Key Performance Indicators of Your 3PL and How to Improve Them through WMS Auditing
TL:DR: There are ten prominent Key Performance Indicators that your company can use to measure its efficiency, and there is one prominent way to keep track of and improve them; WMS Operational Audits. While the process is not necessarily a one-size-fits-all logistics solution, Operational Audits can encompass many Key Performance Indicators and point the company in the right direction across multiple areas of expertise.
It would be impossible to see your success, if there was no way to measure it. That’s why today’s increasingly competitive and complex supply chain landscape, Key Performance Indicators (KPIs), are indispensable for delivering reliable, cost-effective, and value-added services to businesses relying on third-party logistics. These deliverables enable continuous improvement within the 3PL industry, so it is only natural that the companies take great care when it comes to keeping their KPIs consistent. One of the ways to see if everything is in order and to address the challenges of your logistics right away, is through a WMS audit. This blog post will break down how audits serve as an entry point for many other positive tweaks that you can apply to your 3PL business.
TEN MAJOR KPIS TO MEASURE YOUR 3PL PRODUCTIVITY
Key Performance Indicators are critical metrics to assess the efficiency of 3PL operations. They ensure that the companies are meeting their clients’ demands, increase transparency, and foster accountability. Let’s look at the top ten KPIs that help measure the productivity of your third-party logistics.
Inventory accuracy addresses the congruence between the recorded amount of inventory items and their actual physical presence in the warehousing facility. Inaccurate inventory can lead to over-ordering or under-ordering, both of which result in added expenses and potential customer dissatisfaction. Accurate inventory data also aids in optimizing storage space and reducing carrying costs, thereby enhancing overall cost-efficiency.
When it comes to inventory accuracy, the margin of error is pretty tight. The ideal range lies between 98% and 100%, but human errors and lack of oversight can cause certain items to get misplaced. To make your inventory as accurate as possible, run a WMS audit to optimize inventory locations and brainstorm improvements in stock counting procedures.
While inventory accuracy refers to the listed number of items in a given facility, order accuracy branches out into various types of items that can get mixed up, damaged or lost on their way to the client. High order accuracy ensures that customers receive the right products in the right quantities and conditions. This KPI has profound impact on customer satisfaction and operational efficiency – errors can be costly, eroding trust and damaging relationships not only between the client and the company, but also between the shareholders at every link of the supply chain.
In an era where customer experience is a top priority, maintaining exceptional order accuracy is a non-negotiable aspect of reliable and high-quality 3PL services. If this KPI of yours is below 95%, the most likely culprits are incorrect picking & packing, or mislabeling. It’s important to pinpoint areas of frequent errors and refine order verification processes. Enhanced training program for your staff, focused on order fulfillment procedures, is also never a bad idea.
Order Cycle Time
Customers expect swift and predictable order fulfillment, and if you cannot provide it, they will go to your competitors. Monitoring and optimizing order cycle time, which includes order processing, picking, packing, and delivery, enables 3PL providers to meet these expectations. Faster order cycle times not only enhance customer satisfaction but also lead to shorter cash-to-cash cycles, freeing up capital and reducing carrying costs.
With this KPI, the faster the better. If your order cycle time is longer than you want, look into inefficient picking routes, delays in receiving, and processing bottlenecks. Remember to regularly analyze your workflow for those bottlenecks, optimize picking routes, and suggest improvements in order processing speed.
Warehouse Capacity Utilization
Warehouse capacity utilization refers to the percentage of warehouse space that you are capable of using. By maximizing the efficient use of warehouse space, 3PL providers can minimize storage costs, reduce the need for additional facilities, and pass on these savings to their clients. It also enables more accurate demand forecasting and inventory management, allows for faster order processing and fulfillment.
It is advisable to utilize as much of your warehouse as possible – ideally, anywhere between 80% and 90%. However, poor layout design and inefficient storage solutions may lead to difficulties with maximizing this stat. Keep an eye on your warehouses to identify underutilized spaces, recommend optimal storage solutions, and suggest layout redesigns for better space utilization.
Unmet Demand for Sustainable Practices
Millennials and Gen Z, the latest generations of potential buyers, make for the most environmentally conscious shoppers, and it is likely that Generation Alpha will continue the trend. If E-Commerce companies want to survive this evolution of client behavior, upgrading to a more sustainable workflow is a matter of “when”, not “if”. According to a Descartes Research Report, 50% of consumers are interested in eco-friendly delivery, and 54% would agree to a longer delivery time if it meant their order is more sustainable. However, only 38% of consumers are content with the current state of sustainable delivery practices. The delay in adoption of environmentally conscious warehousing and freight is costing companies money and wasting the potential to build a loyal customer base.
