Logistics Metrics in E-commerce

A well-planned supply management process is an essential requirement for companies whose success depends on the structural working and efficiency of the operational units. It imparts better control over the supply process from the point of origin to the point of sale. A recent study suggests that 79% of the companies with efficient supply chain management earn more revenue than others within the niche. However, supply chain management needs continuous improvement measures to keep up with the ever-changing market pattern.

Logistics Metrics

With all the technological developments backing up the logistics management, the companies currently have several ways of accumulating data to record the company’s progress. A Key Performance Indicator (KPI) is the practical and objective measurement of a company’s overall progress towards a predetermined goal. KPIs are exactly what the logistics system needs to enhance supply chain management visibility. 

Logistics Metrics

What are KPIs in Logistics?

Logistics is a spontaneous processor procuring and bringing in goods, services, resources, and information. The logistics stages often divide the procedures within the supply chain function into several sections to help the company get a better insight and optimize its operations.

This leads to the production of a massive amount of data regularly stemming from supply chain operations like warehousing, order transportation, delivery, etc. A Logistics KPI or metrics acts as the primary performance measurement used by the enterprise to track, visualize and optimize the overall logistics process efficiently and effectively. 

Importance of Logistics KPIs and Metrics in a Business

Logistics processes constitute the management of the material flow from the suppliers to the customers, ensuring the customer is reached in due time at the lowest possible cost. Logistics is accountable for the overall planning, implementation, and monitoring of the flow of goods, storage, and other related aspects of the supply chain. Therefore, like every other field in the supply chain, it is essential to measure the logistics performance as it makes way for further improvements that benefit the company.

With the logistics performance knowledge, measurements, and constant assessment, it becomes possible for a company to comprehend the logistics efficiency and optimize the process for the highest performance within the supply chain.

Benefits of Implementing Logistics KPIs and Metrics

With the ever-changing market pattern, constant change, and crisis, it is duly important to optimize the resources to focus on the critical aspects of a business. Continuous monitoring, assessment, and improvement are the extremities for success.

Benefits of logistics monitoring include:

Accurate Order Processing

With constant monitoring of the degrees of incidents, a company can identify error patterns and optimize the operations for effective and profitable results.

Scheduled Delivery

By tracking on-time delivery, logistics performance is enhanced to produce and deliver the goods on time and avoid unwanted issues. This increases the reliability of the company.

Inventory Accuracy

Inaccurate inventory records can work against the spontaneity of a supply chain. Regular inventory management ensures reliable, efficient measures with minimum investment and a higher customer satisfaction rate.

Transportation Costs

Measuring the costs related to logistics operations helps measure the average spent on each shipment and reflects accurate quotations to the forwarding partners and customers.

Logistics Metrics

How to Install Logistics KPIs?

Implementation of Logistics KPIs should be based on the company’s logistics goals. Steps for implementing Logistics KPIs include:

  1. Identifying the goals for the KPI program – After determining the goals for logistics, KPIs should be implemented based on the following criteria:
  • Percentage of missed order deadlines.
  • The number of damaged orders arriving by month.
  • How often have wrong orders been sent to customers
  • How do unavailable or out-of-stock items affect customer wait times?
  • How frequently does the process encounter a labor shortage?
  • Is the shipping department exceeding its capacity?

2. Set achievable and reasonable targets for individual KPIs based on available databases per the industry benchmarks.

3. Creating a team for analyzing KPIs – KPI management is time-consuming and requires efficient and skilled expertise.

4. Regular analytics of KPIs – Regular review of the KPIs leads to a better decision-making process to track meaningful logistics metrics.

5. Settle for SMART KPIs – SMART KPIs mean: 

  • Specific – Having an all-encompassing KPI can lead to a massive bandwidth of misinterpretations. Thus KPIs should be lean and defined. 
  • Measurable – Quantifiable KPIs help provide a benchmark for every KPI.
  • Attainable – Is the KPI target doable? Setting up infeasible targets leads to demotivation for the team.
  • Relevant – Relevant KPIs provide valuable information about the business. Thus, KPI metrics demand prioritization for effective implementation.
  • Time-based – A realistic timeline for measuring relevant KPIs makes it easier for teams to measure each metric accurately. 
Logistics Metrics

Logistics KPIs and Metrics

KPIs for each stage of logistics

Logistics is a complex network consisting of several stages to complete an order fulfillment cycle. Below are the detailed metrics and KPIs associated with each step of the function of the supply chain.
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Order Management

KPIs in the order management process focus primarily on the functions related to orders and returns. These metrics start as soon as a customer places an order.

