The success of any business, in any industry is down to the measurement of performance and all the associated metrics necessary to ensure, monitor and evaluate the efficiency of every aspect of operations.
For freight logistics, Key Performance Indicators (KPIs) are a crucial cog in the wheel of industry. Here, we’ll take a look at their role in improving performance in every aspect of a business, alongside the metrics used and how to measure how they are contributing to best practice and addressing everyday logistics challenges.
It can be said that organisations often focus on too many metrics to enable them to manage and monitor, and that many of these can hamper the process of smart decision making. By definition, KPIs are actionable, quantifiable and measurable, and can give a true illustration of how a business is faring against critical success factors tied to their overall objectives and longer-term goals.
The definition of KPIs is that they are actionable – KPIs do which do not support businesses in making decisions are basically just classed as metrics.
Here are 10 Key Performance Indicators (KPIs) essential for tracking and optimising freight logistics performance:
- On-Time Delivery Rate
This is the measuring of the percentage of shipments delivered within the expected timeframe – the formula used for this is On-Time Deliveries/ Total Deliveries x 100.
On-time delivery ensures customer satisfaction and a reliability in delivery schedules.
- Freight Cost per Unit Shipped
This is the calculation of the cost incurred to ship each unit or load – the formula used for this is Total Freight Cost/ Total Units Shipped.
Working out how much it costs to ship each item is essential to managing and optimising shipping fees.
- Transit Time Variability
Consistency can be achieved by tracking deviations in transit times. The formula used for this is to apply standard deviation of transit times across similar routes, which reduces unpredictability risks in delivery and lessens the impact on planning and inventory management.
- Freight Claims Rate
This is the percentage of shipments of freight claims filed due to damage, loss, or theft.
The formula used to calculate this is Total Claims Filed/ Total Shipments x 100
The claims rate is a good indicator of issues in handling, packaging, or carrier reliability, all of which ultimately impact customer trust and overall costs.
- Order Accuracy
This is measuring the percentage of orders delivered without any errors, for example, wrong items or quantity.
The formula used to calculate this is Accurate Orders/ Total Orders x 100.
The order accuracy reflects reliability in meeting order specifications and minimising the number of returns or necessary adjustments.
- Capacity Utilisation
This is the assessment of how well available freight space is utilised – the formula to work this out is Actual Load Volume / Total Available Capacity x 100.
Implementation of this improves efficiency by ensuring maximum use of trailer-load or container space, which helps with the reduction of wasted space and costs.
- Average Dwell Time
This is defined as measuring the average time that freight sits idle at a facility or terminal in transit – the formula used to calculate this is Total Dwell Time/ Total Number of Loads.
Addressing this Identifies bottlenecks and helps streamline loading and unloading processes, helping to reduce turnaround times.
- Fuel Efficiency
Tracking fuel usage per distance or weight of goods transported can obviously reduce costs – the formula used for this is Total Fuel Consumed/ Total Distance Travelled.
Fuel efficiency is key to cost control and sustainability, highlighting efficiency in fuel usage.
- Order Cycle Time
The cycle time is the total time from order receipt to order delivery and simply worked out by comparing the delivery date to the order placement date. Addressing this reduces the overall lead time, positively impacting customer satisfaction and inventory management.
- Carbon Emissions per Shipment
This involves measuring the environmental impact per load or unit shipped – the formula for this is Total Emissions/ Total Units Shipped.
Monitoring environmental impact is now a high priority for businesses, often requiring sustainability reporting and steps towards improvement to comply with industry regulations and legislation.
Tracking these KPIs allows freight logistics companies to streamline and optimise operations, minimise costs, improve reliability, and enhance customer satisfaction whilst also maintaining a focus on sustainability. Each KPI offers actionable insights, allowing companies to continually monitor and effectively address inefficiencies to improve their overall logistics performance.
