20 Best Logistics KPIs and Metric Examples for 2022 Reporting

insightsoftware -
November 16, 2021

insightsoftware is the global provider of enterprise software solutions for the Office of the CFO to connect to & make sense of data in real time, driving financial intelligence across […]

Logistics KPIs and Metrics

What is a Logistics KPI?

A logistics key performance indicator (KPI) is a quantitative tool used by businesses to measure performance within their logistics department. Logistics KPIs can measure a variety of metrics, most of which pertain to purchasing, warehousing, transportation, delivery of goods, and financials.

A logistics key performance indicator (KPI) is a quantitative tool used by businesses to measure performance within their logistics department. Logistics KPIs can measure a variety of metrics, most of which pertain to purchasing, warehousing, transportation, delivery of goods, and financials.

Importance of Monitoring KPIs for Logistics Managers

Logistics managers’ top concerns are procuring the right number of resources at the right time, transporting them to the correct location in good condition, and delivering them to the right customer. Poor logistics management could easily impact the business’s bottom line. To operate with the fewest number of disruptions, managers should closely measure and monitor logistics KPIs.

How do you go about creating a logistics KPI program for your business?

1. Identify your goals for the KPI program. What questions are you trying to answer? Some examples you could draw inspiration from are listed below:

  • How often is the product delivered late or in damaged condition?
  • How often is there a labor shortage?
  • Are transportation vehicles being used at their full capacity?

    Now is also a good time to define the different processes that your logistics team is involved in and make sure that the questions you’re asking include all aspects of your business.

2. Set achievable and reasonable targets for each KPIs. These benchmarks could come from industry standards or simply from your historical data if available.

3. Create a team to take ownership of the KPIs. Analyzing KPIs is not a stand-alone job, and it is a time-consuming task. The people in charge should be well-versed in the sector that the KPI covers.

4. Regularly review the KPIs with the responsible team and take action. If your metrics aren’t actionable, they don’t need to be included in your program. In your reviews, be sure to discuss the drivers behind every metric in detail. There are many internal and external factors contributing to a trend and understanding them will help you make informed decisions.

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If you follow the steps above, you will be well on your way in creating a program that tracks meaningful logistics metrics. However, as we all know, theory and practice differ considerably from one another. If you find yourself confused or overwhelmed, you’re not alone. We have put together a list of helpful tips to guide you on this journey:

1. Choose SMART KPIs. A SMART KPI is: Specific, Measurable, Attainable, Relevant and Time Based. You can use some simple questions to ensure the metric you’re choosing meets the SMART criteria:

  • Specific: Is your KPI too broad? The danger of having an all-encompassing KPI is that it could be too vague which leads to misinterpretations.
  • Measurable: Is your metric quantifiable? Remember that you need to set a benchmark for each and every KPI.
  • Attainable: Is your KPI target feasible? Setting a goal that is out of reach will discourage your team.
  • Relevant: Is this metric answering an important question about your operation? Be sure to choose KPIs that provide valuable information about your business. There are hundreds of KPIs that could be included in your program but remember that your resources are finite. Prioritize your metrics and only choose the top KPIs.
  • Time Based: How often should each metric be measured? Is there a deadline to achieve a set target? Include the answers to these questions in the definition of all your KPIs. Remember step 4 above. You must regularly review your KPIs. If you define a timeline for each metric, this step becomes much easier.

2. Do not choose too many KPIs! How many is too many? It’s difficult to say as it depends on your team’s experience and available resources. However, a good rule of thumb is to start with a handful and gradually grow from there. Managing metrics is a resource intensive and time consuming task. If you start too big, you run the risk of overwhelming your team and losing faith in the program.

3. Identify at least two tiers of hierarchy for your KPIs. Some KPIs are too detailed to be reported to top management, and some KPIs are too general for middle managers and supervisors. Top tier or primary metrics are monitored at an executive level and provide a general highlight, whereas second tier metrics have a higher granularity and provide more details.

4. Choose leading indicators as opposed to lagging metrics. Leading indicators predict performance whereas lagging indicators report on it. By choosing leading logistics key performance indicators you place yourself one step ahead of the competition.

5. Clean up your data! Your logistics information probably comes from multiple sources and is often delayed. Working with incomplete or outdated data could seriously jeopardize your KPI program. You can’t make good decisions without good data. Using a BI software will help unify the information and ensure that your team always has access to the latest reports.

We have gathered the top logistics key performance indicators in this article for you to consider. We have taken it upon ourselves to group these logistics KPI examples into a few cross-functional divisions: financial, supply and inventory, transportation, delivery, and labor.