  • Shipping Time – The total time taken for the company to ship an order on or before the stipulated date. 
  • Order Accuracy – The measure of inventory on hand and accurate order picking concludes to order accuracy. Higher order accuracy is essential for boosting production or sales, cost time, and shipping. 
  • Perfect Order – Perfect customer order rate constitutes the number of orders shipped without issues, like damage, delays, or inaccuracies. The ideal order metric targets customer satisfaction. 
  • On-time, In Full Shipments – The metrics represent the number of shipments delivered according to quantity and schedule stipulated when ordered. It is a customer-centric metric indicator. 
  • Number of Shipments – Metrics responsible for the measurement of the total number of loads sent out by a company in a given period. 

Supply KPIs

Supply KPI metrics are used to observe the movement of goods through the supply chain. These metrics are used to improve the efficiency of the operations and overall performance.

  • Order Cycle Time – Also known as Lead Time, this metric is used to measure the time taken for the order to be processed and to reach the customer. This is an important metric to identify possible problem points.

  • Capacity Utilization – The metrics used for measuring the number of resources a company uses, like the production of goods or professional services. Capacity utilization is essential for resource tracking and management of maintenance.

  • Productivity – Productivity metrics ensure a company’s overall performance. It measures how well the company, departments, and employees are performing to understand the company’s productivity. This often gives the business insight to ensure their capabilities to deliver according to their promises.
Logistics Metrics

Inventory KPIs

Inventory KPIs measure the efficiency and productivity of inventory management and production processes.

  • Customer Backorder Rate – Metrics are used to detect and measure the rate of unfulfilled orders by a business. It is directly associated with customer satisfaction.
  • Inventory Accuracy – A vital metric required to monitor real-time inventory records. This helps identify what the business has in stock and whether it is sufficient to fulfill the market demand.
  • Stock Rotation – Also known as inventory turnover, it measures the frequency of a business selling all the stock of a certain product. Stock Rotation is vital for the company’s competitiveness and retail success.
  • Packing Material Usage – The amount of packaging material required during the sorting phase. Businesses can implement sustainable methods to reduce the environmental impact and lower operating costs at the same.
  • Pick and Pack Cycle Time – Metrics are used to measure the duration of time taken by the warehouse function to pick a product and pack it for shipping.
  • Inventory to Sales Ratio – The end metrics of Inventory KPIs measure the amount of inventory stock to the number of fulfilled sales. This often provides a comprehensive insight into inventory expenses concerning overall sales, thus allowing the business to keep low inventory expenses.
Logistics Metrics

Distribution KPIs

Distribution KPIs measure the processes of managing product flow in a supply chain, from distributors to customers.

  • Distribution Vehicle Utilization Rate – Vehicle utilization rate measures the performance of the business while loading their distribution trailers, hence reflecting the load planning of a business.

  • Warehouse – Warehousing is a cluster of metrics to cover the expenses specific to the warehouse. Warehouse metrics include energy, equipment, availability, labor, shipping status, and delivery associated with moving goods in and out of the warehouse.

  • Average Stand Time – Also termed as dwell time, it measures the waiting time of the carrier vehicle for pickup and delivery while the order is being processed. This is an essential performance metric for the business. 
Logistics Metrics

Transport Management KPIs

Transport KPIs observe the management of the delivery carriers and provide a way for the business to improve its operation.

  • Delivery Time – On-time delivery metrics associated with the total time taken for the order to be delivered entirely. This metric impacts customer satisfaction, reliability, and loyalty.
  • Average Waiting Days – Measures the number of days between the due date of delivery and the customer received to date. This metric provides insight into the overall delivery performance and impacts customer reliability and satisfaction.
  • Truck Turnaround Rate –  The total time between the arrival of the delivery vehicle to collect or deliver goods and the time when it exits. This shows the efficiency of a business in handling the loading and unloading of materials and orders.
  • Accurate Freight Bill – The total number of error-free freight bills concerning the total number of freight bills in a period. Manual freight bills are excessively error-prone, which impacts the overall transport process.
  • Transportation Charges – Costs related to transportation are the group of metrics responsible for tracking an order’s total price from beginning point to completion point. Transportation metrics include order processing metrics, administration, inventory costs, warehouse costs, and transportation costs. 

Cross-Functional Logistics KPIs and Metrics

In lieu of the above-mentioned KPIs associated with each step of the logistics chain, below are some additional metrics used by businesses to enhance their performance.

Logistics Metrics

Financial Logistics Metrics

Operating Ratio – Measures the amount of revenue and the operating cost of running a business.

Operating ratio = total operating expenses/total revenue.

A lower operating ratio indicates higher profits. 

  • Net Profit Ratio – Measures the return on investment. 

Net profit ratio = after taxes profit/total asset value.

  • Financial Leverage – Metric calculating the total debts to total assets of the business. 

