Best Practices

Top Operational KPIs and Metrics for Logistics Business

Rihab Hussain & Rahul Jain

December 8, 2023

5 min read

Graphic introducing Top Operational KPIs and Metrics for Logistics Business

Logistics is like the unsung hero of supply chain management. It's all about making sure stuff, whether it's goods, services, or info, gets from where it starts to where it's needed, all based on what customers want.

Think of logistics management as the glue that holds the supply chain together. It's about juggling things like physical stuff (materials, equipment, snacks), making sure they go where they're supposed to, and even handling returns if needed.

Why is logistics hard to maintain?

Keeping just the right amount of inventory on hand can be tricky, especially when you're trying to make sure you've got enough products available for your customers without spending too much money.

Logistics companies have got a tough job here. You need to strike a careful balance between a few key things:  how much it costs to store their inventory (you don't want to be paying for space you don't need!), getting a good handle on predicting what their customers are going to want, and figuring out the best way to restock those shelves without overdoing it or running out of stuff. It's all about finding that sweet spot where everything lines up just right.

What are some of the top KPIs I must measure for logistics?

Numerous metrics can be measured and everywhere there are numbers involved, KPI metrics can be formed. But from a logistics business perspective, measuring KPIs broadly in the following categories should be a good place to start:

  1. Financial Logistical KPIs
  2. Supply and Inventory Logistics KPIs
  3. Transportation Logistics KPIs
  4. Delivery Logistics KPIs

Let's dive deeper into these, to understand the different kinds of KPIs

1. Financial Logistical KPIs

1.1 Pick and Pack Costs

Definitions Alert Potential impact
The "Pick and Pack Costs" KPI is an indicator in logistics that quantifies all expenses related to the selection and packaging of products. It encompasses the costs of equipment for handling items, packing materials, and labour. This metric allows logistics managers to identify the most cost-effective and efficient methods. Alerts for Pick and Pack Costs are vital in warehouse management as they enable effective cost control, efficiency optimisation, and error reduction. By monitoring these costs, businesses can swiftly identify and address inefficiencies, aiding in accurate budgeting and resource allocation. These alerts play a crucial role in enhancing customer satisfaction as they help manage costs and contribute to better inventory management. Additionally, they offer insights into individual and team performance in the pick and pack process, facilitating continuous improvement in logistics operations.
Image depicting formula to calculate Pick and Pack costs

1.2 Operating Ratio:

Definitions Alert Potential impact
Operating Ratio is a metric that illustrates the correlation between a company's revenue and its operating expenses. It's used to gauge the efficiency of business operations. Alert the finance team to optimise the costs and work with cross-functional teams to set targets accordingly. This ratio can help you maintain an optimal balance between sales and expenses, ensuring that your business is running efficiently. If the ratio is too high, it might indicate excessive spending relative to sales. If it’s too low, it could suggest underinvestment in essential business operations.
Image depicting formula to calculate Operating Ratio

1.3 Net Profit Ratio:

Definitions Alert Potential impact
The Net Profit Ratio in logistics measures profitability in two ways: comparing after-tax profits to total sales for sales volume analysis and after-tax profits to total asset value for return on investment assessment. Alert the finance team to optimise the costs and work with cross-functional teams to set targets accordingly. This will help the business to stay competitive and financially healthy. This kind of vigilant financial monitoring is particularly important in dynamic market environments where conditions can change rapidly.

Image depicting formula to calculate Net Profit Ratio

1.4 Inventory Turnover Ratio:

Definitions Alert Potential impact
The Inventory Turnover Ratio, a vital KPI in the field of logistics, measures the rate at which products are cycled through a company. It calculates how frequently the inventory is replenished over a given time frame. Notify the inventory management team when the inventory turnover rate falls <2 or exceeds >4. This leads to better inventory management and lower holding costs. A clear understanding of inventory turnover enhances a business's ability to negotiate more favourable terms with suppliers, including possible bulk buying discounts.
Image depicting formula to calculate Inventory Turnover Ratio

1.5 Financial Leverage:

Definitions Alert Potential impact
The Financial Leverage metric in logistics represents the proportion of a company's total debts relative to its total assets. Notify the financial team to work with other teams to bring this under control. With this companies can proactively manage their debt levels, align with strategic goals, ensure regulatory compliance, and maintain investor confidence. This vigilance is essential for the long-term sustainability and growth of the business.
Image depicting formula to calculate Financial Leverage

1.6 Inventory to Sales Ratio:

Definitions Alert Potential impact
The inventory-to-sales ratio measure compares the quantity of products in stock to the volume of sales made. It serves as an indicator of overstock and provides insight into a company's capacity to handle unforeseen disruptions in the supply chain. Notify the operations team to coordinate with the procurement team and sales team when this ratio falls below the expected threshold. This helps in optimising cash flow by preventing capital from being tied up in excessive inventory and avoiding scenarios of overstocking and stockouts, which can lead to increased storage costs or lost sales.
Image depicting formula to calculate Inventory to Sales Ratio

2. Supply and Inventory Logistics KPIs

2.1 Warehousing Costs:

Definitions Alert Potential impact
Warehousing Cost encompasses the total expenses incurred for storing goods in a warehouse. Notify the warehouse team and procurement team when this exceeds a % of revenue. Monitoring warehousing costs is crucial for effective financial management and operational efficiency in businesses. It facilitates quick identification and correction of cost fluctuations, assisting in maintaining costs within budgeted limits.

