There are several ways you can analyze the performance of your carriers and 3PLs, and use that information for good. The right metrics and Key Performance Indicators (KPIs) will ensure you’re getting the level of service you’re paying for by identifying hidden inefficiencies that may be hurting service, as well as costing your company time and money.
The first step towards establishing ideal KPIs requires you to be specific about what’s really important to your shipping operation. This can be difficult because it requires hard decisions that consider the inevitable tradeoffs between shipping cost and delivery service.
Once you’ve narrowed down what matters most to your organization, then you’ll need to eliminate the ideas that aren’t effectively measured or won’t produce valuable data points. That doesn’t mean they are not important, but they don’t lend themselves to this exercise. Each item that cuts must have real data tied to it that indicate success.
It’s also important to note that while you should definitely aim high, don’t shoot for goals that aren’t attainable, so set realistic expectations that will increase your chances of creating a successful strategy.
Here are three KPIs that can help you more easily track and evaluate your logistics provider’s performance and drive improvements.
1. On-Time Delivery
It’s critical to measure the percentage of your shipments that your carriers arrive for, depart with, and deliver on-time because these three areas directly impact your customers and your bottom line. When you track how many of your orders arrive at their final destination according to schedule compared to how many are delivered late, you can pinpoint potential bottlenecks within your transportation network. This metric could also highlight other KPIs you should be following that could be contributing to any delays.
2. Average Transit Time
If you want to optimize your routes and improve your transportation forecasting accuracy, you need to know how long deliveries take. By measuring when a shipment leaves the facility to when it reaches your customer’s door, you can effectively track your orders' average transit time. Shippers who have a good handle on these details avoid making promises to customers that they can’t meet and avoid paying for faster service-levels they do not need. Like with on-time performance, this KPI can showcase any wild inconsistencies you need to address in your load planning.
3. Damages and Delivery Problems
Sometimes damages are inevitable; however, the number of damages or other OS&D issues your carriers are responsible for can directly influence a company’s margins. When you divide your total freight costs by the total costs incurred from damages, you can calculate exactly how these losses affect your business. Over time, the higher this number is, the more likely these problems are resulting from your carrier.
Although there are many other KPIs that can be just as important for your company to track, these three are vital in giving you a good sense of how your carriers perform once you understand where you and your carrier stand, it’s easier to redefine your expectations and work together to improve the efficiency of your transportation strategy.