Logistics KPIs: Some Things Just Don’t Make Sense

Logistics KPIs are the cockpit dashboard of our logistics operations. They tell us how we’re doing against plan and flag when things are off and need attention. We’re in an execution business; metrics speak to the quality of that execution.

Despite the time and effort put into logistics KPI reporting programs, reports often don’t tell the full story of operational effectiveness – and some numbers just don’t make sense. Let’s review some flaws we’ve observed that may suggest changes for your KPI measurement programs.

Some Logistics KPIs conflict

Your orthopedic doctor may tell you cut down on the running to save your knees, but your personal trainer wants you to hit 15 miles a week to improve your cardio and heart health. Both are advocates for your health, but their measurements conflict. The same can happen with your distribution program. Here’s an example involving a conflict between

• Load Ready Time Conformance (LRTC)
• Customer Fill Rate

No supplier wants to have the conversation with Walmart on why they are 90% to fill rate. However, to increase the fill rate with Walmart, 3PL customers sometimes instruct their 3PL hold an outbound shipment past the time it should leave the distribution center (DC) to meet arrive-by dates. The reason: they want to wait for an inbound that has the product that would make that outbound order 100% complete to fill rate. As a result of the DC holding the outbound order, the Load Ready Time Conformance (LRTC) logistics KPI registers as a miss. 

When the stock arrives and the order is completed 100% to fill rate, it leaves the DC late and misses the appointment time. The supplier is graded at 0% to fill rate, even though all ordered SKUs were on the trailer. Had the DC shipped the load and made the LRTC, albeit at 90% fill rate, then the logistics KPI scorecard from Walmart would have read 90%, versus 0% after it arrived late.

3PLs like KANE sit between suppliers and retailers that have different, and often misaligned, success measures. We must reconcile the two to promote speed and efficiency at both the distribution and receiving points.  

Companies Have Too Many Logistics KPIs

Companies often forget what the “K” stands for in KPIs, namely KEY – those things that are most important to track. As Einstein once said, “Not everything that can be counted counts.”

There is nothing wrong with capturing large numbers of metrics about your supply chain and distribution operations. Today’s WMS and TMS systems, together with BI tools, make that process much easier. But capturing data is very different than doing daily, weekly and monthly monitoring of logistics KPIs and then creating action plans to address areas of concern. For this commitment, you should limit your efforts to a handful of metrics that are vital to performance.

What’s the right number of KPIs for your logistics operation? If you’re asking the question, you’ve probably got too many. For sure, it’s going to be different for different businesses.

One way to think about it is to monitor and report on metrics for different levels of the organization. CEOs might be most interested in metrics like “cash-to-cash cycle time” and “logistics costs as a percent of sales.” Logistics directors might focus more on logistics KPIs like “same-day shipping percentage” and “trailer utilization.” And metrics like “throughput per warehouse associate” and “pick accuracy” might be most relevant to warehouse managers.

The key here is that people at each level of the organization stay highly focused on a smaller set of metrics that are the best barometers of success/failure within their sphere of influence.

Many Important Things are Not Measurable

Success in logistics can’t always be judged solely by the numbers – particularly when it comes to evaluating 3PL performance. To complete the Einstein quote previously mentioned, “Not everything that can be counted counts, and not everything that counts can be counted.”

These days, performance excellence is like the ante in poker; if you don’t have it, you don’t play. The differentiators are often around things like implementation speed and operational flexibility. But how does “flexibility” make its way into a numbers-based logistics KPI dashboard?

Here are a couple of actual examples that illustrate what we mean.

• Flexibility on CapEx approvals. To ensure we could keep up with the throughput demands of one large co-packing client during the height of the pandemic, KANE expedited its typical process for CapEx investment review to respond to this urgent client need. KANE invested to add high-volume temperature monitoring equipment at building entrances, extended assembly lines with more conveyor to increase social distancing, and installed plexiglass dividers between workers. These measures helped maintain a full workforce and generated a 26% productivity gain.
• Speeding up contract process. A KANE blog on the scarcity of warehouse space, talked about a recent lease signing between KANE and a major real estate developer. A much larger global 3PL was already in the building and was interested in a renewal. But the developer anticipated a protracted negotiation cycle with this incumbent and did the deal with KANE, which promised less red tape and a fast approval. This was a huge win for a CPG company desperate to expand distribution space to support increasing product demand.

These examples don’t speak to metrics. They speak to attributes of a 3PL that drive real value for customers but are not covered under any KPI dashboard.

“Happy” Might be the Ultimate Logistics KPI

HAPPY is an under-rated logistics metric. And, unlike attributes such as flexibility, it actually is measurable – check out our homepage happy meter.

When examining our own customer satisfaction research, we find that the happiest 3PL customers are satisfied with operational performance, but beyond that they feel a tight connection with their partner. A sense that the 3PL’s associates are really extensions of their own internal team who understand the brand’s promise and their role in delivering on that promise.

Maybe that attitude is not something you can measure. But it’s a pretty good building block for a KPI dashboard that’s headed up and to the right.