Financial leverage = total debts/total assets.

Logistics Metrics

Supply and Inventory Logistics Metrics

  • Equipment Usage Rate – The equipment utilization rate measures the availability and performance of the required pieces of equipment in the facility. This metric is required to measure the spontaneity of production. 
  • Capacity Utilization Rate – The KPI used to measure a company’s usage of available resources to ensure better management of production rates, lower operating costs, and sustainable flow of goods in the supply chain. 
  • Capacity utilization = actual production rates/maximum production rates
Logistics Metrics

Labor Logistics

  • Sick Leave – This KPI is used to highlight employees’ health, safety, and wellness. This metric is highly beneficial in minimizing labor disruptions.
  • Safety Measures – Primarily account for the number of injuries reported, accidents, and fatalities. These particular metrics establish a center of responsibility in the workplace and ensure adherence to safety measures. 
  • Time Taken for New Recruitments – The metrics used for determining the quality and effectiveness of the overall business planning and recruitment. 
  • Time to fill open positions = time job was accepted–time job requisition was approved.

Transportation Logistics

  • Driver Performance – This logistic KPI is used to evaluate the quality and performance of the trucks and drivers. It combines multiple KPIs, including speed, idle time, braking occurrences, etc. This acts as a safety measure for the businesses as well.
  • Fuel Efficiency – This logistic metric measures the performance of the vehicles on the road and helps identify any cost-saving steps for the business—the higher the fuel efficiency, the lower the operating expenses.
Logistics Metrics

Reverse Logistics Metrics

In many organizations, the return management system has remained a field with higher expenses and low traceability. Thus, to monitor reverse logistics, a company needs metrics to measure the financial impacts of returns on the business.

Some of the effective reverse logistics metrics include :

  • Cycle Time – An essential aspect of measuring reverse logistics. The more efficient and streamlined the process is, the shorter the disposition cycle time.
  • Amount of Reclaimed and Resold Products – An overview of the percentage of the returned products being reclaimed, resold, and value recaptured. 
  • Recycling – Percentage of the products in reverse logistics being recycled.
  • Wastage – Amount of the products being sent to landfills or being disposed of.
  • Percentage of Recovered Costs – Amount recovered after the return. 
  • Cost per item handling – Total cost per month with respect to the number of processed products.
  • Distance traveled – Tracking the average distance per item in reverse logistics. 
  • Fuel Efficiency – Implementing sustainable resources to measure the total energy used in returns.
Logistics Metrics

Benefits of Reverse Logistics Metrics

Reverse logistics practices vary based on certain aspects like geographical location, industry type, or channel position. Benefits of reverse logistics metrics include:

  • Lower administrative and aftermarket support costs
  • Reduced transportation charges
  • Increased velocity
  • Increased service market share
  • Improved customer service
  • Better visibility
  • Improved recovery of capital investments
Logistics Metrics

Basic Formulas for Logistics KPIs and Metrics

Transportation KPIs

  • Average Cost per Order – The combination of all hidden and obvious expenses.

Average cost per order = (total in costs) / (total number of orders)

  • Average Transportation Cost – Mean cost of transportation compared to gross monthly income.

Average transport cost = Average transport cost / (monthly gross income) × 100

  • Freight Charge per Unit shipped – Metrics used to ensure full container loads.

Freight cost per unit shipped = (Cost of freight) / (total number of units)

Supply KPIs

  • Transit Time to Distance – Used to compare the total distance traveled by a shipment to the time it takes to go from pickup to destination.

Transit time to distance = (time to go from pickup to destination) / (total miles covered)

  • Inventory Turnover – Measures the number of times a business sells its inventory in a stipulated period.

Stock rotation = Sales / Average inventory

  • Out of Network Shipments – Measures the unregistered and unusual shipments that were ordered due to stock depletion.

Out-of-network shipments = (total out-of-network shipments) / (total shipments) × 100

Distribution KPIs

  • On-Time Final Delivery – Ratio of total units delivered on time compared to the total number of shipped units.

On Time Delivery = (Units delivered on-time) / (Total units) × 100

  • On-Time Pickup – Number of shipments picked up by the freight carrier compared to the total shipments in the period.

On-time pickup = (Number of shipments picked-up) / (Total number of shipments) × 100

  • On-Time Shipping – Measures the accuracy of the orders shipped on time compared to the total orders shipped.

On-time shipping = (Number of orders shipped on time) / (Total number of orders shipped) × 100

Warehouse and Order Management KPIs 

  • Unplanned Shipment – Measures the number of unplanned shipments to the total number of shipments, including unplanned ones.

Unplanned shipment = (number of unplanned shipments) / (number of total shipments) × 100

  • Order Accuracy – Measures the number of accurate orders picked to the total number of orders picked.

