finding the right KPI’s for your 3pl logistics operation
Managing your 3pl logistics operation is a crucial step in any business’ supply chain – but how do you know if your current strategy is maximising your business’ potential? If you’re wondering whether your processes require improvements, then having key performance indicators (KPIs) would be a great place to start. Our elite team of specialists at elite logistics Australia can guide you through finding the right KPIs for your logistics operation and answering all the questions that can accelerate your business.
what are KPI’s and how can they help?
Key performance indicators (KPIs) are a set of quantifiable measurements that help gauge your business’ performance over time to assist with strategic and operational improvements.
As logistics covers an end-to-end omnichannel process, having a natural workflow that complements all stages is crucial. Establishing KPIs for your logistics management can help your business break down each stage of the process into measurable data. This means you can continuously evaluate your business’ activity against benchmarks to identify weaknesses and opportunities. With the right data collected based on KPIs, businesses can also benefit from logistics analytics solutions and business intelligence tools to ensure long-term success.
how to set up logistics KPI’s
When it comes to setting up KPIs, a simple approach can help in identifying the necessary KPIs for your business. The quick and simple step-by-step below is a good way to start:
- Define your company’s goals. A well-established goal-setting tool you can use is SMART – specific, measurable, achievable, relevant, and timely. Defining these parameters can ensure your objectives are attainable within a certain time frame.
- Once goals are set, use them to identify the information you need from KPIs. For example, if your goal is to increase days for orders to be despatched, you can use this to identify the basis of your KPIs such as how often customers question wait times.
- With these questions in mind, you can then break KPIs out by their stage within the supply chain. For each stage, aim to have a few distinct KPIs that can help reveal how well the business is functioning in that area.
examples of KPI’s for each stage of logistics
When measuring the effectiveness and cost of your supply chain, you will need to set up and monitor KPIs that give visibility of cross-functional activity along with those applicable to individual supply chain components.
Generally, the following areas are those where KPIs are necessary and examples of KPIs you can measure:
- Order management:
- KPIs here should focus on orders and returns processing such as Shipping Time, Perfect Order (degree of accuracy to which customers’ requirements are met), and Delivered In-Full On-Time (DIFOT).
- Inventory management
- This area measures the effectiveness of inventory purchasing and may also include cash flow such as Customer Backorder Rates, Inventory Turnover, and Inventory to Sales Ratios.
- Supply management
- Supply KPIs are metrics that focus on how well final goods are moving through the supply chain. Examples are, Order Cycle Time, Capacity/Resource Utilization, and Productivity.
- This area helps with product flow from DC’s to customers being either B2B or B2C. KPIs can include Warehousing Costs and Average units picked per day
- Management of this area governs the Transportation of goods. Example KPIs are Delivery Time, Average Days Late and Transportation Costs.
Ultimately, the right KPIs for you must be aligned with the goals and requirements of your business. There is no one-size-fits-all list of KPIs that will definitely work for your business. Having the right people evaluate your current logistics processes and your unique business requirements can help kickstart the process of finding the right KPIs for your logistics operation.
tips on finding the right KPI’s
When it comes to picking the right set of KPIs suitable for your business, there are a few dos and don’ts you should be mindful of.
- Be realistic. KPIs should comprise a handful of metrics that your team can realistically measure, monitor, and react to continuously.
- Make sure each KPI has an “owner”, whether that is an individual or a team. This ensures those responsible for achieving the goal are fully aware of what is expected of them.
- Do not have too many! Having too many KPIs and items to measure can become overwhelming and difficult to measure.
- Do not overcomplicate your KPIs. The end goal of each KPI should be easy to understand and should not contradict or undermine another KPI.
do you need assistance in getting your KPI’s right?
At elite logistics Australia, our friendly team of professionals can help you and your business with your logistics operation needs such as selecting the right KPIs for the right levels of management, setting the most suitable performance targets to use with those KPIs and assessing the current performance of your logistics operations.