Holding your 3PL accountable to deliver on the service promise can be difficult. However, a key component of that is monitoring key performance indicators (KPI’s).
Well run warehouses will measure, track, and improve upon a set of KPIs that drive not only the productivity levels in their operations, but also drive performance for their clients. KPIs act as a standard baseline measure of service. A 3PL meeting or exceeding its KPI goals will have fewer service level issues and happier clients (and customers of clients!). The process works best when the 3PL and the client sit down and really work to identify what processes drive success and then determining the right measurements. Often times these KPIs are reviewed monthly, but depending on the KPI, a daily or weekly measure may be more appropriate. In this post, we will spotlight a commonly measured KPI: on-time shipping.
Shipping orders on-time is critical for the sales of a product. When a 3PL ships orders late, the client may be penalized with late shipping fees by their retailers or consignees. In the worst cases, lost revenue and lost sales may occur because the product missed its in-store delivery date. Nothing will have a client on the phone faster to the 3PL than a missed sales opportunity. So how do 3PLs measure on-time shipping? By monitoring requested ship dates and ensuring that orders and products are shipped by or within their requested ship windows.
With different types of orders and different modes of transport, there may be a variety of goals to achieve to meet a ship date or ship window. If a 3PL is systematically measuring KPIs, programmable logic may look at what type of order it is, who the carrier is, what mode of transport, and what are the requested ship dates vs. must arrive by dates in order to determine whether the KPI meets its goals. For example, if eCommerce orders need to ship within the same day they are sent to the warehouse, then the standard rule of measurement would be 24 hours. Otherwise, the order would then be considered “late.”
For LTL or TL orders, a longer window of 48 hours or beyond may be given before an order is considered late. In other instances, the combination of purchase order terms, ship method, carrier, and ship window may determine the on-time parameter. On orders where a retailer is responsible for freight costs, a ship window or order cancel date is typically given, and the PO terms on the order are collect (paid by the retailer). Collect orders will require that the PO be routed through the retailer’s transportation network; where they are consolidated and built into loads, assigned a carrier for transport, and given a warehouse pick-up appointment date. Shipping the order on or by its appointment pick-up date may constitute the order shipping out “on-time”. In these scenarios, the appointment date set by the retailer overrides the client’s original requested ship date.
Adjusting the on-time logic to measure the KPI against the appointment date vs. the original requested ship date makes more sense and is a more accurate measure of on-time performance. No matter what the order scenarios may be or what the programming logic entails, the 3PL and client should work together, collectively agree to the parameters, and set the targeted goals. This may prevent inaccurate expectations by the client, if they see their on-time percentage dip below the targeted goal.
Finally, in some scenarios where most freight moves by truckload, the 3PL may measure “on-time shipping” by “load ready time”; in other words when the load was placed on the dock and ready to be loaded onto a carrier’s vessel. That will help separate the accountability for (a) getting the ready order which is primarily on the 3PL, and, (b) having a carrier pick up the order on time which is often managed with a different set of transportation KPI’s.
Being able to assess a provider’s service progress real-time or seeing performance trend will always be desirable. Clients will favor 3PLs who can make their KPIs visible to them via a reporting mechanism or on a web based portal. 3PLs should always make their performance transparent to their clients; no matter if they are meeting expectations or falling short of them. Clients appreciate transparency and a provider’s ability to accurately report KPIs.
By Mimi Ma
Corporate Director of Quality and Compliance