SUPPLY CHAIN AND MANUFACTURING KPIs

The Ultimate Guide to
Manufacturing, Supply
Chain, Logistics,
Transportation, & Freight
Metrics & KPIs
A PUBLICATION OF CERASIS
TABLE OF CONTENTS
Introduction
1
An Introduction to Using Data,
Metrics, and KPIs
2
Manufacturing Metrics
3
Supply Chain Metrics
4
Warehouse & Logistics Metrics
5
Distribution Center Metrics
6
3PL KPIs
7
The KPIs of a Logistics Service Level
Agreement
Conclusion
INTRODUCTION
INTRODUCTION
Using Data, Business Intelligence, Metrics, and
CORE KPIs for Continual Improvement and Cost
Reduction
Business practices have become synonymous with the application and collection of
data for continuous improvement. However, most of today’s data goes unused and
represents a lost opportunity to the company. Unfortunately, data lacks value if not
properly cleansed, transformed, and applied. Furthermore, some data may be of
minimal use without comparison to and identification of trends and collaborations
between data from other transactions within a given warehouse or transportation
system.
To survive in an increasingly complex, data-driven world, businesses must be ready to
implement new “Big Data” solutions to ensure all data is aggregated, analyzed, and
stored appropriately. Businesses are often left with questions about the origination of
such data. Take a look at how a business can use technology, metrics, and services to
improve transportation processes, which range from supplier shipping to route
optimization.
We hope you enjoy this comprehensive look into data, business intelligence, metrics,
and the CORE KPIs every shipper and manufacturing or supply chain professional
should know in order to continually improve business practices and reduce overall
costs.
Chapter One
An Introduction to Using
Data, Metrics, and KPIs
The Use of Data to Create a Successful
Transportation Management Program
Origination of Data
Data originates from one of two primary sources: individual sensors gathering data or
manual entry of data. Both entries of data represent critical opportunities for errors,
especially when considering the human element of manual data entry. In automated
data gathering, which is driven by the Internet of Things through radio frequency
identification chips or other automated data capture, data is aggregated from
thousands of sources. However, this data is nothing more than a conglomeration of
information without a purpose. It’s up to the use of metrics and algorithms to begin
the process of breaking down the data for use in being able to improve your
transportation management program.
Manual entry of data carries an inherent risk of incorrect data transcription.
Unfortunately, the error may not be the result of the technician. If the data was
passed along incorrectly, or if data did not have any value in the company, the data
entry becomes useless. As a result, uncleansed, worthless data begins to take space
within the system, which could negatively impact the overall operation. For any
instances of manual data entry, the data should be double-checked for accuracy and
importance. In today’s data-driven transportation systems, data entry should primarily
be an automated process. However, exceptions to the rule of automated data entry
will always exist. This is where metrics becomes necessary for the analysis and
monitoring of data.
Metrics
In a sense, parameters may reflect the individual data capture points. However,
metrics may also be applied to the algorithmic analysis of data to identify what data
needs to be removed, clarified, or analyzed in further detail. Additionally, metrics
reflects decision capability by real-time data information.
An Example of Data Collection and Metrics in Logistics and Transportation
Management Program Processes
For example, incoming deliveries may be delayed due to inclement weather. Data
originates from within the truck’s GPS to relay information about the delay to the
corresponding destination. The warehouse or distribution center may then alter
services to reflect the change in loading or unloading schedules. This data is then
stored in a specified location to begin the analytics’ process. Afterward, the data may
reveal problems at the originating distribution center, which caused a minimal delay.
Unfortunately, this minimal delay resulted in the truck’s encounter with the inclement
weather. As a result, the destination center may implement corrective actions at the
originating center to prevent this issue from occurring in the future. Ultimately, the
entire process becomes more efficient with the collection, analysis, and actionable
qualities of data.
In this example, a company may feel the aspect of metrics were left out. However,
metrics is the information given to the company by data analysis. In the example, the
metric showed a consistent delay at the originating center, which was corrected.
However, metrics may be used as key performance indicators to monitor a given
location’s activities. For example, the originating center may have order automated
tracking and processing sensors in place to immediately detect a delay.
Data Management and Transportation Services
Regardless of technology implementation, the human element of improving your
transportation management program must exist. Customers may want to speak with
customer service representatives, and some orders will come in person. However, this
does not mean automated processes, metrics, and real-time data collection, analysis,
and use in decisions will be eliminated for these transactions.
Today’s transportation providers must understand the value in big data analytics’
services. These services act as the initial point of improving efficiency across the
entire transportation network. Although we mentioned using historical data in making
some decisions, real-time feedback enables decisions to be made by current actions.
Essentially, this eliminates the “what if this happens like it did in…” hypotheses in
transportation.
When an organization or transportation company uses these services, the
organization will see an increase in profitability through reduced overhead costs and
increases in the efficiency of its workforce. As a result, more customers will be
pleased with the organization’s services, which will further drive demand for the
transport company’s service. This becomes a self-fulfilling circle of order fulfillment
at lower prices.
The world of transportation management is constantly evolving, and today’s
transportation management systems must adapt to the chaotic events of daily life and
business practices. By using data efficiently and accurately, a company can grow
beyond expectations while providing superior service at more competitive rates.
Through the use of metrics, people, and services, today’s shipper will reap the rewards
of an investment into technology and “Big Data” analytics to continually improve
their transportation management program.
Transportation Business Intelligence
Business intelligence (BI) is the set of techniques and tools for the transformation of
raw data into meaningful and useful information for business analysis purposes. BI
technologies are capable of handling large amounts of unstructured data to help
identify, develop and otherwise create new strategic business opportunities. The goal
of BI is to allow for the easy interpretation of these large volumes of data.
Identifying new opportunities and implementing an effective strategy based on
insights can provide businesses with a competitive market advantage and long-term
stability.
Benefits of BI
•
•
•
•
•
Reduces Labor Cost – The time it takes to produce a basic report can be greatly
reduced by using a business intelligence tool. The ability to produce reports can
be taken out of the hands of expensive resources such as IT and put into the
hands of other individuals in the company.
Reduce Information Bottlenecks – BI systems allow end users to extract
information without having to wait on other resources such as IT. Some tasks can
be self-service and pushed down into other departments and allowing them to be
more self sufficient.
Ability to Quickly Prototype Reports to determine usefulness and ability to use
that information now versus waiting months for a development cycle. Gives us
the ability to take advantage of that information now while there is a possible
opportunity to use the information versus later after the opportunity has passed
us by.
Allows you to better allocate our internal resources versus adding more resources
to produce reports.
Gives you the ability to look at data quickly to help assist with decisions.
When it comes to business intelligence in transportation, how do you turn it into
actionable insights so you can make change? Recently, as we do each quarter, we
updated our transportation management system (TMS), we call the Cerasis Rater to
provide even more reports using the data you create from shipping activity. This
allows our shippers to glean even more from our system and get to cutting their
transportation spend continually.
When it comes to our business intelligence reports the following is possible:
•
•
•
•
•
•
•
Shippers have the ability to schedule any report that is in the rater.
Reports can be sent to the shipper or to any valid email address.
Scheduling can be accomplished on the report itself or a new Scheduled Report
page.
Criteria includes: Report Range: Today, Last Week, Last 30 Days, Last 90 Days,
Previous Month, Previous Quarter, or Custom Date Range
Interval: Daily, Weekly, Monthly o Day of Week: All 7 days
Time of Day: Whole hours, 24 hours a day.
Each report has the ability to schedule from the report. Pressing Schedule Report
will display a report scheduling window.
The following are three new types of reports we have made available to
shippers within our TMS, and below these three new reports are all the reports
shippers can get if they want to get more transportation data:
Carriers Used – Report showing summary of the top ten carriers used by Dollars,
Weight, and Shipment count. The summary pages show the breakdown of all carriers,
not just the top ten.
Shipments by Zone – Report showing the shipment amount by zones in the US.
The US is broken into 6 zones with Canada as zone 7, Mexico and zone 8, and
everything else is zone 9. Summary pages show the breakdown by the state or
province.
