KEY PERFORMANCE INDICATORS (KPI)

& METRICS IN LOGISTICS

By:- Israr K. Raja
Islamabad, Pakistan
KEY PERFORMANCE INDICATORS (KPI) &
METRICS IN LOGISTICS
KEY PERFORMANCE INDICATORS (KPI) AND
METRICS OF LOGISTICS
A logistics KPI or metric is a performance
measurement that is used by logistics managers to
track, visualize and optimize all relevant logistic
processes in an efficient and transparent way.
Among others, these measurements refer to
transportation, warehouse and supply chain aspects.
KEY PERFORMANCE INDICATORS (KPI) &
METRICS IN LOGISTICS
List of the most important Logistics KPIs
and Metrics
Shipping Time: Spot potential issues in your order fulfilment process
Order Accuracy: Monitor the degree of incidents
Delivery Time: Track your average delivery time in detail
Transportation Costs: Analyze all costs from the order placement to
delivery
Warehousing Costs: Optimize the expenses of your warehouse
Number of Shipments: Understand how many orders are shipped
Inventory Accuracy: Avoid problems because of inaccurate inventory
Inventory Turnover: Track how many times your entire inventory is
sold
Inventory to Sales Ratio: Identify a potential overstock
 Shipping Time
Spot Potential Issues in the Order Fulfilment Process

The On-Time Shipping performance refers to “the ratio of orders that

have been shipped on or before the requested ship date divided by
the total number of orders”.
This is a first logistics KPI to help you measure your supply chain
performance.
Indeed, if the amount of time between the moment the customer placed
his order and the moment that order is prepared to be shipped is too
long, that can show some trouble in the process that need to be fixed.
Whether it is outdated planning processes or disconnected execution
systems too slow to face an increasing demand, the issues need to be
addressed to quickly answer unexpected events.
 Performance Indicators
After realizing a benchmark of the average time you
need to ship a certain type of order, you can set a target
shipping time relative to each product to achieve.
 ORDER ACCURACY
Monitor the degree of incidents from the placement to the
delivery of an order

The Perfect Order Rate is another highly important logistics

metric when it comes to your supply chain efficiency.
It measures “the amount of orders that are processed,
shipped and delivered without any incidents on its way”.
The shipping time as well as the delivery time are both respected,
the order is not a wrong one and the goods are not damaged.
It is important as it shows the efficiency of your supply chain and
delivery services, and that leads of course to more satisfied clients
that are willing to come back or recommend your services.
 Performance Indicators
The higher is accuracy rate, the better it is for your
business.
You will lose less money with returns of inaccurate or
damaged goods, and increase the level of satisfaction
of your customer base.
 DELIVERY TIME
Track the time it needs for an order correctly prepared to arrive at
destination
The Average Time Delivery is “measured from the moment the order is placed
to be shipped and the moment it is delivered to the customer/post office”.
After benchmarking and having an idea of the average delivery time from your
warehouse to anywhere, the goal would be to decrease it when possible - offering
special delivery services for instance - but more importantly, to precise it.
Saying that an order will arrive in 4-5 business days is better than saying it will
arrive in 1-to-5 business days.
Additionally, if you can precise the delivery hours (between 13h and 15h rather
than between 8h and 18h), it is even better.
That way, your customer knows when he should be home to pick the package up,
increasing your order picking accuracy rate and avoiding returns.
 Performance Indicators
This is a typical logistics KPI example to narrow down
and precise as much as possible for a better service.
 TRANSPORTATION COSTS
Track all costs from the order placement to its delivery
The Average Transportation Costs calculates “an overall of the expenses involved
in processing an order from the beginning to the end”.
It will break down all the costs related to this logistics KPI according to distinct
categories:
the order processing,
the administrative,
the inventory carrying,
the warehousing
the actual transportation costs.

