There’s a lot to shipping and getting it right for client satisfaction and company profitability. One way to ensure success is to monitor key performance indicators for the shipping industry. A key performance indicator (KPI) is a measure used to track and understand the shipment process and supply chain metrics. When measuring success with a KPI, a logistics leader monitors supply chain, warehouse, and transportation data to see how well the internal processes are working.
With continued digitization in the shipping sector, the plethora of data is analyzed to show whether the company’s goals are being met and any improvement trends and challenges. Changes in a logistics key performance indicator over time can highlight an area needing attention, a problem to address. Perhaps delivery slowed down or the order fulfillment process is dropping. The KPIs allow the shipping managers to develop improvements within the customer order cycle. We share 13 KPIs in three categories to consider using in your shipping company.
What does KPI mean in logistics?
KPIs are used in all industries to measure results and performance over time. There’s no end to the number and type of KPIs used to measure performance metrics in the logistics industry. In logistics, KPIs can help a warehouse manager understand performance at a glance. It helps the manager know whether customers will be satisfied based on the metrics.
KPIs are important in logistics to ensure customer satisfaction, whether retaining customers or attracting new ones. Customers expect fast and accurate delivery, and they expect their goods to arrive undamaged. This puts a big burden on the shipper to meet these demands. Customers are looking at KPIs too, but not listed as such. They want to know how long it takes for their goods to arrive and know that they’re well-packaged and accurate. Competitors can take away this business if a shipper’s logistics KPI metrics aren’t met.
What are the three types of performance indicators?
In logistics as a whole, there are three types of KPI categories.
- Procurement: Procurement KPIs track processes and costs like the inventory cost, material arrival time, and reorder time. It can also be considered a supply chain KPI. These KPIs are helpful for managing and tracking inventory turnover in the warehouse and ensuring the right products and materials are available at the right time, without overspending. The freight forwarder may also be tracking procurement KPIs, as the goods are shipped to the warehouse, from origin to final destination, for their customers.
- Logistics: Logistics or warehouse KPIs track the picking and packing process, as well as order accuracy and picks per worker. These are considered some of the shipping KPIs. The metrics are important for 3PLs contracting with shipping companies, as well as for warehouse managers running their own operations.
- Transportation: Transportation KPIs include the freight pick-ups and delivery times, freight cost, as well as cost from order placement to delivery. Carrier performance and distribution metrics are important to measure with KPIs. A distribution KPI helps logistics staff understand how quickly and cost-effectively customers are receiving their products.
What are good key performance indicators?
Each shipper and warehouse manager will want to use KPIs specific to their own needs. For this reason, there is not one KPI that everyone in the shipping industry will want to use. Each shipping company should pick the ones they want to track and potentially improve. Additional KPIs can be added as needed, whether for the short term or the long term. Here are 13 to consider.
Inventory velocity: The inventory velocity KPI represents the speed at which each inventory type cycles during a specific time period. In accounting, this might be represented as the cost of goods sold divided by the average amount of that inventory on hand.
Inventory turnover: While similar to inventory velocity, inventory turnover measures how many times the entire inventory is purchased in a given time period. This represents efficient production planning plus sales and marketing management. Higher turnover levels are preferable. Of course, the rate depends on the industry and types of products sold. A company selling large expensive pieces of equipment will likely have a lower inventory turnover rate than low-cost apparel.
Inventory-to-sales ratio: This KPI identifies overstocks and considers what inventory is available for sale compared to the number or quantity actually sold.
Picking accuracy: Picking accuracy, also called order accuracy, is a KPI example of the number of orders picked accurately, without errors. The number is compared to the total number of orders and can be calculated by items returned from a customer order, or from quality assurance checks when the order is sealed and labeled for shipping. Order accuracy is important for customer service as well as operational performance. Perfect order rate is another way to look at it.
Pick and pack costs: This KPI measures the cost of picking and packing the items for delivery. It includes labor costs as well as packing methods and supplies.
Shipping time: This shipping time KPI measures supply chain performance, the time from the order’s receipt to the day it’s shipped. A longer shipping time means something went wrong during the process, whether the orders aren’t shared quickly enough with the distribution center, the current inventory levels aren’t adequate, inventory accuracy is problematic, shipping capacity is limited, or there’s a back-up in the picking and packing process.
Number of shipments: This KPI measures how many shipments are processed and shipped each day, week or month. The metric helps identify shipping trends based on holiday or season, allowing your company to plan labor and transportation needs more accurately.
Warehousing cost: This warehousing KPI reflects the cost to move products in and out of your warehouse.
Shipping cost: Shipping can be a major cost center in logistics. Fortunately, there are ways to lower costs like with contract optimization and invoice audit recovery. But it’s hard to know what to lower without having some logistics metrics like shipping cost.
Delivery time: In the days of one or two-day Amazon delivery, your delivery time matters. The delivery time is often measured from when the order is ready to be shipped to when it’s given to the transportation carrier. Customers may get alerts that the order is ready, so they can track its movement and timing.
On-time pick-up and delivery: This metric is similar to delivery time, but hones in on the on-time portion for both pick-up and delivery.
Transportation cost: The transportation cost KPI considers all transportation costs spanning order placement through the delivery.
Carrier compliance: Your transportation carriers represent your company, even if your name isn’t on their truck. That’s why it’s important to monitor carrier compliance. Compliance can include factors like unsafe driving, hours of service, vehicle maintenance, driver fitness, hazardous materials compliance, and others. By enforcing carrier compliance KPIs, you’re able to have some control over carrier performance.
Making use of your logistics KPIs
There are many lessons to learn from logistics and supply chain management KPIs, and using key performance indicators in the shipping industry can lead to better performance and profits. There are a few ways to lower shipping costs and improve shipping KPIs without much effort. One way is by using an invoice audit recovery program. Shipware’s program usually saves clients 1% to 9% of their total invoices. The program can be used for parcel, LTL, or FTL shipping. Invoice audit recovery software catches invoicing errors, ranging from a missed service guarantee to an incorrect accessorial fee. The software works automatically to find the errors and apply for credit on behalf of the shipper. Refunds are deposited directly into the shipper’s account and involve no shipper effort. The Shipware program is automated, running in the background, and is easy to set up. There are no out-of-pocket costs. The fees are paid only if money is recovered from carrier errors. The invoice audit recovery program improves the shipper’s bottom line, and can also improve several key performance indicators for the shipping industry, helping supply chain management as a whole.
Another service that can benefit logistics key performance is optimizing carrier contracts. It’s important to evaluate and renegotiate carrier choices on a regular basis. That includes more than just what carriers are used. It means looking into the shipping details and nuances, such as comparing your metrics to benchmarked data. Shipware provides contract optimization services for parcel, LTL, and FTL freight carriers. Shipware uses proprietary benchmarking data to dig into the shipper’s data in a way that is hard for shippers to do themselves. That’s because Shipware’s experts have decades of experience behind the scenes on the carrier side. That expertise allows Shipware to better understand what terms can be negotiated, and by how much. There is more to negotiating a carrier contract than just requesting a higher discount, and Shipware can help lower your annual costs by up to 30%, which positively impacts shipping KPIs.
Shippers need all the tools available in their arsenal to improve their logistics KPIs, and Shipware would like to help. 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.