The supply chain and logistics industry is rapidly-evolving, and organizations that provide these integral freight and delivery services are experiencing new trends and challenges. Driver and capacity restraints, traffic and infrastructure problems, soaring fuel prices, and the freight recession are all top of mind for leaders within the industry.
Supply chain and logistics is the heartbeat of the economy. As the modernized landscape continues to change and transform, it is crucial for supply chain and logistics organizations to track the right metrics to keep the pulse. Key performance indicators (KPIs) are quantifiable measures that gauge a company's performance against a set of targets, objectives, or industry peers.
Let’s dive into 9 KPIs supply chain leaders should track.
What it is: This metric measures the percentage of orders that are delivered without any damages.
Why it matters: Analyzing this metric enables better transportation practices, and ultimately, reduction to the number of damages.
How to calculate: Damage-Free Delivery = [( Total Orders - Orders that Arrive Damaged) / Total Orders ] x 100
What it is: This metric measures the average economic impact of shipping products.
Why it matters: Calculating the freight cost per unit can help identify trends in freight expenses and highlight areas for optimization.
How to calculate: Freight Cost per Unit = Total Freight Cost / Number of Units
What it is: This metric measures the performance of vehicles on the road.
Why it matters: Fuel costs are the second-highest cost for carriers (behind driver wages). Maximizing fuel efficiency with the most optimized route and mode selection is essential.
Bonus: Federal agencies mandate reporting and compliance to environmental initiatives for fewer emissions and fuel use.
How to calculate: Fuel Efficiency = Miles Driven ÷ Gallons Used to Refill Tank
What it is: This metric measures the percentage of orders that arrive as scheduled and within the promised shipping window.
Why it matters: Knowing this percentage helps assess the efficiency of supply chain processes and identify improvement opportunities.
How to calculate: On-Time Delivery = [( Total Orders – Orders that Arrive Late ) / Total Orders ] x 100
What it is:This metric measures the percentage of miles driven without generating revenue.
Why it matters: Understanding which types of vehicles or routes are responsible for causing empty miles allows route optimization planning and resource allocation.
How to calculate: Percentage of Empty Miles = [( Total Miles – Revenue Miles ) / Total Miles ] x 100
What it is: This metric measures the percentage of orders without any errors from beginning to end.
Why it matters: This KPI provides awareness into several areas of the order fulfillment process and helps track warehouse and delivery operations, manage costs, and gauge customer satisfaction.
How to calculate: Perfect order = [( Total Orders - Errors ) / Total Orders ] x 100
What it is: The return reason indicates the primary causes for customers sending items back.
Why it matters: It is pertinent to understand the motivation for customer returns in order to identify weaknesses in product lines or operations — and in turn, improve profits, enhance customer satisfaction, and increase reputation.
What it is: This metric measures the percentage of orders that are delivered on time.
Why it matters: Improving this metric can help to optimize delivery costs and improve customer satisfaction.
How to calculate: Service Rate = Orders Delivered On Time / Orders Received
What it is: This metric measures the number of days, on average, that it takes to run out of inventory stock.
Why it matters: A low stock rotation number signals risk of running out of stock and failing to meet customer expectations.
Bonus: Using the past year to calculate this metric is a best practice, because the time period will accommodate seasonal and other variations
How to calculate: Stock Rotations = ( Average Stock in Period / Total Sales in Period ) x Number of Days in Period
The data needed to report on these KPIs may live in different places. So there may be some work needed to centralize and integrate your data first before getting to your most important metrics. That can be easier said than done (legacy systems, SaaS tools, third-party integrations, and IoT devices...tired yet?).
Reporting on metrics and KPIs is difficult when time = money. Spreadsheets are antiquated and require a great deal of manual work. Dashboards often start off as great tools, but quickly become burdensome and unused by busy professionals.
If you're struggling to track the right KPIs and pull new insights from your logistics data, we built a tool that might help. Check it out here.
Otherwise, we suggest you start by asking your IT team for the metric you need and the data you think it will take to get there. If they’re not sure where to start, or have a miles-long backlog, we can help with that, too.