Managing logistics is all about tracking. Whether it be tracking assets as they travel around the globe to their final destination or managing inventory at a local warehouse, logistics is heavily guided by tracking.
Most companies involved with logistical operations are already well aware of this and use many sophisticated methods to track their inventory and assets. However, there is another important aspect of logistics that needs to be tracked to ensure the most efficient operations possible.
Transportation key performance indicators, or KPIs, are a way to track and measure the performance of various facets of a logistics business. Each KPI reflects a different component of the logistics chain, whether it be delivery times, accuracy, or even customer service. Within each parent group of KPIs, there can be more detailed formulas to drill down even further and provide a more granular view of each operation.
In this article, we'll be looking at how KPIs can improve a logistics business. We'll also look at some of the more common logistics metrics businesses use to track their operations and find new efficiencies.
So, what’s the big deal about transportation KPIs? These transport metrics allow businesses to measure the performance of various key components within their business operations. These measurements provide actionable information that companies can use to find trouble areas or areas of inefficiency. Not only that, KPIs offer insights into how to improve those areas by showing exactly where the problem lies and what other business functions are being impacted by it.
For example, if a metric for determining shipping accuracy shows a decline over the past few months, a business can begin to start looking into the cause before these inaccuracies develop into a larger problem that begins to erode profits and customer confidence.
By being able to gauge business performance against standard benchmarks, it becomes much easier to spot trends, both positive and negative.
This information allows businesses to make much more informed decisions when seeking out ways to improve the business or where to focus efforts. Carefully tracking transport KPIs also allows for faster reactions, as problems may arise in the KPI metrics before managers or customers are even aware of the issue.
Clearly, transportation KPIs can be very powerful — but the question that comes up is which KPIs are most important in the transportation and logistics industry. In the next section, we'll look at specific transportation and logistics KPIs and how each one should be used to measure critical aspects of operations.
Every transporting business and logistical operation is unique, so what is critical to one business may not be as important to another. For this reason, it's important to outline your company's goals before diving into specific KPIs.
Clearly defining the company's goals and what areas need to be improved or maintained will help managers decide which KPIs to focus on for their specific situation. Another technique for preparing which KPIs to use is to separate your business operations into the various stages of your supply chain.
The common stages of a supply chain that fit with various KPIs are:
These 6 key stages within the supply chain can be seen as the parent categories, each with its own unique KPIs to measure performance. Some businesses may need to address all six of these areas, while others may only need to use a few depending on their situation.
Once you've determined the goals for your specific business, you can look at which stages correlate most strongly with those goals or areas to improve. Then, it's simply a matter of choosing the KPIs for that stage to focus on.
There may seem like an overwhelming number of KPIs to track, but there are several that will apply to almost all situations and makes the process of choosing much easier. Let’s discuss those common KPIs which will help a majority of transportation operations measure their performance.
This metric is a shipping KPI and is a simple ratio that reflects the time it takes to ship an order before the requested date. The ratio takes the number of orders shipped before the requested date and then divides it by the total number of orders shipped.
This is one of the most important delivery metrics for customer satisfaction and low performance in this area can be indicative of various problems in the supply chain or warehouse fulfillment.
This transport KPI is often combined with the previous shipping metrics to give a more complete picture of the fulfillment process. On-time in-full gives a percentage of shipments that were filled with the quantity requested and according to the requested delivery schedule.
So this KPI combines order accuracy with the on-time metric to give a more complete measure of how customer service obligations are being met.
Capacity utilization is the ratio of actual full capacity compared to what capacity is being utilized or used during operations. It may seem logical that you would want this number to be 100%, but that would actually show a lack of capacity to accept new business or grow.
Each business can be different, but a capacity of 70% to 90% is usually a good target to start. If this metric starts to rise, it may mean that expansion plans are necessary to purchase new equipment or other assets to deal with demand.
Of course, the opposite is also true. If capacity utilization is below the target range, it may mean money is being wasted on equipment or facilities that are not needed and could be better allocated elsewhere.
