Using KPIs to Optimize Transportation Data
Data drives sound business decisions. The same principle applies to decisions surrounding transportation issues. Specifically for parcel, the best data source is carrier invoices, supplemented by the manifest (TMS) data where possible.
Your carriers should make invoice data easily available, especially if you use a third-party vendor to review and pay your invoices. They should be able to provide you with customizable reports that will either directly offer the key performance indicators (KPIs) you are looking for or the raw data necessary to develop them in house.
Here’s a list of five KPIs you can utilize to improve supply chain visibility, cut transportation costs, and enhance parcel shipping service.
1. Ground/air ratio: Are you using the right service? Just because a package has to get to the customer in one or two days, it doesn’t mean you have to use next-day or two-day service.
Both national carriers offer ground services with next-day guaranteed delivery, and for ZIP codes that fall within the one-day “ground footprint,” the packages will get there in one day, for less money.
You can request the transit times for your specific origins from your carrier rep, and make sure that the packages in the one or two transit day areas are routed correctly via ground service. To determine potential savings that you can achieve via service level optimization, you or your data vendor can run a report or perform analyses.
2. Average zone: Are your distribution centers (DCs) located in the best area? Are you using the right DCs to ship to your customers? Whether you are operating from a single distribution center or six, examining data is crucial to determine if your destination(s) are aligned with the correct origins.
The goal should be to reduce the zones for your packages, as longer zones mean longer transit times and higher costs. High zones could be the result of system (WMS/OMS) issues, sub-optimal DC location, or inventory that is not where it is supposed to be.
3. Packages per shipment: Do you have multiple packages going to the same destination? Whether you are shipping to your stores or major customers, if you are sending multiple packages in the same shipment, you can achieve savings by using hundredweight (HWT) pricing. HWT pricing will rate a shipment at 200 pounds, rather than 10 packages of 20 pounds each. This can reduce the cost by as much as 50 percent.
There is a point, however, where less-than-truckload (LTL) gets more economical than parcel HWT. To determine if that is true, you can view your data and then collect the packages that are being delivered to the same address on the same day and rate it with alternative scenarios as single packages, with HWT pricing, or with LTL pricing.
If there is enough volume, you need to negotiate the terms with your carrier, because HWT pricing has to be set up for each shipper account.
4. Accessorial spend compared to total spend. Accessorial spend can be as much as 30 percent of the total shipping cost. The most troubling part of that statement is that most high-cost accessorials come as a surprise to the shipper.
Charges such as address correction, additional handling, and large package surcharges are unplanned costs that impact your bottom line. By keeping a close eye on your data, you can eliminate some of these charges.
5. Year-over-year spend increase (not the announced general rate increase, but the real one). Every year, carriers announce a General Rate Increase (GRI) in the 4- to 6-percent range. The problem with rate increases is that they are never linear, and almost always, the total impact to the shipper is higher than the announced amount.
Measuring the True Impact of General Rate Increases
For example, in 2017, FedEx reduced its dimensional factor to 139, which is driving up billable weights and transportation costs. By looking at the dimensions in the data, you can predict how much this new rule change is costing you.
Also, by tracking your average cost per shipment over time, you can see the GRI’s actual impact, as well as other changes in your contract, network, or shipping policies.
Having the KPI data available to make informed decisions will be necessary. If you expect to make continuous improvements over time within your organization, don’t overlook KPI data. KPIs can help justify pricey and timely improvements by providing data to show how improvements could outweigh costs.
Not only that, KPIs will allow your management to make informed, data-driven decisions on how the overall organization is performing.
These are only a few of the many possible KPIs you can draw from your parcel data. For each organization, the priorities and the key performance indicators will vary. The goal is to identify the ones that matter to your business goals and track them regularly.