Weight by Class – Report showing class as the percentage used across all shipments
and the total weight by class.
Chapter Two
Manufacturing Metrics
Manufacturing Metrics that Matter Most
In today’s manufacturing enterprise, executives and line of business managers are
constantly bombarded with information, making it difficult to weed through all the
available manufacturing metrics to figure out what business issues need to be
addressed.
This has prompted many companies to rely more heavily on their BI software
applications to track the Key Performance Indicators (or KPIs) of their organizations.
KPIs are financial and non-financial measures that help decision makers pinpoint the
strengths and weaknesses of their businesses and show whether they are in line with
their strategic objectives.
Each year, the MESA organization (Manufacturing Enterprise Solutions Association)
sponsors research to help the manufacturing marketplace identify the most important
manufacturing metrics, and help decision makers understand metrics improvements
and their relationships to metrics programs and the use of software solutions. As part
of their most recent metrics survey, the following manufacturing metrics were
identified as being the most utilized by discrete, process, and hybrid/batch
manufacturers.
I thought I’d share these metrics with those of you who may not have seen the
published results of this research. From Silvon’s perspective, it further validates many
of the core measures that are included in the Stratum BI solution suite for
manufacturers.
Customer Experience & Responsiveness Manufacturing Metrics
•
•
•
On-Time Delivery to Commit – The percentage of time that manufacturing
delivers a completed product on the schedule that was committed to customers.
Manufacturing Cycle Time – The speed or time it takes for manufacturing to
produce a given product from the time the order is released to production, to
finished goods.
Time to Make Changeovers – The speed or time it takes to switch a
manufacturing line or plant from making one product over to making a different
product.
Quality Manufacturing Metrics
•
•
•
Yield – The percentage of products that are manufactured correctly and to
specifications the first time through the manufacturing process without scrap or
rework.
Customer Rejects/Return Material Authorizations/Returns – A measure of
how many times customers reject products or request returns of products based
on receipt of a bad or out of specification product.
Supplier’s Quality Incoming – The percentage of good quality materials
coming into the manufacturing process from a given supplier.
Efficiency Manufacturing Metrics
• Throughput – Measures how much product is being produced on a machine,
line, unit, or plant over a specified period of time.
• Capacity Utilization – Indicates how much of the total manufacturing output
capacity is being utilized at a given point in time.
• Overall Equipment Effectiveness (OEE) – A multiplier of Availability x
Performance x Quality that’s used to indicate the overall effectiveness of a
piece of production equipment, or an entire production line.
• Schedule or Production Attainment – A percentage of time a target level of
production is attained within a specified schedule of time.
Inventory Metrics
WIP Inventory/Turns – Measures the efficient use of inventory materials and is
calculated by dividing the cost of goods sold by the average inventory used to
produce those goods.
Compliance Metrics
•
•
•
Reportable Health and Safety Incidents – The number of health and safety
incidents that were either actual incidents or near misses that were recorded as
occurring over a period of time.
Reportable Environmental Incidents – The number of health and safety incidents
that were recorded as occurring over a period of time.
Number of Non-Compliance Events / Year – The number of times a plant or
facility operated outside the guidelines of normal regulatory compliance rules over a
one-year period.
Maintenance Manufacturing Metrics
•
•
Percentage Planned vs. Emergency Maintenance Work Orders – How often
scheduled maintenance takes place, versus more disruptive/un-planned maintenance.
Downtime in Proportion to Operating Time – Ratio of downtime to operating
time – a direct indicator of asset availability for production.
Flexibility & Innovation
•
•
Rate of New Product Introduction – How rapidly new products can be introduced
to the marketplace based on design, development and manufacturing ramp up times.
Engineering Change Order Cycle Time – How rapidly design changes or
modifications to existing products can be implemented all the way through
documentation processes and volume production.
Costs & Profitability Manufacturing Metrics
•
•
•
•
•
•
•
•
•
•
Total Manufacturing Cost per Unit Excluding Materials – A measure of all
potentially controllable manufacturing costs that go into the production of a given
manufactured unit, item or volume.
Manufacturing Cost as a Percentage of Revenue – A ratio of total manufacturing
costs to the overall revenues produced by a manufacturing plant or business unit.
Net Operating Profit – The financial profitability for all
investors/shareholders/debt holders, either before or after taxes, for a manufacturing
plant or business unit.
Productivity in Revenue per Employee – Amount of revenue generated by a plant,
business unit or company, divided by the number of employees.
Average Unit Contribution Margin – A ratio of the profit margin that is generated
by a manufacturing plant or business unit, divided into a given unit or volume of
production.
Return on Assets/Return on Net Assets – A measure of financial performance
calculated by dividing the net income from a manufacturing plant or business unit by
the value of fixed assets and working capital deployed.
Energy Cost per Unit – The cost of energy (electricity, steam, oil, gas, etc.) required
to produce a specific unit or volume of production.
Cash-to-Cash Cycle Time – The duration between the purchase of a manufacturing
plant or business unit’s inventory, and the collection of payments/accounts receivable
for the sale of products that utilize that inventory – typically measured in days.
EBITDA – A calculation of a business unit or company’s earnings, prior to having
any interest payments, tax, depreciation, and amortization subtracted for any final
accounting of income and expenses. EBITDA is typically used as top-level indication
of the current operational profitability of a business.
Customer Fill Rate/On-Time delivery/Perfect Order Percentage – The
percentage of times that customers receive the entirety of their ordered
manufactured goods, to the correct specifications, and delivered at the expected time.
5 Golden Manufacturing Metrics
It’s the paradox of choice—the presence of too many options can make effective
decision making more difficult. This isn’t just the case of a restaurant patron
confronted with an extensive dinner menu or an online shopper perusing Amazon, it
applies to manufacturers as well.
Like any business, a manufacturing organization has limited resources with which to
work, and when it comes to metrics, companies need to make sure that resources are
being pooled into tracking and measuring the metrics that are giving them the most
bang for their buck and the ability to optimize manufacturing operations.
However, effectively measuring, analyzing, and improving upon those manufacturing
metrics is more complicated than it may seem. The correlations between operational
and specific business metrics are not always obvious, and combinations of metrics are
often necessary to gain a clear picture of a larger overall business goal or objective.
So how do you ensure that your time and resources are focused on the right things?
Benchmarking yourself against others in the industry is a good starting point.
In today's post we will go over some of the top manufacturing metrics that the
experts have stated those in manufacturing take a look at. We will include the "Five
Golden Metrics" from Bill Waddell, a lean manufacturing consultant as well as LNS's
infographic from a study they conducted. Armed with both, manufacturing operation
managers are well on their way to better optimize manufacturing processes and
practices.
The 5 "Golden Metrics" to Know in order to Drastically Improve
Manufacturing Operations
In Lean Manufacturing consultant, Bill Waddell's paper entitled, "Manufacturing's
Five Golden Metrics," Waddell outlays what he believes all manufacturing operations
managers should know. His 5 golden metrics center on performance management.
Waddell opens with:
One widely discussed aspect of lean manufacturing is performance
measurement. This makes sense because it is probably the most important
element of manufacturing management. You get what you measure.
Because most companies measure performance by metrics based in
traditional accounting principles, they get traditional -- that is to say, not
very lean -- results.
Now as we noted in a previous blog post about data integrity, entitled "3
Requirements for Meaningful & Useful Data in Transportation & Business" you must
know that the data you are working with is accurate and that whoever you decide to
get this data from, understands what you are trying to achieve:
A good provider of any data used as any part of your business intelligence
should be involved intimately with your organization. They should offer
controlled and accurate data that is presented in a manner that speaks
specifically to your organization's objectives and initiatives, producing KPIs
specific to departments responsible for their consideration.
With that stated and clear, Mr. Waddell goes on to state how to optimize
manufacturing operations with what he calls the 5 Golden Metrics of Manufacturing:
There are five golden metrics that really matter: total cost, total cycle time, delivery
performance, quality and safety. All others are subordinate. Activities and efforts in
manufacturing that result in improving one or more of these performance
measurements, without degrading performance to any of the others, support good
performance. Actions resulting in improvements to subordinate metrics but not to
any of these five are meaningless.
