As a science, logistics is empirical and relatively young. Consequently, specific logistical laws, which are necessary, significant, stable, and repetitive relationships, exist between buyers and sellers and shippers and carriers. These relationships are often summarized by the "six rules" of logistics, which can be articulated as follows:
A logistics operator should furnish:
- The desired product
- The required quantity
- Appropriate quality
- At the right time
- By the deadline
- For an agreed price
It is important to recognize that these "six rules" constitute a necessary and sufficient foundation for the economic and mathematical modeling of formalized logistical processes. While the introduction of a "seventh" or subsequent rules in literature is permissible under certain circumstances, it's largely considered redundant from this perspective.
Notably, these rules apply not only to raw materials and semi-finished goods (i.e., revolving funds) but also to fixed assets and labor. Outsourcing and outstaffing frameworks often address these challenges.
Delivery indicators, or producer goods delivery indexes, describe the volume, structure, and rhythm of deliveries. Adherence to physical volume obligations is determined by comparing the actual volume of goods delivered against the volume stipulated in supply contracts. Compliance regarding the assortment of delivered products is assessed by comparing the actual assortment delivered with the assortment detailed in the contracts.
The rhythmicity indicators represent the ratio of the actual output produced within the planned target for each period under examination to the total task volume for the entire period.
Have you explored the global LPI? Consider reviewing ShipnGro LPI-12 ® to evaluate your logistics company/department against industry benchmarks.
Warehouse indexes are technical and economic indicators employed for in-depth analysis across various warehouse operations.
This system of indicators can be broadly categorized into three main groups:
- Indicators of warehouse performance, including freight turnover, specific turnover, load unevenness factor, total warehouse operation, and cargo transit intensity.
- Indicators of warehouse space efficiency, such as capacity, usable area, utilization factor, and warehouse load.
- Indicators of goods safety and financial performance, encompassing the number of cases involving non-preservation of goods, storage costs, packaging costs, and labor productivity of warehouse workers.
Key Performance Indicators (KPIs) for Logistics Efficiency
Key performance indicators, or KPIs in logistics, are essential metrics that reflect the efficiency with which a company utilizes its resources in logistics processes.
As logistics evolves, a structured system of indicators has emerged to comprehensively evaluate its effectiveness, focusing on:
- Overall logistics costs
- The quality of provided services
- Duration of logistics cycles
- Overall performance
- The level of return on investment for further development in the field
These factors are considered key indicators that demonstrate the efficiency of logistics within an enterprise. Let's delve into each of these aspects.
General Logistics Costs
These encompass the total expenses, which include:
- Costs associated with executing various logistics tasks
- Losses resulting from encountered problems
- Expenses for managing the logistics process
Most logistics reports detailing plan implementation contain organized indicators of these costs. Typically, foreign companies in this sector monitor and analyze the costs related to goods transportation, warehousing, inventory distribution, order management, and information services. Notably, the ShipnGro TMS System facilitates easy generation, viewing, and printing of all your logistics reports.
Quality of Services Provided
Logistics service quality serves as a robust indicator of system productivity. This quality is determined by the gap between customer expectations and their satisfaction with the provided logistics services. Crucially, the department/company should inspire customer trust, demonstrate competence and reliability, and ensure that managers are sociable, courteous, and helpful.
Key components for measuring service quality include:
- External appearance, including office aesthetics and comfort, modern equipment, and staff presentation.
- Guaranteed performance of specified tasks
- A responsible approach
- Competence of the firm's employees
- Convenience of interaction between the customer and the logistics enterprise
- Minimal or nonexistent risks during the cooperation process
- Courteous employee treatment of customers, along with accessible information presentation
- Understanding customer needs and the ability to meet their requirements
Consequently, companies closely aligned with this described level rightfully receive higher logistics service ratings and, correspondingly, better efficiency evaluations. Indeed, ShipnGro has created a distinctive system to evaluate the effectiveness of logistics companies, known as ShipnGro LPI-12 ®.
Duration of Logistics Cycles
This refers to the lead time for an order. Time is a crucial and often scarce resource today. Therefore, extended durations in the supply chain correlate with lower logistics performance indicators within the enterprise.
Overall Performance
Overall performance indicates the degree to which work is accomplished, considering the equipment, resources, and personnel involved in service provision, alongside other resource costs. Many overseas companies maintain dedicated reporting documentation on logistics efficiency, providing a more detailed view of these and other metrics.
Level of Return of Funds (ROI)
ROI demonstrates the effectiveness of investments in the logistics system. It is determined by the availability and condition of:
- Warehouses
- Transport infrastructure
- Communication systems
- Units for vehicle and warehouse repair and maintenance
- Telecommunication systems
- Computer equipment
To enhance understanding of internal enterprise logistics performance (whether your enterprise is a Shipper, Exporter/Importer, or International Trader), here is an extensive list of parameters to optimize your supply chain:
- Ratio of the number of orders for the selected time period
- Need for materials within a specified time period
- Personnel costs per period
- Number of employees
- Number of sick leave instances
- Share of stocks in relation to turnover
- Cost of orders per period
- Average warehouse availability
- Difference in inventory indicators compared to the number of inventories
- Number of employee absences
- Value of warehouse availability relative to invested capital
- Number of warehouse items
- Duration of warehouse turnover
- Average time to restore stock
- Number (frequency) of stock rotations
- Cost expression of differences in inventory relative to the number of inventories
- Level of readiness for deliveries
- Share of stocks in circulation
- Share of material costs attributed to the cost of production (material intensity)
- Number of order items for the period
- Average duration of storage in the warehouse
- Ratio of storage costs to warehouse area
- Share of third-party organizations in turnover
Outcomes
We have examined the core indicators of logistics efficiency. These indicators form the basis for accounting and control within the logistics system, guiding the development of future action plans in this domain. For expert logistics advice, please contact [email protected].
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