Wednesday, October 28, 2015

Logistics Metrics and KPIs ..

One of my students working in the logistics industry called me up one day and asked me for some ideas advice on how he could be more effective in managing his activities. I was quicky reminded of this famous quote by one of the greatest management thinkers and quality gurus, William Deming (1900-1993).
"You can't manage what you can't measure" - William Edwards Deming (1990-1993)
I only had this mantra to tell him - measure what you are doing, only then can you improve on it. 

Logistics is the commercial activity of transporting goods to customers, which includes besides transportation, the storage and handling of materials from the source right up to the customer.

A metric is a standard of measurement which helps keep track of the different operating parameters of a process like average waiting time of a process, average weight of the product, average cycle time of an assembly line etc...

A Key Performance Indicator is a metric that gives an indication of the performance of the process and can be used to improve it over time.

Metrics may be many, but KPIs are usually three or four in number for an industry. Choose the KPIs carefully because those are the important metrics on which you are going to base your performance and continuous improvement ...

Remember - "All KPIs are metrics but not all metrics are KPIs. "

I usually give this small, quick and interesting exercise in the class,
to list out the metrics and KPIs in the academic process, to help them differentiate between what are metrics and what are KPIs.

Some of the metrics in the Logistics processes are

1. cost of handling
2. cost of transportation
3. cost of materials
4. highest value item
5. average time for despatch
6. max time for despatch etc ..
Some of the effective Logistics KPIs could be

     1. transportation cost per unit sold ( as a percentage or actuals)
     2. total logistics cost as a percentage of sales
     3. percentage on-time delivery
     4. logistics cost per kg of item shipped
     5. logistics cost per km transported
     6. percentage damage-free shipment
     7. billing accuracy and
     8. customer service, measuring the overall satisfaction of the customer of the logistics process like On-time delivery, accuracy of billing, damage free transportation, low cost of logistics ...

The KPIs if you observe closely have the property that the numerator is closely related to key business objectives like cost, service, quality and the denominators are usually the basic units of mass, length and time (kgs, distance and time)

If the manager is very keen to pursue the common metrics and additionally the KPIs, he is sure to excel in his actions and help the organisation achieve its goals.


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