Rate of Return
The Rate of Return (RoR) serves as a vital Key Performance Indicator (KPI) in 3PL due to its critical insights into the efficiency and cost-effectiveness of a 3PL provider’s operations. A high RoR indicates that customers are satisfied with the services, leading to repeat business and long-term partnerships. A low RoR reflects cost savings in terms of reduced product returns, re-stocking, and associated handling expenses. RoR serves as a vital barometer of a 3PL provider’s performance, helping them not only maintain a competitive edge but also improve overall operations and profitability.
The ideal range is below 2%. Incorrect shipments, damaged goods, or unpleasant customer service will likely cause customer dissatisfaction and affect your RoR. To offset such effects, investigate root causes of returns, recommend improvements in packaging and handling, and suggest enhancements in order accuracy.
Dock-to-Stock Cycle Time
Dock-to-Stock Cycle Time measures the time it takes for incoming goods to go from the receiving dock to being available for stock or distribution. Efficient Dock-to-Stock Cycle Times are crucial for optimizing warehouse operations and ensuring that products are available for order fulfillment promptly. A shorter cycle time means faster access to inventory, reducing the risk of stockouts, timely deliveries, minimized storage costs, reduced handling, and streamlined inventory management.
A cycle that takes 24 hours or less is considered optimal. Delays in receiving processes, and inefficient put-away procedures can poke holes in your tightly-run ship. Use the data to analyze receiving workflows, optimize put-away procedures, and recommend improvements in dock scheduling.
Order Picking Accuracy
In the 3PL industry, providers are entrusted with handling and fulfilling orders on behalf of their clients. Accuracy in this process is not just a metric; it is a direct reflection of a 3PL provider’s reliability and commitment to customer satisfaction. It also plays a crucial role in maintaining inventory integrity, cost-efficiency, and the overall reputation of both the 3PL provider and its clients.
While the perfect result is at 99-100%, the various human errors, caused by a lack of proper training, can add up to order picking inaccuracies. Identify frequent areas of mis-picks, suggest enhancements in pick verification, and recommend additional training for pickers.
Employee productivity converts into operational efficiency and defines your overall performance. In the 3PL industry, where labor-intensive tasks such as order picking, packing, and shipping are common, the productivity of the workforce is a critical factor in meeting customer demands while maintaining cost-effectiveness. Efficient employees can handle a higher volume of orders, reducing cycle times and ensuring on-time deliveries.
Each business has its unique strategies to measure employee productivity, but the general principle is: the higher, the better. If you are getting the feeling that your workplace morale is low, it might be high time for some teambuilding activities, staff education or bonuses to motivate your people. Investing in employee training and motivation can boost their skills and spirits, resulting in increased productivity and ultimately benefiting both the 3PL provider and their clients. To ensure peak productivity, assess individual performance, recommend improvements in training and motivation, and suggest workflow optimizations.
Equipment Downtime Rate
The condition and uptime of equipment such as trucks, forklifts, and conveyor systems have a big influence on operational effectiveness. This KPI helps 3PL providers monitor the health and performance of their equipment, enabling them to schedule preventive maintenance and repairs proactively, thus minimizing costly breakdowns and downtime.
It is crucial to keep your equipment downtime rate below 5%, but if that poses a serious challenge, then a WMS audit can help. The audit will reveal the areas with a lack of maintenance or equipment malfunctions and will help you to identify patterns in equipment downtime. As a result, one can also suggest preventive maintenance schedules and recommend replacements or upgrades where necessary.
Cost per Order
This metric measures the cost incurred to process and fulfill each customer order, encompassing various expenses like labor, transportation, warehousing, and overhead. Monitoring and optimizing the Cost per Order is essential to maintain healthy profit margins while offering competitive pricing to clients. Lowering the Cost per Order not only improves the financial health of the 3PL provider but also allows them to offer cost-effective solutions to clients, enhancing their value proposition and market competitiveness.
The average cost per order varies from industry to industry, with businesses trying to keep it as low as possible for maximum profitability. Inefficient operations and high overhead costs can stand in the way of minimizing your expenses.
CONCLUSION: RUN A WMS AUDIT TO GAIN THE KEY TO YOUR SUCCESS
There are many ways to measure the productivity of your logistics, and if any of these metrics goes awry – your money is on the line. With so many things to measure and tweak for maximum performance, the task of perfecting your logistics may feel overwhelming. It is important to hold your ground in this storm, and to find a way to keep track of as many performance indicators as possible. One good way to do so is an operational audit for your WMS.
Innovecs has just updated our selection of logistics services. We are entering a new era with a high focus on supply chain optimization through innovative technology, and you can blaze this trail standing by our side. Learn more about our operational audit services and feel free to reach out to us with any questions. Let’s talk about positive change and make your logistics better, together.