Over the years, people have produced a massive body of work about how to measure 3PL performance.
However, surprisingly little has been said about a related subject that’s just as important: How to actually do it well.
“We’ve all heard the expression ‘If you can’t measure it, you can’t manage it’ so often we could repeat it in our sleep,” said AFS President of Transportation Management, Andy Dyer. “However, that doesn’t mean that getting super-granular with your 3PL measurement is going to yield superior results. In fact it usually won’t.”
We recently sat with him to learn more.
It was just Halloween, so let’s start with a seasonal question: What is the trick to effective 3PL measurement?
Honestly, there is no trick – except perhaps to stick to the fundamentals: Keep your 3PL metrics simple. Keep them few. And keep them outcome-driven.
Sounds pretty achievable.
It should be. But you’d be surprised at how many companies do exactly the opposite.
Why is that?
For one thing, we work in a complex industry. Since numerous activities have to be performed with tremendous precision in order for us to achieve success, it’s easy to assume that we need to pay close attention to all of these activities all of the time – and that no one else can do this as well as we can.
For another, now that most of us have access to tools like warehouse management systems (WMS), transportation management systems (TMS) and logistics management systems (LMS) that are collecting huge amounts of performance data, it’s a natural reaction to say, “Well why shouldn’t we insist on taking a look at it?” After all, it’s readily available.
So what’s wrong with this approach?
Even though there’s technically no limit to how much candy a trick or treater can collect, there is a limit to how much they can comfortably consume at any given time. In a similar vein, while the average company has access to an almost unlimited supply of 3PL performance information, it’s usually not going to have the time or energy to be able to meaningfully engage with or respond to all of it.
Plus all forms of performance data aren’t created equal, just like Halloween candy. Some like a 3PL’s ability to stay on budget, which really is more mission-critical to the success of a 3PL’s performance than others, and those are the ones that deserve a company’s focused attention.
In other words, if a company only has time to truly monitor a few key 3PL metrics, make sure those metrics are the equivalent of the Hershey Bar, not the orange foam peanuts.
Or the Reese’s Peanut Butter Cups! But you get the idea.
Okay in light of that advice, what ARE the metrics that should be an essential part of every company’s 3PL scorecard?
What percentage of deliveries are being picked up and delivered on time?
What percentage of deliveries are arriving with exactly what was promised?
Is the provider staying on budget?
Is the provider making sure you receive carrier and vendor other invoices in a timely fashion?
And are the service or financial improvements that were promised at the time a contract was signed actually happening?
That’s a short list!
But it actually covers a lot. Generally speaking, if those metrics are good, it means that your 3PL is doing a good job of staying on top of all of the individual activities (and metrics) that go into making this positive performance possible.
That brings us back to something you said earlier – that businesses often assume that no one can monitor various performance metrics as well as they can.
In reality, no one has a monopoly on being able to monitor supply chain performance well.
At some point you’ve got to trust your 3PL to do its job, and that includes allowing it to measure and monitor many of the tasks it performs using its own best judgment, tools and techniques – and without your constant supervision and intervention.
Besides, you can always ask the 3PL to provide you with periodic reports (weekly, monthly or quarterly) that cover these other metrics – or schedule regular meetings to review the same. Plus, you can put some parameters in place so that you receive alerts if certain ones begin to trend in a negative direction.
Any final thoughts?
If you want the best possible performance from your 3PL, treat it like a valued team member not just an inconsequential vendor. Any 3PL worth its salt is going to want your relationship to succeed as much as you do. As a result, it’s likely to be scrutinizing its performance as diligently as you would – and working equally hard to correct any minor issues it uncovers before they turn into major ones.
So there’s no need to micro-measure?
Only if you think you picked the wrong 3PL. But that’s another topic for another day.
Want to know more about what makes good 3PL relationships tick? Give us a shout. We’ll be happy to share more details about some of the best practices we use – even if we won’t share our Halloween candy.