Key figures are of great importance in all areas of a company. They create the basis for decisions, generate transparency and are essential for comparing target and actual figures and determining positions. If a key figure is particularly important for a company, it is referred to as a key performance indicator (KPI). A KPI in logistics therefore makes a significant contribution to the monitoring and optimal control of processes. This article explains particularly important logistics KPIs and how they are calculated.
What is a KPI in logistics?
A KPI in logistics is a particularly important key figure for assessing a company's logistics processes. Key performance indicators (KPIs) can relate to different areas of logistics - such as warehouse logistics, supply chain logistics or transport logistics. The collection and use of logistics KPIs support the following entrepreneurial tasks:
Carry out comparisons with target figures (check achievement of objectives)
Measure efficiency and performance of processes
Optimize processes
Perform industry benchmarks
make fact-based decisions
Top logistics KPIs: the most important key figures at a glance
Numerous key figures exist in logistics. As a rule, these relate to the productivity, quality and efficiency of processes. In addition, there are some logistics KPIs that are used to evaluate warehouse and logistics costs.
The following are among the particularly important key figures in logistics:
Inventory turnover
The inventory turnover rate indicates how often a material leaves the warehouse completely and is replaced again by replenishment. The inventory turnover rate is calculated with the following formula:
Inventory turnover = sales revenue / value of the average inventory level
The sales revenue and also the value of the average inventory must refer to the same period (for example, month or year).
Other ways to calculate are as follows:
Inventory turnover = cost of goods sold / average inventory at cost prices
Inventory turnover = stock issues / average stock on hand
As a general rule, the more frequently a product has been turned over in a given period, the better. This is because items with a high inventory turnover rate ("fast-moving items") are sold frequently and are only in the warehouse for a short time. On the other hand, a low inventory turnover rate indicates (potential) slow-moving items.
Storage range
The stock range indicates how long the stock of a product will be sufficient to supply the orders already received. The following formula is used for the calculation:
Storage range = 1 / inventory turnover rate
It is also common to calculate the range in days. In this case, the following formula can be used:
Stock range in days = average stock / average demand per day
Stock range is an important logistics KPI, as it provides information about supply security.
Capital commitment
With regard to capital tied up in inventories, two different logistics KPIs can be calculated. First of all, this is the inventory interest rate. It answers the following question: what interest could a company earn with the tied-up capital on the free capital market? The formula is:
Storage interest rate = market interest rate x average storage period in days / 360 days
The capital commitment costs can then be determined on this basis:
Capital commitment costs = inventory interest rate x capital committed by inventories
Inventories always reduce a company's liquidity. The aim should therefore be to minimize inventories in order to have more liquid funds available. However, the ability to deliver must not be impaired by this measure.
Stock accuracy
The inventory accuracy provides information about the difference between the actual goods on hand and the inventory in the ERP or merchandise management system. The value is calculated as follows:
Stock accuracy = stock in the system - stock actually present in the warehouse
Ideally, the deviation is zero. Any discrepancies must be clarified and adjusted by adjustment entries (posting of inventory differences).
Inventory-to-sales ratio
The inventory-to-sales ratio is a logistics KPI that is suitable for evaluating overstock. It looks at the ratio of items actually sold in relation to inventory on hand. The formula is:
Inventory-turnover ratio = number of goods sold / number of goods in stock
The optimal value depends on the industry and the business model. As a rule, a middle ground is chosen between the amount of capital tied up and the ability to satisfy short-term peaks in demand.
Delivery time (punctuality)
Here, the so-called on-time shipping rate is examined. It provides information on how often goods are actually shipped on the planned shipping date:
On-time shipping rate = number of deliveries shipped on schedule / number of total deliveries x 100
In addition, there is also the on-time delivery rate. It shows how often goods arrive at the customer's premises on the promised delivery date:
On-time delivery rate = number of deliveries arriving on schedule / number of total deliveries x 100
On-time delivery goes hand in hand with high customer satisfaction. Companies should therefore strive to maximize the on-time shipping rate or on-time delivery rate. Particular focus should be placed on the so-called last mile.
Delivery quality
The delivery quality indicates the extent to which the delivered goods meet the qualitative customer requirements. It is calculated as follows:
Delivery quality = number of deliveries complained about or returned / total number of deliveries x 100
Of course, companies should always aim for high product quality, which is then reflected in a low complaint rate.