Total Cost
The only meaningful measurement of total cost is on a cash basis. All money spent
on manufacturing must be summarized and the total compared to the previous period
-- not to a flexible budget or a plan. What matters is whether the total cash spent on
manufacturing was more or less than it was in the previous period. It is important that
this cost figure is exclusive of all allocations, and does not exclude sales, general and
administrative expense
The only exceptions are that major capital investment spending is excluded, and
expenses are adjusted for accounts receivable and payable. While these amounts must
be added back in to create a total lean-accounting-based income statement,
manufacturing performance should be measured as if payment were made at the time
materials and services were delivered, and payment were collected at the time finished
goods were shipped to an outside customer.
Total Cycle Time
Total cycle time is calculated by studying major purchased components and
determining the total days on hand of each one. The total days on hand is the sum of
all of such components in the plant regardless of form -- still in its original purchased
state, embedded in assemblies or subassemblies, in a modified state in work-inprocess inventory, or embedded in a finished product.
That total days on hand figure is divided by the planned shipments per day for all
products that require that component. For example, if there are 5,000 of a
component in the plant in all its various forms, and it goes into two final products
that are each projected to ship 100 per day, the cycle time for that component is
5,000/200 = 25 days. The total cycle time for the plant or for an individual value
stream within the plant is the cycle time of the component with the greatest cycle
time.
It is important to note that only low-cost, bulk items can be excluded from this
calculation, and that the total cycle time is not an average cycle time, nor is it weighted
in any way for the cost of the component. This is a measure of manufacturing
performance -- not financial inventory.
Delivery Performance
Delivery performance is the percentage of customer orders shipped when the customer
requested them to be shipped. It should not be modified to accommodate company
policies or shipping promises. It is purely a metric of manufacturing’s ability to meet
customer requirements.
Quality
What is meant by quality will vary by company, but it must be quality in the eyes of the
customer. As a result, customer returns or warranty claims are typically the basis for this
metric. It is not a summary of internal quality metrics. It is important to realize that those
metrics are only important to the extent that they provide information management can
use to minimize cost, improve flow and meet customer quality requirements.
Safety
The standard metrics of accident/incident frequency and severity are sufficient.
These five measurements are manufacturing’s bottom line. All efforts must be aimed at
improving one or more of them without degrading performance of any of the others in
order to optimize manufacturing. All other performance metrics are subordinate and
useful to management only to the extent that they help improve performance of one of
the golden five.
Chapter Three
Supply Chain Metrics
3 Key Metrics for Measuring Supply Chain
Performance Beyond Cost Reduction
If cost reduction is not the only thing to measuring supply chain performance, that
begs the questions: "Maybe we should be measuring other Supply Chain Management
activities and what would they be?"
1.
2.
Inventory measurement is critical and it is money after all in that it took a capital
expense to procure. The goal is to keep inventory levels at a minimum to meet
customer needs. A pull system is better than a push system. Review Inventory
turns and Return on Assets.
What about measuring working capital in the Supply Chain? The handful of
companies in the top quartile of working capital performance had working
capital expenditures as a percentage of overall revenues of between 6% and
10%. In comparison, the poorest-performing companies in the lowest quartile
had a range of working capital between 23% and 39% as a percentage of
revenues.
Isn’t time important? Shouldn’t time, both international and domestic, be measured?
Absolutely time is a critical component of measuring supply chain performance.
What kinds of "time" measurements exist?
• Promise time,
• lead time,
• cycle time,
• transit time,
• delivery time,
• unloading time,
• processing time,
• queue time,
• quality assurance time,
• processing time,
• turnaround time,
• receiving time,
• and shipping time to the customer, (and I bet you could think of more "times" to
measure!).
For clarity, in measuring supply chain performance, we should be focusing on:
1. inventory,
2. working capital,
3. and time.
Cost reduction is still very important. We just can’t forget cost reduction. It is the
main measurement benchmark in measuring supply chain performance, isn’t it?
Transportation is measured just as a cost rather than what it does for the rest of the
organization. Again, not saying cost reduction is an indicator of poorly measuring
supply chain performance, but it's not the only thing to measure when considering
transportation. Other areas to consider measuring as it relates to transportation:
•
•
•
Managing inventory
Ensuring that lost sales are minimized
The supply chain is efficient by transit time
We still focus on costs. We are all in business to be successful and profitable, aren’t
we?
We should not forget that non-cost based measurements could prove to be beneficial
to Supply Chain professionals.
10 Soft Metric Considerations in Measuring
Supply Chain Performance
1.
2.
3.
4.
Collaboration and frequent communication between Supply Chain
partners, including those considered at one time as a competitor: the
supply chain has become increasingly collaborative, and supply chain entities are
taking note of how collaboration between once-perceived enemies and
competitors can actually help build trust with consumers, maintain compliance
with authoritative entities, ensure transparency across the organization, be
applied and implemented through different software, and further drive customercentric focus.
Customer Service Levels: When it comes to how a shipper defines the value of
a logistics provider or 3PL to the bottom line, there are often several Key
Performance Indicators (KPIs) and Logistics Metrics taken into consideration.
Every company knows customer service is important, but it is seldom welldefined, and even more rarely measured in logistics operations.
Effective, successful Key Performance Indicators (KPIs)/A balanced
scorecard: Effective KPI management starts with some key areas to have both
parties understand. These are core principles which will guide the rest of the
more detailed and statistical KPIs found in the Service Level Agreement.
Using supply chain technology to aid in measurement & efficiency: In
today's highly competitive marketplace, it’s imperative for businesses to innovate
new ways to streamline their supply chain and optimize productivity. With the aid
of modern supply chain technology applications, you can create better visibility
within your supply chain, which will enable you to have more control over your
business and stay ahead of the competition. Technology can help to simplify
your supply chain management, which will enable your business to operate more
efficiently, give you more visibility and control over your inventory, and help to
reduce your operational costs.
6.
RFID, AIDC, and IOT Systems: The advantages of using RFID-, AIDC-, and
IoT- based technologies seem fairly simple. Each of these logistics technologies
provides a benefit that meets the demands of its respective driving forces.
However, these technologies are poised to give benefits throughout the industry in
several other ways as well.
7. Risk Management methods: Supply chain risk management and resiliency are
hot-button topics in the industry. However, minute supply chain entities do not
understand how resilience relates to risk management and what it means for
improving focus on the supply chain. As the supply chain continues to grow in
complexity and regulation, the opportunities for problems and other events to
impact operations negatively will consequently grow. As a result, supply chain
entities need to understand how risk management and resiliency applies to both
good and bad situations and how an organization can improve supply chain risk
management and resiliency processes.
8. Cyber Security Systems: We are all now familiar with the concept of the
Internet of Things and if you take the manufacturing industry, for example, many
manufacturers are now widely operating in an increasingly connected environment
and making the most of the Industrial Internet of Things.
9. GPS: Global Positioning System (GPS) is a navigation system that depends on
satellites to locate vehicles anywhere on Earth. It was originally developed by the
United States Defense Department at an unknown cost. The first such satellites
were launched in 1979. A few years later, the GPS system was made available for
civilian use. As of November 2013, there were 31 GPS satellites in operation.
10. Supply Chain Visibility: Supply chain visibility has long been a goal supported
by supply chain professionals. Until recently, however, technologies that could
make this goal a reality have not been available. Today, however, there is hardly an
activity that doesn’t produce some kind of data that can help companies
understand what is going on within their supply chains. As the ability to see more
clearly and deeper into supply chains improves, supply chains will become safer
and more secure. Lora Cecere, of Supply Chain Insights writes, “Today 1/3 of
fruits and vegetables and poultry products are thrown away due to spoilage.
Companies struggle with counterfeit goods. In the future, I expect the automation
of the chain of custody with better control of temperature and secure handling.”
Chapter Four
Warehouse &
Logistics Metrics
Warehouse Statistics and KPIs Every Logistics
& Warehouse Manager Should Know
When discussing warehouse statistics many key performance indicators are
mentioned. Stock movement, order duration times, utilization of equipment and
personnel, error rates and many more.
