Shipping costs have recently skyrocketed, leaving companies that rely on outside carriers to feel powerless in the face of the increase.
But logistics lends itself perfectly to cost control—you just need the right knowledge and more contextual key performance indicators (KPIs).
After all, logistics is all about quantifiable metrics of speed, expense, efficiency, and effectiveness. With high-quality data and the right tools to interpret it, you can optimize and improve your shipping costs.
Yet that’s exactly where many companies stumble: they might regularly track and monitor logistics KPIs—but more times than not, they’re looking at the wrong indicators. That leads to an incomplete, insufficient picture and the sense that nothing can change.
Here’s what credible KPIs must do, where most companies make missteps, and what you can do to start tracking the right KPIs to improve your own logistics.
What Good Logistical KPIs Must Do
While each and every major company collects logistical KPIs, they tend to languish in a database or forgotten dashboard—rarely used to fuel action or drive optimization. A large part of the problem is that the most common KPIs fail to meet the basic criteria for a worthwhile metric. To be of any use, your primary KPIs need to check off the following boxes.
Available, Measurable, and Accurate
You can only use metrics that you have access to in the first place. That means you have to ensure you have mechanisms and tools available that enable you to track important KPIs.
For example, KPIs concerning accessorials (additional charges for common transportation services) like “Accessorials as a Percentage of Total Freight Spend” can be extremely useful—but unless you can report accessorials with the granularity of line items, you won’t be able to track this KPI at all.
Similarly, if you have a spotty system in place to record the constitutive elements of a KPI and end up with imprecise or inaccurate numbers, you’ll need to upgrade those systems. Wrong data can do more harm than no data. If you’ve identified a critical KPI, the first step is always to make 100% sure that the sources for those numbers are established and reliable.
Impacts the Bottom Line
Not all metrics are created equal. Some metrics can be totally irrelevant to your business objectives. Monitoring what time of day most deliveries occur might be interesting, but if it’s not affecting your margins, you don’t need to waste your time on it.
Other metrics might be critical to record, but incomplete on their own. For example, tracking “Warehouse Costs” is certainly an important component of more advanced KPIs—but if you’re not taking order volume or profits into account, “Warehouse Costs” alone won’t tell you anything useful about your bottom line.
Timely and Actionable
If you’ve found a reliable, impactful metric, you need to make sure there’s something you can do with the information it provides. It’s affecting your bottom line, so it should be actionable, i.e., you should be able to take quick action in light of what the KPI is telling you.
Furthermore, good KPIs give you insights in near real-time so you can react in a timely manner. For instance, if you’re relying on a compound KPI (i.e., a metric made up of several other metrics) that can only be computed once every several months, you’ll constantly be playing catch-up and guessing where you are now. The most useful KPIs empower timely, well-informed decisions.
Common Missteps and Misguided Logistical KPIs
We’ve been helping our clients get a handle on their logistical costs since 1993. In that time—nearly a quarter century—we’ve seen companies that come to us making the same mistakes over and over. Here are some of the most common pitfalls when it comes to tracking KPIs for logistics.
This is a problem that stymies many businesses, and it’s hardly exclusive to logistics. While we tend to think that more information is always better, too many metrics can actually serve to frustrate action, rather than fueling it.
When you track every KPI under the sun, you end up spending more time trying to juggle, prioritize, and organize your numbers—when you should be acting on them.
Instead, focus 80% of your attention on three to five core KPIs that are integral to your business operations, customer retention, and business development.
Numbers You Can’t Trust
Nothing is more aggravating than finding that the metrics you’ve been acting on have been compromised from the start. Returning to the example of “Accessorials as a Percentage of Total Freight Spend,” you need to double-check that you can accurately account for each accessorial charge.
Practices can differ from carrier to carrier, and in many cases accessorial charges are rolled into the larger freight charge on an invoice, rather than being split out. Relying on those numbers without realizing your mistake would inflate your apparent freight spend and skew what’s normally a great KPI.
Metrics That Mislead
Some KPIs seem important (because they are), but only tell half the story. For example, “Total Number of Shipments by Mode” is good to know, but it doesn’t invite any action or suggest a corrective measure.
A similar but more strategic KPI would be “Mode Selection vs. Optimal,” which divides the number of shipments sent via the optimal mode over the total number of shipments for the given time period. This kind of KPI doesn’t beg any questions; it’ll be clear where you have the most room for improvement.
Likewise, “Gross Freight Spend” is a number you need to know, but it can easily be misinterpreted without other metrics to contextualize it. You might be alarmed to see your “Gross Freight Spend” has doubled in the last year—but if your orders have tripled, you’re probably coming out ahead.
There are simply too many other variables wound up in gross cost that you need to untangle. Costs don’t reflect activity, they reflect the result of activity—and there can be plenty of interfering factors in that space between, like order volume, order size, products purchased, customer ship-to locations, and distribution channels. If even one of these variables change, your gross costs won’t reflect your true performance.
Worthwhile logistics metrics show how well (or how poorly) your company is performing. When your tracking efforts get muddled with information overflow, inaccurate data, or misleading KPIs, you’re not just making decisions blind—you’re making blind decisions while confidently assuming you can see.
Now that you how to spot a bad KPI, stay tuned for a follow-up blog post all about good KPIs and how to track them. At MCG Logistics, we know how to separate right from wrong KPIs in your logistics—and we’re here to help. Contact us to learn more and get started.