Financial Logistics KPI Examples

Healthy finances are the backbone of every successful operation. And logistics is no exception. Prioritize financial KPIs and monitor them closely. They have the potential to make or break your organization. The following financial KPIs for logistics managers have been curated to bring maximum light to the internal operation of the business.

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1. Pick and Pack Costs: This logistics key performance indicator measures all costs associated with picking and packing products. It includes everything from the equipment used to move items, to the packing materials and the labor involved. Studying this metric will give the logistics managers the opportunity to find the lowest cost and most efficient processes.

2. Operating Ratio: This logistics metric shows the relationship between the amount of revenue and the operating cost of running the business.

Operating ratio = total operating expenses/total revenue

A low operating ratio is preferred as it indicates higher profits. A savvy financial leader will always aim to find creative and sustainable ways to lower the costs of business (for example, buying in bulk vs individual items) to increase the operating ratio.

3. Net Profit Ratio: This logistics KPI could be interpreted in two ways. It could either compare the after taxes profits with the amount of sales or with the total asset value.

In the first scenario, net profit ratio is a very good indicator of the amount of sales required to make a certain level of profit.

Net profit ratio = after taxes profit/total sales

In the second scenario, net profit ratio is a measure of return on investment.

Net profit ratio = after taxes profit/total asset value

4. Inventory Turnover Ratio: This logistics key performance indicator evaluates how fast products move through a company. This ratio determines the number of times inventory is renewed during a period of time.

Inventory turnover ratio = cost of goods sold/average inventory value

A higher inventory turnover ratio is preferred as it points to a strong sales strategy and a high demand for the goods.

5. Financial Leverage: This logistics metric is the ratio of total debts to total assets of the company.

Financial leverage = total debts/total assets

A high financial leverage ratio means more money is owned outside of the firm. It means that a large portion of assets are financed by debt, which implies a higher rate of return for the owners but creates uncertainty around returns to shareholders. For this reason, logistics managers should be wary of taking on any debt that is deemed too risky.

6. Inventory to Sales Ratio: This logistics metric evaluates the number of available products in inventory compared to the actual number of sales. Inventory to sales ratio measures overstock and is a good indicator of a company’s robustness when it comes to coping with unexpected supply chain interruptions.

Inventory to sales ratio = average price of inventory/net sales

Reporting on financial logistics key performance indicators could be challenging. Financial affairs are cumbersome and tedious. If you try to manage them manually, it could either take too long or be riddled with errors. It’s vital to choose the right financial reporting software that can tidy up your operation and provide you with reliable data.

Supply and Inventory Logistics KPI Examples

7. Capacity Utilization: This logistics KPI measures the use of a company’s resources. Every company has a maximum capability when it comes to manufacturing and production. By monitoring capacity utilization, logistics managers can better manage production rates, lower operating costs, and ensure a sustainable flow of goods through the company.

Capacity utilization = actual production rates/maximum production rates

This metric also sheds light on the capability of the company in handling a rise in demand.

8. Equipment Utilization Rate: This logistics key performance indicator is closely related to capacity utilization. Equipment utilization rate measures whether your business has enough (or too many) equipment for the job. Most businesses opt for an equipment utilization rate target of between 70%-90%. If a business is consistently using its equipment at higher rates than the target, then it’s time to purchase new equipment to ensure production isn’t delayed due to equipment shortage.

9. Use of Packing Material: This logistics KPI tracks the amount of packaging material used during the pick and pack process. In order to lower operating costs and reduce the environmental impacts of the business, logistics managers should aim to not only use less material, but also use more ecofriendly products to package items.

10. Pick and Pack Cycle Time: This logistics metric measures the amount of time it takes a warehouse employee to pick a product off the shelf and pack it.

Pick and pack cycle time = time packing is done–time order was picked in warehouse

Trending this KPI will lead to a deeper investigation into the inefficiencies of the product line. It might be tempting to set high targets for pick and pack cycle time, but logistics managers must keep in mind that setting unachievable goals leads to employee dissatisfaction and ultimately, poor operating performance.

Transportation Logistics KPI Examples

In addition to developing strong finances and effective inventory management, logistics managers should keep a close eye on transportation. The most effective method of doing so is trending and tracking transportation logistics key performance indicators.

11. Number of Shipments: This logistics metric monitors the number of orders that are shipped out of the warehouse. Analyzing this trend will provide the logistics team with insight into the busiest hours of the month or the year. Logistics managers could use this information to increase manpower accordingly and consequently increase revenue.

