When you’re outsourcing key logistics functions to a third-party logistics provider (3PL), it’s important to have a system in place to track and measure their performance. Whether they’re managing your warehousing, transportation, or entire supply chain from end to end, your company needs a 3PL that can keep up with your supply chain demands.
However, it can be tricky to figure out the right approach to maintain consistent logistics performance and successfully meet your organization’s goals when such important core functions are happening with an outside provider involved. By establishing the right metrics to focus on and analyzing data over time, shippers can gain actionable visibility into their 3PL’s performance and improve future execution across their logistics network.
Done right, the data that comes from your 3PL partnerships should build upon itself. With complete data, your business can also develop better benchmarks, which will allow you to compare your 3PL to other industry leaders more accurately. If your supply chain has inefficiencies that need to be addressed, or you’re losing money due to a lack of poor planning, you shouldn’t be left in the dark. You and your 3PL partner have a shared responsibility in this regard.
Here are some ways to closely follow and assess critical KPIs that can serve to hold your 3PLs accountable, stay in control of your partnership, and ensure you’re getting the best service possible.
Timely, valuable service reports provide one of the most effective ways to measure your 3PL’s performance and verify that they’re living up to your expectations. Every company is unique, so the metrics you choose to track should reflect what’s most important about your 3PL’s service to your business.
With that being said, here are some of the top benchmarks you should be reporting on to get the best sense of how your 3PL is doing:
1. On-time deliveries
Customer experience is everything. No one wants to disappoint their customers because every time an order arrives late, it puts that customer’s business at risk. By measuring the percentage of your deliveries that are actually on time, you can know whether or not your 3PL is operating on your schedule.
2. Inventory management
Is your fulfillment partner properly planning for and protecting your inventory? If your products are being misplaced, damaged, or even stolen, you could be facing some serious inventory shrinkage costs. While some may view this as an inevitable part of the business, you must monitor inventory accuracy to prevent these issues from piling up and affecting your company’s long-term profitability. This is especially important when it comes to any products that require special storage and handling.
3. Order accuracy
Returns can be expensive and frustrating for not only you but also your customers. When too many people have to send your merchandise back because they got the wrong item or there were missing parts, your bottom line will be the first to know. No 3PL is perfect, but your partner should be keeping the mistakes to a minimum. As for the returns that occur, no matter how efficient your logistics partner is, your 3PL must be reporting on what manages to slip through the cracks and using that information to make key improvements.
Scorecards (be sure to do them right)
Do you think your 3PL would score well when put to the test? Using a 3PL scorecard, you can actually grade how effective your transportation partner is across a wide range of logistics functions. However, if your company decides to choose this method, you’ll need to understand some of the typical mistakes that shippers can make when taking this approach.
For one, unfortunate problems like shipping delays often occur due to a chain reaction to another link in the supply chain. So, shippers need to include a process that takes each party into account to avoid blaming the wrong partner. Another thing to keep in mind is the value of creating a scorecard that’s realistically manageable for your business and your 3PL.
If you try to force too much onto one scorecard, you’re only going to be left with an overwhelmingly detailed list of metrics that your partner won’t want to maintain, and you won’t want to review. Shippers should also minimize the amount of grading they’re doing by fixating on their 3PLs, handling most of their business rather than focusing on everybody at once.
Companies that are only managing a fraction of your organization’s logistics processes most likely won’t be able to justify the money and energy it’ll take to address your scorecard. Most 3PLs are glad to receive shippers' feedback because they aim not just to exceed them. With efficient, transparent grading, you’ll enable your logistics partners to improve their service, so it’s up to your standards.
Hosting review meetings is another great way to deal with existing hurdles, discuss strategic plans, and ensure you’re getting the ROI you need from your 3PL. After all, working with a 3PL is an investment. While the global pandemic may eliminate on-site presentations as an option, video communication can still give you that face-to-face interaction that makes this particular suggestion more worthwhile.
Before you sit down and start diving into the nitty-gritty, you need to establish what you know about the partnership, what your 3PL has accomplished, and what you want them to move forward with the partnership. Review meetings are critical in fostering business relationships because they allow companies to align their strategic vision and give credit where it’s due.
Your presentation's success hinges on how informed you are ahead of time, which is why it’s also crucial that you’re well prepared with accurate, up-to-date data regarding your 3PL’s performance. This extra bit of effort will ultimately help you and your logistics partner stay focused and cover what matters most.
As you analyze what your 3PL is doing right and what they could be working on more, you’ll start to become an expert yourself on the numbers. The entire purpose of a review meeting is to identify honest business insights and provide key takeaways to strengthen your collaboration and lay out a path for your provider to deliver the optimal results.
Whether you craft service reports, employ scorecards, host review meetings, or utilize a combination of all three, we believe that implementing practices like these will let your company maintain control and turn your partnership into a sustainable, competitive advantage. Now is not the time to slack on collaboration, given extreme capacity constraints and pandemic-induced delays.
Shippers that turn to their providers during these difficult circumstances will have a better chance of booking shipping lanes, increasing on-time deliveries, and securing limited equipment. The industry’s “new normal” is only evolving more and more each day, so your company must know that it has the support of reliable, high-quality service.