Logistics KPIs are an important element of monitoring a company’s success. That’s because the supply chain holds such great power over the business operations. With so many steps along the supply chain, any one factor can make a dent in a wide range of results, whether profitability, customer service, and reputation, or growth.
What Are the KPIs in Logistics?
What is a supply chain KPI? It’s a key performance indicator, supply chain metrics, that allow logistics managers to track and follow processes vital to business success. There are logistics KPIs, warehouse KPIs, distribution KPIs, transportation KPIs, and others.
The good news is that KPIs are relatively easy to calculate and track, given the plethora of data now available. Some companies even have a KPI dashboard to keep the metrics top of mind and constantly monitored. With hundreds of KPIs available across the vast supply chain, there’s no reason to worry about all of them. See which logistics key performance indicator is out there, and choose the most meaningful ones for your business. You can always add on more later, especially as your business grows or changes, or as different elements take on greater value.
Why Are Logistics KPIs and Metrics Important?
Supply chain management uses a KPI metric to understand their business in the context of how well they’re doing. They also use it to understand how their own business compares to peer businesses, like an industry benchmark. By identifying where improvements can be made, based on the metrics, managers can tweak the process, whether changing inventory levels, inventory accuracy, altering shipment details, lowering costs, or changing order fulfillment, for example.
Without understanding the reasons behind the metrics, though, you cannot make changes to improve your company’s situation.
What Is Logistics Management
Logistics KPIs are important in logistics management, which is the process of handling and spearheading how goods are procured, moved, and stored. Just like supply chain management, logistics management begins with the raw materials or initial products and goes to the consumer delivery. The process also involves other business functions including management and operational performance. It manages the logistics process.
How to Set Up Logistics KPIs
Setting up logistics KPIs starts with determining which goals the KPIs will measure. Those goals might include optimizing the supply chain performance by managing transportation costs, lowering freight costs, decreasing the need for return logistics, smoothing over the entire warehouse operation, or becoming a leader in the logistics industry.
It’s helpful to get specific, as well, to understand how order accuracy impacts customer service, how many orders are received on time in full, whether inventory is available when needed, and whether the distribution center is getting items to the dock for shipping by pick-up time. Here are 10 KPIs to consider implementing in 2021 or 2022.
These warehousing KPIs are popular for a reason.
Perfect order rate: This is sometimes referred to as customer order rate, and it detects the percentage or ratio of orders that are shipped with no problems. These problems can include damage, wrong items sent, or delayed shipping/receiving. It focuses on customer satisfaction, and it can also affect return logistics.
Order accuracy: The order accuracy metric relates to perfect order rate. This one, though, measures whether any errors were made in the picking process and is a narrower metric. It focuses on quality within the warehousing picking process.
On time in full: This metric again looks at order accuracy and perfect order rate to measure how many parcels were shipped in full and on time, rather than in pieces. If all items are available at the warehouse, a package should go out in full. Sometimes orders are split up because there is inventory missing from that warehouse. If it’s not on time, there are other processes to investigate.
Inventory turnover: The warehouse manager wants to know how quickly the inventory turns over or replaces itself. If it’s too slow, the shipper may be ordering too much of the product, and they can waste money on obsolete inventory. If it turns over too quickly, then there could be shortages if there’s a restocking delay.
Inventory accuracy: This KPI metric determines how accurately the inventory list matches what is in the distribution center. It helps with forecasting for future purchase orders as well.
Warehousing cost: Shippers want to know what the warehousing cost is per item, to help gauge if there are ways they can save on storage and fulfillment. These factors include labor, equipment, energy, and costs to move items into and out of the warehouse.
Transportation KPIs relate to the distribution process within the transportation management system. Here are some of the top key performance indicators for the shipping industry to consider.
Shipping time: This measures the time for a company to ship an order on or before the requested date. This is a metric that shippers watch closely because it relates to customer service, and missing this metric can drive business away. It can also be part of the logistics service KPIs.
