When working with a 3PL, measure carrier performance in order to identify opportunities for improvement.
Keep these 11 key performance indicators (KPIs) in mind to ensure this year's logistics operations are successful.
1. Routing Guide Compliance:
Routing guide compliance increases productivity by eliminating time-consuming or financially costly mistakes in the supply chain. Make sure your vendors have easy access to clear and concise routing instructions to reduce service delays and unnecessary expenses. Measure your expected savings against the actual savings to gauge the effectiveness of your routing guide.
2. Accessorials as a Percent of Freight:
Divide any accessorial charges, like fuel, permits, or charges by the total freight expenditures for a period. If you notice an increase in any of these costs, you may want to re-evaluate your processes to eliminate inefficiencies.
3. Transportation Utilization:
Remember that empty space is wasted space.You can increase the value of your transportation spend by switching from less-than-truckload (LTL) to full-truckload (FTL), raising the minimum quantity for orders, or combining multiple shipments into one.
4. Monitor Tenders Accepted Versus Tenders Declined:
This will tell you if your carriers are meeting their contractual obligations. When a first choice carrier declines a substantial amount of tenders, the cost for the shipper will increase to the point where it might exceed budget. Carriers will reject tenders for different reasons so it is important to meet regularly so you can discuss ways to improve this measurement as partners.
5. On-Time Performance:
A carriers ability to meet On-Time Pickup, On-Time Departure, and On-Time Delivery will directly affect the shippers overall performance. Measure the percentage of shipments that are picked up, departed, and delivered on time. A rate of 90% or higher is generally considered acceptable.
6. Capacity Issues:
If a carrier does not have the capacity to handle your shipments, several problems such as late pickups, late deliveries, and unattended customer needs can occur. To measure performance in this area, use specific KPIs such as cost per item, cost per order, percentage of perfect shipments, dock utilization, and time from picking to departure.
It is also a good idea to track detention times as these charges can quickly eat into shipper margins. Often, if detention times are excessive, this indicates inefficient operations that need to be examined more closely.
8. Number of Damage Claims:
The number of freight claims is an important factor to consider as it can have a big impact on the bottom line. You can calculate the impact by dividing the total cost of loss and damage claims by the total freight costs. The higher the number, the higher the likelihood that packaging or processing problems will occur on the carrier’s end.
9. Invoice Accuracy:
It is important for shippers to measure the number of accurate invoices and categorize the inaccurate invoices by carrier and reason. Invoices should match the price that was quoted, unless there was an error on the shipper’s part such as incorrect weight, freight class, etc.
10. Number of EDI or API Invoices:
Moving from paper-based invoices to EDI or API can bring several advantages to your business such as increased savings, accuracy, and efficiency. EDI and API invoices are about 35 percent less expensive to process and reduce the amount of time spent and inaccuracies that occur when processing invoices manually.
11. On-Time Payment:
Cash flow is a good indicator of many different business factors. This can be measured by dividing the number of on-time payments by the number of total payments. Anything below 90 percent should not be acceptable.
There are hundreds of metrics you can use to measure your supply chain performance. These are just a few examples of KPIs that can give any company a head start toward streamlining their supply chain. Whether your logistics operation is outsourced or in-house, measuring performance with the right metrics can ensure that you are getting the best value for your spend.
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