4 KPIs to Determine the Effectiveness of Your 3PL Provider

As business environments change over time, several factors are going to affect the effectiveness and capacity of your 3rd party logistics provider (3PL). Some of these factors include but not limited to tax reforms, unstable fuel prices, labor difficulties, fiscal cliffs and regulatory revisions all providing a barrage of problems that could affect the daily operation of your 3PL. It is thus necessary that you constantly evaluate the effectiveness of your 3PL in meeting up with changes so as to determine how efficient, reliable and professional they are. Your 3PL should not only offer price advantages but value for your business.

The demand of 3PL providers goes beyond product delivery. They are also involved with warehousing, distribution and high quality customer service. With the array of duties expected of a 3PL provider, it is important to judge the effectiveness of your 3rd party logistics provider over time to determine if their activities are better or worse. You need to track the key performance indicators (KPIs) to investigate the value that your 3PL provider creates.

You need to set out specific expectations in your 3PL contract to determine if a business relationship would work well or not. You would also want to have a plan to address situations where problems begin to appear with your 3PL’s service. You and Your 3PL can then strategize which service level indicators you intend tracking your goals with. How to track 3PL effectiveness with these KPIs:

What are the freight costs?  Tracking cost per shipment, costs per case, per ton-mile or location, mode of shipment and delivery are all indicator metrics you should be monitoring. These costs which would affect your product pricing with customers have to be reasonable and should continuously meet your business demands.

Percentage of timely deliveries: This is very important as you want to be aware and sure your customers are receiving deliveries as agreed with the 3PL.  It should meet the customer or order contracts, because if 3PLs don’t deliver on time, you could be losing customers.

Percentages of loads that are accepted by primary and secondary carriers:  What your carriers can carry at a time can have an impact on costs and customer satisfaction. You also want to exercise some control over when and how your goods would be delivered. You want to find out before hand if there are any costs to be incurred in the supply process. Hidden costs can blow your transportation budgets.

Technological innovations: Your 3PL provider should keep up with technological innovations critical to the industry. Technology improves their efficiency and increases your productivity. A Logistics company that operates with advanced technology, experiences a lower margin of error which is to the benefit of everyone in the supply chain.

A detailed contract spelling out the reasons for monitoring KPIs as well as actions that would be taken if expectations are outside of required levels, poor customer service, logistics costs, transportation and other activities involved in the supply chain should be agreed upon with your 3PL provider.  The services that your 3PL provides you and your customers can tremendously improve your business or ruin your reputation. Don’t just hope that the 3PL provider will do a good job, continuously monitor them by tracking KPIs to judge if your 3rd party logistics provider is effective and is actually the best for you. Armed with all the data, you can now decide if you should continue using the service or shop for a better 3PL.

Check out our article, What to Expect When You’re Expecting… A 3PL for more information.

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