A PUBLICATION OF CERASIS

The Ultimate Guide to Manufacturing, Supply Chain, Logistics, Transportation, & Freight Metrics & KPIs

TABLE OF CONTENTS

1

2

3

4

5

Introduction

An Introduction to Using Data,

Metrics, and KPIs

Warehouse & Logistics Metrics

Manufacturing Metrics

Supply Chain Metrics

Distribution Center Metrics

3PL KPIs6

The KPIs of a Logistics Service Level

Agreement7

Conclusion

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.

INTRODUCTION

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-in-

process 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. 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.

2. 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. 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 customer-

centric focus.

2. 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 well-

defined, and even more rarely measured in logistics operations.

3. 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.

4. 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 non-

conforming 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 industry-

leaders, focusing on reduced costs, and reducing inefficiencies in daily operations.

Furthermore, your strategy allows you to compete with larger shippers and enterprise-

scale 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 inter-

management 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 SixThe KPIs of a Logistics Service Level Agreement

Chapter Seven

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……………98-

100%

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. 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

2. No downtime on system, available 24 hours per day: 100%

3. Our IT manager will work with the chosen 3PL’s I.T. person (name) to answer

any I.T. questions.

4. 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.

5. 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.

6. 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% 10-

30; 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

Learn More

Get a Demo of our TMS or Inquire

About Our Services