Logist ics Key Perf ormance Indicat ors

(KPI)
Int roduct ion
The logistics industry is very dynamic. As supply chain
management experts, you always have the challenge
to constantly improve your performance.
Nowadays, we are overwhelmed by a large set of
metrics and indicators that we need to report, collect,
analyze and decide upon.
However, we cannot always understand which
indicators or metrics are most important or relevant
for profitability, cost reduction, fleet management,
teamwork and accountability within our operations.
This brief guide presents some of the most used
indicators in fleet management operations, with
examples and calculations that can help understand, in
a graphic way, the importance of its use to optimize
supply chain management services.
We are confident that this guide will turn into an
essential, easy-to-read reference in times of need. We
hope you enjoy it.

?You can't manage what you can't measure?.

W. Edwards Deming

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Let 's Get St art ed
A KPI or Key Performance Indicator is a measurement tool on how different units of a company are reaching
their targets and goals. Corporations use these indicators to check regularly into their performance status, and
assess whether or not they are meeting their targets or whether they are below or above them.

So we coul d say t hat KPI's were creat ed t o:

- Measure the performance of people, teams, and processes.
- As a progress report system, to change people?s disposition to certain tasks.
- To ensure that all tasks are aligned with company goals and strategy.
- As a booster for constant improvement cycles.

To make sure we achieve t he above, we must not f orget

t hat good indicat ors must be:
- Quantitative
- Easy to understand
- Integrate other areas
- Measure only what is important
- Able to take actions over the results

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How t o f ocus KPIs f or your company
The Suppl y Chain Operat ions Ref erence (SCOR) Model has coded over 250 metrics under five attributes.
According to this organization, the strategy challenge of any company is to def ine, al ign and priorit ize the
competitive elements of each attribute. The company must choose the attributes it?s capable of excelling
at, and be clear when they can only work at an average rate.

At t ribut es Def init ion Basic Met rics Focus

Rel iabil it y The ability to perform tasks as

expected. Reliability focuses on the
predictability of the outcome of a
process. Typical metrics for the
reliability attribute are: On-time, the
right quantity, the right quality.
- Delivery performance
- Fill rates
- Perfect order fulfillment

Responsiveness The speed at which a task is performed.

The rate at which a supply chain
provides products to the client. - Order fulfillment Customer
Examples include cycle time metrics. - Lead Times

Agil it y The ability to respond to external

influences, the capacity to respond to
marketplace changes to gain or
maintain a competitive advantage. - Supply Chain Response Time
SCOR Agility metrics include Flexibility - Production Flexibility
and Adaptability.

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At t ribut es Def init ion Basic Metrics Focus

Cost s The cost of operating the supply chain - Cost of goods sold
processes. They include labor costs, - Total supply chain
material costs, management and management costs
transportation costs. A typical cost - Value-added productivity
metric is Cost of Goods Sold. - Warranty- returns
processing costs
Internal
Management
Asset - Cash to cash cycle time
Management The ability to efficiently utilize assets. - Inventory days of supply
Ef f iciency Asset management strategies in a - Asset return
supply chain include inventory

Source: Supply Chain KPI's ? The stuff you really need to know. Rob O?Byrne.

Here are some indicat ors t hat we bel ieve are rel evant f or t he indust ry

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Ret urn on Invest ment (ROI)

It is a financial formula used to measure the effects of investment in a given period of time. It is a classic, basic
indicator for any company because it helps understand what issues are worth investing on and which services
or products are not essential.
% ROI = Benef it s -Cost s
* 100
Cost s
For example,
- A Wood supply company wants to improve its supply chain management with a route optimization
software.
- The cost to implement is US$500 a year.
To calculate the ROI,

Route management costs y1 - Route management costs y2 = savings

(no software) (with software)

US$2.000 - US$1.300 = US$700

% ROI = US$700 - US$500

US$500
In this case, the ROI is 40% within a year.

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Fuel consumpt ion

At a global level, fuel prices go through dynamic up-and-down cycles. That is why it is one of the hardest
variable costs for any company?s budget. Not only is it important to determine the final cost and value of
a service, but in SCM it?s key to plan deliveries, manage routes etc
While you can measure the fuel consumption by the relationship between the distance traveled and fuel
consumption , you should make certain distinctions
- By t ype of journey
The performance of a vehicle changes significantly when it?s doing urban or inner-urban deliveries. It?s
important, that companies distinguish the fuel consumption on different types of trips.
- By vehicl e t ype
A small van will not have the same fuel performance than a 12 axis truck. It is highly important that this is
considered when you analyze the total fleet performance
- By Driver
The performance of a vehicle depends heavily on the driver's driving style. Within the same route, a
particular driver can be used to use the breaks more frequently, use a low gear etc, this affects the fuel
consumption.

