July 19, 2022
Fast, Right, or Cheap? Pick two.
You may have heard this adage throughout the transportation and logistics industry. Implying that your transportation strategy must be willing to sacrifice one to achieve the others. Do you ship quickly and cheaply- but sacrifice accuracy? Do you choose to be accurate and fast, but face higher costs? Balancing all three objectives shouldn’t be a zero-sum game, but can it be done? The secret may be to consider the three objectives as fluid – when one ebbs, the others flow.
Thinking about this juggling act, how do we know which metrics to pursue and which performance metrics indicate that these objectives are balanced? Regardless of industry and even the unique challenges of your business, managing the following 10 transportation key performance indicators (KPIs) will provide you with the insight to find the balance your business needs.
Today we’ll highlight a few of our top 10 KPIs through a high-level view of the three objectives: speed (fast), quality of service (right), and cost (cheap). By leveraging each of the addressed KPIs, you’ll discover where to focus your attention.
Objective 1: Speed
1. Order fulfillment cycle time
Order fulfillment cycle time measures the total elapsed time from when a customer places an order to the delivery time.
This KPI provides insight into where your organization experiences inefficiencies in order fulfillment strategy. It is crucial to capture everything including order processing time, transportation planning time, distribution lead time, and transit time*. By understanding this KPI, you can understand the customer’s experience and manage their expectations once they have placed an order.[*when applicable according to the Incoterms]
2. Freight invoice payment cycle time
Freight invoice payment cycle time measures the total elapsed time from when a forwarder/carrier/broker submits a clean freight invoice (clean defined as having passed all validation audits) up until the invoice is settled.
This KPI evaluates misinterpretations of your carrier rate sheets/contracts in your transportation management system (TMS). In this KPI, we are finding factors that cause invoices to fail rate audits. Improve your processing time and accuracy for transportation planning, freight audits, and payments by correcting these issues.
3. System downtime recovery (interface reliability) measures the total elapsed time from when a business process is reported as “failing” until the time that process/interface recovers and returns to normal operations. It also measures the number of reported failures over a given period.
In this KPI, you’ll understand what your optimal performance levels are and validate automated processes. Check processes dependent on system reliability and be sure they are operating as expected- if you find things are not flowing as designed, troubleshoot and bring your systems back to their optimal performance levels.
Objective 2: Cost
4. Freight cost per unit measures the freight cost per weight unit. Use the unit of measure that is most relevant to your business.
This KPI reminds us how we are tracking transportation costs, without anchoring them to a unit of measure (UoM). Understanding this KPI will help give you insight into how your operations are performing (relative to budget). By grounding cost to a UoM, you will see trends over time and highlight factors that impact freight expenses.
5. Freight cost as a percent of sales measures the freight spend divided by gross sales. This KPI helps us understand how transportation costs impact margin.
6. Cargo claims as a percent of sales measures the total dollars filed as a loss or damage in transit claim (with carriers & forwarders) divided by $1000 of gross sales.
This KPI, in conjunction with measuring total deliveries made without exceptions, provides insight into how well carriers are performing. It is important to partner with carriers that will treat your freight as well as possible, and when concerns arise, bring those concerns to your attention.
Balancing our recommended 10 transportation KPIs will serve as a solid foundation and validate where your operations are performing optimally and where you need to focus your attention. In today’s post, we highlighted 6 of our 10 transportation KPIs to help improve speed and cost- but what about quality? Read Part 2 today and discover the importance of quality, when balancing your transportation operations.