Logistics operational efficiency: meaning and measurement

Achieving and even increasing fleet operational efficiency depends on factors such as the use of management technologies, employee commitment and informed, strategic decision-making by managers.

Unlike an effective operation, which achieves the agreed result, efficiency appears when that result is achieved with better use of resources, time and quality. In other words:

While effectiveness means meeting the operation’s objective, efficiency shows whether that objective was met without waste, rework or unnecessary costs.

What is operational efficiency?

It consists of actions and practices in day-to-day operations to perform activities in the best possible way, with quality, while using the minimum available resources and time.

The idea is to seek the most positive results without causing issues along the way. In logistics, this involves planning, implementing and controlling efficient and effective flows, including activities such as transport, fleet management, warehousing and order fulfillment.

For example, if you cut vehicle inspection time in half but start finding many checklist form-filling errors or vehicles begin needing more frequent maintenance, we cannot consider that efficiency.

Even though inspection time fell, the change produced worse results at the end of the process: lower quality, more rework and a greater risk of unexpected costs.

What is the operational side of the fleet?

The operational side of the fleet handles the “hands-on” routine of the operation. That means activities such as checking cargo, loading the vehicle and transport.

Why is operational efficiency important?

The benefits of increasing efficiency in your fleet include:

• Increased business profitability

With all processes organized and optimized, the operation can fit in more services and increase its receipts over a given period.

• Organized routines

Process standardization is part of applying an operational efficiency strategy in the fleet, meaning that all employees’ routines will also become faster and more organized.

• Time optimization

Just as standardization organizes processes, it allows employees to perform their activities easily and quickly, saving time in their day-to-day work.

The manager also benefits from operational efficiency, since they will have all fleet information organized and standardized to analyze at the end of the month. When data is prepared well and presented accessibly, analysis becomes more reliable and helps turn information into decisions.

• Better allocation of drivers and vehicles

By understanding how cargo is allocated in your fleet and how many vehicles run daily routes, you can assess whether maintaining the same structure is really necessary or whether the number of vehicles on the road can be reduced. Route planning can also reduce distances traveled, stops and time in traffic, contributing to more efficient deliveries.

Similarly, you will have fewer drivers in action, reducing transport costs at this stage too.

Consequences of a lack of operational efficiency

Not practicing strategies that seek the best operational efficiency rate may not bring such direct consequences, but you miss out on all the benefits.

Over the long term, you may face an operation with low productivity, excessive costs and greater difficulty restoring fleet organization.

How do you measure operational efficiency?

The only way to measure efficiency in transport operations is through data collection and analysis. Even if you do not yet have the technologies to organize this activity, you should at least have control spreadsheets for the various areas of the operation to achieve efficient fleet management.

While collecting the data generated, you also need to know the performance metrics and parameters for evaluating the operational efficiency rate, something that can be done in a logistics dashboard. Here they are:

Operational efficiency indicators

ROI – Return on Investment

Return on investment is calculated to understand what benefit an investment generates relative to its cost. Here, it serves to assess whether the amount allocated to investments in tools and processes implemented in the fleet is generating satisfactory results.

In practice, ROI can support decisions to retain, review or discard an investment. Even so, it should not be read alone: a higher ROI does not always automatically mean the best option, because time frame, risk, service quality and operational impact also need to be assessed.

OEE – Overall Equipment Effectiveness

OEE stands for “Overall Equipment Effectiveness.” It means measuring how well fleet vehicles are performing their function and/or how much they are generating issues and unexpected costs.

In the indicator’s industrial origins, OEE is calculated from three factors: availability, performance and quality. Adapted to the fleet, it helps organize analysis of idle vehicles, below-expected performance, failures, rework and maintenance costs.

Among the data to assess, we can consider the number of corrective services a vehicle has undergone, planned and unplanned maintenance amounts, among others.

OCF – Operating Cash Flow

Understanding operating cash flow is also an important assessment to determine whether the strategy for increasing operational efficiency is working. OCF represents cash generated by a company’s regular operating activities over a specific period.

It should therefore be analyzed as cash movement from operations rather than a simple reading of profit before taxes or depreciation. A common calculation approach is to start from net income, add expenses that do not affect cash and adjust for changes in working capital.

How do you know whether the fleet is already efficient?

(video in Portuguese)

Some questions you can answer to know whether your operation has good management are:

• Are your operation’s performance indicators clear and measurable?
• Have the operation’s internal processes been identified and mapped?
• Is there long-term fleet planning?

If the answer to any of these questions was “no,” you can start rethinking the objective of fleet management and which management methodologies to use to apply solutions in your operation.

Tips for increasing your fleet’s operational efficiency

One way to generate greater efficiency in your fleet is to identify the biggest issues it faces. From there, you can invest in the most suitable solutions to obtain results.

You can also apply logistics optimization through these actions:

• Implement new technologies to collect, store and organize data;
• Standardize your operation’s processes, such as vehicle inspection and data entry into control systems;
• Identify nonconformities and their causes, and seek the necessary solutions at each stage and in each fleet area;
• Adopt quality control measures in your operation’s activities, from warehouse organization through final delivery;
• Train employees in operational efficiency and other processes to be adopted to improve company results;
• Set goals and action plans to achieve them.

Driver training programs and a consistent maintenance strategy can also contribute to saving fuel, reducing costs and keeping vehicles operating more efficiently.

Learn more about managing your fleet for savings and efficiency by downloading our free e-book (in Portuguese).