So what are the most important figures needed to run a warehouse?
Depending on the warehouse design and complexity there are at least a hand full of
statistics that any manager needs.
Warehouse Statistics & KPIs to Know
To gain an easier overview let’s split the statistics into process related topics
•
•
•
•
•
•
•
•
•
Safety/OSHA
Picking/Slotting
Replenishment
Goods Received
SKU’s
Locations
Equipment
Operators
Material Review Board (MRB)
That allows us to see what warehouse statistics we need from each topic to see if our
warehouse performs fast, accurate and cost efficient.
Safety/OSHA
Safety is the top priority in any Warehouse environment. A Safety Manager should be
appointed to ensure all safety activities are in place and maintained daily. Continuous
training should occur frequently. Statistics should be kept on any accidents that occur
and accidents avoided. Proper signage has to be distributed in the facility to remind
people of the importance of safety. OSHA requirements must be maintained and
OSHA should audit your warehouse at least, yearly.
Picking
For most, warehouse picking is one of the most important processes. May it be case
pick or split case picking, products need to be touched, put into the correct customer
order in the right quantity while upholding product quality.
Order Duration
One of the warehouse statistics that comes to mind first is the order duration time.
That is the time a customer creates an order, from being started at the warehouse, to
until the order is finished and ready to be loaded onto a transport vehicle.
In many business models just in time is the word of the day, hence forcing a very short
duration time for orders. The order duration can be seen measured by single orders,
averages for days, tours, operators, etc.
Order Picking Warehouse Statistics
The next statistic that comes to mind is about picking itself. How many orders, order
lines, pieces and how much volume got picked?
Many warehouses, especially automated picking systems, have contractual benchmarks
that need to be reached. Achieving those benchmarks is never easy as usually those
figures are designed for the best case scenario and not “real life” operations.
These are the core frequencies of picking warehouse statistics:
•
•
•
•
•
Hourly
Daily
Weekly
Monthly
Weekday
These periods of measurement allow for a comprehensive overview of the picking
performance and also help planning other processes such as goods in and
replenishments to in order to run peak times for picking without running into out of
stock situations at pick locations.
Slotting
Slotting and re-slotting are placing SKUs in the warehouse based on usage/sales. The
most frequent users in front of the warehouse to the least frequent in the back of the
warehouse. Pareto’s 80/20 principle will assist in setting priorities. When demands
change, and they will, you re-slot the warehouse.
Order Profiling
As important as picking warehouse statistics are, they need to be seen hand in hand with the
order profiling. So what is an order profile?
Order profiling is the average, minimum, and maximum values for order lines per order and
pieces per line. The importance of these figures is sometimes neglected but they directly
influence the picking operation’s output.
Calculation
A warehouse is designed to deliver 2,000 order boxes per hour containing 26,000 lines
holding 52,000 pieces. That would give us a profile of 13 lines per order and 2 pieces per
line.
Now we see a change in the profile of lines, during a campaign, and we have 18 lines per
order. The rest stays the same. Calculating that back we see that we know, under
consideration that we can’t pick more than 52,000 pieces and 26,000 lines, our warehouse
delivers a maximum of 1,444 order boxes per hour.
And that maximum will also be negatively impacted in an automated system as more lines
per order box also mean that each order needs to visit more stations and therefore has
longer ways on conveyors before being completed.
Replenishment
As already mentioned in the above warehouse statistics, replenishment and picking are
interlaced as replenishment demands peak shortly after picking peaks. Therefore, indicators
for late replenishments and peak times are needed to control if replenishment is too slow
for demand driven and if so, how it can be optimized. This becomes crucial when using
automated systems such as ASRS’s.
Considering SKUs in Warehouse Statistics
Stock Keeping Units (SKUs), products, have essential warehouse statistics that we need to
extract information from, for example, to slot the warehouse.
The most important warehouse statistics measured in regards to SKUs is the ABC
classification, and it needs to be seen in 3 different calculations based on
•
•
•
Lines
Pieces
Volume
The importance to see all 3 different calculations comes from the fact that a product can be
very high in a piece demand but low in a line demand. In that case, it is a case pick product
and will need a different pick station and execution technology as a product that has a high
pieces and high lines indicator.
Fact
A product that has a high demand in lines and volume is tricky in an automated system as a
high volume means that less pieces are in one stock transport unit. The impact of such is
that the ASRS system responsible for the replenishment will have to execute more
replenishment movements to keep the picking channel stocked up. And as that might not be
the only product with high replenishment movements it becomes important to see where to
slot those products so not to run out of capacity for the ASRS system.
Locations
Storage and picking locations give a hand full of warehouse statistics that give an overview
of the filling level, the locations usage, and its errors. The higher the filling level, the more
movements an automated system will need to execute to store and retrieve stock.
Goods Received
Receiving stock into the warehouse is a crucial operation and the key performance
indicators for warehouse statistics are:
•
•
•
•
Received Volume
Customer Returns
Missing / Broken Stock
Return to Vendor stock
All figures should be able to be grouped by the source and also times to be able to identify
peak times, quality issues with suppliers, and the return rate from certain sales areas.
Equipment
When using an automated system equipment, warehouse statistics becomes important,
especially for maintenance operators as this statistics have to show downtimes, errors and
utilization of the equipment.
Fact
A modern conveyor system that relies on scanning barcodes should not have an error rate
higher than 0.02% of the throughput driven on it. Many times when the error rate shoots
up scanners got bend into a wrong angle. But there are also fancier sources of such peaks
such as sunlight that comes in through windows and hits scanners, triggers or sensors in an
angle where the equipment becomes incapacitated.
Operators
Operators in the warehouse, especially picking operators, are one of the most important
keys to reach performance benchmarks. Therefore, warehouse statistics that are operator
based are essential. Depending on the local labor laws, statistics should give indicators for
error rates and picking times, whereby the picking times need to be seen in different
calculations for orders, lines, pick, pieces and volume based.
The Material Review Board's (MRB)Role in Warehouse Statistics Management
Once a month, a cross-functional team, which must include Sales and Purchasing/Supply
Chain and Finance representatives, should meet to review obsolete, non-moving, and slow
moving SKUs/materials/parts. This MRB team should recommend disposition to Top
Management. They should also review Return to Vendors (RTV) materials to ensure nonconforming materials are returned to Suppliers.
This MRB effort monthly avoids having to lease additional space or use a Third Party
Logistics (3PL) service provider to warehouse materials and aid in transportation
management.
Chapter Five
Distribution Center
Metrics
The Most Important Distribution Center Metrics
to Track and Understand
Throughout the supply chain, the use of metrics to track and understand processes
provides an invaluable resource for ensuring increased production and customer
satisfaction. Additionally, the use of metrics fosters positive relationships with
coworkers and adherence to rulesets and best practices for the respective third-party
logistics provider (3PL). Many of the following distribution center metrics to track
closely mirror those found within transportation and manufacturing, but this listing
will focus on those involved in distribution centers. Distribution centers have a
tendency to become like the lost cousin when compared to other aspects of the
supply chain, but they play a valuable, constantly-needed role to ensure the timely
delivery of merchandise to retailers, customers, and others.
What Distribution Center Metrics Need Tracking?
Every movement within a distribution center can be tracked, and the decision of which
metrics to track rests with management. However, the most important metrics can be
categorized into the following eight areas.
On-Time Shipping
The overall goal of the distribution center is to make sure that freight makes into the
correct mode of transportation at the appropriate time. This involves monitoring for
the late departure of shipping containers as well as premature completion of a
specific freight loading time. While finishing a specific shipment load sounds like it
would benefit the company, it may actually detract from duties to other shipments,
which in turn results in a cascading effect of inaccurate departures.
Accuracy in Order Fulfillment
The second most important distribution center metrics to track involves the accuracy
during order picking processes. As workers are given their respective lists of items to
pick, it would stand to reason that each employee should be able to complete the
retrieval process quickly. However, impatience has a tendency to result in errors in
judgment. Furthermore, this could lead to more than the requested number of
product being included in shipment, which results in shrink of inventory. However,
the alternative to this, not including an item, can anger an end-customer and
permanently harm the customer-business relationship.