Order accuracy = (total number of orders verified correct) / (total orders picked per day) × 100

  • Inventory Accuracy – Measures the accuracy of inventory stock compared to the stock database saved.

Inventory accuracy = (total items counted) / (total items system lists as present) × 100

  • Dock to Stock Cycle Time – Measures the time a product takes to go from its receipt start to the sale point compared to the total number of shipments received.

Dock to stock = (total hours for received product to be put away) / (total number of shipments)

  • Productivity in Transferred Volume – Measures the number of units processed with respect to the available and usable warehouse space.

Units processed per square foot = (units processed) / (useable space)

  • Warehouse Space Utilization – Measures the optimal use of warehouse space.

Space used in warehouse = (warehouse space with the product) / (total warehouse space) × 100

Logistics performance KPIs

  • Cost per pound – Measures the price of a shipment compared to the total weight in pounds.

Cost per pound = (Cost of shipment) / (Weight of shipment)

  • Cost per Mile – Measures the total monthly load cost with respect to the total distance covered.

Cost per mile = (Total fixed and variable costs) / (Monthly miles)

  • Total Number of Shipments – A straight metric measuring the total number of shipments a business sends in a month. 
Logistics Metrics

Developing and Implementing Effective KPIs and Logistics Metrics

KPIs are only beneficial if a business can identify the right metrics required for its success. The main objective of KPIs is to deliver mission-centric data for effective analytics and implementation in a company.

The main steps to developing effective KPIs and logistics metrics are as follows:

  • Strategy making – The strategy acts as the basic starting point for designing an effective KPI for a business. Without a firm knowledge of the actions ground of a business, there is a possibility of a long list of error-centric indicators for metric measurement.

  • Defining relevant questions – Determining the required questions will help in narrowing down the focus to the critical aspects.

  • Defining specific data needs – After determining the relevant questions associated, a business needs to identify the data needs to establish the type of KPIs, metrics, or data required in need of implementation.

  • Evaluation of the existing data – Most businesses are full of data. Therefore, it is an important function to sort out the existing data according to its relevance and perform a gap analysis for the importance of the present data.

  • Determining the correct measurement methodology and frequency – The most critical part is finding the right measurement methodology for developing new KPIs or modifying the existing ones.

  • Suggest attainable metrics – KPIs need to be realistic and proportionate to the overall resources of a business. An over-ambitious and unattainable objective leads to ambiguity and delay in performance improvement.

  • Ensure clarity of the metrics and KPIs – It is essential for the employees in a business to have a clear understanding of the KPIs or metrics to measure progress towards the achievements. Metrics are a part of the integral decision-making process in a business.

  • Develop effective ways to communicate the metrics – Business needs to implement effective measures to communicate the KPIs in a way that are engaging, obvious, clear, and apparent to all. Effective representations easily illustrate the trends and variations in the data, further providing a way of creating effective measures required for the business.

  • Regular review of the implemented KPIs – Constant review of the metrics being measured makes way for constant improvement in the overall business performance.
Logistics Metrics

Do's and Don'ts for Developing and Implementing Logistics KPIs

Do’s

  • Focus on logistics processes and operations
  • Make relevant KPIs
  • Choose simple, attainable KPIs
  • Review performance elements of KPIs
  • Develop operation-centric metrics

Don’ts

  • Avoid making up new standards.
  • Avoid Cluster KPIs and Metrics
  • Avoid Static Metrics

Conclusion

Continuous improvement in any section of an enterprise requires consistent measuring of its performance. Logistics KPIs and metrics ensure that logistics operations are focused on clients and are profitable for the company as a whole. Constant analysis of the logistics performance increases efficiency and productivity and helps a company evolve positively, ensuring its competitiveness.

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FAQs

The quantitative measurements to track certain processes within the logistics system are called logistics metrics.

Key Performance Indicator is a quantitative tool used to measure performance by businesses. Logistics KPIs are associated with a variety of metrics including purchase, warehouse, transportation, delivery, customer service, and so on. 

Essential KPIs in Logistics include:

  • Order Accuracy
  • On-Time In Full
  • Lead Time
  • Warehouse Costs
  • Inventory Turnover
  • Capacity Utilisation
  • Truck Turning
  • Productivity
  • Transportation Charges
  • Shipments

Effective metrics help a business achieve goals and identify the areas of concentration for the overall improvement in performance.

A company can evaluate its logistics performance in the following ways:

  • Identifying each process and link to supply chain
  • Determining a goal of each indicator
  • Determining variables involved in the operation
  • Data collection
  • Quantify and measure each variable
  • Review data against global indicators
  • Analyze overall performance

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