The strongest and most resilient supply chains revolve around key performance indicators (KPIs). With the right KPIs, data, and informed decisions, your organization can continually improve operations, reduce costs, and enhance customer satisfaction. However, few companies have the resources and personnel to manage and measure logistics KPIs effectively. Partnering with a third-party logistics provider (3PL) like ODW Logistics can enable you to streamline your logistics and drive peak performance.
As a 3PL that adds value, we live and breathe KPIs. In this brief Q&A, Matt Perrigo, Director of Business Development at ODW, explains the importance of logistics KPIs and how they fuel supply chain success.
How Do KPIs Improve Supply Chain Operations?
KPIs help you and your 3PL understand where time is being invested and what the return is on that time investment in dollars and cents. It’s not just a matter of tracking numbers. By measuring the right KPIs, we can identify actionable items that will move the needle financially and operationally for your business.
KPIs become even more powerful when we break them down into supply chain stages. Each stage has its unique challenges, metrics, and goals. By focusing on the specific logistics KPIs relevant to each stage, we gain a more granular understanding of supply chain performance. This helps to identify bottlenecks, inefficiencies, and learning gaps in your operations. It's like zooming in on the areas that require attention and improvement.
What Are the Main Logistics KPIs to Measure?
There are usually five core KPIs that we focus on with most clients.
- Productivity – a key metric across all stages of the supply chain and essentially determines what can be accomplished in an hour.
- Quality – While productivity measures quantity, a separate measurement focuses on identifying the number of errors or deviations from quality standards. That separate measurement helps us understand how well we’re meeting quality metrics beyond just the quantity of work.
- Cost – This includes assessing how much we’re running through in a day and how much is produced in terms of volume. By monitoring the cost perspective, we can gain insights into the financial efficiency of our operations.
- Safety – Safety metrics always play a vital role in the supply chain. Safety is not only crucial for the well-being of our workforce, but it also impacts productivity and operational costs. It’s a zero-sum game where compromising safety can have severe consequences.
- Workforce Performance – Tracking metrics related to turnover and the cost of onboarding new associates helps us understand the workforce dynamics and the associated costs.
These five key metrics—productivity, quality, cost, safety, and workforce performance—need to be consistently monitored and managed throughout the different stages of the supply chain. They provide a comprehensive view of our operations, enabling us to make informed decisions and drive continuous improvement.
How Does Partnering with a 3PL Drive Efficiency?
The biggest value of working with an experienced 3PL, like ODW, is in our ability to contextualize metrics to your business. By understanding your strategic goals and requirements, we can make informed decisions that drive efficiency. Once again, KPIs involve and entail much more than simply tracking performance. It’s all about optimization and continuous improvement.
What Are Common Misunderstandings or Errors When Tracking Logistics KPIs?
The most common misstep is solely focusing on operational metrics without considering the broader strategic goals. It's crucial to align KPIs with the organization's overall objectives. For example, if the goal is to improve customer satisfaction, measuring KPIs related to on-time deliveries and order fill rates becomes essential.
Another mistake is not considering the holistic view of the supply chain. Oftentimes, businesses track KPIs in isolation for individual stages without understanding the interconnectedness and impact on overall performance. It's important to recognize that the supply chain is a cohesive system, and changes in one stage can have ripple effects throughout. Some KPIs may not even be worth measuring if they can’t realistically or feasibly be improved upon. Truly valuable KPIs are relevant and actionable.
What Are Some Examples That Show the Impact of KPIs on Supply Chain Success?
We have a client that historically has a significant problem with inbound damage. By accumulating data through KPIs, we were able to demonstrate the downstream cost incurred due to issues upstream in the supply chain. This allowed the client to address and correct these issues with their suppliers. Without the KPIs, their concerns would be difficult to tangibly address.
We also have a client that was experiencing consistent product damage during delivery. Through KPIs, we identified the root causes, provided them with direct cost information, and helped them make changes to reduce labor and re-handling costs. By improving packaging techniques, implementing better handling protocols, and tracking KPIs related to product damage, they were able to significantly reduce their overall costs and enhance the quality of their shipments.
Tap into the Power of Logistics KPIs for Your Business
Logistics KPIs play a pivotal role in driving supply chain success. By measuring and analyzing key metrics, you can gain valuable insights into performance and identify areas for improvement—but where do you start? If you want to learn more about implementing KPIs into your logistics, speak with our experts. We’ll provide a complimentary consultation and answer your most pressing logistics questions. Contact us today to start the conversation.
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