Third party logistics can be one of the best business partners ever, if they really understand their client's needs, and put in the same effort and spirit that their clients do.
Besides personal and subjective considerations, how do you really know that your third party logistic service is actually doing the job?
These external suppliers have been significantly growing thanks to technology and innovation in global and local markets, but In order to have a healthy, positive and transparent relationship with these logistic external suppliers, it is crucial that your company measures third party logistic performance.
Of course there are hundreds of different KPI's to do this, depending on the nature of the industry, the size of the company, the type of contract, etc. But there are several basic logistics metrics that companies and experts commonly mention as the most important ones. The kind of metrics that shows a basic quality standard in every sort of business.
Let's take a look at some of these fundamental metrics to measure third party logistic performance:
On-time final delivery. According to Weber Logistic company –one of the biggest supply chain players in the United States West Coast-this metric “shows the carriers' ability to deliver successfully on time to their scheduled required arrival date or to the appointment time. Having an accurate on-time delivery is critical for your client to avoid fees, as they may be subject to fees from big box retailers if the date is missed. If the report is below 98% then operations should review and look for process improvement and efficiencies.”
Cost per pounds. Also, Weber proposes measuring “gross net with total weight moved each month/quarter to show the buying and usage patterns of customers. This KPI will help your customer continue to buy well. These trends can help them save money, but not over or under buying product.”
Inventory accuracy. “Used to identify product discrepancies, this measurement is typically derived from cycle counts, a function within a WMS that automatically counts a subset of inventory on a daily demand or on a scheduled basis,” Inbound Logistics say.
Perfect order rate. FW Warehousing –a US-based company- “this KPI is a measure of the ability to provide a “perfect” order entering the order correctly, picking the order correctly, shipping the order without damage, delivering the order on time and invoicing the order correctly.”
Inventory turnover rate. “This metric –FW explains-is a measurement of the number of times inventory is sold or used in a period of time, usually a year. Low inventory turnover may indicate overstocking, product or marketing deficiencies or obsolescence. A high turnover rate may signal inadequate inventory and an increased potential for stock outs that could halt production in a supply chain scenario or lost sales revenue in a distribution channel scenario. Benchmarks for high, low and optimum inventory turnover rates will typically vary by industry.”
Has your company tried some of these KPI's? How has the experience with your third party logistics partner been? We invite you to share your ideas about it.