In today’s transportation and logistics industry, reducing costs and optimizing time spent is everything. Yet, most companies are applying an long-held but increasingly outdated plan for large purchase orders, while their customers demand a faster delivery time at a reduced rate. What’s more, most logistics industry experts agree that their freight cost is high. In fact, according to the Performance Measures for Freight Transportation report, over 20% of supply chain leaders said that their cost of logistics was “very high.”
The first step in streamlining the freight management process is to implement a transportation management system (TMS). Put simply, a TMS is a software solution used by third party logistics carriers, trucking companies, and shippers to plan and execute a well-functioning freight management process. A transportation management system will offer solutions for different modes of transport including over-the-road, ocean, freight, rail, and intermodal. There are plenty of benefits that come from using a TMS such as reducing transportation cost, optimizing warehouse management, keeping track of outbound and inbound freight, improving customer service, and more.
One of the other major benefits of a transportation management system is the supply chain visibility that it provides. In order to enhance your visibility and take advantage of all that a TMS has to offer, you will need to know what key performance indicators (KPIs) to track. This way, you will also know how and where to change your processes to decrease costs, improve effectiveness, and boost supply chain performance and visibility.
What to Track With Your TMS
Before we get into the actual logistics KPIs, we need to look at the overarching supply chain metrics that need to be measured, in order to get the most out of your transportation management system. These will include the following:
- On-Time Pickup and Delivery – When customers are given a particular date for their packages, trucking companies need to provide on-time delivery. This is particularly true with last-mile delivery services and the increase in front door package theft. In fact, more than a third of online shoppers have fallen victim at least once to these so-called “porch pirates”. By knowing when packages leave and arrive, recipients will make plans to receive their goods without the risk of theft.
- Overall Yields – Every shipment will generate a yield. However, that yield can be broken down and examined for any unnecessary delays or extra costs. A decreased yield per mile, for example, may indicate poor fuel consumption.
- Fuel Efficiency – Overall fuel use is an important logistics metric that needs continued improvement. Not only do federal agencies mandate reporting and compliance with environmental initiatives, but monitoring this performance indicator will also help reduce overall freight cost and create a more sustainable supply chain that’s less impacted by fuel price fluctuations.
- Border Delays – Random inspections, traffic delays, or paperwork issues can all reduce the per-mile yield and increase the transit time.
- Loading and Unloading Times – As far as logistics management KPIs are concerned, this one often flies under the radar. Long loading and unloading times can add up over time, resulting in dead-time, rerouting of shipments, and other negative effects. Possible reasons for this may include small holding yards, poorly illuminated loading docks, and other factors.
- Maintenance – Like fuel efficiency, maintenance is an area that needs continued improvement and tracking. If, for instance, your preventive maintenance costs are minimal but you see an increase in repair costs, it could indicate that it’s time to replace some or all of the fleet.
- Labor Productivity – In the context of transportation and logistics, labor productivity refers to how easily the shipment is transported. If your labor productivity metrics are down, you may start experiencing problems with sorting at destination. This can, in turn, result in additional costs and delays.
- Damages – No matter how well a trucking company or logistics provider prepares itself, occasional damages or accidents will still occur. By carefully monitoring what types of damages do and do not occur, companies can implement a plan to reduce them.
Main KPIs for the Transportation Management System
The following KPI examples will provide you with a better understanding and a bird’s eye view of your operations. They will allow you to track for proper freight management so as to uncover all of your strengths and weaknesses. Here are the key performance indicators that you should track.
- Freight Cost Per Unit – You determine this KPI by dividing the total costs of freight shipping by the number of units shipped in a given period.
- Outbound Freight Costs per Total Sales – By dividing your outbound freight costs into your net sales, you will be able to isolate your overall shipping costs.
- Inbound Freight Costs per Purchases – Divide your freight costs by the costs of goods purchased in a given period. This indicator should not be compared to products that are purchased with different freight types like those whose freight is known but paid by the supplier and those paid by the company.
- Transit Time – This metric is measured as the total number of days/hours from the moment the shipment leaves your company to the moment it’s delivered to the customer. Since the transit time can vary based on the chosen transportation method or freight class, it’s usually used to compare quotes from other carriers for the same product, destination, and mode of transport.
- On-Time Pickups – You calculate this KPI by dividing the number of pickups by the total number of loads sent in a given period. You can use this data to evaluate the performance of different third party logistics companies and carriers.
- Turnaround Rates – This indicator is measured by calculating the average time between a truck’s arrival and exit. If the time spent is high, it means that the loading and unloading process needs to be improved.
- Accessorials by Total Freight Costs – By failing to track accessorial charges, you will also inhibit your freight management capabilities. You should always aim to keep these fees close to zero.
- Freight Claims as Percentage of Transportation Costs – Divide your total freight claim loss by the overall transportation costs. These will indicate which shippers and carriers are safer delivery options. The higher the number, the more problems.
- Freight Payment Accuracy – This KPI will ensure that your payments are in order. You need to divide your accurate freight bills by the total number of freight bills in that period.