Setting your transportation strategy is one thing — measuring its effectiveness is another.
As you build your carrier network, it’s critical to track your providers’ performance.
If you struggle with this, you’re not alone: 53% of shippers said they are struggling to find better operational data that would help their organization mature.
The good news is that you can start getting more out of your network data. Tracking key performance indicators (KPIs) can help.
Find out what makes a good logistics KPI, which ones are most common for supply chain decision-makers and how to track your progress against them.
What Are Logistics Key Performance Indicators (KPIs)?
Logistics KPIs (key performance indicators) are supply chain metrics businesses use to assess performance throughout their supply chains and identify potential areas for improvement.
A common example of a logistics KPI is on-time delivery performance, which businesses may track internally using a transportation management system (TMS) or with the help of an external third-party logistics (3PL) provider.
A good way to think about logistics KPIs is as a “health check” for your supply chain.
Try to remember the last time you had a check-up at the doctor. You probably had your blood pressure taken, right?
The number your doctor gave you for your blood pressure doesn’t itself describe your overall health, but it can tell you that you might be at risk for heart disease, and also point toward necessary changes (e.g., better diet, exercise, etc.).
Logistics KPIs work the same way.
If you or your providers fail to meet your benchmarks for on-time delivery, it doesn’t necessarily mean your business is failing.
But it could mean you’re at risk of ceding shelf space or losing customers, and it can show you where your operations need to improve. They are a key component of any continuous improvement program.
What Makes a Good Logistics KPI? 3 Rules to Keep in Mind.
There’s no one-size-fits-all solution for logistics KPIs — they’re entirely dependent on your needs, your goals, and your processes.
You can follow some general guidelines, though, to make sure you’re setting ones that best serve your supply chain.
1. KPIs should be measurable.
They are data points that can be used to tell a story. They should be easily quantifiable, and you should be able to set reasonable benchmarks for them.
2. KPIs should be trackable over time.
You should be able to check in periodically to see if your performance has risen, dropped, or stayed level regarding your KPIs.
3. KPIs should derive from business goals.
They are not goals themselves, and they aren’t used to set goals. If you come up with KPIs in a vacuum, you run a risk of collecting data that will obscure more than it clarifies.
Setting the Right Logistics KPI
Let's walk through an example of how to align a logistics KPI with your business goal.
Primary business goal:
Delivering orders to your customers faster.
Tracking on-time pickup and delivery for your carriers might seem like a sensible place to start, but they might actually be misleading.
Your overall efficiency in delivering product to your customers doesn’t really have anything to do with whether or not your carriers keep their appointments.
Instead, you would want to set the total time from purchase order receipt to final delivery as a KPI that can truly point to whether you’re meeting your customer’s expectations.
What Are the Most Common KPIs in Logistics?
The most common logistics KPIs are:
- On-time delivery performance
- Cost-related KPIs
- Ability to track shipments in real-time
- On-time pick up performance
- Incidence of damaged goods
- Tender acceptence
But modern supply chains generate so much data that it can be tough to know what you really need to pay attention to.
To help you cut through the noise and identify the metrics that matter for you, we surveyed more than 500 logistics decision-makers at shippers of all sizes.
Strong, clear KPIs help supply chain professionals gauge carrier performance. They’re crucial for ensuring your network is operating as efficiently and cost-effectively as possible.
These are how logistics leaders view the importance of each logistics KPI to their business as a measure of supply chain success:
Let's dive a little deeper into the top three logistics KPIs.
On-Time Delivery Performance
What is it?
A measurement of whether your carrier arrived to your customer or facility when planned. It’s the quintessential transportation question: Did it get there on time? It’s not going to be your only concern, but it’s often your first.
Why is it important?
Missed appointments can result in late fees and accessorials. Unreliable carriers can also make planning harder for you. And most importantly, there’s no faster way to sour a customer relationship than to miss your deadlines.
Pro tip: Despite the importance of punctuality, you don’t need to focus specifically on appointment times when setting this KPI.
You can assess your customer’s needs and flexibility and determine if a delivery window or a to-day standard is more appropriate.
What is it?
A combination of all the related costs that go into moving your freight. This can include the spot or contract rates you agree to with your carriers, the cost of fuel, and your carriers’ propensity for accruing accessorials and late fees.
Why is it important?
A bloated transportation budget will eat into your profits before you know it. It could also impact operating expenses that could be better spent elsewhere in your organization (marketing, staffing decisions, etc.).
Pro tip: It’s not necessarily your main goal to keep costs down; it might just be enough to keep them predictable.
By combining strong reporting on your carriers’ on-time performance with savvy knowledge of freight market cycles and seasonality, you should be able to set a budget and stick to it.
Ability to Track Shipments
What is it?
Your ability to know where your freight is whenever you ask. This goes further than simply knowing whether it’s in-transit or arrived at a facility; shippers today expect to be able to assess progress at any point during a load’s journey.
Why is it important?
Visibility into your freight’s progress is key to establishing a two-way relationship of trust with your carriers. You know you can rely on them if they’re willing to provide you with that data.
Your customers also likely increasingly expect to be able to track their orders’ progress these days, and good carriers should enable you to fulfill that need as well.
