Importance of Key Performance Indicators

The Importance of Key Performance Indicators (KPI) – Part Two

In my previous blog, we established the need to measure Key Performance Indicators (KPIs) as a metric of business performance. It is important not only to measure the right KPIs, but it is also important to measure them precisely. So, what are the characteristics of good measurements?

A good measurement:

  • Quantifies – can be expressed as an objective value
  • Clarifies – conveys what it is measuring and how it is derived
  • Encourages appropriate behavior – the measure is balanced to reward productive behavior
  • Illuminates – the effects of the measure are readily apparent to all involved in the process being measured
  • Defines – expectations are detailed and mutually understood by all stakeholdersImportance of KPIs
  • Encompasses both outputs and inputs – the measure integrates factors from all aspects of the process measured
  • Measures only what is important – the measurement focuses on a key performance indicator that is of real value to managing the process
  • Balances varying values/information – the measure is properly balanced between utilization, productivity and performance, and shows the trade-offs
  • Employs economies of effort – the benefits of the measure outweigh the costs of collection and analysis

For example, in the transportation department, it is important to measure On-Time Performance to protect customer satisfaction by ensuring carriers are meeting their commitments. Late deliveries can cause out-of-stocks, indicating problems in your transportation operations. To measure on-time performance, you need to collect data from vehicle logs, distribution schedules, schedules of desired delivery dates, actual receipt dates, etc.

Other KPIs in your logistics operation can include:

  • On-Time Arrivals
  • Percentage of Shipments Where Quantity Dispatched Equals Quantity Received
  • Percentage of Shipments Arriving in Good Condition
  • Average Delivery Time
  • Average Vehicle Loading/Unloading Time
  • Vehicle Turnaround Time
  • Total Transportation Cost
  • Average Transportation Cost Per Mile/Volume/Weight
  • Percentage of Dead Miles
  • Ratio of Transportation Cost to Value of Product
  • Average Number of Stops Per Route
  • Percentage of Shipments Using LTL/TL

Measuring KPIs in your transportation operations is an essential process of the agile supply chain and promotes continuous improvement. As part of a Transportation Insight Enterprise Logistics Solution, the establishment and measurement of KPIs provides you the supply chain visibility that can help reduce shipment delays, improve responsiveness and increase customer satisfaction.