Average dwell time: This is the time that a carrier, like UPS, FedEx, or a freight carrier, waits before the pickup or delivery is processed. The metric shows how efficient a warehouse is. Low dwell times are preferable to high dwell times, and the longer dwell times can impact your transportation cost and ability to attract and retain carriers and drivers.
On-time delivery: The on-time delivery metric measures the rate at which entire orders are delivered in full, and this affects customer service.
Transportation costs: Like warehousing costs, this metric looks at a wide range of factors that contribute to the products’ transportation and delivery costs. It includes warehousing costs, trucking rates, and even order processing and administration costs. A freight forwarder would be interested in this metric.
KPIs Dos and Don’ts
There are right ways and wrong ways to manage KPIs in the logistics industry. Here are some dos and don’ts to practice.
- Choose KPIs that are pertinent to your business.
- Ensure you have accurate data to use for measurement. Otherwise, your KPIs won’t be accurate.
- Act on the results you see, or your time won’t be well spent in measuring KPIs.
- Share the results with your supply chain management staff and employees so they can buy into the improvement process and be proud of what they accomplish.
- Don’t take on too many KPIs at once. Start with five to 10 in an area, and see how that goes. Then add more.
- Don’t keep the same KPIs forever. Try new ones once you see how it works. That way you can learn new things about your business and keep improving.
- Don’t maintain the same target for each KPI. Set higher standards once you reach a goal level.
- Don’t shoot for the stars in the beginning. It’s important to experience success first, and then slowly raise your standards.
Making use of your logistics KPIs
Now that you understand some of the logistics KPIs that you can use in your business, you have some work ahead of you. Choosing the right KPIs to implement in 2021 or 2022 shouldn’t just be one person’s decision. Come up with some ideas and share them with warehousing staff and transportation staff. Find out what they think of the KPIs and which ones they would like to see in use too. This way you will get the most buy-in and value from the process.
There are other ways to improve your logistics spend and make better use of company funds. By lowering costs, especially in easy-to-see ways, you can improve some KPIs as well, without doing a lot of work. The first way is using an invoice audit recovery program, which scours carrier invoices to find errors and mistakes. This process, which happens behind-the-scenes and without effort on your part, can usually save you 1% to 9% of your total invoice costs. Imagine how quickly that would improve a transportation cost KPI or the total cost of goods.
The invoice audit recovery program can be applied to parcel, LTL, and FTL shipping. Shipware’s program uses artificial intelligence to find invoicing errors that would be difficult to impossible for a human to find, especially with so many invoices received. The errors can include a missed service guarantee or an incorrect accessorial fee, and they all add up. The software works automatically, pulling in the invoice data and applying for credit on behalf of the shipper. All refunds go directly into the shipper’s account without any shipper effort. It is simple to set up and runs automatically. The Shipware fees come from the credit recovered from the carrier, so there are no out-of-pocket costs, including no set-up fees. Shipware is only paid if the shippers receive credits.
Logistics managers also find great value in optimizing carrier contracts. This process is a little more work than the invoice audit recovery program, but the stakes are higher. There’s a good chance that your company can renegotiate a carrier contract and save a lot in costs. The renegotiation process can happen at any time, not just when your contract is up for renewal. The process involves diving into your shipping details and nuances of your shipment types, and then comparing these factors to benchmarked data. Shipware provides this contract optimization service for parcel, LTL, and FTL freight carriers.
Shipware is able to get great results because of the in-house expertise from former carrier-side shipping executives, along with proprietary benchmarking data used in the negotiating strategy to get better rates and terms. Without these insights, shippers usually cannot negotiate as good a package, since there is more to negotiating a carrier contract than just requesting a higher discount. A lot of money is at stake, as Shipware can help lower your annual costs by up to 30%.
It’s important for shippers to use KPIs to manage and measure their supply chain processes. Tools like invoice audit recovery and contract optimization can layer on savings and lower costs across the board. To learn more about how invoice audit recovery services and optimizing your contracts can help your company’s supply chain metrics, please contact us at (858) 879-2020.