Monitor Warehouse Capacity
The 26th State of Logistics Report found that many warehouses are operating at, or near,
capacity. Distribution centers need to know how much additional inventory they may take
on and where their current inventory lies. Many distribution centers use RFID measures
to monitor inventory, but human input is still needed to assess if the center should
increase, or decrease, the rate of loading times.
Identify Peaks in Warehouse Capacity
Throughout the year, warehouses experience changes in capacity due to increases and
decreases in consumer spending. For example, shipping during the holiday season tends to
increase as more people begin purchasing items online for gifts. However, distribution
centers cannot possibly foretell how much of a specific product needs to be available
unless the distribution center management has previous accounts of how much product
has typically been required during similar time periods. This is where the metric of
monitoring warehouse capacity and peak volume comes into play. Appropriate warehouse
tracking must include monitoring of peaks in capacity.
Cycle Times
This metric actually includes three unique distribution center metrics: dock-to-load time,
internal cycle time, and total cycle time.
•
•
•
Total cycle time refers to the amount of time from arrival of product to the
distribution center to the successful departure of shipments containing the respective
product.
Dock-to-load time refers to the amount of time typically required to load a given
shipping container. Many distribution centers have the freight prepared and ready for
immediate loading. However, this only occurs properly if the distribution employees
benchmarks for ensuring the accurate picking of products by workers, or even
robotics, prior to arrival of the shipping container.
Internal cycle time describes the speed at which the pre-arrival completion of a
shipment picking and packaging takes place.
Ultimately, each cycle allows management within the distribution center to identify and
isolate inefficiencies and encourage positive shipping practices.
Annual Employee Turnover
The constant on-the-go mentality of distribution center goals results in exhaustion.
Unfortunately, some employees make the decision to move on to other employment. This
is a factor that affects the public perception of a distribution center. Disgruntled
employees can ruin a distribution center’s reputation and cripple the existing workforce
of the center. Each year, the distribution center needs to assess the workforce turnover
and make changes to reduce it.
Putting Away of Incoming Product
When a distribution receives a shipment, employees have a specified interval of time to
unload the product and put it away in its correct location within the distribution center.
This metric allows distribution center employees to identify which types of product
require the most time. Therefore, additional staff can be diverted to labor-intensive
unloading of lines and enhance the overall efficiency of the center.
Percentage of Damaged Products
When a package arrives at a customer in damaged condition, the distribution center needs
to know about it. This ensures the distribution center identifies if the damage occurred as
a result of center staff, driver behaviors, or an issue during the unloading of the truck at
its end-destination.
The use of these distribution center metrics helps distribution centers flourish. The use
of these metrics are beneficial to the distribution center for improving accuracy,
encouraging a positive employee morale, and ensuring superior customer service to others
in the industry. Fortunately, many of these tracking measures are becoming digitized and
easy-to-use by all workers in a distribution center as well.
Chapter Six
Shipping &
Freight KPIs
10 Areas of Focus to Gaining “Best in Class
Shipper” Status For LTL Shipping
An Overview of Achieving LTL "Best in Class Shipper" Status
As more organizations supply chain grow more complex, the need for additional
shipping options will grow. Unfortunately, a myriad of available shippers, third-party
logistics providers (3PLs), and other transportation carriers continue to confound
your LTL options. However, a “Best in Class Shipper” has realized how optimizing
different aspects of their processes will improve the satisfaction of both delivery
recipients and clients. To understand how a shipper achieves “Best in Class Shipper”
status, you need to take a look at some of the chief factors that influence shipping
activities.
Data Capture
Shipping freight inherently comes with a large amount data. This data may include invoice
numbers, pick up and delivery dates, originating addresses, product descriptions, shipment
weight, method of transport, destination address, rate of transport per haul, fuel charges,
and the costs of loading and unloading the items at the distribution center. Each data
entry is an opportunity for data capture and analysis. Additionally, ensuring a superior
data capture capability allows clients to become more confident in tracking and visibility
in shipping.
Knowledge of the Carrier's Business
To have the best value per mile in transportation and shipping, a given shipper must have
a working knowledge of how shipping processes operate. For example, the carrier may
need to know how to handle delicate items, manage private and rented fleets, budget
expenses, conduct international trade, ensure compliance to regulations, maintain safety,
and make sure all KPIs align across the manufacturer-to-delivery route.
Organization
To gain “Best in Class Shipper” status, an organization must understand how businesses
of varying structures benefit from LTL processes. Furthermore, all aspects of the LTL
journey need to involve both data capture and knowledge to promote “Best in Class”
status.
Freight Spend Management
Since cost remains a top priority of any business, monitoring, reducing, and accounting
for costs throughout the shipping process needs to be a chief priority for “Best in Class
Shippers”. However, shippers can only reduce expenses and cost by understanding how
each cost relates to the overall transportation budget and how it fits in within the rest of
the organization. As a result, all shippers must have organization, knowledge, and data
capture in place before attempting to cut costs and create a strong budget.
Processes
A “Best in Class Shipper” must monitor inbound freight management, plan shipments
logically, use other carriers as needed, and effectively management the transportation
system. If a shipper fails to understand how to effectively manage freight by
understanding and effectively mastering shipping processes, pick up and delivery dates
may run askew, drivers may receive penalties and fines for violations, customers
become upset, and invoicing may be incorrect. Unfortunately, each of these problems
represents a potential hurdle to achieving “Best in Class Shipper” status.
Use of Technology
We have discussed the role of technology in improving shipping processes previously,
and “Best in Class” shippers understand how technology will benefit their companies.
However, many tend to think of technology as improvements to today’s available
technology. Yet, many shippers may have not implemented technology options, such as
advanced Transportation Management Systems (TMSs), mobile apps, and optimized
route planning and logging processes. As technology extends further into the shipping
space, it will become an integral part of keeping costs low and customers pleased.
Shipping Strategy
If you have a strong knowledge of shipping, organization, process monitoring, control
over your budget, and control over your shipping processes, what sets you apart from
your competitors? The answer is your business strategy. Your business strategy needs
to include focusing on particular parts of shipping processes, working with industryleaders, focusing on reduced costs, and reducing inefficiencies in daily operations.
Furthermore, your strategy allows you to compete with larger shippers and enterprisescale businesses with purchasing powers outside of your scope.
Monitoring of Key Performance Indicators and Reporting
Analytics remains a chief concern of businesses in all industries around the globe. In
shipping, key performance indicators (KPIs) help you identify when, where, and why a
problem may have occurred. Additionally, KPIs show you what areas need to be
improved through careful monitoring, analysis, and changes. This may include
introducing technology to pen-and-paper environments, monitoring financial indicators
for your cost versus your revenue, freight rate management, and performance
evaluations of your deliveries.
Carrier-Shipper Relationships
"Best in Class Shipper" status demands a working relationship between carriers, your
clients, and your customers. To grow in the supply chain, you need to help carriers take
full advantage of any available space, keep costs down, and improve predictability in
processes. Additionally, by working together with carriers, you can reduce the number
of obstacles between your business and gaining “Best in Class Shipper” status. This
may sound counterproductive and hint at profit losses, but you do not want to become
an enemy of those who can help you grow.
Operational Excellence
Even with all of these points in place, a shipper still needs to execute all of them in an
effective and collaborative manner. Detailed reports are useless if they do not lead to
improvements. “Best in Class” shippers understand how each of these elements must
work together and assumes a leadership role in the oversight of such elements.
By following these ten elements of a “Best in Class Shipper”, your company can grow
beyond your expectations. Furthermore, they help drive profits, satisfied customers,
and give you a competitive advantage in the shipping world. In the next post, we will
take a closer look at how each of these elements helps avoid some of the most
common problems in LTL shipping practices.
