Production cycles, which are becoming shorter and shorter and are combined with growing customer expectations, are intensifying the fast-moving pace of logistics processes. Companies that want to remain competitive can use logistics KPIs to organise their processes efficiently and adapt to the latest market requirements. KPIs provide measurability and comparability – which can be beneficial in many ways.
Rising customer expectations and aspirations to provide same-day deliveries have caused companies to view logistics as a crucial success factor. Clients would like to know exactly what is happening in the warehouse: how long does it take from the time that an item is ordered until it is loaded on board a vehicle? How many packages are leaving the warehouse on time? And how often are items damaged or incorrectly picked? All these things can be measured nowadays with the help of key performance indicators (KPIs). They can help to identify market trends more quickly, to plan logistics operations more efficiently and play a major role in determining the efficiency and quality of warehouse processes. One performance-related KPIrelated to logistics involves the delivery time, for example, while the completeness of a package provides information about its quality.
The outsourcing company specifies which KPIs are particularly important in its view. In any B2C business, where the delivery time is critical, this usually means handling the warehouse processes quickly and delivering the packages punctually. Quality-related KPIs, on the other hand, are for the most part relevant wherever particularly sensitive goods, such as pharmaceuticals, hazardous substances and chemical agents, are handled.
A KPI in logistics can either be an absolute or relative figure. The throughput time in the warehouse or the planned volume of consignments, which makes it possible to calculate the allocation of personnel, are, for example, absolute KPIs. At least two figures are compared with each other when it comes to relative indicators. This may, for example, involve how frequently stocks leave the warehouse. This KPI specifies, for instance, how often the stocks in the warehouse are rotated, that is to say, replaced. The frequency of the turnover of stocks in a warehouse is an important indicator for the productivity in the warehouse and enables conclusions to be drawn about the average warehouse costs and the efficiency of the supply chain. Warehouse punctuality is also a relative KPI, which compares the proportion of punctually processed orders with their total number. If, for example, warehouse employees complete 9,800 of 10,000 orders during the course of a day, the success rate is 98 percent.
KPIs provide huge value added, both for the outsourcing company and the logistics partner. They are not only important indicators, but also a means of calculating and measuring the agreed performance. Both sides can continuously monitor and assess the logistics performance and quality and, if necessary, introduce measures to adapt them. Gathering key performance indicators usually forms part of a written agreement and can also serve as the basis for calculating bonus/penalty systems.
“Setting the relevant KPIs should take place right from the tender procedure. Both the service provider and the company can continuously analyse and improve their working relationship and processes by using the set KPIs and uncover any weak points in the process. This is particularly helpful, as the follow-up work related to warehouse processes is much more important now than it was in the past,” says Sören Moschüring, the Field Manager Business Intelligence at Rhenus Warehousing Solutions.
It is very important that orders are dispatched on time for a manufacturer of animal food, which sells its goods from an online shop. Max Schmidt ordered a pack of dog food from the company’s online shop. He placed the order at 10:42 p.m. According to the specified KPI, the order must leave the logistics specialist’s warehouse no later than 6 p.m. on the following day. The item was actually processed at 2:05 p.m. This meant that the time for the prescribed KPI was met. On a dashboard, the manufacturer and logistics specialist can view the punctuality at the warehouse, when the article arrived at the warehouse and the date that the consignment was loaded on board a vehicle. The prescribed KPIs are assessed on a weekly basis in order to even out any fluctuations in orders – at weekends, for example.
Precise forecasting is necessary to ensure exact compliance with the logistics KPIs. This forecasting supports the short-term and medium-term planning work for capacities based on the expected volumes of orders and deliveries. As a result, the logistics specialist can plan its personnel efficiently and optimise its warehouse costs in the long term. The estimated volume of orders depends on discount campaigns, public holidays or seasonal fluctuations and may change quickly, depending on the market situation. Forecasts covering several weeks, three-month periods or the whole year map peaks, such as an increase in the volume of orders before Christmas. Processes at the outsourcing company and its logistics partner can be improved by interlinking the KPIs and the forecasts.
The ‘warehouse punctuality for outgoing goods’ KPI for an online trader is based on an average number of incoming orders of 20,000. Thanks to a discount campaign, however, the trader is expecting a significantly higher volume of orders of 40,000 during the next weekend. The forecastgives the service provider an opportunity to increase its numbers of personnel in good time – so that it can meet the set level of warehouse punctuality. Order peaks vary, depending on which sector is involved. Forecasts are therefore always geared towards the individual requirements of the client.
“Instead of having an immediate, 100 per cent solution, it’s better to initially meet the target for the top 3 KPIs.”
Sören Moschüring | Field Manager Business Intelligence at Rhenus Warehousing Solutions
As KPIs are very helpful when measuring performance, there is a great temptation to track as many figures as possible. But more does not always mean better. If too many performance indicators are considered at the same time, things can quickly become confusing and this can lead to errors and avoidable costs. It is therefore necessary to initially examine the possible logistics KPI to see what benefits it provides and its productivity. “Particularly at the beginning of any working relationship, it’s helpful to find the most informative indicators and determine how they can be collected and assessed,” Sören Moschüring advises.
The company and logistics specialist draw up a common approach in a workshop. They analyse which data should be available for assessment. How are these figures calculated, where do they come from and who should make the information available?
The service provider examines to what degree the client’s existing data can be assessed and whether there are any other details missing in order to provide a clear picture. The basis for the data is gradually improved.
Both partners then draw up a dashboard and the relevant data is fed into it. The dashboard is gradually prepared in order to guarantee the continual checks on the KPIs. What is important is that the calculation basis for the KPIs must be transparent for both sides.
When operations are outsourced, KPIs are the most important means of ensuring a successful working relationship between a company and its logistics specialist. They permit transparent planning work, a joint analysis and continual improvements for both partners. KPIs and forecasts go hand in hand in this process. Because the client plans its order volumes in advance, the logistics specialist can adapt its personnel capacity. KPIs can therefore be met if any fluctuations in volumes occur. KPIs in logistics consequently increase satisfaction levels for the client and guarantee a successful outsourcing process.
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