Key Performance Indicators (KPIs) in Logistics

A useful way to measure performance is through the establishment of indicators for the key aspects of logistics activity, with the goal of evaluating the success of an ongoing process or particular activity. 

Key Performance Indicators (KPIs) are quantifiable measurements of performance for key activities managed by organization or team. These include all the activities that are needed to keep an operation functioning on an ongoing basis.

A KPI consists of the following elements:

• Identified Metric - Anything the organization choses to measure is a metric. There are some metrics that the organization or teams classify as “key”, those are the ones that becomes KPIs. 
• Ongoing Value - The ongoing value is the running value of the defied metric when is measured at any given moment.
• Target Value - The target value is the minimum or maximum desirable value for the identified metric.
• Unit of Measure - The unit of modality of measurement and organization chooses to view and track an activity.
  • Numerical – a flat number that indicates a target number – Example: Number of beneficiaries receiving commodities.
  • Percent – a measurement of an activity as a percent of a whole – Example: % of orders delivered on time.
  • Rate – a measurement of activity referenced against another number – Example: dollar value per metric tonnage stored.

All the information needed to understand the KPI units of measure need to be clear for everyone involved, and when two or more variables are measured, this needs to be clearly defined.

By setting the KPIs, the key areas of the intervention are defined, using a predefined metric (as well as a target value) to indicate how that key area is performing. Thus, KPIs are used to measure the health of an organization and its respective teams and departments. KPIs are often thought of as “health metrics” because they give the vital signs and provide warning signs when the metrics are unusual.

Choosing the Right Indicators

While suitable performance measures provide the foundation for informed decision-making, improper ones can distort the conclusions and negatively impact efficiency by disguising critical issues and warning signs. Good metrics have several distinguishing characteristics:

• They are directly related to objectives and strategies.
• They must be understandable but not under-determining.
• They must be meaningful.
• They vary between locations and customer segments.
• They provide fast feedback.

One of the most complete indicators is the percentage of orders delivered in full, on time and error free (DIFOT).

However, there are a variety of other key indicator examples. Their selection will depend on the specific monitoring needs an organization might have. The following list is non-exhaustive:

• Information available for users (items, lead times, order status, etc.).
• Response time (order acknowledgement, queries, etc.).
• Number of claims and items returned.
• Number of stock-outs.
• Number of back-ordered lines.
• Average backorder time.

Suggested KPIs For Logistics Monitoring