“You can’t manage what you can’t measure” – W. Edward Deming & Joe Lynch
If you move freight for a living, you know the importance of logistics key process indicators (KPIs). A KPI is an indicator (a metric) that you have chosen, and agreed with your partners and or customers, that will determine whether you are meeting your critical success factors.
Definitions provided by certification.info. Check out another great KPI definition at About.com
Key Process Indicators vs. Metrics
I sometimes use the terms KPI and metrics interchangeably, but they are not the same. A metric is any standard of measurement (number of carriers, inventory turns, average shipment weight, etc.). A Key Performance Indicator (KPI) is a metric that you have chosen that will give an indication of your performance and can be used as a driver for improvement. In general it’s preferred to just choose a few KPIs (say 3 or 4) to focus on.
This means that while all KPIs are metrics, not all metrics are KPIs. Only the most important metrics can grow up to become KPIs.
Selecting the Right Logistics KPIs
Determining the right logistics KPIs for your company will depend on your company. Shipper KPIs will be different than logistics providers. Shippers might use the following logistics KPIs: transportation cost per unit sold, total logistics cost as a percentage of sales, on time delivery, cost per pound, etc.
I am the GM of a 3PL that specializes in ground transportation (LTL, FT, small package, etc.) and we monitor the following logistics KPIs for our clients: cost per pound, cost per mile, on time performance, damage free shipment, billing accuracy and customer service. If we successfully manage those 6 KPIs, are clients are generally happy with us.
Click on the links below for additional information on the LTL KPI’s that I use.
- White Paper: The Essential Guide to LTL Shipping Improvement: Action Plan and Metrics for Rapid Transformation
- LTL Carrier Scorecard: Measuring the Things that Matter
For additional information on logistics KPIs, check out the article, “Six Behaviors To Avoid While 3PL Scorecarding” by David Frentzel (Supplychainbrain.com). The author uses the term scorecarding, which is just another way of measuring key processes.
Mr Frentzel’s six behaviors to avoid are: 1.) overstuffing content, 2.) monitoring too many providers, 3.) including too much flash and sizzle, 4.) ignoring extenuating circumstances/misplacing blame, settling for delayed data, failing to fully involve 3PLs.
The New Logistics KPI – Measuring Customer Service
The newest logistics KPI is customer service. Most logistics companies don’t measure customer service. I guess they assume their clients were happy because cost and service targets were met. This is probably a mistake. Service execution does not equal customer satisfaction.
The customer service KPI has not been used that much because it is difficult to measure. In order to measure customer service, first a definition of customer service has to be determined. Once the definition has been defined, a method for measuring customer service is needed.
The fine folks at InboundLogistics.com recently published the article, “Measuring Customer Service: The Up-and-Coming KPI” that provides a great blue print for implementing a customer service KPI.
Bottom line: Logistics key process indicators (KPI) provide objective measurements that enable shippers and logistics service providers a gauge for determining progress toward their shared goals.
Question: What logistics KPIs does your company use?