financial objectives.
Supply chain management
Lead Time is the time measured when a customer purchases an item and when it arrives at their destination. This metric is essential when it comes to identifying potential obstacles that could impact the lead time.
Capacity Utilisation refers to how much of a resource an operation is using. Such resources can include professional services or production of goods. This metric is important in tracking resources and managing maintenance.
Productivity is a calculation of how well departments, machines and team members are operating. By measuring and comprehending productivity, businesses can see the status of their performance and ensure they follow through their delivery promises.
Customer Backorder Rate refers to how frequently an operation cannot carry out an order. This metric plays an important part in customer experience.
Inventory Accuracy calculates how close inventory records align with what is actually in storage. This is important when it comes to knowing how much stock your operation has and anticipating future inventory purchases.
Inventory Turnover is the calculation of the number of times within an interval that a business sells all of a specific product. This is significant for maintaining success and competitiveness for retailers.
Stock vs sales
The stock to sales ratio measures the quantity of stock in contrast to the number of sales being fulfilled. Given inventory is severely costly, companies that keep their inventory expenses in alignment with their sales have the ability to save money.
Trailer Utilisation looks at how well operations are packing their trailers. The rate of trailer utilisation demonstrates how a business arranges their load and if costs are being reduced as much as possible.
Warehouse Costs are a collection of metrics that fund expenses specific to a business’ warehouse. This involves labour, shipping, equipment and delivery costs. Employing this KPI allows you to see the operational efficiency of your warehouse.
Average Dwell Time refers to how long a carrier waits before processing for pickup and delivery. Sellers who have a low average dwell time can expect to find difficulty in attracting drivers.
Fuel Consumption must be targeted when setting fleet management KPIs. This can include tracking fuel consumption, with the addition of improving driver behaviour and the efficiency of routes being taken.
Driver Safety is important for fleet managers to consider given their duty of care to team members under their watch. That’s why monitoring their behaviour on the road and ensuring they’re abiding by road safety standards.
Vehicle Maintenance should be prioritised to keep up your business’ performance. Fleet managers should centralise on reducing downtime, overheads and repair costs. This metric helps to improve fleet performance and reduce unnecessary downtime.
Tracking KPI Logistics With Locate2u
Locate2u is a fleet management software that can assist logistics managers by managing bookings, optimising routes and providing proof of delivery.
Set realistic targets and achieve them with Locate2u! Click here for information!