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Tot al capacit y used (vol ume or weight )
This indicator controls the usage of the fleet in terms of their cargo capacity.
This metric is important for the industry as it allows to measure the ability of a company to deliver its orders,
and assess whether it's correctly using the capacity of its fleet.
Val ue (% )= Average capacit y used (pounds-square f eet )
Vehicl e's inst al l ed capacit y

Let's say a company has three vans with a permissible total weight of 8,000 pounds and a load volume of 78
square feet. Today, these vans deliver nearly 4,500 pounds in supplies to small retail stores in the same
urban area.
The average capacity would be:
4,500 pounds
78 square f eet = 57.6 pounds/ square f eet

The installed capacity of the vehicle is equal to:

8,000 pounds
78 square f eet = 102.5 pounds/ square f eet
Then, the final result would be:

Value (% )= 57.6 pounds/ square feet Total capacity used per vehicle: 56%
102.5 pounds/ square feet

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Val ue of in-house t ransport vs. t hird part y t ransport
Many times we offer services to a client who believes their delivery operations are more efficient and
cost-effective when managed in-house, instead of hiring a third party service.

This KPI calculation is crucial to show how an external transportation supplier can be more efficient, for
instance, by using economies of scale.

At the same time, when a comparative assessment indicates that the third-party costs are higher than a
customer's in-house services, it is a call for attention.

Val ue (% ) = Cost of in house t ransport at ion (per unit ) * 100

Cost of t hird part y t ransport at ion (per unit )
For example:
- A mining contractor spends US$5,000 a month to transport 500 boxes of safety goggles to their
different operations.
- The third party logistics supplier, can spend US$4,000 a month to deliver these same 500 boxes.

Cost of in house transportation (per unit)= US$5,000 =US$10 a unit Value (% )= US$10 Value=125%
500 US$8
Cost of third party transportation (per unit)= US$4,000 =US$8 a unit
500

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Cost of t ransport at ion vs. t ot al sal es
This formula allows the company to control the transportation costs in terms of the total sales generated by
a set of orders. This is important to properly transfer costs to the customer, determine margins etc..
It can also contribute to show the different values by type of cargo that a fleet has to transport.
For instance, it's not the same to deliver books than frozen meat that needs to monitor cold chain, expiration
dates etc..
As the cost of transportation doesn't only include the value of the vehicle, the driver's fees and fuel, but also
the costs for a refrigerated container, and other costs associated to cold-chain. This calculation is key to
assess whether or not a service is cost-effective.

Val ue (% )= Transport at ion cost s * 100

Tot al sal es
For example,
- A fleet spends US$30,000 a month in the maintenance of refrigerated containers. Not only they
integrate a driver's salary, but the energy used in each container and the average spending in fuel for
a given route.
- For the transport service of refrigerated goods, the company bills customers a total of US$40,000 a
month.
This means that:
Val ue(% ) = US$30,000 in cost s *100
US$40,000 in sal es
The t ot al cost of t ransport at ion equal s 75% of it s sal es. Wit h t his number in mind, you must decide
whet her it s being a good business or not .

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Cost per unit del ivered
Many times the sum of different factors exceed the final product. The logistics operation must deal with
several pricing changes and fluctuations with a client or supplier's products.
This KPI controls the unit costs of managing cargo in a warehouse, and can link the units managed with the
operating expenses of a distribution center.
US$ per unit = Warehouse cost of operat ion
Tot al unit s del ivered
Let us take the case of a soft drinks distributor, whose warehouse operating costs include the rent of
infrastructure, maintenance costs and payment for the staff.
- Product A: warehouse costs US$10,000 and delivers 8,000 units a month.
- Product B: warehouse costs US10, 000 and delivers 8,500 units a month.
- Product C: warehouse costs US$9,500 and delivers 8,000 units a month.

US$ per unit = $US 10,000 US$1,25 a unit

8,000 units

US$ per unit = $US 10,000 US$1,17 a unit

8,500 units
US$ per unit = $US 9,500 US$1,19 a unit
8,000 units

Warehouse B is t he most ef f icient one.

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Lead t ime
For a logistics company, lead time is the amount of time the company takes to receive an order, process it and
send it to its final destination.
It is one of the most important indicators of any supply chain service, as it is critical to gain advantages over your
competitors. Any miscalculation can cost a lot of money, even make you lose some contracts.

orders
N° of days = ? dat e of del ivery - dat e of t he order

For example:
- A medical supplies service uses a third party logistics company. They just pick up medication in the
supplier's warehouse, and then they send them immediately to drugstores.
- The client issues a sales order every Monday.
- On Tuesdays, the fleet picks up produce from the supplier's warehouse, to deliver the goods on
Wednesday.
- In March, the supplier has a delay, and the service has to pick up the deliveries the following day, so the
final delivery is done on Thursday.