This is dependent on the stage of growth that a business is in. A newer business may have low capacity utilization, but it's not necessarily a problem. Other unique situations may be with seasonal demand, where utilization drops or increases based on predictable changes over the course of a year.
This metric deals with one of the most expensive items on many businesses' balance sheets: inventory. By dividing your average inventory over a given period by your net sales, you can see exactly how inventories are changing over time and whether or not these changes correlate with demand requirements.
A rising metric in this case would mean a company may be wasting money on holding inventory or paying interest on that inventory when it is not needed. A lower number here could indicate fulfillment problems and a reason for low on-time in-full orders.
This KPI offers insight into the total time it takes to complete an order from the time an employee receives it until the order is complete and ready for shipping. The optimum number for this metric will be heavily dependent on your specific business, as some situations have much faster cycles than others.
But even if you are unsure of a good target for this, it's important to start measuring this and setting up a baseline that can be used for reference over time. This way the metric can be measured and changes can be detected which may indicate an issue.
Also, once a baseline is established, protocols can be put into place to try to improve the number and any improvements will be easily tracked with this KPI.
Now we begin to look at KPIs specific to transportation and this one is the truck turning rate, or how long a truck stays at a location during a pickup or delivery.
A higher number indicates the less time a truck is on the road, which is generally not ideal. Truck turn rate or dwell time usually should be kept as low as possible without causing problems like errors or incomplete pickups and deliveries.
A simple form of this KPI is to simply subtract the time a truck leaves a facility from the time that it arrives.
This metric is simple but provides valuable insight into variation in business based on seasonal or other factors. By knowing these trends ahead of time, businesses can prepare for slow or busy times of the year to maximize profits and eliminate waste.
This metric simply measures the total number of shipments and can be broken down by month, quarter, or any division that makes sense for the specific business. This KPI can also be used in conjunction with the capacity utilization KPI to find times when capacity needs to be ramped up ahead of a seasonal busy period.
This transportation KPI looks at the entire process from the time an order is placed to the time a customer receives the complete order. This is generally the last step in the supply chain and mostly deals with customer service and customer expectations.
In this case, the fastest time possible is generally optimum and it is determined by subtracting the time until the order is shipped from the time the order was placed.
There are also key labor KPIs, which in some cases may be handled by a different department, such as human resources. But these are just as important to running a successful logistics operation.
Employees are active in every aspect of any transportation or logistics business, so closely monitoring performance and overall employee satisfaction is critical to smooth and profitable operations.
Below are two crucial labor KPIs to monitor for any transportation or logistics company.
This is the most critical of the labor KPIs for logistics and transportation. A company with an unsafe record will have an unhappy workforce and will also have trouble retaining and hiring new talent. Unsafe working conditions also lead to high costs and liabilities, so this needs to be tracked carefully.
The key metrics to watch are how many injuries are reported and how many accidents occur over specific periods of time. The goal for both of these numbers should always be zero. Any accident or injury is an opportunity to reexamine workplace safety protocols and training to ensure they are adequate and up-to-date.
Open positions can negatively impact productivity and overall efficiency. When key positions are unfilled, other workers need to fill the void, reducing the productivity of each member for their own tasks. Unfilled positions also cause there to be key gaps in talent which is necessary to run operations.
Measuring the time to fill open positions helps to monitor whether or not the hiring practices in place are effective and reach the right pool of talent. This is a simple KPI and measures the time from when a job requisition is approved until a candidate is hired and begins work.
The transportation KPIs mentioned above are just a fraction of the many different metrics that can be used to measure performance. Running a logistical operation can be demanding as the day-to-operations can often leave little time necessary to track these important metrics. But without tracking these KPIs, businesses can find themselves in the dark when it comes to addressing issues or finding ways to improve.
Porte Brown has helped countless businesses achieve their performance goals through expert analysis and accounting. By using KPIs and other advanced analytical tools, our team can help you improve your business operations.
Contact our trucking accounting experts at Porte Brown today to find out we can help your business achieve peak performance and profitability.
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