Pro tip: Even if they’re not using GPS-enabled tracking, you should expect carriers to enter appointment data like in and out times into a platform you can access in a timely manner.
You can also require mid-transit updates for lanes with longer transit times.
While not one of our shippers’ top choices, we have seen an increased emphasis on sustainability goals in recent years.
In fact, 81% of supply chain professionals we surveyed told us their organizations are more focused on sustainability now than they were three years ago, and 71% of them said their organization currently has clearly established supply chain sustainability goals.
Shippers are increasingly trying to go green, both in response to pressure from their customers and because sustainability often goes hand-in-hand with efficiency and cost savings.
This means they’re more often tracking CO2 emissions as a KPI for carriers in their networks.
For the shippers we surveyed, the most effective changes they thought they could make in terms of minimizing emissions were:
- Using alternative fuels
- Inventory forecasting
- Partnering with green carriers
- Minimizing idle or wait times
If you would like emissions measured, be sure to ask early on in your negotiations with a carrier whether they are able and willing to do this.
Who Should Manage Your Logistics KPIs? And How Should They Do It?
The answer to this depends on whether you’re managing your KPIs internally or you’re outsourcing some or all of that function to an external provider.
If you have a dedicated logistics team and you plan to keep your KPIs in-house, you’ll likely have a transportation director who is best positioned to oversee your KPIs.
If you are a smaller operation, you might rely on an operations director or manager to handle it.
Working with 3PLs
One of the real benefits of working with a third-party or outsourced logistics provider is the fact that you can pass some of this responsibility on to a dedicated team if you don’t have one in house.
If you choose to have your 3PL manage your logistics KPIs, they should have an operations manager or operations lead who can be your KPI point person.
And if they really have their act together, your 3PL team should prepare easily digestible reports on network performance against your KPIs.
Integration with Your Carriers
If a carrier has their own system for managing data like appointment entries or in-transit check-ins and you are working with an internal TMS, you should be able to connect to them via EDI or API.
You can also have your third-party provider handle this integration with their own system.
If neither of these are options for you, you’ll need to devise another method of data sharing such as a shared spreadsheet, and you’ll need to rely on your carriers to update it promptly and accurately.
KPIs in the Bid Process
If you move enough freight to hold an annual pricing event (a request for proposal or RFP), make sure to incorporate your KPIs into the bid process.
Before anyone starts putting together rates, your carriers should know exactly what standards you’re going to hold them to.
Carrier Scorecards: Keeping Your Carriers on the Same Page
A clear, comprehensive scorecard for your carriers can help you manage your logistics KPIs in a way that works for everyone.
Carrier scorecards put your KPIs in writing, help create realistic and manageable expectations, and set up your entire team for success.
Follow these simple steps to get the most out of your carrier scorecards and create an easy-to-manage system for tracking your network’s performance.
How to Use Carrier Scorecards
1. Create your scorecard.
List out the KPIs on which your carrier will be assessed and the benchmarks they’re expected to meet for them.
2. Align with your carrier.
Go over the expectations laid out on the scorecard, answer any questions they have, and have them acknowledge their acceptance of it in writing.
3. Review KPI data with your carrier regularly.
This cadence can vary depending on the specific KPI in question; weekly, monthly or even annual check-ins are normal. Don’t just send them the scorecard, actually meet with them face to face (in person or virtually).
4. Address low performance.
If a carrier isn’t meeting their KPI targets, create a specific, actionable plan for improvement and set up monthly calls to check on their progress.
Pro Tip: Be patient.
It’s OK if it takes a little while to see results from your scorecards. It’s normal for there to be a baseline period when carriers are still getting familiar with your needs and not quite hitting their targets.
Maintain open communication and have a little patience before you start taking more drastic measures like asking for a corrective action plan.
Avoid These 3 Common KPI Mistakes
Whether you’re new at setting logistics KPIs or you’ve been doing it for a while, it’s always a good idea to step back and make sure you’re doing everything you can to get the most out of them.
Here are some common mistakes we see shippers make when managing KPIs with their carriers:
Setting and forgetting.
The most strategic KPIs can’t tell you anything if you don’t monitor them regularly. Remember to collect data from your carriers at each of your scheduled check-ins.
The silent treatment.
If you see performance slipping, don’t keep it to yourself. Be clear and open with your carriers about whether they’re hitting their KPI targets and what they can do to improve.
KPI targets that are too high don’t do anyone any favors. They’ll cause you constant headaches and alienate carriers who may actually be performing capably.
If you avoid each of these pitfalls, you can ensure your KPIs result in actionable data and consistent performance across the board.
Need Help Setting, Tracking & Measuring Logistics KPIs?
Managing logistics KPIs can be a challenge for anyone, especially as your business grows in size and complexity.
It’s OK to look for help: 16% of shippers actually outsource carrier performance reporting.
Managing your network of carriers can also be tough; 13% of shippers outsource this as well.
If you’re looking for help with KPI setting and tracking, as well as vendor management, Coyote Transportation Management (CTM) is here for you.
We can give you a dedicated team of logistics experts and access to our proprietary TMS to set your carrier strategy and optimize your network’s performance.
See what we did for a product packaging vendor with complex logistics needs.
About the AuthorMore Content by Elizabeth Williams