After calculating all these, you can evaluate the percentage each stage of the
process represents and see if that is excessive or in the norms.
You can also calculate the transportation costs relatively to a product and see
how much one item costs compared to how much revenue it brings you.
TRANSPORTATION COSTS
 Performance Indicators
The goal is to decrease the transportation costs while
maintaining a high quality of delivery.
 WAREHOUSING COSTS
Monitor the expenses involved in the management of your warehouse
Warehousing is the management of space and time.
The Warehousing Costs refer to “the money allocated to the goods moved into or outside
the warehouse”.
These expenses cover
Equipment and energy costs
Ordering costs
Storing Costs
Loading/Unloading the goods costs,
Labor Costs
Shipment Costs
Delivery Costs
The warehousing costs are a component of another logistics KPI, the total transportation
costs.
Measuring them is not an easy task, but once it is done it will facilitate your overall
management and add a lot of value, something that senior management or investors will
appreciate.
WAREHOUSING COSTS
 Performance Indicators
Warehouse being the main area of your business, it is
important to measure and review the costs on a regular
basis, so as to improve your operations and evaluate
such improvement.
 NUMBER OF SHIPMENTS
Evaluate how many orders are shipped out of our warehouse
Shipping is not only a matter of dispatching goods and packages in
trucks or boats.
Shipments are the showcase of your warehouse;
their quality and the accuracy to primary order will demonstrate
the quality of your service as well.
The same way you measure the number of orders placed ready on
time to be shipped (On-Time Shipping KPI), you can measure
“the number of orders shipped out of your warehouse”.
Analysing the trends over time will provide great insights on rush
hours or rush seasons (such as Christmas time), and enable you to
anticipate and allocate more resources accordingly.
NUMBER OF SHIPMENTS
Performance Indicators
Breaking down this figure into several categories
(countries, regions, types of products) will provide you
greater information that you can use to optimize other
logistics metrics, like the ones related to delivery.
 INVENTORY ACCURACY
Avoid problems because of inaccurate inventory
Inventory Accuracy is one of those logistics metrics that can make or break
your warehouse.
Inventory Accuracy “having certain that records of all goods in the
database matching the actual physical inventory”.
Indeed, having a certain record of all your goods in your database that doesn’t
match the actual physical inventory can harm your business considerably.
If your inventory is inaccurate, that can lead to unexpected backorders but
also unsatisfied customers and more generally, higher overall costs.
A regular inventory checking the existing discrepancies with your electronic
inventory record ensures that bookkeeping practices are in order and that
your business is reliable, avoiding phantom inventory nightmares.
This ratio will also help you spot issues related to receiving, shipping, or
accounting.
INVENTORY ACCURACY
 Performance Indicators
On a more realistic level, it is also normal to have
some disparities between the record and the
warehouse, but the idea is to maintain that ratio over
92% as much as possible.
 INVENTORY TURNOVER
Track how many times your entire inventory is sold
This logistics KPI measures “the number of times your inventory
entirely has been sold over a certain period of time”.
It is a great indicator of efficient production planning, process, as well as
marketing and sales management.
In general, the higher your turnover rate, the better.
A low turnover may translate difficulties in turning your stock into
revenue, and that can come from any stage of your supply chain process.
There is not one general rate to achieve, as it depends on the industry
your company is evolving:
a car dealership will have a lower turnover than a common groceries store.
The idea would be to benchmark your industry average rate and try to
reach and exceed that target.
 Performance Indicators
After calculating yours, compare it to the average rate
of your industry and surpass it.
INVENTORY TO SALES RATIO
Evaluate how much inventory you carry in comparison to the
number of sales performed
This logistics metric is good at evaluating the overstock.
It measures “the ratio between the available inventory for
sale, versus the actual quantity that is sold”.
This is a great performance indicator that will also tell you if your
company is able to face unexpected situations.
It is an even greater indicator if you measure and use it with other
KPIs such as Inventory turnover, or the Carrying cost of inventory.
That will let you know about the financial stability of your
business, but also the direction you want to take - selling your
inventory as quickly as possible or not.
 Performance Indicators
It really depends on your business what your target
ratio should be.
Usually you try to keep it not too high to avoid low
inventory turnover rates.