Delivery accuracy
Delivery accuracy is a KPI from the logistics sector that measures how many orders are processed without disruptions. It looks at incidents throughout the entire delivery process - from order receipt through intralogistics processing and shipping to arrival at the customer's premises. Incidents in this context include, for example:
- faulty deliveries (wrong articles)
- incomplete deliveries (shortages)
- delayed deliveries
- Damage to the goods during transport
- Total loss
The formula for calculating the delivery accuracy is:
Delivery accuracy = number of orders without incidents / number of total orders x 100
Ideally, the result of this calculation is over 90 percent.
Logistics costs
Various logistics costs are incurred in the company. These include, for example, warehousing costs, transport costs, order processing costs and administrative costs. Each of these cost blocks should be kept as low as possible. In order to assess how high the logistics costs are in relation to sales, the so-called logistics cost ratio can be calculated:
Logistics cost ratio = logistics costs / sales x 100
Transportation costs are also often compared in isolation with sales:
Transport costs in relation to sales = transport costs / sales x 100
It is also possible to put the transport costs in relation to the product price:
Ratio of transport costs to product price = transport costs of a product / sales price of a product x 100
If this calculation is extended across the entire product range, it is possible to identify those products that generate particularly low or high transport costs relative to their price.
Fleet utilization rate
This logistics key figure reflects the occupied transport capacity in relation to its total capacity (in volume or weight).
This is how the calculation is made:
Transport utilization = used transport capacity in m³ or kg / total capacity in m³ or kg
The goal is, of course, to achieve the highest possible utilization. Low values indicate either errors in scheduling or an oversized fleet.
Supplier reliability
The reliability of suppliers can also be calculated. The so-called supplier compliance rate is often used for this purpose. It is calculated as follows:
Supplier compliance rate = orders received late / total orders received x 100
Those who monitor this logistics indicator on an ongoing basis can minimize delivery risks. This is done by notifying suppliers with an insufficient supplier compliance rate to meet delivery deadlines or, if necessary, replacing them with other suppliers.
Incorrect deliveries received
This key figure provides information on the percentage of failed orders. In other words, it tells how often a supplier has failed to meet agreements regarding service or product quality. The formula is:
Missed delivery rate = rejected orders / total orders received x 100
Lead time from orders
This logistics metric measures how much time elapses between the order and the arrival of the delivery. The calculation is done like this:
Lead time of the order = date of receipt of the order - delivery date
KPI in logistics: Example
A very frequently used KPI in logistics is the logistics cost ratio. As already mentioned, it is determined by comparing logistics costs and a company's sales. In this example, we assume that Mustermann GmbH has the following costs at the end of the year:
- Packing and postage: 6,000 euros
- Warehousing: 24,000 euros
- Transportation: 90,000 euros
The annual turnover of the company is 300,000 euros. Based on these values, the logistics cost share can now be calculated:
Logistics cost share = EUR 120,000 / EUR 300,000 x 100 = 40 %
Mustermann GmbH thus has a logistics cost share of 40 percent.
What are the advantages of KPIs in logistics?
Anyone who regularly calculates logistics KPIs, observes them over a period of time, documents them, and compares them can generate several advantages. This applies at both strategic and operational levels. From a strategic perspective, logistics KPIs help to make informed cost-benefit decisions, perform ROI determinations, assess the risk of decisions, and perform investment analyses. They also provide management with information on the extent to which qualitative, quantitative, strategic and operational goals have been achieved.
In the operational area, the key performance indicators help to continuously monitor, evaluate and improve the processes of day-to-day business. As a result, undesirable developments can be identified and corrected at an early stage, even before they have a serious impact.
Conclusion
Overall, KPIs are indispensable in logistics to gain the necessary transparency and identify optimization potential. They form the basis for deriving measures aimed, for example, at reducing costs, becoming more productive, or increasing service quality. In order for the KPIs to develop their full added value, they should be selected to suit the company, calculated regularly and monitored continuously. It is also important not to analyze them in isolation, but to consider their interrelationships. Only then will KPI-based decisions lead to optimal results.
FAQ
We explain the most important terms in the context of KPIs in logistics here:
Logistics KPIs are key figures that are particularly relevant from a business perspective for assessing the performance of logistics processes.
Logistics KPIs create transparency about the performance of logistics processes. They provide indications for increasing productivity and quality as well as for reducing costs.
Key logistics indicators reflect the performance of various business aspects. In order to optimize these, the associated key figures must first be calculated in a well-founded manner, observed over a longer period of time and compared. Special software tools help here. In the case of "poor" values, the reasons can then be evaluated and targeted improvement measures initiated.
