What Are KPIs In Logistics?

Key Performance Indicators (KPIs) in logistics are metrics that are widely used by businesses to measure and track the performance and efficiency of the logistics operations running in their businesses.

These important metrics give you an understanding of unit performance and if you would be able to achieve your goals in the set time or not.

No business is complete without logistics. They hold prime importance in making a business successful because a proper logistics system will streamline the delivery time of your products or services which is of prime importance in business.

Logistic KPIs for measuring and improving supply chain performance normally ease the entire process of managing the logistic departments in a company. These KPIs monitor everything from purchasing and warehousing to order fulfillment, and transport process and present you with actual data and better insights.

Benefits of Key Performance Indicators for any type of business

Key Performance Indicators (KPIs) are a way to measure the success of an organization and its employees. They’re used by organizations across all industries, and they can be used to help you determine how well your organization is performing.

You may have heard about KPIs before, but if not, here’s what they are:

• Key Performance Indicators are metrics that measure how successful an organization is at accomplishing its goals.
• KPIs can be used to track how well an organization is performing against specific goals or objectives.
• KPIs can be used as a tool for measuring employee performance and satisfaction so that managers can make sure they’re addressing any issues before they become more serious problems

Benefits Of Tracking Logistic KPIs in Supply Chain Management

Managers in the logistics department of the business use logistic KPIs to estimate and monitor all the processes and their performance. These logistic KPIs are of huge benefit to logistic managers as it keeps them updated with the production units of their company, the expenses, and the quality rates.

Following are a few major benefits of tracking logistic KPIs in your organization:

• Improved Efficiency:
  • Tracking logistic KPIs in your organization will help you to determine the efficiency of your company. It also helps you optimize the processes to see the areas where further improvement is required.

• Improved Customer Satisfaction:
  • Utilizing the logistic KPIs in the supply chain will help you ensure timely delivery of the products and services to your customers which increases the trust of your customers in your services. This also helps you retain your customers.

• Better Resource Utilization:
  • Logistic KPIs in the supply chain management can assist logistic managers to allot resources easily and effectively, and decrease waste.

• Increased Profitability:
  • Logistic KPIs not only help in increasing the efficiency of the organization but also helps companies reduce costs, increase sales and sale revenue and improve the profitability of the company.

Now you must be thinking about a few examples of the Logistics Key Performance Indicators (KPIs) you should track to measure your logistic operations. Let’s dive into that.

7 Common and Important Logistic KPIs Every Logistic Manager Should Track

1. Operating Ratio

The operating ratio is a very important logistic KPI used to track the overall performance of the team. It is estimated by making a comparison between the total operating expenses of an organization to net sales.

A lower operating ratio indicates that the company has been making higher profits. To generate more sales revenue, you can be cautious with expenses and be creative in cost-cutting. Pay special attention to processes such as buying inventory, adopting automation wherever feasible, and much more.

2. Inventory Turnover Ratio

Another very valuable logistic KPI used in the logistics department of an organization is the Inventory Turnover ratio. Inventory turnover is also known as stock rotation. It is the estimate of the rate at which your inventory gets sold in a given period.

Measuring the turnover ratio gives you an idea of the amount of stock or products you still need to purchase to fulfill the demand of the customers. It tells you about the demand for a certain product in the market and helps you increase your sales revenue by selling that product.

This KPI helps you buy the right amount of products in the right quantity.

3. Inventory Accuracy Rate

The Inventory Accuracy Rate KPI (Key Performance Indicator) estimates if the quantity and location of items in a company’s inventory are accurate or not.

The inventory accuracy rate can be calculated as the percentage of inventory items that are accurately registered in the company’s inventory management system and have been recorded well in time.

If the value of inventory accuracy rate is high, that means that the inventory is being managed very well, while a lower rate may indicate problems in the supply chain management such as wrong data entry, misplaced or stolen entities, or physical disparities. To find the inventory accuracy rate, you can divide the number of items that have been accurately added to the record by the total number of items and multiply the answer by 100.

4. Supply Chain Costs

Costs related to planning, managing teams, sourcing, delivering, etc all are included in supply chain costs. This will help you keep an eye on the overall efficiency of the company.

