The Numbers Game

Logistics Industry November 9, 2009

Key Performance Indicators in Logistics

A key question in picking or staying with a current logistics provider is whether or not they can provide you with the same data that you are accustomed to having if you are running your own internal warehouse operation. It seems like a simple question but it is usually not asked until the decision on the 3PL has already been made. When adding a third party distribution centre (DC) to your business environment, understand the numbers you need to know and make sure that the 3PL you are looking at can provide them.

Here are some of the numbers you need to know from your third party logistics provider in order to be knowledgeable for your company's management team and your customers:

- Units ordered from each distribution centre

- On time order accuracy

- Orders shipped complete

- Number of shipments per month

- On hand inventory

- Picking accuracy

Imagine the problems in asking your current logistics provider what the order accuracy or order pick rate was for the quarter and getting an answer of "we can't provide that information." If that's the case then you are just dealing with a warehouse as opposed to a third party logistics provider. Also ask the prospective 3PL to provide their overall company numbers for the KPI's that are relevant to you. If they are within your own company's parameters then their service matches your needs. More importantly, if they cannot provide these numbers then you already know that you could run into problems. To help you compare potential providers, the Warehouse Education Research council says that the average warehouse has an order accuracy rate of 99.5%.

KPI's also create a reality check when a mistake happens. If there is an error in picking but full accuracy is achieved 99.7% of the time, you need to ask if that is an acceptable occurrence. If I owned my own warehouse would I manage my pick and pack service to this type of error rate? Mistakes will happen, but if your third party logistics provider can prove to you that they happen very infrequently then your conversations with your sales team and your customers will be easier. You can also hold your 3PL to account based on the numbers they provided while you were in negotiations. The numbers don't lie.

Before you pick a logistics provider, make sure to think ahead for all the information you need in order to run your business efficiently and effectively; then, make sure your potential or current 3PL partner can provide them. These questions will greatly reduce your long-term costs and your company's exposure.