KPIs are great indicators of how well an organization is performing and offer a unique view into the exact areas that need additional attention. However, many companies get confused by Key Performance Indicators (KPIs). After all, which ones should be used, how many should be used, and how do you fine tune them to be applicable to your business needs?
What Are KPIs?
KPIs are Key Performance Indicators. They are measurable values which show how well a business is achieving key business objectives. Companies use KPIs at several levels in their business to evaluate if they are reaching the goals and targets they set forth. There are two types of KPIs; high-level KPIs center around the big picture or overall performance of the business, while low-level KPIs tend to focus on specific processes in the business such as individual departments or protocols.
Which KPIs Are Most Relevant to Your Business?
It’s important to choose KPIs that are effective and meaningful to your business. Many times, companies will use KPIs simply because they are “industry standard” even if they don’t really offer substantial insight into their business. Think of KPIs as the way your business talks to you. Choose KPIs that are clear and relevant and offer important information that can be readily understood and then used to improve the business.
Logistics experts agree that organizations should use the SMART model for their KPIs. Each indicator should be specific; it should be clearly laid out with the adequate information needed to be understood cohesively by all stakeholders. It should also be measurable. This ensures that the indicator is quantifiable and not subjective. While it’s great to have pie-in-the-sky dreams, KPIs should always be attainable. They should also be relevant to your business, meaning they should align with your organization’s missions and goals. Finally, KPIs must be time-bound with specific deadlines for completion.
KPIs and Logistics
Some of the most common KPIs in logistics are relevant to nearly all businesses. They capture and communicate important information that reflects areas of success in the business and those areas that need special attention. Here are a few KPIs that logistics companies should definitely include in their organization.
- Inventory Accuracy. Ensure the correct products and quantity are in the correct place in the warehouse to guarantee shipments go out in a timely manner.
- Order Accuracy. This KPI shows the accuracy of all the orders fulfilled. This will also show how many orders are filled in a timeframe (for example, an hour) and what the percentage of accuracy was. This is a key indicator for warehouse operations.
- On-Time Final Delivery. This communicates the carrier’s ability to deliver on-time. If this KPI is not satisfactory, it can cost the company profit and clients.
- Dock to Stock. This KPI measures the cycle from receipt of inventory to being put away. This is key to ensuring inventory accuracy and filling orders are quick as possible. This should also include defect and acceptance rates.
Most companies can benefit from frequent reviews of their KPIs and metrics. It’s important to remember that they not only need to be reviewed but also acted upon to ensure maximum customer satisfaction, optimal efficiency, and maximum profit. Be sure to recalibrate your KPIs as needed so you aren’t resting on your laurels and instead are making your business the best it can be.