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Why Metrics are Critical for Measuring 3PL Performance

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Businesses choose to use third-party logistics providers (3PL) because it makes sense for the bottom line.  Contracting with a 3PL to manage warehousing, transportation, and other supply chain activities can be more efficient than doing it yourself.  However, how do you know that your 3PL activities are better or worse for your bottom line unless you are monitoring these operations?  It’s important to track key performance indicators (KPIs) to analyze the value being created by 3PLs, Lisa Dennerll of Sunny Delight Beverages Co. writes in “Guest Commentary: The Importance of a Service Level Scorecard with Your 3PL,” posted on LogisticsViewPoints.com.

Dennerll suggests spelling out goals or the KPIs that you want to track in your contract with the 3PL.  Setting up clear expectations in the 3PL contract will help you determine whether your relationship is good for your business or isn’t working as well as it should.  Taking that thought one step further, you will also want to have a plan to address situations if you begin to see problems with the 3PL’s service.  Both you and your 3PL can determine which service level indicators you want to track along with those goals.  Some KPIs might vary with your industry, products, and geographic regions.  Dennerill suggests tracking metrics such as:

  • Freight costs:  Tracking cost per shipment, per case, costs per ton-mile or location, customer, and by mode of shipment are all reasonable metrics to monitor.  These costs can impact your product pricing structure with customers.
  • Percentages of on-time deliveries:  You want to make sure your deliveries are reaching customers in accordance with individual customer contracts or by individual order contracts.  If your 3PL can’t deliver on time, then you risk losing customers.
  • Percentages of loads that are accepted by primary and secondary carriers:  This metric can also impact costs and customer satisfaction.  You also want to have control over tracking your products while on delivery.  Not knowing where or how your products are being shipped could present more problems.  Hidden costs can blow transportation budgets.
  • Sustainability Measures:  Many businesses want to work lean and green.  Using Smartway carriers, CNG/LNG carriers, and other modes of transportation might help green efforts.

A detailed contract with your 3PL, including monitoring of KPIs and actions to take when metrics are outside of expected levels, can improve customer service and control, if not lower, costs associated with logistics, transportation, and other supply chain activities.  The services that the 3PL provides you, and your customers, can greatly impact your bottom line and customer satisfaction levels.  Don’t just hope the 3PL is doing a good job for you, monitor it by tracking KPIs, and taking quick action to address issues when they arise.  Contact OmniVue for more information about measuring and tracking metrics to ensure your 3PL is performing in accordance with your expectations.

By Omnivue, Georgia Microsoft Dynamics ERP and CRM Partner

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