Key indicators in your logistics area

The logistics industry generates a vast amount of data daily from processes such as order storage, transportation, picking, and packing, among others. Indeed, companies benefiting from logistics analytics solutions through indicators in the logistics area are the ones poised for long-term success. 

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For this reason, to gain greater visibility into the supply chain in your company, you must be familiar with the main indicators in your logistics area. These indicators will help you identify variables that could impact demand planning, production, and product distribution. This way, you can make better decisions to anticipate possible stock shortages, overstock situations, or delays in customer deliveries.

The purpose of these indicators is to measure employee performance, sales, the quantity of product deliveries made, and the time spent on tasks, among other aspects. Only by relying on these metrics can a company enhance the quality of its logistics service.

In this article, we detail below the main indicators in your logistics area that you should not miss out on. All of them are designed to be applied in the three most critical stages of the supply chain: suppliers, production, and shipment.

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1. Costs.

Incorrectly measured costs make processes inefficient in the short term, whether they are related to fuel, labor hours, machinery, or any resource required to complete the logistics process. Whether it's third-party logistics, such as MercadoLibre, or internal logistics managed by the same company, these metrics can reveal excessive expenditure or savings involved in current logistics processes. There are different types of costs measurable in the logistics area.

1.2. Hourly Costs.

Hourly costs also apply to production, warehousing, and shipment. They reveal how much it costs for an operator to produce and the tasks included within that individual production, such as loading and setting a truck in motion.

Today, logistics aims to outsource, meaning subcontracting logistics services from another company to carry out deliveries and product distribution. This helps reduce costs, but without metrics to monitor the activity, realizing the savings will not be possible. Knowing who your collaborator is, how they are performing, and with whom is crucial to ensuring a profitable long-term investment in outsourced logistics services.

1.3. Transportation Costs.

Average transportation costs calculate the total expenses involved in processing an order from start to finish. You can break down all costs related to this logistics KPI into different categories: order processing, administrative, inventory, storage, and finally, actual transportation costs.

After calculating all of this, you can evaluate the percentage that each stage of the process represents and see if it is excessive or within standards. You can also calculate transportation costs in relation to a product and see how much an item costs compared to the revenue it generates.

1.4. Storage Costs.

Storage is the management of space and time. Storage costs refer to the money allocated to goods moving in or out of the warehouse. These expenses cover equipment and energy costs, such as sorting, storing, and loading products, as well as more human costs like labor, shipping, or delivery.

Measuring storage costs and total transportation costs is not an easy task, but once done, it will greatly facilitate your overall management, adding significant value, something that top management or investors will appreciate.

1.5. Collection and Packaging Costs.

This metric aims to measure all cost aspects related to the collection and packaging of your orders. For example, labor, packaging materials, or equipment. The ultimate goal here should always be to keep costs as low as possible. Therefore, monitoring this indicator will be useful to understand if you are expending more resources than necessary throughout the process. 

2. Efficiency.

This indicator refers to the efficiency of collaborators in the supply chain, ranging from suppliers delivering raw materials, how long it takes to process them, and how long it takes to deliver them, to internal company personnel and outsourced logistics services. This indicator measures performance across three levels:

• Suppliers.
• Internal Efficiency.
• Third-party Efficiency.

In essence, the logistics service provides significant influence over suppliers. Without proper planning during periods of increased demand, whether due to increased sales or deliveries, there will come a time when the order volume is so significant that you'll need to hire an external logistics service.

So, the first step is to measure internally to determine the level of efficiency of each collaborator within the company, and from there, consider an outsourced service that should also be measured.

3. Production Capacity. 

Production capacity is the maximum production of goods and services that can be achieved per productive unit using available resources during a specified period of time. If a production unit is operating below its production capacity, its performance is subpar, and process improvement implementation is necessary; otherwise, high costs will result in unfortunate financial losses.

To increase a factory's production capacity, you must invest in new machinery that can produce more. Additionally, keep in mind that production capacity is measured based on the efficient use of available resources and the incorporation of productive means operating under optimal conditions.

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4. Time.

The time gauge involves determining how much needs to be produced within a specific timeframe. Within this variable, there are various categories depending on the logistics process that needs to be measured.

4.1. Shipping Time.

On-time shipping performance refers to the proportion of orders shipped on or before the requested shipping date divided by the total number of orders. In fact, if the amount of time between when a customer places an order and when it is prepared for shipment is too long, it can indicate issues in the process that need to be addressed.

Whether it's outdated planning processes or disconnected execution systems that are too slow to handle increasing demand, these issues must be tackled to respond quickly to unexpected events.

4.2. Delivery Time.

Average delivery time is measured from the moment an order is placed for shipment to the moment it is delivered to the customer/post office. After comparing and getting an idea of the average delivery time from the warehouse to any location, the goal would be to decrease it when possible by offering special delivery services, prioritizing what's most important.

Saying that an order will arrive in 4 to 5 business days is better than saying it will arrive in 1 to 5 business days. Furthermore, if you can specify the delivery time (between 1:00 PM and 3:00 PM instead of between 8:00 AM and 6:00 PM), that's even better. This way, your customer knows when to be at home to receive the package, increasing order pickup accuracy and preventing returns.

5. Storage Capacity.

This indicator measures the volume of raw materials, intermediate products, and finished products housed in the warehouse, and how to organize them in such a way that stock does not exceed capacity due to more efficient production and decreased deliveries, nor does it remain empty due to increased deliveries and reduced production capacity.

6. Reorder Point.

This involves knowing a parameter of when to order at any point in the supply chain. When to request production to make more and when to ask the supplier to send more raw materials.

7. Lead time. 

Lead time, or delivery cycle time, refers to the duration from when a purchase order is generated to a supplier until the goods are delivered from that supplier to the customer, be it an individual or a store. Depending on the segment of the supply chain you want to measure, lead time can vary in its results.

For example, we can discuss sales lead time, which allows establishing a delivery date with customers. Alternatively, consider a purchasing lead time, where you negotiate with suppliers the best way to ensure that raw materials arrive on time and in good order, preventing shortages in the production line.

Production lead time, on the other hand, allows you to calculate manufacturing times to estimate their impact on logistics and business management. Likewise, lead time in logistics and distribution requires a comprehensive view of the timeframes of other areas and processes to determine how long it will take for production to manufacture products, when they will arrive at the warehouse, and how long it will take to reach the customer.

Lead time is calculated by measuring the difference between the delivery date and the order date. The result reveals the number of days that passed from when the order was placed to when it reaches the customer. This indicator is measured more accurately based on the history of orders and deliveries to reduce uncertainty during the process.

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In conclusion, the main logistics indicators that can help you measure the performance and results of logistics processes include metrics related to time, costs, efficiency, production and storage capacity, reorder point, and lead time. Each of these is applied based on the three levels of the supply chain: suppliers, production, and shipment, in order to identify problems or improvement opportunities.