How Do You Measure 3PL Performance?

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How Do You Measure 3PL Performance

3PL or third-party logistics allows the outsourcing of transport and storage services, therefore, giving more leeway for better financial organization within a company. With such benefits, third-party logistics companies are used by most firms without their own means of stockpiling and transferring their products to their customers or distributors.

After conscription, a third-party logistics company handles most of the companies logistical needs, including its organization and management. It is done by establishing supply chains and continuous routes that set in place a better and more efficient manner of transport and storage of the companies’ products it is moving.

While the point of a logistics firm is simplifying transportation and storage while making it more efficient and creating a better cost to result ratio, they do differ on some aspects, whereas some perform better than others in the long run or in overall service quality.

Another thing to look at is personal needs. Depending on a firm’s specific needs, one logistics company might perform better than another in the sense that it better handles the requirements of the particular business in question.

Several factors come into play during the selection of a third-party logistics company, most of which have a practical impact on performance and function. To correctly choose a logistics company that fits a firm’s needs, a business owner should look into the following elements.

Key Performance Indicator (KPI)

KPI is a quantifiable evaluation unit that demonstrates the efficiency at which key business objectives of a firm or company are achieved. It is used to estimate the target reach success rate of businesses regardless of their size. It functions at multiple levels, where high-level key performance indicators would describe the company’s overall performance while the lower levels could handle processes such as marketing, support, HR, sales, etc.

Shipping and Logistics Performance

The quality of shipping consists of elements such as distance, third-party logistics specialization as well as storage and transportation class. Higher class storage tends to improve the speed of stockpiling and releasing of goods. Another advantage of good storage is the better safekeeping of those mentioned above, reducing financial loss in transport and keeping any potential customer complaints to the range of product malfunction rather than errors that occurred during transportation.

Logistics performance is rated by the quality and speed of the service. Depending on the distance and type of goods being transported, this can vary in significant amounts. A relevant aspect in logistics performance is the supply chain cost. Depending on supply chain management, it could result in loss or gain in monetary value. Good supply chains are, so to say, contested between companies, and building an ideal one could be a challenge that only experienced 3PL professionals might be able to handle. As small things could affect the cost of the entire supply chain, there are many factors in play, almost all of which could make all the difference between an effective chain and an ineffective one.

Storage and Inventory Management

A key point in any good supply chain is storage locations. Placing strategic stockpiles throughout the route could drastically increase the speed and quality of logistics services offered by a 3PL company. Storage placement differs depending on the type of goods transported, but some aspects stay the same regardless of what is being transported. The proper interior planning of a storage facility could make all the difference between a slow, inefficient storeroom and a fast-paced warehouse with incredible incoming inventory handling and fast outcoming goods transportation. Inventory management staff placed adequately within the warehouse compound, along with a good layout of any necessary tools and vehicles, produces a much faster and safer work environment, generating even more efficiency and, therefore, monetary stability.

Well-placed storage locations could drastically cut transportation costs, while well-placed and organized inventory creates much less window of opportunity for any adverse effect. This lessened chance of failure is a guaranteed way to minimize losses during transport, making transportation more organized and finance-efficient. A well-staffed storage facility is an efficient storage facility. Therefore warehouse management staff is as relevant as the quality of the warehouse itself, drastically decreasing the percentage of damage.

Warehouse KPIs

There are some primary warehouse KPIs to look out for. They are efficiency, accuracy, costs, turnover, return, backorder, and order lead time.

Warehouse Efficiency

Receiving and booking stock is the most basic function within a warehouse. Still, it can get complex depending on the size of the venture, creating new obstacles such as receiving items sent back by customers (damaged or good), receiving new shipments, and returning stock to the vendor. As it is obviously a highly relevant point of interest, it needs its KPI. Automatizing the process and adding additional package information such as timestamps could seriously increase warehouse efficiency and KPI score. The usage of different storage management apps and software is also highly encouraged as it can simplify the process.

Picking Accuracy

This is where the internal organization of a storage facility comes into play. Picking the proper shipping order means the difference between sending the right items to the correct location and making a costly mistake. Well-organized warehouses are less prone to issues of this kind, but even then, there is a chance of such an occurrence coming to pass. Some of the best ideas to improve this would be organizing the warehouse in a logical way, using picking systems that create better item flow and software to aid in organization. Experienced pickers are always a plus, significantly decreasing the chance for mistakes.

Warehouse Storing Costs

The cost of storage for a business is increased proportionally to the length during which their stock is stored within it. The total cost is the sum of all the expenses necessary for a company to keep its items in the storage facility, including equipment, material, and taxes. Automated warehouses are more efficient and, therefore, less costly in the storage field. Predicting how well an item will sell could make storing costs much cheaper as the items would be stored for a shorter time. The process of accurately guessing what the demand of a product on the market would be is called forecasting. Ensuring that the least amount of product is lost to inventory shrinkage creates the most optimal price to transportation ratio.

Inventory Turnover

Something that plays a crucial role in inventory turnover is forecasting, as mentioned above. Inventory turnover is the rate at which you sell and ship your stock from the storing facility. Turnover can be infinitely increased, and obviously, the better the turnover, the greater the overall profit. Scouting out the slowest routes and replacing them while using all forecasting skills is needed to fix most turnover-related issues and increase profits while doing so.

Return Rates

They can give us great insight into customer satisfaction and shipper efficiency. A great return of unopened packages might allude towards shipping issues, while items returned after some time show us overall quality and user satisfaction. The most crucial factor in play here is why an item was returned, and there are several, therefore return reason segmentation is an idea where to start with increasing return rates KPI. Accurate item descriptions and staff who understand the inventory and catalog are critical in creating a more efficient warehouse with minimized returns. In this case, storage quality is relevant to reduce damage, and software can help in confirming item accuracy through barcodes.


Mistakes in forecasting can show in backorder – customers overwhelmingly ordering an item that has been out of stock for a while. A thing that can increase the cost of backorders is when the item is out of stock – the longer the period, the greater the loss. Lousy inventory management can also be a factor here as it could simply be a situation where the outage of goods was not spotted on time. The best way to prevent backorder is through good forecasting and stock. Placing a reorder plan scaled with the increase or decrease of demand makes for a much lesser negative financial impact, sometimes wholly negating it. If the demand for an item is dropping, decreasing orders creates fewer items in storage-saving money, while an increase of demand with a rise in orders stocks the item to a preferable amount increasing sales and therefore creating monetary gain.

Order Lead Time

The period between order placement and shipment received is called order lead time. The shorter this period, the happier customers are and the greater sales rate, creating more remarkable financial growth. If a warehouse is well organized, storage placed safely and logically – the order lead time should be low, making fast shipping rates. Order management and picking systems come in handy here as they optimize performance and increase the speed of delivery movement while ensuring item safety. Bulk shipping dramatically increases the number of items shipped per day, drastically amplifying the number of sales and satisfied customers receiving their orders in the shortest possible time. Making the right decision with a good courier service could opt for a much faster lead time and better item safety during transport.

With all this in mind, RedBird Logistics is here to aid you when you need an experienced and efficient 3PL. Contact them today and get your quote!

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