2.2 Capacity Utilisation:

Definitions Alert Potential impact
This KPI quantifies the extent to which a company effectively employs its production resources. Notify the floor or manufacturing team when this number fluctuates from the set average. Monitoring this KPI is key for balancing workload, optimising resource allocation, planning for expansion or investment in new equipment, and ultimately improving the overall productivity and profitability of the business.
Image depicting formula to calculate Capacity Utilization

2.3 Pick and Pack Cycle Time:

Definitions Alert Potential impact
This metric quantifies the duration required for a warehouse worker to retrieve a product from its location and package it for shipment. Notify the analyst team when the time increases from the set average. This enables businesses to closely monitor and optimise the efficiency of their order fulfilment process.
Image depicting formula to calculate Pick and Pack Cycle Time

3. Transportation Logistics KPIs

3.1 Truck Turnaround Rate:

Definitions Alert Potential impact
This is a critical logistics KPI that tracks the time it takes for a delivery truck to enter a warehouse for loading or unloading and then exit the facility. Notify the analyst team when the time increases from the set average. This metric is indicative of the efficiency of a company's loading and unloading processes, with a lower rate being preferable. This will also help in reducing the bottlenecks or delays in the loading docks or warehouse operations.
Image depicting formula to calculate Truck Turn Around Rate

3.2 Average Wait Time:

Definitions Alert Potential impact
This is another important KPI in logistics. It closely monitors the time a carrier spends waiting for the loading or unloading process to commence. Notify the analyst team when the time increases from the set average. This metric is indicative of the efficiency of a company's loading and unloading processes, with a lower rate being preferable. This will also help in reducing the bottlenecks or delays in the loading docks or warehouse operations.
Image depicting formula to calculate Average Wait Time

4. Delivery Logistics KPIs

4.1 Order Cycle Time/Lead Time:

Definitions Alert Potential impact
Order Cycle Time, also known as Lead Time, calculates the duration from a customer's order placement to the order's delivery. Notify the operations team when the time increases from the set average. This should prompt the team to relook at optimising the process. Businesses can proactively monitor and swiftly respond to any delays in the shipping cycle, identifying and rectifying issues such as inventory shortages, processing delays, or logistical challenges.
Image depicting formula to calculate Lead Time

4.2 Delivery Time:

Definitions Alert Potential impact
Delivery Time assesses the efficiency of the logistics process. It gauges the time from when an order is shipped from the warehouse to when it is received by the customer. Notify the operations manager when the delivery time increases. This is very crucial for just-in-time delivery models. This allows businesses to track the performance of their shipping processes in real-time and quickly identify any delays or deviations from the expected timelines. This immediate awareness is crucial for addressing issues like route inefficiencies, carrier performance problems, or unexpected delays due to traffic or weather conditions.
Image depicting formula to calculate Delivery Time

4.3 On-Time Pickup:

Definitions Alert Potential impact
On-time pickup correlates with the efficiency of the pick and pack cycle. This metric helps in assessing the proportion of items that a freight carrier successfully picks up on schedule and in full, relative to the overall quantity of items dispatched. Notify the operations manager when the delivery time increases. This is very crucial for businesses that deal with perishable goods. This allows businesses to track the performance of their shipping processes in real-time and quickly identify any delays or deviations from the expected timelines. According to the Supply Chain Consortium, the average on-time pickup percentage is 96% for several segments. More than 40% of companies reached their goal performance, which ranges from 95-100%.
Image depicting formula to calculate On Time Pickup

4.4 Cost Per Pound:

Definitions Alert Potential impact
Cost Per Pound metric focuses on the relationship between the cost of shipping and the weight of the items shipped. This metric is especially relevant when dealing with goods that are bulky or heavy, as their transportation cost is often weight-dependent. Notify the on-ground team and the finance team when the cost per pound increases or deviates a lot from the set average. Companies can quickly identify issues such as route inefficiencies, carrier rate changes, or packaging problems by tracking this metric. Addressing these issues promptly helps maintain cost-effectiveness in the logistics process.
Image depicting formula to calculate Cost Per Pound

Manage your alerts with Locale for Logistics success

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Snapshot of Locale's dashboard

Envision a central incident response system like Locale as your dynamic command centre, a beacon of efficiency in the chaos of alerts. Locale serves as:

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This approach not only streamlines response processes but also enhances the efficiency of handling critical incidents, ensuring a swift and effective resolution that is tailored to the unique needs of each situation. Try Locale.ai today and stay ahead in the game!

Conclusion

We're revolutionising our logistics with a dynamic mix of tools, turning data into actionable intelligence. By integrating spreadsheets, dashboards, business intelligence tools, and KPI software, we're not just tracking our operations but transforming them.

Illustation depicting how quickly users can connect their data source to quickly setup alerts on Locale's platform

This approach goes beyond interpreting data; it's about unlocking insights to optimise processes and boost efficiency. We're driving our business towards extraordinary success, turning every data point into a step towards exceptional efficiency and progress. This is more than an upgrade; it's a leap forward in how we manage and excel in logistics.

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