Any company that aims to increase its profit needs to reduce its costs. This is one of the smart strategies followed by well-known businesses. That way, the company can determine if there is any room for revision or not.

5. Cost of Goods Sold (COGS)

The cost of goods sold as the name implies is the cost of producing a product and delivering it to the customer in time. This KPI is very essential for an organization because it shows if the whole process of the supply chain is cost-effective or not.

A high COGS implies that the cost-effective mess of the supply is low and that the expenses are high and the company may be losing profitability.

To reduce COGS, companies can implement supplier growth programs and adopt JIT inventory management.

6. Delivery Accuracy

When a customer places an order, he wishes to receive it on time. No one likes to receive their product after months. Delivery accuracy is the ratio of products that have been delivered on time and products which meet the customer’s demands and specifications. This KPI is very important because it shows the dependability of the supply chain.

The high value of delivery accuracy implies the supply chain is being handled very effectively and that the supply chain is meeting customer demands. This KPI reduces the hazard of lost sales.

7. Freight Bill Accuracy

No supply chain is complete without the shipping of the items from the supplier to your warehouse or warehouse to your customer. Any sort of problem in this process may prove to be harmful to your company’s performance.

Freight Bill accuracy is a KPI important for the profitability of your business as well as the satisfaction of your customers. Hence, this KPI can help you make your overall shipping accuracy better and help your business grow.

Why Are Supply Chain Metrics Important?

Supply chain metrics or KPIs are essential because they assist the supply chain manager to measure the performance of their teams, determining if any improvement is required or not, monitoring the overall performance and progress, and making decisions accordingly.

They provide insights into key performance indicators KPIs used in supply chain management such as cost, quality, lead time, delivery accuracy, and inventory levels. By monitoring these metrics, companies can enhance and improve the supply chain processes, reduce waste production and inefficiencies, enhance customer satisfaction, and increase competitiveness in the field of business.

How can you create a culture of KPI monitoring and improvement?

When you introduce KPI into your business, you might face a few challenges. Not everyone in your organization may know what KPIs are, how to use them, and what benefits they provide.

For this purpose, you need to ensure that everyone on your team is on the same page. Everyone knows what KPIs are. Arrange some educational sessions for your team to help them understand the basic concept and why KPIs are very important for your organization to move ahead in this field.

How to Track Logistic KPIs in Supply Chain Management with Dynamics 365?

To track logistic KPIs in the supply chain with Dynamics 365, you need to follow these simple steps:

• Identify KPIs:
  • You first need to determine the KPIs according to your demand. Find out which KPIs are relevant to your operation and why you need that KPIs.

• Set up data collection:
  • Once you have determined the KPI you want, next connect Dynamics 365 to the relevant data sources to gather all the data which may be necessary for your KPIs.

• Create KPIs in Dynamics 365:
  • After connecting Dynamics 365 to the data sources, use the KPI functionality in Dynamics 365 to create custom KPIs. Then configure them with the relevant data.

• Visualize KPIs:
  • Dynamics 365 provides you with the ability to visualize your KPIs using charts, dashboards, and reports

• Monitor and adjust:
  • Assess your KPIs regularly to monitor the overall productivity and performance and determine the areas where more improvement is required. If required, make adjustments accordingly depending on your needs.

FAQS

What Are Key Performance Indicators (KPIs)?

Logistic KPIs for supply chain management are estimates used to assess the performance of a business. KPIs can be quantitative or qualitative and are targets that can help you estimate your overall progress against the most strategic objectives you follow in your logistics department.

Why are key performance indicators so important?

KPIs are important because they help you understand where you as an organization stands. It helps you set goals in your shipping process and gives you a deep insight into if you are making progress or not, if you are achieving your goals or not, and if you’re headed in the direction you want.

Why are KPIs used in supply chain management?

Key performance indicators (KPIs) are used in supply chain management to estimate and observe the performance of various cycles and actions occurring in the supply chain. KPIs can help to:

• Monitor the efficiency and efficacy of processes
• Determine the areas where improvement is required
• Ensure customer happiness and satisfaction
• Assess the financial well-being of the supply chain.