Key Performance Indicators (KPIs) commonly known as KPIs, are measurements which hone in on certain aspects of the business, by quantifying the desired goals, and measure their progress. KPIs differ across industries and organizations. KPIs should be developed and agreed on between the client and the 3PL based on the needs and wants of the customer; and should measure different scopes of work.
The following is a sample of the more common KPIs in a 3PL environment:
- On-Time Customer Shipments
- Order Accuracy, and Dock-to Stock Cycle Time
- Inventory Accuracy, and Total Order Cycle time
- Lines picked and shipped per hour
In today’s business world data has become very important and the use of the data has become part of the everyday conversation between organizations. That is why in the 3PL industry it becomes very important to utilize the data to develop and monitor KPIs which quantify the business relationship between service providers and their customers.
Imagine prior to having data on a daily basis, 3PL providers and their clients would meet once a year and at best once every six months. These meetings relied heavily on personal observations or on complaints from individuals in the organization, or from their clients that the 3PL was not performing to expectations. In these meetings the 3PL provider would be in the ‘hot seat’ because his client would use his observation or complaints from a few clients to verbally, without any quantifiable information, blame, apply fines or worst case scenario terminate their business with the 3PL. The 3PL on the other hand knows that it has picked and shipped a large number of orders, on time and in the right quantities; but has no data backup to refute the client’s claims that they have met their requirements.
In today’s world of constant flow of information between the client and the 3PLs using dashboards, e-mail, EDI, ERPs, WMS, TMS, and a number of other software, KPIs become an important tool to measure the performance of the 3PL without relying on personnel observation or hearsay from internal and external forces. On the other hand the 3PL using the daily data to measure their performance against the KPIs can quantify their performance against agreed upon KPIs and can challenge their clients and avoid any fines or in the worst case scenario, the loss of the client.
One of the major benefits therefore is that the customers uses the KPIs as a way of forcing their 3PL to continually look at ways to improve their performance as well as improve efficiencies and reduce costs.
KPIs also can be used by customers as a tool even if they are not in the same time zone to monitor the 3PLs performance on a daily, weekly or monthly basis. Similarly the 3PL can use the KPIs to provide proof to their clients that they are meeting or exceeding the client’s requirements.
It has become essential that customers have a need prior to finalizing their choice of 3PL service provider, to discuss the 3PL’s present method of determining their key performance indicators in addition to presenting the KPIs they are presently measuring and achieving. KPIs should be developed and mutually agreed upon regarding which indicators will measure the performance of the service provider. In some cases customers may offer monetary incentives to the 3PLs if they exceed certain KPIs especially in areas that have caused the customer service disruptions or fines.
In conclusion it becomes extremely beneficial that both the customer and the 3PL service provider include quantifiable KPIs and reasonable time frames in any service agreement.
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