Picture the beleaguered sports coach. Any team will do. They all have the same issue as they pace the sideline: How do I really know if my team is any good? Many coaches look at individual players and their game stats, but to truly answer the question and make smart, informed decisions, we have to look not just at our own bench but understand the bigger picture. Knowing individual and team strengths, weaknesses, and performance stats across the whole team plus how those compare with others out there is the only way to get – and set – a true definition of best and then measure successfully against it.
Apply this to the world of parcel shipments and supply chain operations and the same scenario plays out in the offices of every supply chain executive across the globe. How, after the unexpected conditions, soaring prices, surcharges, and long-tail impact of 2020, do we optimize our operations to deliver greater efficiencies and improved ROI? What decisions need to be made now? Especially in parcel, where last year’s boom is only set to get bigger according to the Retail Industry Leaders’ Association, which predicts an additional 25-40% online sales growth across all categories going forward. To answer these questions, to drive operational efficiencies and greater ROI, we must have a comprehensive view of past performance, current trajectory and how that compares to best-in-class operations in the industry. Let’s take a closer look at putting the right data practices and most meaningful KPIs in place.
Starting Out Right – Embracing Master Data Management
Even the best KPI is worthless without high-quality data from the point – or many points – of entry to analysis. Even more so when you consider we’re often measuring performance across international inventory supply channels, multimodal transportation operations, and a wide, complex network of carriers in a constantly capacity-stressed market. Master Data Management is the comprehensive process of collection, curation, analysis, and trend modeling of data across thousands of operational touchpoints as well as the key to establishing total visibility of the kinds of influencers, variables, events, and operational factors that can make the biggest impacts on efficiency and your bottom line.
Collecting Only “Clean Data” for KPIs – Best Practices
There are four key principles of master data management: 1) aggregating data - eliminating data silos, 2) centralization of information from multiple sources (ERP, OMS, FAP, and others) to enable the creation of one, consistent, and ultimately true view of operations and spend, 3) normalization of data to ensure it looks and reads the same, enabling algorithms to model and KPIs to analyze effectively, 4) eliminating bad data such as duplicate entries, inconsistent address formats, and other inconsistencies that can skew KPI analysis.
The KPIs that Matter – What Goes on the Dashboard?
Let’s turn that clean data into KPIs around what matters most. When it comes to organizing KPIs around key areas for analysis, there are three levels to consider: executive, operational, and local level. For example, executive leaders want to know how much they are paying in transportation to deliver revenue and how to improve. Other KPIs across the operation essentially measure the steps to try and meet this need: inventory, transportation logistics, network and inventory planning, procurement, and financial management.
The ultimate goal is to ship a product to a customer when and where they need it, creating a good, if not great, customer perception of your brand and a seamless experience. In retail, where order fill rate is a major priority and omnichannel delivery can dramatically impact customer buy/return efficiency but can be challenging to execute. Investment in the appropriate tech and KPIs here is important.
Measuring stockouts will help assess customer experience, but there are many inventory KPIs that will also help create a clear performance picture. These include distance to customer and how quickly the product is expected and ultimately shipped; inventory days of supply; order cycle time – the time between customer order and receipt of goods, which is critical in residential parcel or when embracing distributed order management (DOM); and returns – which need to balance speed and convenience for the consumer at the lowest possible cost.
Transportation Logistics KPIs
The main KPIs in this area include cost per shipment, cost per unit weight, and on-time performance — increasingly important where a two-day or shorter SLA is becoming the e-commerce target. All transportation logistics KPIs measure how you move goods through the supply chain — and the relative speed, efficiency, and cost to do so — but also provide enormous insight into the operational components that could affect greater efficiencies and cost savings. Are you using the best routes, shortest distances, optimal lowest-cost packaging, and appropriate carriers to deliver service at the best cost? Are accessorial charges as a percent of total cost in line with targets? Use KPIs to measure all of these variables, understand which carriers are performing best, and utilize services most efficiently. Additionally, other variables, like CO2 emissions, are important to identify greener execution for the future.
One of the most important areas for KPI analysis and reporting is procurement and compliance. Securing the best carriers by type of rate, service, lane, mode, and other variables requires solid metrics going into initial contract negotiation for your goals is the first step. The next is tracking performance data to measure the percentage of execution that is compliant with rate, terms, and business goals. Understanding noncompliance will also help set goals and standards for future contracts and identify variance along the way.
Monitoring actual supply chain costs, especially variable costs like transportation, is an important KPI. Understanding how those costs are being allocated and the ROI of any strategies put in place will all play into proper budget planning. In short, without financial KPIs measuring actual cost to budget estimates and analyzing the root cause of the variances, it will be impossible to course correct appropriately for future years. Another area of measurement is cost per unit or cost per SKU, totaling the transportation and non-transportation costs, in order to better plan budgets and product profitability.
The Benefits of KPIs in Creating a Mature Supply Chain
Over time, KPIs provide historical data that informs current operational planning. Setting target performance goals based on that historical data and your future goals – and using KPIs to measure against them – allows us to conduct a health check of the current state operation and answer with data-backed accuracy the questions: how are we doing and how do we compare against others of similar size? Most significantly, the learnings from data analysis can pinpoint the root causes of operational inefficiencies, problems with inventory, underperforming carriers and many other variables to guide short-term corrective action but also set adapted strategies for improved ROI and long-term success. KPIs allow us to stress test our current game plan, to run simulations, and try new strategies for success. And, just like the coach on the sidelines, who knows the strengths, star players, and weaknesses of the opposing team, when we have data-driven answers, we have the play book for continual improvement and long term success in an ultra-competitive field.
Steve Beda is Executive Vice President, Customer Solutions, at Trax Technologies (traxtech.com). He is a veteran of the international supply chain industry, consultant, author, and sought-after speaker on global supply chain optimization strategies for mature, industry leading companies. Trax is the global leader in Transportation Spend Management, empowering organizations with globally complex supply chains to have greater control and visibility in their global transportation costs, giving them enterprise-wide efficiency, maturity, and value.
This article originally appeared in the May/June, 2021 issue of PARCEL.