Logistics managers spend hours tracking, visualizing, and optimizing their processes to make them efficient at every stage. Delivery excellence, after all, is a key determinant of a successful logistics business.
But executives and managers must keep track of the correct logistics key performance indicators (KPIs) and metrics if they really want to understand what's going on in their operations. Below are the delivery excellence KPIs to track for logistics businesses who want to serve their customers even better.
On-Time Shipping Rate
Your on-time rate is the ratio of orders that have been shipped on or before the expected ship date, divided by the overall number of orders. This is the first and most basic logistics metric that organizations need to measure to evaluate their supply chain performance. If you're consistently delivering fewer orders each day than you've scheduled, it's a big red flag that you need to look at your routing, dispatching, or some other area of last mile operations.
Accuracy of Orders
Perfect order rate is another essential logistics KPI. It measures the number of orders that were processed, shipped, and delivered without any problems. This means that the delivery and shipping time is well within the target, and the orders sent out is correct, without any damage or missing items. This metric directly impacts overall customer satisfaction, but, like the KPI above, it also tells you something about your operations more broadly. For instance, if your accuracy is low because of damage to items occurring in shipping, it may be time to invest in telematics to better monitoring things like hard braking.
Average Cycle Time
Next, it's important to track the time needed for orders to be prepared correctly until they reach their end destination. This is measured by tracking the time it takes from the moment a customer placed the order until the moment it is delivered.
There are plenty of businesses that offer customization or products or that have otherwise long lead times for whom this number is going to seem high. But it's the type of KPI that helps you gain a baseline understanding of your supply chain performance, such that you can hone in on the last mile with a more thorough understanding of the entire value chain.
Average transportation cost is another essential KPI. It is the sum of all the costs involved in the entire fulfillment process, from the processing of an order through delivery completion. The average transportation costs should show the expenses involved for various categories such as administrative, order processing, inventory carrying and storage or warehousing, plus the actual transportation expenses like fuel and driver settlements. Obviously, you should make it a goal to decrease the average transportation costs without sacrificing high-quality order delivery. This KPI becomes even more powerful when it break it down by order or by delivery. If you can answer the question of which of your stops are most profitable, you can much more effectively optimize your operations.
This includes all the funds spent on having the goods moved both inside or outside of the warehouse. These costs might include:
- Equipment & Repairs
- Energy Use e.g., storing, ordering and the loading of goods
- Labor & Employment related expenses
Businesses need to measure and evaluate warehousing costs regularly so they can improve their operations by eliminating inefficiencies in warehouse operations, wherever possible.
Number of Shipments
Evaluating the number of orders being shipped out of the warehouse is another KPI to track. Businesses should remember that shipping isn't purely about dispatching goods in delivery vehicles but also involves the quality and precision of order fulfillment, i.e. overall service quality. Measuring the number of orders being shipped out of the warehouse will provide valuable insights during the rush seasons, thus allowing the business to allocate resources adequately. This is another one that might seem obvious, but if it takes a while to find a satisfactory answer here it may be a sign that you need to invest in improved last mile visibility.
Accuracy of Inventory
Experts say inventory accuracy can make or break the warehouse as inconsistencies between the actual physical inventory and the databases can hobble business efficiency. An inaccurate inventory often results in unexpected backorders, and eventually, lower customer satisfaction. Businesses should regularly check their physical inventories against their electronic records to avoid inventory shortages and the logistical nightmares that arise from them. You might also track your inventory turnover across time periods. There is no single number or rate to indicate a healthy inventory turnover, since it varies per industry. For example, a car dealership generally has a lower turnover than an appliance store. The best practice is to use the average rate of each particular industry as a benchmark. In either case, the goal is the same: you don't want items taking up valuable space for any longer than necessary. Sometimes slow inventory is a problem with demand forecasting, but just as often it circles back to delivery. If you're having trouble tracking down customers on the phone in order to nail down a delivery window, or they're frequently not at home to accept deliveries, goods simply aren't going to (permanently) leave the warehouse at a workable rate.
Inventory to Sales Ratio
This KPI measures the inventory business carry vis-a-vis the number of units sold. It is a good measure of evaluating the overstock of the business. The inventory turnover and the inventory to sales ratios will provide helpful insights into a business's financial stability along with another metric. Again, inventory metrics often tell you something about the state of your delivery performance as well.
Effective inventory and logistics management can combine to have an enduring positive effect on a business's reputation, overall operating efficiency, and financial health. By tracking these KPIs, you can work to eliminate uncertainties in the processes while simultaneously creating realistic benchmarks for operational improvement over time. All said, measuring the right metrics correctly will provide useful data and valuable insights that can drive superior decision making, thus propelling your business into greater heights.