WHAT ARE KPI LOGISTICS METRICS AND HOW TO CALCULATE THEM
KPI, an acronym for Key Performance Indicator, is a management tool to evaluate the performance of a process. Logistics KPIs are the indicators created to monitor the performance of the company’s logistics processes.
With it, manager’s make an analysis of activities and can monitor the performance of your business, either during a sale, the performance of a service, in customer support or through specific sectors of a company such as logistics.
The use of KPIs allows managers to monitor the performance of processes objectively, through clear figures and easy to measure analysis.
The ideal is that KPIs are available in real time, through automated control panels, providing much more functionality to monitoring, calibration and assistance for managers to make quick decisions.
How does KPI work in practice?
In practice, the KPI points out the level of performance a process should achieve and measures its performance.
From there, the manager will know if he is achieving his goals or needs to adjust the process to achieve his objectives.
For them to be measured, these indicators need to be quantifiable, therefore there must be an index, a numerical value that portrays its performance.
As for logistics KPI’s, they are used to monitor types of activity and refer to factors such as workflow, storage level, exchanges, disposals and other logistics processes.
We will see 2 simple examples of logistics KPI created specifically for companies in different sectors.
In the following, we will see 4 KPI of logistics widely used in business.
Example of Logistics KPI: What you can measure
When evaluating a company’s processes, the manager will use KPI data to assess whether to take measures to improve the performance and income of their business sector.
In addition, he can use the KPI to determine not only immediate changes “putting out fires”, but also how to redesign the process creating a newer more efficient one by using the PDCA method, to generate continuous improvements.
See examples of logistics KPIs:
Company: Clothing Store
If you have a store that specializes in selling men’s T-shirts, you can use logistics KPIs to assess the following points in your process:
- Purchase of clothes (how many items are purchased per week, fortnight, month or year)
- Transportation (how many deliveries the store receives per week from your supplier)
- Average stock (how many pieces are in stock).
Example of Logistics KPI: ecommerce
- Number of deliveries made in a given period
- Average load capacity per truck leaving for a delivery route
- Travel time of a daily route (measures how long it took a vehicle to reach the delivery destination)
Note that these are quite specific KPIs for certain businesses.
Ideally, in addition to indicators specific to your business, KPIs employed by other companies should also be used, so that you can compare your performance with theirs.
Let’s view some of the most used logistics KPIs in business?
See also: The use of performance indicators in the treatment of quality deviations
How do you calculate the most used logistics KPI?
Each company will know what activity deserves to be followed.
In the management schedule, it will be important to share the KPI with the rest of the team, which will be able not only to follow the evolutionary data, but also to measure where and how they can improve their operations.
There are several logistic KPI factors that deserve the attention of the management team.
Check out some of the main ones
1- Time to Market:
This KPI is widely used in consumer goods companies and measures how long it takes to get the idea of a product, develop it, test it, manufacture the first batches and put it on the market.
2- OTD (On-Time Delivery):
This logistics KPI indicates the percentage of orders delivered on time, without delays.
However, this does not mean that the delivery specifications were correct, the KPI measures only if the order was delivered on time.
To get this indicator, you have to calculate the quantity of on-time deliveries and divide it by the total number of deliveries for the period analyzed.
It is multiplied by 100 to obtain a percentage.
For example, if the company made 50 deliveries in one day and 40 of these arrived on time, the OTD calculation would be:
40 / 50 x 100 = 80%
3- OCT (Order Cycle Time):
Time it takes for an order to reach the customer after it has been received by the company.
This is a logistics KPI widely used by e-commerce companies.
To calculate, one must measure the time that each delivery took to be made after the order, add them all up and divide by the number of deliveries made in the period under analysis.
4- OTIF (On Time In Full):
Evaluates orders delivered on time and agreed by the company.
To make your calculation, you must know the percentage of orders that were:
- Fulfilled on time (O)
- Delivered without error (E)
- Complete: met all customer specifications (C)
The OTIF formula is:
OTIF = O x E x C
Here’s an example:
- On time: 80%
- Delivered without error: 85%
- Complete: 90%
0.80 x 0.85 x 0.90 = 0.612 = 61.2%
These are 4 of the most used logistics KPIs, but nothing prevents your company from creating its own, depending on the characteristics of your business.
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