The 6 crucial e-commerce logistics KPIs to track

The 6 crucial e-commerce logistics KPIs to track

Reza Mokdad

Reza Mokdad

November 25, 2019

Gone are the days when business decisions were made based on gut feelings and personal preferences. Nowadays, entrepreneurs and managers rely on data to gain a clear and accurate understanding of their businesses and make informed, objective decisions. This is true for businesses of all sizes, from multinational brands to small e-commerce shops. By collecting and analysing the right data, businesses can learn more about their customers and offer greater value through their offerings.

In the world of e-commerce, logistics plays a key role in the buying experience. This is why it is crucial to track the right KPIs related to logistics. This allows you to gain insights into how every aspect of the funnel is performing and make better decisions to ensure your brand can scale in the right direction.

To help you out, we've selected six logistics KPIs that every e-commerce business (regardless of what you sell) should track:

1. Delivery Lead Time:

It refers to the amount of time between the moment an order is placed and when it is delivered to the customer.

Lead time has a direct impact on customer satisfaction. No one wants to wait several days to receive their new lamp, and no one wants to receive it later than expected.

Tracking your average lead time by country and by carrier will help you give the most accurate information to your customers and so set the right expectations. I'm not talking about the lead time the carrier is promising on its website, but the real one that you are analysing.

Another great way to optimize your delivery lead time is to work with the fastest carrier by country.

Let’s say for example that Carrier X takes 3 days to ship your lamps to Spain and 4 days to Portugal, while Carrier Y takes 2 days to Spain and 5 to Portugal. Then it is much more interesting for you (and your customers) to work with Carrier Y in Spain and Carrier X in Portugal. You can also work with the carriers in order to find ways to reduce your lead times, but you must remember that this shouldn’t come at the cost of quality.

2. % of Customer Service Inquiries Related to Logistics:

Refers to the amount of customer service inquiries related to logistics against the total amount of customer service inquiries.

This percentage will help you determine how effective your logistics processes are. If 90% of the customer service calls you receive are related to logistics, then it reveals that your logistics processes aren’t efficient at all (and that you should probably get a new logistics provider).

You can segment this ratio into categories: inquiries related to shipping, returns, delays, etc… This will also help you spot the problems that your customers are facing and complaining about, and solve them.

If 30% of all the inquiries are about the return process, then maybe you should take a look at your return policy and optimize it. 

The data collected by your customer service team is invaluable as it provides the most accurate insights on the main bottlenecks your customers and business are facing.

3. % of Damaged Goods per Carrier:

It refers to the number of damaged goods per carrier against the total goods shipped by the same carrier.

Receiving a damaged order is one of the most frustrating experiences that customers might face. Tracking the percentage of damaged goods for each carrier will highlight which ones are the most reliable and ensures that you work with partners that have the same quality standards as yours.

You will definitely want to keep the ones with the lowest percentage, thus the best quality of service, and stop working with the carriers that have the highest percentage.

Don’t forget to work closely with your transportation partners to brainstorm and optimize your processes. 

Since damaged goods means revenue loss, tracking this KPI will not only lead to improving your customers’ satisfaction but also reduce unpleasant costs and increase organic revenue.

4. Safety Stock or Buffer Stock:

It is an additional quantity of an item held in inventory in order to reduce the risk of stockouts. It acts as a buffer in case your item is selling faster than planned or your supplier is unable to deliver additional units at the expected time.

Here’s the formula to calculate it:

Safety stock = (Maximum daily usage * Maximum lead time in days) – (Average daily usage * Average lead time in days).

To help you understand it completely, let’s imagine you sell home furniture online.

Your average daily sales for the new lamp are 20. It takes 4 days, after the reorder, for the new inventory to arrive at your warehouse. During weekends and bank holidays, you can sell as many as 25 lamps per day. The maximum time for your supplier to deliver the new inventory to your warehouse is 6 days.

Safety Stock = (25 x 6) – (20 x 4) = 70

So your safety stock for the new lamps is 70 units. 

Many growing e-commerce brands forget to update their safety stock thresholds. Don’t make that mistake!

If you’re scaling your e-commerce operations, make sure to update your safety stock thresholds every month. Since you’re growing and making more sales, you might want to adjust your safety thresholds according to your sales growth.

5. Reorder Point:

It is the inventory threshold that signals the perfect time to order new inventory. It helps you ensure that you reorder in time and avoid running out of stock. Here is the formula to calculate it: 

Reorder point = (Items sold per day) x (days it takes for new inventory to arrive) + safety stock 

To illustrate, let’s take the previous example with the lamps:

Reorder point = (20 x 4) + 70 = 150

In this case, the perfect moment for you to order new inventory from your supplier is when it reaches 150 units in stock. 

As already mentioned, many growing e-commerce brands forget to track and update their safety stock and reorder point which can result in stockouts, lost revenues, and frustrated customers.

In case you’re working with a logistics provider, make sure that his solution natively connects to your store. It is also essential to have a system that automatically updates your stock levels whenever a product is sold or returned. This will help you to accurately monitor your inventory and have an accurate decision-making.

It is important to set a threshold for each item so that you’re alerted automatically when the limit is reached. This will help you gain time and avoid checking your stock levels sometimes.

6. Return Rate:

It refers to the number of orders returned against the total number of orders shipped.

According to Statista, returns will cost 550 billion dollars by 2020 in the US only. This represents 15% of all revenues generated from e-commerce, and it reveals to be a clear conversion and profit killer. Despite that, online retailers are still overlooking this part of the process. And that’s a huge mistake. 

Returns, if managed properly, can be a great opportunity to showcase the quality of your services. Thus, racking your return rate is essential to better understand the state of your customers and your business. 

Here’s how to calculate your return rate:

Return Rate = Amount of products returned / Amount of products shipped. (hesitating between products and orders)

To illustrate, let’s take the same example of the lamps. Let’s imagine that you sold 348 tables and that 19 of those were returned. In this case, the return rate of the lamps is:

Return Rate = 19 / 348 = 5.4% 

Doing this for every product will help you spot which specific products are causing problems to customers. 

You will be able to point out any quality or communication concerns related to the specific products that are returned. Maybe some of them have mismatching product descriptions and don’t meet your customers’ expectations. 

Reducing the number of returns will help you to save costs, increase customer satisfaction, and gain additional revenue. 

7. Conclusion:

Running an online business is not an easy task, especially when the competition is fierce and customers are more demanding. Using a data-centric approach and basing your decision-making on accurate and objective insights is essential to provide great customer experiences and grow your business.

If you are externalising your logistics operations, make sure to work with a partner who has the same approach as yours, who connects natively to your shop, and who gives you access to real-time data.

Tracking these KPIs will help you improve the efficiency of your logistics processes. You will be able to better understand the state of your operations, spot the main bottlenecks, and design the best solutions. 

Optimizing these KPIs will ensure that you scale your business in the right direction and that you build the right foundations for future growth.

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