Next-Level Logistics Performance Metrics (Beyond OTIF) That Retailers Should Use
Here are some of the many transportation metrics companies can use to track and improve the delivery service performance of their operations and carrier partners.
The value and importance of performance metrics and KPIs are well understood, but few companies are taking full advantage of what using them can offer their logistics operations. This is particularly true for manufacturers and distributors in the retail space with special challenges and requirements to serve customers.
Ask anyone involved in the retail supply chain about the metrics they use, and On-Time In-Full (OTIF) will usually be the first—and only—one mentioned. But, the complexity and demands of successfully delivering goods in the retail industry require more granular performance management beyond OTIF. Still relevant, the cost to serve and financial penalties of not performing are too significant for such a one-dimensional performance measurement.
Adding Nuance to OTIF
Deciding what metrics are helpful to a retail delivery operation should start with what’s essential and what needs to be achieved. And who the audience is.
This is not to say OTIF should not be tracked. However, there is more value to be found by looking at it in deeper ways, such as by carrier or by origin, or any other way there is individual accountability for delivery performance. This is the point of metrics in the first place so that companies can find the underperforming parts of the shipping operations and have them addressed.
By the way, coming up with and tracking meaningful performance metrics shouldn’t be done in a vacuum. Your logistics partners need to be part of the process, too. Metrics are not just about improving your logistics operations but are an important part of a constructive feedback loop with suppliers. Just as you’re your carriers owe you their best effort and need to earn your business, your transportation providers deserve honest and transparent feedback and a chance to improve.
Here’s one last note before we offer our suggestions on next-level metrics. The unit of measure you use should depend on its audience, so context matters. Some metrics are valuable alone, but others paint a better picture presented per unit. Many cost metrics are best as a cost per unit if the data’s used by the Finance department in a Cost of Goods Sold report or by Sales for shipping cost quote estimates, as two examples. Conversely, if the metric is intended to improve a carrier’s on-time pickup performance, then a per truck unit of measure will be more useful.
Taking Your Transportation Metrics to the Next Level
Even if a metric does not have a catchy acronym like OTIF, there are many other data points and KPIs that can help improve the performance of your logistics operations and that of your shipping partners. The most valuable are often centered on unexpected or unusual costs, poor service performance, high rates of damage, and other indicators that something is not working as it should be within the supply chain function.
Top metrics and KPIs companies can track include:
Freight Cost per Unit Shipped
Simple can be good. Freight Cost per Unit Shipped is a fundamental measurement any company can easily calculate that provides a direct comparison of shipping costs over periods of time. It’s a good way to identify overall costs trends, but it leaves out many underlying variables that may be the cause. For example, fuel costs have been volatile and are skewing this metric for many companies if compared on a month-over-month basis.
Actual vs. Expected Time-in-Transit
Carrier and mode choices are rarely made based on cost alone. Transit time matters, too. So when carriers are not providing the expected level of service, it’s a problem that needs attention. This is a metric where the details matter and simple averages don’t provide much value. Different lanes and shipping modes all have different transit times, so being able to pinpoint specific lanes, types of shipments, and carriers is the goal of this metric.
Optimal Mode by Shipments Sent
Mode selection is another valuable but tricky KPI because it impacts cost and service. Not choosing the correct mode is a good indication logistics costs are too high, and service is lagging. Tracking the optimal mode by total shipments sent requires shippers to know the proper shipping method for each delivery, so it’s necessary to use a benchmarking period to establish what is best.
Other Costs to Be On the Look-Out for:
As we mentioned earlier, some metrics are best considered based on a unit of measure that suits the situation. The following are other high-impact costs that companies should consider tracking and using based on their goals.
Claims on retail deliveries can result from various reasons—all of them bad—that occur during the shipping process. Product damages and shortages can be a shipper’s fault or the carrier’s (we all know the consignees probably won’t accept any responsibility). By tracking this metric and getting to the cause, companies can figure out the root problems (e.g., bad packaging or rough handling) and work towards finding a solution.
This is a big one. Chargebacks in the retail world usually occur when the specific requirements of a consignee are not met. Big-box retailers, in particular, are very quick to issue chargebacks or even refuse shipments when anything is out of spec when it comes to labeling, packaging, or pallet configuration. Identifying the most costly and frequent types of chargebacks needs to be a priority to avoid future problems. Paperwork errors and Bills of Lading with the wrong quantities or SKUs are simple mistakes that will incur a fee. Some retailers even charge for details like an incorrect carrier’s name on the BOL.
Pro-Tip: Companies should be proactive and can avoid many chargebacks by documenting their processes for meeting delivery appointments and following the Advanced Shipping Notifications (ASN) rules. Having a quality assurance process to check for potential errors by retailers is another way to avoid costly chargebacks. Implementing a compliance scorecard is a smart idea to track precisely how your logistics partners are doing.
Like chargebacks, accessorials indicate logistics processes are not working as they should. Detention, demurrage, TNU (Truck Not Used), and other accessorials are expensive penalties for companies and their carriers. Some are inevitable and just part of shipping. Shippers should still always work to minimize these costs, however. When production delays occur can cause missed delivery appointments, but by alerting your carriers, they might be able to rearrange their delivery plan to help the product get shipped faster.
Carriers make mistakes on their invoices, but you have to be the one to catch them. With fuel prices being so volatile, costs for identical shipments are changing weekly. And, LTL is always particularly susceptible to invoice errors—although all invoices for all modes should be audited. Tracking invoice accuracy will identify problem carriers and providers with recurring problems.
Using Metrics and KPIs to Catch and Fix Problems
Two top goals of using metrics and KPIs are process improvements and better profitability for your company. But, many other improvements happen from the practice of making more data-driven decisions.
Our suggestion is to pick two or three things from this article that you think are most relevant to your business. As you establish benchmarks, patterns will quickly emerge, and you can create the KPIs that are the most impactful for improving your shipping operations.
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