9 KPIs to Track for Proper Freight Management
In modern manufacturing and transportation, savings are everything. Most industry
experts rate the cost of logistics as very costly. Nearly every company offers some
sort of discounted shipping plan for large purchase orders, and more customers are
demanding faster delivery at a reduced rate. Identifying ways to improve the system
can be complicated. However, if you know what critical freight management KPIs or
key performance indicators to track, you can know exactly how to change processes
to decrease costs, which will result in savings for the end user. According to a
National Cooperative Freight Research Program report, Performance Measures for
Freight Transportation, the following graph breaks down how other respondents rate
the cost of logistics.
Federal Power Over Freight Management KPIs
Freight Management KPIs are undoubtedly the most important metrics to track and
understand. Freight Management KPIs depend on upon who ultimately wants to know
the information. In other words, federal agencies may require different KPI reporting
what trucking companies want to know.
Although trucking is deregulated, federal agencies may require routine updates on how
shipping companies operate and impact the economy.
It’s important to remember the KPIs mentioned above reflect analytical determinations
from compiled KPIs from trucking companies.
Core KPIs to Track and Understand
A recent publication by the Minnesota Department of Transportation, Measurement
Sources for Freight Performance Measures and Indicators, identified dozens of ways
KPIs are used. To trucking companies, critical KPIs, and their benefits include the
following:
•
•
•
•
•
Labor productivity - This freight management KPI only refers to how well
employees earn their keep. While it may seem harm, the measure of labor
productivity is directly related to how easily the shipment is transported. If labor
productivity is down, unloaders at destinations may experience problems with sorting,
resulting in additional costs.
On-time pickup and delivery - When a customer pays for shipping at a particular
time, trucking companies must try to adhere to this schedule. With last year’s increase
in shipment theft (people stealing packages that have been dropped off at a
customer’s home or place of business), trucking companies must work to ensure the
delivery time is as accurate as possible. Knowing when packages leave and arrive
allows recipients to make appropriate plans to receive the package without risk of
theft. Ultimately, a delivered package is still a liability to the shipper until the customer
opens it.
Revenue yield by specific units - Each shipment generates an overall yield, but the
yield can be further broken down to identify what caused additional delays or
unnecessary costs per shipment. For example, a decreased revenue yield per mile may
suggest poor fuel-burn within a given fleet.
Fuel efficiency - This freight management KPI is of vital importance as federal
agencies mandate reporting and compliance to environmental initiatives for fewer
emissions and fuel use. Although fuel costs have dwindled over the last year, history
indicates the prices will return to high levels. Since the demand for fuel is only going
to increase, failure to track fuel efficiency could result in severe setbacks in the future,
if not the assessment of penalties in the present.
Maintenance costs - Every freight and shipping company is going to have
maintenance costs. This freight management KPIs measures a broad scale of
maintenance as well. For example, preventative maintenance, outsourcing of
maintenance costs versus in-house costs, and keeping the fleet looking clean
(painting, washing and changing of URS identifiers on fleets) must be tracked. If
preventative maintenance costs are minimal, and an increase in repair costs exists,
companies can evaluate if replacing all vehicles within a region is cost-effective.
•
•
•
•
Miles that are driven outside of a predetermined route - During transit, a driver is
being paid for his or her time. While spending 20 minutes to drive to a nearby friend’s
home to stay the evening may seem ideal, it decreases the revenue yield by a mile. This is
in addition to increasing the miles on the engine, hastening the deterioration process as
well. For example, when figured over the course of years, a company may find savings by
allowing truckers to receive compensation for hotel stays that are along the
predetermined route.
Border delays - This includes random inspections, problems with paperwork or traffic
delays. Each delay reduces the per-mile yield and lengthens the time of transit, increasing
the risk of late deliveries.
Loading or unloading time - This point goes back to on-time delivery. However, it also
poses many implications for the efficiency of the company. Long loading or unloading
times can result in the need to reroute existing shipments, leave other trucks in dead-time
or worse. As pressure builds to increase wages in response to the driver shortage, these
delays will result in additional costs to companies. However, identifying ways to avoid
long loading or unloading times now can avoid the problem entirely. Maybe the holding
yard is too small, or perhaps the loading dock needs better lighting. This KPIs signals
what physical areas may need to be improved to achieve better results.
Damages - Regardless of how well a company prepares, damages will occur. Natural
disasters and man-made disasters are inevitable. For example, a flood wreaks havoc on
roadways, but the conditions are worsened by agricultural and development of terrain,
increasing the risk of landslides. As a result, an entire shipment could easily be lost. By
carefully monitoring what damages do and do not occur, a company can find ways to
reduce them. For example, increased damage rates that occur on route A when shipped
by truck should signal of review of all shipments on this given route. A pattern will
emerge, and the exact cause of the damages is easier to determine.
These core freight management KPIs are only a fraction of the possibilities, and each metric
may go by other names with different companies, such as total transportation costs for overall
revenue yield or percentage of deadhead miles for causes of unnecessary delays. Ultimately,
this simple list of freight management KPIs will provide an excellent means of identifying
how to reduce costs and improve efficiency in freight management.
Chapter Six
3PL KPIs
7 Strategic Performance Business Practices
with 3PL KPIs and 4 KPI Problems to Solve
We continue our series on understanding the 3PL KPIs (Key performance indicators)
from 3PL consultant, Chuck Intrieri of The Lean Supply Chain as it relates to the
engagement with a 3PL. We began our series first writing about the 9 key broad and
somewhat soft topics to understand in effective KPI Management.
Today we will first point out on a deeper level strategic performance business
practices that you may conduct in order to better track 3PL KPIs. Then we will go to
explaining some common problems around KPIs in general in order to comprehend
the need for effective performance measures.
7 Strategic Performance Business Practices to Provide the Ability to Manage 3PL
KPIs
Strategic Business Planning
Sales, Inventory, and Production Planning (SIOP) should be used for business planning
and strategy in the shipper, 3PL relationship. Planning and risk management is imperative.
Performance Management/Measurement Management
The logistics service level agreement and Quarterly Business Review (QBR) should be
detailed with specific 3PL KPIs. Here are a few KPIs you could consider:
•
•
•
•
•
•
•
•
•
•
Customer Service Performance %,
Quality Assurance %,
Turn Around Time %,
Hours/days to customer,
Cost Reduction goal for both the 3PL and the shipper/customer,
Process Improvement shared %,
Voice of the Customer (VoC): negative or positive,
Safety/OSHA performance/reviews/audits/feedback analysis,
QBR: Freight Optimization Improvement % via the Transportation Management
System (TMS),
and Fuel Surcharge (FSC) Management
Performance Appraisal/Review System
Frequent 3PL KPIs reviews will detail performance appraisal of each KPI set by the 3PL
and shipper/customer. Are they meeting all of their goals? What is lacking? Scorecard
analysis, % to all goals, and critical path: “What KPI is holding us back from overall
success? Are we improving? If not, why not? Action plan to correct 3PL KPIs which are
meeting mutually set goals.
Communication System: Measure all Systems
IT Systems, EDI, Phone, e-mail or face-to-face visit are necessary to use for effective
communication in meeting KPIs.
Processing/Technical System
There must be some of the 3PL KPIs for I.T. systems. KPIs are reviewed to ensure the
IT SLA/KPI is effective for both parties.
KPI Program Positive Reinforcement
Recognition and Remuneration System: When 3PL KPIs are met or exceeded
recognition should be given to both partners. Remuneration comes from the TMS
System Optimization. At times, both parties agree to remuneration for Kaizen Blitz
events, Six Sigma problem solving. Process improvements and Continuous
Improvement Opportunities.
Strategic Human Resource Development System
Both parties must develop human resources to improve operations. Human Resources
should be trained for continuous improvement. With LEAN initative implementation,
human resources become process and problem solvers.
Focus on Implementation of the FAST Act
In late 2015, President Obama signed the Fixing America's Surface Transportation Act
(FAST Act). As explained by the US Department of Transportation, the Fast Act
provides a source of long-term funding for surface transportation in the US. This is
one of the most important transportation management trends over the next decade. In
other words, more capital will be available to improve highways, transit lines, and
collaboration between regulatory agencies and shipping providers. Transportation
management systems will need to take these measures into consideration in the
creation of new routes, prioritization of shipments, and rates. Ultimately, an increase in
fund availability naturally lends itself to an increase in taxes across the spectrum of
businesses and individuals, which poses major implications in determining rates and
working with other shipping providers.
