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Breaking Down The Importance Of Logistic KPI's

Apr 21, 2008
Logistics KPI's include metrics that involve cost, time, percentage, and transactions.

The key performance indicators in the logistics industry are useful metrics to measure the performance and progress of activities in logistics operation. These metrics can have certain importance for the attainment of the organization's goals.

For the logistics management to be effective in carrying out objectives, it must see to it that strategies are developed and enhanced, and that there are performance dynamics to support the entire supply chain.

Seeing to it that the method of delivery is effective is a concern of logistics management. This can be translated by having an on-time arrival of the delivery to its intended station or ends.

It is normal for a business to experience delays and downsides during its operation. The logistics industry is no exception. However, it is a responsibility of the management to minimize or eliminate drawbacks as much as possible. Though elimination of drawbacks seems nearly impossible yet achievable during the course of the logistics operation, it is still a challenge for a business in the logistics industry to improve its standing in the supply chain.

There are key metrics that can be used to measure the performance of a logistics business and operation. They include: the average time needed to process and complete an import or export transaction; the cost of the processing of the shipping transaction; the time variation in completing the shipping transaction; other indicators which bring complexity to the shipping transactions, such as number of documents required to file, the criteria for inspection, and the percentage of containers inspected in every normal shipping transaction.

Inefficiencies in logistics operation can harm the competitive standing of an organization. Cost and time have interrelated effects. The cost involves in logistics include cost of transportation including fuel cost and cost of warehousing. The longer the time to ship goods, the higher the costs would be.

There are also risks in transporting items that can eventually add up to the cost of shipping. Perishable items are prone to wastage and spoilage if the transit time is longer. Products that are time-sensitive can eventually lose their value if the time of the delivery is longer. Man-made errors and incompetent actions can incur more costs for shipping transactions.

Indicators that logistics and supply chain management must bring into light include: total cost and time for trade-related procedures, total time to complete the document processing, the required number of signatures per shipping transaction, and time to deal with custom appeals.

Logistics companies may also have to determine the frequency of shutdowns taking place in the port due to unusual weather conditions or manmade forces, the vessel turnaround time, the inland freight cost, and the average freight cost per destination.

Logistics KPI's can be helpful metrics for logistics management to assess its progress and to make solutions for problems that come in logistics operations. If the solutions can't be remedied, the management must make alternatives so the operation cannot be hampered and the costs of the transactions can then result to favourable variance.
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