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 March 2016
D M T W T F S

29 Feb 1 March 2 3 4 5
Order Warehouse Delivery

6 7 8 9 10 11 12
Order Warehouse Delivery

13 14 15 16 17 18 19
Order Warehouse Delivery

20 21 22 23 24 25 26
Order Warehouse Delivery

27 28 29 30 31
Order Warehouse Delivery

With the formula:

5 del iveries
N° of days = ? 2d+2d+2d+3d+2d

The l ead t ime f or March woul d equal 2.2 days.

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Use of t ime
It is important to understand how a vehicle's time on the road is spent, in order to understand if it is using its
time efficiently.
You can break down the time use of each vehicle, and review in detail how each one is spending its time, to
manage staff issues, engine failures, client delays or traffic problems.
Let's take two vehicles of the same company, running the same service and monitored frequently for a 5 day
working week.

Vehicl e 1 Vehicl e 1 Vehicl e 2 Vehicl e 2

(# of hours) (% of t ot al hours) (# of hours) (% of t ot al hours)

On t he road t ime 27 hrs 23% 30 hrs 25%

Maint enance t imes 5 hrs 4% 6.5 hrs 5%

Dead t imes 20 hrs 17% 14 hrs 12%

Del ay t imes 3 hrs 3% 2.5 hrs 2%

Wait ing t imes 5 hrs 4% 4 hrs 3%

Loading- Unl oading t imes 10 hrs 8% 8 hrs 7%

Rest ing t imes 50 hrs 42% 55 hrs 46%

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Now we can evaluate and compare:

- Although vehicle 1 rests less time

than the other one, it takes longer
to load and unload , and also has
more delays than vehicle 2. The
drivers 'dead moments' are also
longer.

- On the other hand, the second

vehicle spends a longer amount of
time on the road, but is spending
more hours on maintenance.

This can provide import ant evidence on t he

perf ormance of drivers or vehicl es.

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Qual it y of t he del ivery
This is very important to look into, because it involves the satisfaction of your clients. If the industry's costs are
similar, this metric can favor a supplier over another. At the same time, it's critical for industries that work with
expiration dates or depend on cold chains.

Val ue= N° of orders processed wit h no issues *100

Tot al N° of orders processed

Let's use the same case of lead time worked before. There were 5 orders processed a month, but only 4 of
them were delivered with no problem, as there was a delay in processing the March 21 delivery.
Therefore,

Val ue= 4 orders wit hout issues *100

5 orders in t ot al

Qual it y of t he del iveries: 80% .

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Perf ect del iveries
In suppl y chain met rics, t his is t he f inal seal of excel l ence.

"If you can't create and deliver products in a timely, cost-effective manner, it doesn't matter much how well
you design and market them. This reversal places supply chain decisions at the very heart of corporate
strategy."
(David A. Taylor, Ph.D. - Supply Chains a Manager's Guide)

It's the quantity of orders that were perfectly delivered by the company. A perfect order successfully manages
to:
- Deliver all goods in accordance with the required amounts.
- Deliver on the date required by the client.
- Attach complete and accurate documentation with the delivery.
- Deliver products in perfect physical conditions.
- Your team presents and transport in an adequate manner to the final customer

Val ue= N° of perf ect del iveries

Tot al del iveries

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Concl usion
Measuring is one of the keys to management
success. But only by measuring the right
variables you will get the appropriate indicators
that can contribute to optimizing your business.
We can onl y improve what we can
measure.
Don't f orget : A good indicator must be easy to
understand, actionable and easy to collect.
Your value is not only related to costs, but
performance. KPIs are essential for any logistics
operation in order to calculate well the final
value of their products for customers. Before we
go, remember:
- Your KPIs should reflect accurately what
your company wants to achieve

A key success factor for a company is to develop

a measuring system that can give important - If you fail to have accurate indicators you
internal and external indicators, throughout all might lose the right track. That's why an
the areas of your company, from procurement, alignment between your company's
supplies, inventory, warehouse, transportation goals and its KPIs is so important.
and customer service.
First you need to know what to really measure.
You must revise whether this helps increase
efficiency and productivity, because not
everyt hing t hat can be measured is usef ul or
pert inent f or your part icul ar needs.

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Aut hor

Francisca is the Business Development Director of

Drivin, a SaaS transportation management solution that
generates an optimized delivery plan, improves
customer service, and reduces transportation costs by
up to 30% from day one.

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 At Drivin, we're changing the way planning and execution of deliveries are
being done, allowing our partners to improve their skills and provide higher
standard levels of customer service to it's final clients.

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