Increasing Collaboration and Inter-management of Transportation
Management Trends
It seems like collaboration and data analysis seem to constantly crop up in logistics
articles. However, if you take the time to understand how the collaboration in intermanagement of transportation management systems truly affects the logistics industry,
you will see a trend towards increasing profitability across the industry. At heart, the
inter-management achievement of a TMS refers to the joint effort between multiple,
competing parties to achieve a greater return on investment and lower shipping rates
for the end user.
Although this could appear counterproductive, it helps to address the problems faced
by the logistics industry.
For example, the increasing number of deliveries on single route may not be reasonably
achievable by a given provider. However, another provider may use less-than-truckload
shipments to meet this demand by outsourcing some services to other parties. This
sounds like the definition of a third-party logistics provider, but this definition explains
how third-party logistics providers will need to grow increasingly reliant on one
another to achieve a strong return on investment for all parties involved.
Comprehend The Need For Effective
Performance Measures & 4 KPI Problems to
Solve
3PL KPIs are necessary to measure the performance of all areas set by the two
partners. IT performance is critical and ongoing 24/7. Six Sigma Quality and problem
solving are necessary for Continuous Improvement. Without KPIs, nothing is being
measured and nothing will improve.
It's no surprise that Key Performance Indicators are difficult to set up and manage.
The underlying issue is not the KPIs themselves. Once 3PL KPIs are set, most
employees know what they need to do in order to achieve their critical success factors.
The problems with KPIs are:
Problem 1: KPIs are written in a language which allows people to challenge the
system and avoid the intent of the KPI. The impact is that employees get paid their
bonuses, but the organization doesn't perform any better and can even perform
worse.
Solution 1: This can be significantly improved by engaging a consulting team to
review existing KPIs and recommend changes. Consultants have a method which will
align the KPI's with the strategy of the organization, while protecting the intent an
employee performance.
Problem 2: The reasons for needing a particular Key Performance Indicator are never
adequately understood by the workforce. The impact is that employees work hard to
achieve goals for which they don't have any context or meaning. In the absence of
context, employees don't know "Why?" they need to achieve their KPIs and their work
effort is often misdirected or misaligned. At the performance review employees think
they have done excellent work but their manager gives them a low rating at their annual
appraisal.
Solution 2: Helping managers and employees to understand the meaning of their KPIs
is conducted through workshops run by a logistics service provider. The workshops are
consistently rated highly by all participants and helps them to understand why the
KPI's should matter to them.
When employees struggle to achieve the KPIs, managers and executives are
challenged to understand the reason for difficulties in achieving those KPIs.
Problem 3: The reasoning behind the 3PL KPIs themselves is not analyzed properly
by the executive and management teams. This does not sit well but is prevalent in 90%
of organizations. Often, Key Performance Indicators are set without understanding
their true impact on the organization. The impacts of actually achieving the KPIs are
not connected to the organization strategy and the original intent of the KPI is not
achieved.
Solution 3: A consultant has partnered with a KPI Analyst. There is software called
eMonstro, which helps managers to analyze KPIs and determine whether the intended
impact on the organization is the same as the reason the KPI was created. This
enhances the decision-making capability of the manager by using evidence-based data
the manager does not have ready access to. EMonstro is used to map intended impacts
versus actual impacts for that KPI. This service is provided as a consultation and
eMonstro software license.
Problem 4: If Key Performance Indicators have been established effectively, it should
be possible to predict and quantify the impact on the organization. For example, if the
organization needs to improve customer service, should the KPI be set for training
existing service consultants or hiring new consultants with a different job profile or
preventing the best consultants from leaving by better engaging them and setting up a
career plan. All three initiatives have an impact but few organizations understand which
of the three impacts will directly affect customer service.
Solution 4: Software, like eMonstro, for instance, has been designed to predict the true
impact of a KPI on the organization. This requires behavioral analysis, which can only
be conducted by a seasoned organizational psychologist. By combining effective KPIs
with correlated outcomes, the software is then able to predict how much of a particular
intervention is required to achieve the required level of the KPI. The software is set up
once to suit your organization and KPIs and then allows you to use it to manage your
KPIs more effectively.
Chapter Seven
The KPIsChapter
of Sixa Logistics
Service Level Agreement
Suggested Service Level Agreement (SLA)
with Key Performance Indicators (KPIs) for the
Third Party Logistics (3PL) Provider
Negotiation of this SLA/KPI will be necessary with the chosen 3PL Provider
Key Performance Indicators - KPIs/Metrics: for our Service Level Agreement
(SLA) (The Service Level we require from the 3PL to adhere to the customer’s
account with the chosen 3PL:
Partnership goal: Go beyond the Customer Service Expectations:
•
•
•
•
•
•
•
Turn around in one (1) day to get to our customers: 99.5%
No missed shipments to our customers/penalize 3PL………..99.5%
No shortages in shipments to our customers: If there are
shortages: Ship shortage at 3PL’s costs ……………………..99.5%
WE will implement a “Voice of the Customer” (V.O.C.) mechanism to obtain
customer feedback on your services. This data will be reported
to the 3PL.
Order Fill Rate:
99.5%
Order Accuracy: 99.5%
Orders will be processed and moved outbound daily, customers will be
contacted to arrange delivery upon arrival of product in destination station.
Cost Reduction by 3PL: 5% per quarter to begin partnership:
•
•
•
•
•
•
•
•
•
Mixing/Warehousing/Product Efficiency
LEAN initiatives
Use Value Analysis Techniques/3PL Cross-functional team brainstorming
Use Your Expertise i.e. Remote shipping lanes, but fastest route to ACS’
customers.
Carrier Selection and rate negotiation for our food with your leverage: GOAL:
TL (Truckload) for best carrier rates for us.
There is always a better way to do anything!
Fulfillment benefits
Truck Load (TL) or Less Than Truckload (LTL) Optimization using the 3PL’s
Transportation Management System (TMS) or Quarterly Business Review
(QBR) of TMS Optimization.
3PL Cost Reduction Fulfillment Benefits
Asset Inventory Records Accuracy:
(Inventory Records Accuracy via Daily Cycle Counting): Accuracy……………98100%
3PL Productivity increase throughout their facility/processes: 10% per Quarter
LIABILITY INSURANCE:
The 3PL to quote their liability insurance rate to us for us to decide if they want
the 3PL’s liability Insurance, or their own liability Insurance.
Quality Specifications:
•
•
•
•
•
The 3PL must meet all necessary FDA, AIB, ASI, and ISO requirements and be
certified to protect us. ASI and FDA audits are necessary processes.
FDA-FSMA requires that your Food Facility be RE-registered by December 31,
2012.Is it re-registered?
Standard Operating Procedures in a 3PL Food Grade Warehouse for receiving,
storage and value added services apply to this SLA/KPI.
The Food Safety Modernization Act requires food facilities to evaluate hazards,
implement preventable controls and create food safety plans
The International Warehouse Logistics Association (IWLA) applies to this
SLA/KPI. Standard Operating Procedures (SOPs) in a 3PL Food Grade
Warehouse apply.
Safety:
The 3PL must be a current Occupational Safety and Health Association (OSHA)
approved facility for the state they reside in. All current OSHA bulletins should be
posted in the entire 3PL where applicable, and OSHA checklists and audits should be
available for our review, if requested.
Loss & Damage:
•
•
•
•
•
When unloading our Food from ACS’ Suppliers, please check for complete
shipments bill of lading versus actual receipts and advise Avenir: penalty
negotiation
Damage checks :report any damages to our goods with photos and a detailed
report
RMA/RGA Process: Initiated by 3PL : 3PL creates RMA and sends to us with a
Suppliers Returns Department: (name) approves of RMA; (Name) gives 3PL
representative the RMA number; (Name) records this transaction into the data
base of Pending Returns; (Name) gives the RMA to the our USA Warehouse in
anticipation of the return of the RMA product; Please put the
RMA number on the carton and all paperwork so it is easy to identify the RMA
upon receipt at The Food Supplier when Product/RMA is received.
