Actionable KPIs for Domestic Transportation
Common shipper-utilized key performance indicators (KPIs) include important data points like total shipments, total units shipped, and total spend. While these types of numbers can make for good targets and business health indicators, they lack enough substance for a company to be proactive with identifying new opportunities for revenue growth or improved efficiency.
Logistics KPIs, when done right, can and do make real change possible. They can be effective tools for improving not only your supply chain operations, but all other areas of an organization. In the end, KPIs are about uncovering opportunities, shaping behavior for the better, creating synergy around goals, and holding parties accountable for meeting targets.
ON-TIME DELIVERY AND MABD: You are held accountable for meeting retailer timelines, so tracking how well your partners are performing and hitting appointment deadlines makes sense. If not met, you can expect accessorial charges and unhappy buyers.
Yet there are multiple ways you can look at this metric. Your carrier may arrive on time for a scheduled delivery appointment, but was that appointment within the Must Arrive by Date (MABD) provided by your customer? Tracking both KPIs can help ensure you’re seeing the full picture.
AVERAGE LEAD TIME: How much notice does your customer give you between order fulfillments? And how much notice do you give your transportation provider to find the best carrier and optimal transit schedule? It could be that shipping costs decrease by a notable amount for each additional day’s lead time allowed. Ask your partners about impacts and set an internal standard to hit a certain time window and see how your costs change as a result.
PALLET AND DISTANCE MINIMUMS: This is a good measurement of equipment utilization and a great way to identify savings. By looking at how your cost per unit is impacted by the number of units on each truck and how far they’re going you can identify a tipping point. At what quantity and distance do your costs become destructive?
Maybe your ideal minimum is 18 to 20 pallets for every truckload going over 400 miles. If you go below that threshold, you pay too much for transportation per unit. Finding a way to get five percent more product on all trailers below that point, and meet your established KPI, can equate to pure savings.
Logistics data can also dictate responses from other departments. The logistics team is told what they need to ship and when it needs to be there. But when data can show that the shipping cost per unit is higher when there are fewer than 20 pallets per truck, there’s proof for needed enhancements in collaboration. This routing constraint placed on logistics happens by decisions made upstream – working in tangent, logistics and sales departments can instead identify and execute real cost saving initiatives.
OUT-OF-NETWORK SHIPMENTS: Once you have identified how shipment quantity and distance are influencing per unit profitability, out-of-network shipment data can be isolated and evaluated for patterns that determine the root cause for cost increases.
For example, is there a percentage of your shipments being processed from non-ideal distribution centers? You’ll see direct cost impacts when product gets shipped from a distant warehouse because it was out of stock at the distribution point closest to the customer. This is an inventory management problem that gets paid for by the transportation budget. Work in tangent, leveraging data, to establish an ideal KPI for these types of transactions.
There is a clear pattern in these final examples that gets to heart of why KPIs are so valuable. The insights shippers gain from KPIs illustrate how other departments (like production scheduling, inventory planning, and sales) can affect transportation. KPIs demonstrate, in a quantifiable way, the shared responsibility entire companies have for domestic shipping costs. Using KPIs is the best way to illustrate, then tackle, issues in an objective way.
Andrew Lynch is co-founder and president of Zipline Logistics, an Ohio-based 3PL that specializes in providing multimodal transportation services and business intelligence for CPG, retail, and food and beverage customers.