12. Truck Turnaround Rate (Truck Turning) or Average Wait Time (Average Dwell Time): Truck turnaround rate as a logistics key performance indicator measures the time from when a delivery truck enters the warehouse to collect or deliver products to when it exits the facility. This metric is a measure of company’s loading and unloading efficiency and should be kept low.

Truck turnaround rate = time at truck exit–time at truck entry

Another KPI that also measures how well a facility functions is average wait time or average dwell time. Similar to truck turnaround rate, average wait time measures the duration of time wasted by the carrier while waiting for loading or unloading. In other words, this metric measures how seamless the shipping and receiving workflow is.

Average wait time = time at product shipping/receiving – time at entry

13. Driver Performance: Driver performance is a combination of multiple transportation KPIs that are used to evaluate the quality of the trucks and the drivers; KPIs such as speed, idle time, hard-braking occurrences, and many more. By closely monitoring these trends, logistics managers can not only better manage truck maintenance, but they can also assess the quality of their drivers. Safety should always be a core value and at the heart of every organization. Driver performance metrics will allow unsafe behaviors to be caught early and provide ample time for the company to retrain their drivers.

14. Fuel Efficiency: This logistics metric measures the performance of vehicles on the road. This metric is often overlooked in logistics as most trucks aren’t considered high-mileage vehicles. But in a competitive business, any cost saving measure could add up and give the organization an edge. The relationship between operating costs and fuel efficiency is simple, the higher the fuel efficiency, the lower the operating costs.

Delivery Logistics KPI Examples

Delivery is the last step of the logistics process. It bridges the gap between your organization and your customers. Delivery services are essential in creating a positive experience for your customers. Even if you do an impeccable job managing inventory, warehouse, and transportation, you will lose customers due to dissatisfaction if your delivery process is subpar. Below are the top delivery KPIs for logistics managers:

15. Lead Time (Order Cycle Time): This logistics KPI measures the amount of time in between order placement by customer and receipt of order.

Lead time = time order was received – time order was placed

Many factors can affect lead time including shortage of raw materials, transportation issues, lack of manpower, natural disasters, and even human error. This metric helps logistics managers identify possible bottlenecks and address them before they become a widespread problem.

16. Delivery Time: This logistics metric is yet another measure of process efficiency within the logistics group. Delivery time is the duration between the moment of shipment from warehouse to the moment of receipt by customer.

Delivery time = time order was received – time order was shipped

The main goal for any logistics manager should be to reduce delivery time as much as possible, which will in turn lead to higher customer satisfaction rates. Customers are happier when the inaccuracies in delivery predictions are reduced.

17. Order Accuracy Rate: This logistics key performance indicator measures the number of orders that are processed, shipped, and delivered perfectly and without mishaps. Order accuracy plays a direct role in operating costs. A low order accuracy rate leads to returned products and a loss in revenue.

Order accuracy rate = number of perfect orders/total number of orders

Labor Logistics KPI Examples

Every business depends on its people to operate, yet, the workforce is often the most neglected part of any organization when it comes to KPI monitoring. The following labor logistics key performance indicators have been collected to remind you of the impact a happy workforce can have on your operation.

18. Sick Leave: This metric highlights the health and safety of staff. By tracking sick leave within the organization, managers can prevent the spread of diseases in the workplace and minimize labor disruptions.

19. Safety (Number of Reportable Injuries, Accidents, or Fatalities): These KPIs enforce a sense of responsibility in the workforce and ensure adherence to safety protocols. It’s important for the leadership team to closely track and review the safety metrics to minimize damages to people, products, and property.

20. Time to Fill Open Positions: This metric gauges the quality and effectiveness of business planning and recruitment processes. Time to fill open positions is the duration of time from when the job requisition is approved to when the candidate accepts the position.

Time to fill open positions = time job was accepted–time job requisition was approved

Inefficiencies and duplication of efforts within the recruitment team could lead to a long hiring process. In turn, this can result in decreased interest from potential candidates. By analyzing time to fill open positions, the organization’s hiring efforts could be streamlined to serve the company better.

The above logistics KPI examples have been closely studied in various industries and proven to play an important role in driving results. The main objective of this article is to provide a guideline on how to manage a logistics operation. The implementation of the KPI program and the subsequent success of your organization largely depends on you and your team.

After having learned how to choose and monitor KPIs, now it’s time to concentrate on creating an accessible platform to easily visualize your metrics. Developing an efficient KPI dashboard that integrates well with your existing system is a costly and time-consuming endeavor. As a logistics KPI manager, you must be smart with how you allocate your resources. By investing in Insightsoftware’s business KPI dashboard you stop reinventing the wheel and allow your team to focus their attention on refining the KPIs and taking action where it matters.

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