Key performance indicators in logistics and supply chain management
Logistics and supply chain management are closely interrelated. Logistics play a key role in supply chain management. The effective and timely delivery of products across the globe are well established only through proper planning and coordination by the logistics sector. In that case, any minor fault in logistics and supply chain management can surely have an impact on the product demand and thereby the performance of the whole business. Hence it is necessary to periodically monitor the performance of logistics and supply chain management. Because of this necessity, several indicators were introduced in logistics and supply chain management which helps the managers to efficiently track and optimize the processes. Those are called the key performance indicators or KPI’s in logistics and supply chain management. Let us take a look at a few of the KPI’s.
- Order management – order management is designed to ease the processing of orders received. Order management is a sequential process involving a number of steps like order capture, validation, fraudulent assessment, payment authorization, procurement, return managements, picking packing, shipping and communication with the associated customers. Order management system acts as a communication platform for both buyers as well as the seller.
- Inventory management – inventory management is the administration of inventory items and in-stock items. A detailed record of all the items coming into the warehouse from the manufacturers and those going out to the delivery point could be well maintained with the help of an inventory management system.
- Purchasing and supply management – The ultimate intention of purchasing and supply management is to reduce the purchase cost and increase the organization revenue. The key aspect of purchasing and supply management is to make negotiations with the supplier which benefits both the parties and to maintain a healthy long-term relationship between the organization and the supplier.
- Manufacturing management– manufacturing management includes several steps involved in the manufacturing of a product. It includes the planning, organizing and the controlling of the manufacturing process.
Warehouse management- The proper management of warehouse functionalities and the distribution centres are the primary responsibility of the warehouse management system. The warehouse management system facilitates the management of products moving into the warehouse, storing them and the movement of stored materials out of the warehouse.
- Transportation management– transportation management is concerned with the transportation of products. This can be regarding the transportation of raw materials to the warehouse as well as that of the manufactured goods from the warehouse to the delivery point. Transport management system evaluates the inbound and outbound orders and makes the necessary routing solutions.
- Inventory level – inventory level is the level of in-stock items in the warehouse. A well-accomplished organization maintains an optimal inventory level throughout the period. When the recorded inventory level mismatches with the on-hand inventory level, an inventory inaccuracy develops which can affect the organization’s performance to meet the necessary demand. There might also occur situations where the stock in the inventory can either be lost or damaged. This also has to be recorded regularly to maintain an optimal inventory level.
- Gross profit margin – Gross profit margin measures the profit obtained over the expenses. It calculates the value of profit obtained in sales after reducing the total manufacturing cost. Gross profit margin indicates whether the business is profiting or not.
- Cost of goods sold -the cost of goods sold is the value of particular items sold over a period of time cost of an item is determined by taking in to account several factors like the cost of material, labour, freights etc. Gross profit margin is obtained by subtracting the cost of goods sold from the net sales value.
- Total logistics cost – total logistics cost is the sum total of all the costs associated with logistics which includes both transportation cost and warehousing costs. Inventory management cost is also included in the total logistics cost.
Above said are some of the key performance indicators in logistics and supply chain management. Each of these indicators acts in different sectors of logistics and supply chain management.
p Key performance indicators play a crucial role in the success of an organization. The proper assessment of each stage of a product could be easily visualized with the help of these indicators. KPI’s helps to identify how well the business organization is performing. This is also an indicator to meet the organization goals. Key performance indicators are important aspects which determine the success or failure of an organization. The path between planning and execution is well established with the help of key performance indicators.