A common mistake is to believe that the terms “KPI” and “metric” are interchangeable. They are not. While all KPIs are metrics, not all metrics are KPIs. A metric is any measurement of a specific part of a supply chain operation. It can be as simple as the time of departure of a transport or the correct completion of a document.
KPIs enable you to monitor the processes of your supply chain so that you are able to identify the ones that need improvement. In this post, we’ll take a look at some of the most essential supply chain KPIs that’ll give you actionable insights into your business operations.
What is a KPI?
KPI stands for “key performance indicator.” Also known as a key success indicator, it provides a way for companies to measure their performance in specific activities that relate to projects, products or other parts of the company’s workflow.
The numerous metrics that are measured are then used to determine the progress towards achieving its goals and objectives, as well as to compare performance against other businesses in the industry.
Since the goals can be quite different depending on the industry that a company operates in, KPIs often vary greatly as well. In fact, they can even greatly vary within the company itself. HR departments usually track metrics such as employee satisfaction levels, while sales would be more interested in Key Performance Indicators like client acquisition rates or pricing against competitors.
Basically, KPIs provide an objective way to measure how a business is performing. Without them, there wouldn’t be an effective way to determine problems or make adjustments accordingly. And just like any other area, supply chain analytics have their own set of the most important KPIs.
Why Are KPIs Important?
Think about KPIs as milestones on the road to success. Aimed at driving action, they are the measurements that can quickly and accurately reveal whether or not your business is successfully moving towards its goals. Monitoring your key performance indicators regularly (even daily) will help you make informed decisions about your online store and focus on and invest in initiatives that are driving your business growth.
The 6 Supply Chain KPIs You Should Be Measuring
It shouldn’t be too difficult to determine which KPIs should be selected for your multi-function display, but of course, every company and its supply chain is unique, so the information in this post is not intended to be prescriptive. It’s meant merely as a common-sense guide to the supply chain KPIs which for most organizations are the most reliable sources of actionable performance data.
1) Order Accuracy
Monitors the degree of incidents from the placement of the order to the delivery of a shipment. This KPI is particularly useful for any freight forwarder looking to identify patterns and continuously correct errors in order to make transportation safer.
2) On Time in Full
Also known as OTIF, this KPI measures the percentage of orders delivered within the stipulated time, without any problems or documentation issues. It is helpful for any freight forwarder committed to providing punctual and safe deliveries.
3) Lead Time
This KPI tracks how long your company’s processes/operations last, from start to finish. Ideal for freight forwarders to know the amount of time spent in each stage of the supply chain and identify strategies to optimize this time.
4) Stock Rotation
KPI that does an average between a company’s outflows with its stock balance at the warehouse. Ideal for forwarders that offer warehousing services as part of their logistics solutions.
5) Warehousing Costs
Also ideal for the freight forwarders that offer warehousing services, this KPI monitors the expenses involved in the management of your logistics company’s warehouse facilities.
6) Truck Turning
This is calculated by measuring the average time elapsed between a truck’s arrival at your facility and its departure. This is an indicator of the efficiency of your lot and dock door space, receiving processes, and shipping processes. This also directly affects freight carrier profits on your business.
7) Capacity Utilization
Performance indicator that measures the utilization of the load capacity of a vehicle during road transport or a container during sea freight. Usually these are department-specific and encompass the traditional time series measures of fill rate or capacity utilization versus their goal.
8) Productivity
This logistics key performance measures your company employees’ production rate (workforce/labor hours/productivity). This metric should be used by forwarders to have a better overall idea of their business’ performance.
9) Transportation Costs
Measures all costs related to each logistics operation developed by your company, from order placement to final delivery. This KPI can be helpful for forwarders to know the average spent in each shipment and send accurate quotations to their customers/partners.
10) Number of Shipments
Evaluates the average of cargoes handled by your company at a stipulated period of time (weekly/monthly/yearly). Ideal for any freight forwarder looking to make constant financial balances and analyze their profit margins between incomes and outcomes.
In addition to the logistics key performance indicators mentioned above, there are many other KPIs that can measure the performance and productivity of your business as a whole. However, in order to use the right indicators, the first step is to define what kind of data you consider relevant to analyze in order to improve your processes.
The FLEX Logistics Team is Here to Help!
Our team understands the importance of getting your products to the market. That is why we aim to understand your business and build lasting relationships with you and your team. Whether you are looking to add a new warehouse to your existing operations, growing and need to increase your distribution efforts, or starting a new company, FLEX has the solutions to meet your supply chain needs.
Contact us today to discuss your current and future warehousing and logistics needs. We will work together with you to understand your requirements and develop a solution that will set you up for future success.