What are Logistics KPIs?
Logistics KPIs are metrics that businesses use to measure the performance of their supply chain processes, from purchasing and procurement to final delivery to the end customer. Tracking logistics KPIs helps companies better understand the effectiveness and efficiency of their internal and external operations, partners, and resources.
In this article, we’ll review the most important logistics parameters you should regularly monitor to increase productivity and improve customer satisfaction.
Why Logistics KPIs are Important in the Supply Chain
Supply chain leaders understand the power of logistics KPIs in driving transformative improvements in order processing, inventory management, transportation, and cost optimization.
Logistics KPIs allow companies to compare their supply chain processes and operations against industry benchmarks. Supply chain managers use logistics KPIs to identify and track logistics processes that need improvement. These metrics also help you to visualize and improve the various areas of inefficiency, including demand forecasting, warehousing management, and delivery performance.
Logistics KPIs Your Business Can’t Ignore
You can use hundreds of logistics KPIs to measure your supply chain performance, but you should focus on the ones that matter most to your business.
Order Management KPIs
- Shipping time: Shipping time measures the time it takes for a business to ship orders on or before the expected ship date. It reveals just how effective a company’s shipping and delivery processes are and can help improve customer satisfaction rates.
Shipping time is a logistics metric that allows organizations to set a benchmark shipping time for each product. - Order accuracy (or perfect order): Order accuracy, also called perfect order rate, measures the percentage of all orders that are correctly processed, shipped, and delivered to customers.
Businesses should improve inventory and order picking accuracy as much as possible, which leads to fewer returns and increased revenue. - On-time in-full: On-time in-full (OTIF) is a logistics key performance indicator that measures the percentage of all customer orders fully delivered (i.e., the quantity ordered by the customer) on time.
OTIF is a combination of two KPIs, On-time (OT) and in-full (IF). This metric helps businesses determine the efficiency of their partners, order fulfillment processes in making on-time deliveries (OT), and meeting customer requirements (IF). - Number of shipments: This supply chain KPI measures the average number of cargoes processed and shipped by a company during a specified period of time (per day, week, month, or year).
The number of shipments metric tells your shipping volume over time, particularly during rush hours and peak season. It also offers insights into your logistics processes and capabilities.
Inventory KPIs
- Customer backorder rate: The backorder rate KPI is the percentage of orders that cannot be filled at the time because of product shortage. A high back order rate indicates inefficiencies in a company’s inventory management and demand forecasting processes.
Low performers for this metric face slower order cycle times and have to return any initial payments to the customer, negatively affecting the company’s cash flow and bottom line. - Inventory accuracy: Inventory accuracy measures the difference between your inventory records and actual. This metric helps companies create accurate forecasts of future purchase orders.
On average, the inventory accuracy rate for US businesses is 65%, meaning that the average business is wrong about their inventory status one-third of the time.
Poor inventory accuracy can impact logistics operations and lead to inventory shrinkage, long lead times, and inaccurate financial reporting. To improve inventory accuracy, you need to increase visibility in your inventory management processes and track stock levels in real-time. - Inventory turnover: Inventory turnover measures the number of times a company sells and replaces its inventory during a given time period. A high inventory turnover indicates strong sales, and a low turnover means excessive stock and weak sales.
Note that good turnover varies across product types and industries. High volume/low margin products (e.g. grocery items) have high inventory turnover compared to low volume/high profit products (e.g. luxury items). - Inventory to sales ratio: This logistics KPI measures how quickly a company sells and replaces its inventory in a certain period of time. It compares the value of items stored in your inventory with the actual number of sales.
This KPI helps businesses maintain optimal inventory levels (neither too little nor too much) to meet sales.
Distribution KPIs
- Trailer utilization rate: Trailer utilization is a logistics KPI that measures how efficiently a company utilizes its trailers’ capacity for its logistics operations. This ratio helps logistics managers improve delivery capacity, reduce fuel and overhead costs, and increase profit margins.
- Warehousing costs: Warehousing costs are metrics used to measure the costs of a company’s logistics operations at a facility. These KPIs offer a snapshot of how cost-effectively you use your warehouse resources.
- Average dwell time: Average dwell time is the time a carrier’s driver has to wait while a company processes pickup and delivery.
- Average transit time: Average transit time, also known as average delivery time, measures the average time it takes for a package to reach the customer once shipped. This KPI is an essential indicator of the performance of your supply chain network.
Supply KPIs
- Lead time: Lead time, also called order cycle time, measures the time a company takes between order placement by customer and delivery of the order. Long lead times indicate the inefficiencies of your order fulfillment operations and can result in customers buying from your competition.
- Capacity utilization: Capacity utilization is a measure of efficiency, showing how well a company utilizes its logistics resources and processes. High capacity utilization indicates profitability and efficient resource management.
- Productivity: In supply chain management, productivity measures how efficiently a company manages and utilizes its human and material resources (including raw materials, warehouse equipment, technological tools, etc.) Strong supply chain productivity results from good management and effective resource utilization.
Transport Management KPIs
- Delivery time: Delivery time is the measure of the number of orders delivered to customers on time and in full compared to the total number of orders shipped. Long delivery times indicate bottlenecks in your supply chain network and slow delivery methods being employed.
- Average days late: This supply chain KPI measures the difference between the committed delivery date and when the package is delivered to the customer. Average days late shows the effectiveness of your order fulfillment operations in meeting committed delivery dates.
- Truck turnaround rate: Truck turnaround time measures the total time a delivery truck spends between a company’s pickup or delivery process. It includes the time from arrival, truck inspection, loading and unloading of shipments, documentation, and departure from the facility. Short truck turnaround times indicate efficient transfer of goods from the truck to the facility and vice versa.
- Parcel invoice rate accuracy: Parcel invoice accuracy measures how often a company receives correct invoices from its carrier. This KPI helps businesses identify the instances of overcharging and incorrect service levels in their parcel invoices. Ignoring parcel invoice errors can lead you to pay higher prices, affecting your bottom line.
- Transportation costs: Transportation costs are a set of KPIs that accurately assess the cost of fulfilling customer orders. Tracking and optimizing these KPIs (e.g. cost-per-mile, cost-per-unit, etc.) can help you reduce mileage to complete the same deliveries and improve profitability.
Keep an Eye on Important Logistics KPIs With Sifted
Supply chain managers use logistics KPIs to measure their logistics operations’ efficiency, speed, and quality. Tracking and optimizing these metrics allows businesses to eliminate inefficiencies, improve processes, and increase their bottom line.
Sifted Logistics Intelligence helps shippers track and benchmark the most relevant KPIs in a single place, delivering complete data visibility and insights into their order fulfillment processes.
Ready to align your shipping operations with your business growth goals? Get a free demo from Sifted!
