The only way to go forward is to analyze where we are, what we have, and what we need to keep improving. In any business, it is important to have metrics to evaluate performance and get better over time.
Key Performance Indicators also commonly known as KPIs are tailor-made metrics to help companies measure performance over the talent and the processes. These KPIs are usually reviewed by top hierarchies every month or so to trace the overall performance and set new goals to keep increasing productivity.
“Our goals can only be reached through a vehicle of a plan, in which we must fervently believe, and upon which we must vigorously act. There is no other route to success.”
What KPIs do I need in my company?
We need to start by saying that every case is completely different, and first, you should analyze your company’s needs. Evaluate weaknesses and strengths, as well as setting goals to gradually help your company achieve them. By setting your goals you are going to know where to focus your energy, time, and resources to get the best results. KPIs cannot be defined without structure, that is why you can support this process with the SMART acronym of a step-by-step goal setting.
To make sure your goals are reachable and clear, follow these steps:
Specific: You need to set clear goals and make them easy to understand what exactly you want to achieve.
Measurable: Tracking progress is vital to meet deadlines and assessing it will keep the talent motivated.
Achievable: These goals need to be attainable, else your team or company may end up frustrated by impossible goals.
Relevant: Is your goal worth your talent’s efforts? Do these goals are riding you to the main goal? These are the questions you need to solve before setting a goal and make sure it fits the mission, strategic plans, and vision of the company.
Time-bound: To have a real benchmark, you need to have a timeframe to analyze results between sessions.
KPIs will not only help achieve goals but also identify problems. It works as a performance benchmark. It is important to highlight that KPIs are not only a one-way street, but they are also a good opportunity to identify bottlenecks and inefficiencies across the processes. With the data collected from month to month, you can set up minimums and expected goals, and with this constant monitoring, you will find it easier to track and address mistakes along the way.
KPI’s to Measure Success
The transportation industry is a dynamic industry; therefore, we need to keep an eye on each step of the process and make sure we are being as practical and effective as possible. For each step of the supply chain and fulfilling process, there are KPI’s that will help you get the best out of every process ensuring quality and efficiency to get the best results and revenue from the resources available.
Here are some of the most important KPI’s to consider when setting goals:
1. Freight Transportation Expenses as a Percentage of Revenue: This ratio measures the total transportation-related expenses (fuel, fleet management costs, driver labor, etc.) incurred in relation to the total revenue generated by the company over the same period.
2. On-time Delivery (OTD): The on-time delivery metric is used to assess the ability to fulfil a customer order by the promised delivery date. To calculate OTD rate, divide the total number of orders delivered by the number of deliveries that arrived after the promised delivery date.
3. Claims Percentage for Freight Costs: This KPI can be calculated by dividing total loss and damage claims by total freight costs.
4. Damage Rates / Cargo Loss: There are times when freight arrives at its destination damaged. To understand how often this happens, divide the total number of damage reports by the total number of shipments made.
5. Quote to Invoice Accuracy: This indicator tracks and improves billing accuracy; it is used to monitor and help you find root causes of billing errors or inefficiencies by identifying potential issues.
6. Shipping Cost Per Unit: This KPI will help you track your shipping costs per unit and alert you when the budget is out of control. To calculate it, you need to divide your total freight costs by the number of units shipped per period.
7. Accessorial as Percent of Total Freight: Accessorial Charges are the extra costs invoiced for additional services. This KPI is calculated by dividing accessorial costs and surcharges by total freight expenditures for the period. Having the percentage of those extra fees will help you determine the number of resources used and it will also help you detect if there are inefficiencies along with the processes.
8. Transit Time: This KPI adds up the total time (or days) from pick up to the freight delivery at the consignees’ location. With this metric, you can compare the estimated transit time and analyze the carrier’s performance. You can also create an optimal transit time and set the right expectations for the customers, and it will help you evaluate possible delays that may prevent delivery on time.
9. On-Time Pick-Ups: To calculate it you need to divide the number of pick-ups made on time by the total number of shipments in a timeframe. This is an indication of the vendor’s shipping performance, and it is important to track because it is related to the effect on your logistics operation and customer service.
Boost your Capabilities with a Transportation Management System (TMS)
Among the information mentioned above, it’s important to leverage your efforts on digital platforms such as TMS, WMS, among others. With it, you will have a lot of benefits that will be valuable to your company. To mention some uses, it will help you record your shipping operation, reduce freight expenses, check performance, and keep track of all processes.
But technology itself is not enough!
You also need to find the right partner so you can be covered with the experience needed to succeed. A 3PL combined with a TMS will help you find cost-effective opportunities in your shipping process. With the right partner you’ll enjoy benefits such as full access to a broad network of carriers, industry forecasting, flexibility to choose the best solution for your shipping needs and optimization methods to save time and money in your logistics process.
To wrap it up.
Tracking your KPI’s will give you a strategic vision of your overall goals and performance over time. With it, you will identify trends, and find key optimization points over your processes. Don’t set in stone your KPI’s, make sure to bring a wiggle room without forgetting the main plan.
Partner up with a 3PL to take advantage of the benefits mentioned above, so you can find the best solutions to your needs and optimize your resources to save money and time in your logistics process.
KPI’s are about helping you reach objectives and goals without overwhelming yourself and your team. Setting the right goals will bring light to focus the energy, resources, and time efficiently. This will open a path divided into small tasks and achievable goals to reach a bigger plan.