How can you measure logistics planning's impact on your bottom line?

1 Customer satisfaction

One of the most important outcomes of logistics planning is customer satisfaction. Customers expect to receive their orders on time, in good condition, and with accurate information. If you fail to meet these expectations, you risk losing their loyalty, referrals, and repeat business. To measure customer satisfaction, you can use surveys, feedback forms, reviews, ratings, or net promoter score (NPS). These methods can help you assess how satisfied your customers are with your logistics service, and identify the areas that need improvement.

2 Inventory turnover

Another key metric that reflects your logistics planning efficiency is inventory turnover. Inventory turnover is the ratio of your cost of goods sold (COGS) to your average inventory value. It indicates how quickly you sell and replenish your inventory, and how well you manage your inventory levels. A high inventory turnover means that you have a low inventory holding cost, a high demand for your products, and a fast cash flow. To calculate your inventory turnover, you can use this formula:

Inventory turnover = COGS / Average inventory value

3 Logistics cost

Logistics cost is the total amount of money you spend on your logistics activities, such as transportation, warehousing, packaging, handling, and administration. Logistics cost directly affects your profit margin, as it reduces your revenue. Therefore, you want to minimize your logistics cost while maintaining or improving your service quality and customer satisfaction. To measure your logistics cost, you can use this formula:

Logistics cost = Total logistics expenses / Total sales revenue

4 Logistics cycle time

Logistics cycle time is the duration of your logistics process, from the time you receive an order to the time you deliver it to your customer. It measures how fast and responsive you are to your customer's needs, and how well you coordinate your logistics activities. A short logistics cycle time means that you have a high service level, a low inventory level, and a high customer satisfaction. To measure your logistics cycle time, you can use this formula:

Logistics cycle time = Order lead time + Order processing time + Order transit time

5 Logistics performance index

Logistics performance index (LPI) is a comprehensive indicator that combines various aspects of your logistics performance, such as infrastructure, customs, tracking, timeliness, competence, and quality. It is based on a global survey conducted by the World Bank every two years, which ranks the logistics performance of 160 countries. You can use the LPI as a benchmark to compare your logistics performance with other countries or regions, and to identify the strengths and weaknesses of your logistics system.

6 Logistics scorecard

Logistics scorecard is a tool that helps you monitor and evaluate your logistics performance based on your strategic goals and objectives. It consists of four perspectives: financial, customer, internal, and learning and growth. For each perspective, you can define the key performance indicators (KPIs) that are relevant and measurable for your logistics planning. For example, you can use the metrics we discussed above as your KPIs. Then, you can set the targets and thresholds for each KPI, and track your progress and results over time.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?