Avoid contaminated frozen food products by insuring the use of clean
containers/boxes.
The proper temperature of the frozen food must not change on/loading
receiving/unloading the frozen food from a reefer truck or reefer container.
I.T.: Program Management
1.
2.
3.
4.
5.
6.
We are to be integrated to the chosen 3PLs WMS system using a portal with a
password to be given to us by the 3PL
No downtime on system, available 24 hours per day: 100%
Our IT manager will work with the chosen 3PL’s I.T. person (name) to answer
any I.T. questions.
Our IT Manager will advise what reports we will require and what
menus/transactions will be required out of your WMS system. IT will want to
be involved in any Transportation Management System (TMS) discussions.
You’re WMS or other system availability must be used to track ACS shipments
24 hours per day. ACS requires complete visibility to their shipments globally.
A short piloting education session may be necessary to educate our users on
how to your WMS or any other tracking software.
Managing Inventory/Inventory Turn:
•
5% Reduction on Inventory management levels as we grow the first year
•
Overall inventory reduction 5 %/quarter working in concert: Our company and
3PL collaboration
•
Goal: 15 turns of our inventory per year working in concert with the chosen
3PL
Invoices/Billing: single monthly invoice – no errors – no addition to prices
negotiated.
Negotiate any requested fuel surcharge increases: 3PL to consider remote lanes
instead of automatic fuel surcharges. Fuel surcharge increase proposals will NOT be
automatic. They will be negotiated with us on each 3PL request.
Terms of payment from our Suppliers need to be negotiated: ½%-1o-30; 1% 1030; 2%-10-30 terms on invoices
Supplier Orders to 3PL:
Our Suppliers will send an order file to the 3PL and the 3PL will upload this into their
Warehouse Management System (WMS). This will be received by your 3PL account
management team (Name of responsible person (s) to be determined by 3PL) but will
be needed for us to know the person accountable/responsible for their order
management. KPI: No missed orders; 100% accuracy in order entry; Immediate Return
Confirmation (real-time) of all orders to us
Any Supplier order sent to the 3PL by our Suppliers by 2PM of that day must be
shipped out the same day (Confirmation required): KPI: 100% fulfillment.
LTL/TL Carrier KPIs: No damage: 99%; No reconsignment fee; best rate possible
with 3PL leverage: $ 148 per single pallet as a goal; No mistakes in National Motor
Freight Classification (NMFC) paragraph codes that are put on freight bills. These
paragraphs/codes in the NMFC will be audited 100% for correctness for ACS to
ensure no errors are made to our account.
If TL/LTL is a separate contract, ACS requires an addition of a Quarterly Business
Review (QBR) with the 3PL to review Transportation Management System (TMS)
Optimization and potential Cost Reduction. We must discuss transit tables and pricing
and freight to be comingled with other 3PL deliveries
Temp tags must be used in your TL reefer trucks to manage Food temperatures. Please
advise the type of temp tag you will use. We will require GPS in your TLs to our
customers.
Cargo theft is a real challenge. How will you assure us that you will prevent any
food/equipment theft problem?
Food Transportation Safety Hazards-specification sheets are available and apply to this
SLA/KPI.
A Change Process Clause has to be negotiated wherein we can re-negotiate these KPIs
and Price Levels after ACTUAL experience with the chosen 3PL: KPI: 30 days; 60
days: re-negotiate KPIs/Prices.
Pricing Goal: Prices to “cost-plus”, “Management Fee” and or Gain Sharing
pricing after ACTUAL shipment volume and our profile is experienced by the
chosen 3PL, and we have experienced working with the chosen 3PL. We will
negotiate prices, as a continuous improvement process, with agreed upon time
frames: 30 days, first price review; 60 days next review; 90 day review next phase.
Pick, pack and ship prices, as well as all accessorial prices, to be negotiated and
reviewed monthly at first and quarterly in the future.
SLA/KPI Review Time: every 30 days KPIs are reviewed. Constant negotiating
review times are a necessity. Eventually quarterly review will be implemented.
A cancellation/modification clause must be negotiated and implemented for both
parties: 30 day review. Cancellation reviews to continue every 30 days thereafter.
An ESCAPE CLAUSE must be negotiated. If either party wants to cancel the
contract, a negotiated Escape Clause must be in place for both parties.
NEGOTIATION PROCESS:
There will be a contract review/negotiation once the 3PL submits the contract, an
SLA/KPI negotiation, Price negotiation (goal stated above) after we submits their
Company Profile provided by the 3PL, escape and cancelation/modification clause
negotiation, SLA/KPI review time discussion (30-60 day reviews) and our lawyer will
review the contract with advise from The ACS Consultant and ACS team with the
chosen 3PL’s legal staff before signing the partnership/warehouse contract.
Penalty/credits to be negotiated for missed KPIs in this document.
A visitation to the chosen 3PL facility by our team will take place before the chosen
3PL contract is signed.
CONCLUSION
OVERALL GOAL:
We and the chosen 3PL partner will work in genuine collaboration and trust to learn each other’s
business missions, focus and goals. Eventually the 3PL can be embedded in our culture offering their
expertise in Warehousing and Transportation efficiencies once they have experience with our actual
shipments, and working with the team. We will have a better understanding of the internal 3PL
provider workings after many actual shipments are received at the 3PL and at our customers.
Occasional face-to-face meetings will be necessary to measure how the partnership is progressing.
Going beyond customer expectations is critical to us.
We hope you enjoyed this educational e-Book on core metrics, data points, and KPIs a shipper
should track in their day to day operations. Whether it’s manufacturing processes, supply chain
practices, or transportation management. The more you know about what the data tells you, the more
you can shape the desired outcomes you wish to see.
Cerasis, a transportation management company founded in 1997, has always believed in the use of
technology, which allows for better data gathering to create business intelligence and track KPIs to
improve process to not only reduce cost but to stay strategic. In fact, one of our core values is just
that: continuous improvement of our people process and technology.
In addition to our transportation management system (TMS), the Cerasis Rater, when you are a
Cerasis shipper, you gain access to the following managed services:
•
Transportation Accounting to include: Invoice auditing, one weekly invoice no matter how
many shipments, and freight payment services
•
Comprehensive end to end freight claims management: if your freight is damaged or lost, we
will handle the freight claim on your behalf
•
Carrier Relations: We will negotiate rates on your behalf and you get better rates thanks to our
buying power
•
Inbound Freight Management
•
Reverse Logistics
•
Robust Analytics and Reports
Want to learn more? Visit http://cerasis.com
We hope you enjoyed this educational e-Book on the trends for 2016 and beyond in the
manufacturing, supply chain, logistics and transportation management industries.
Cerasis, a transportation management company founded in 1997, has always believed in the use
of technology to improve process to not only reduce cost but to stay strategic, competitive, and
have the ability to use data from technology to continually improve. In fact, one of our core
values is just that: continuous improvement of our people process and technology.
We built our Cerasis Rater TMS in 1998, launching it as web-based before Google was even a
business. Our (now Army, as our Development Manager, Jerel Byrd calls them) development
team are always continually improving the Cerasis TMS, as we know it is vital to have a system
that is not only innovative, but sound, secure, and enables those in transportation to do their job
all while doing it cost effectively.
Are you using a TMS to help manage your transportation department as a shipper? What are
you seeing in the space?
In addition to our transportation management system (TMS), the Cerasis Rater, when you are a
Cerasis shipper, you gain access to the following managed services:
•
Transportation Accounting to include: Invoice auditing, one weekly invoice no matter
how many shipments, and freight payment services
•
Comprehensive end to end freight claims management: if your freight is damaged or lost,
we will handle the freight claim on your behalf
•
Carrier Relations: We will negotiate rates on your behalf and you get better rates thanks
to our buying power
•
Inbound Freight Management
•
Reverse Logistics
•
Robust Analytics and Reports
Want to learn more? Visit http://cerasis.com
Get a Demo of our TMS or Inquire
About Our Services
Learn More