Transportation Metrics Keeping Score - Inbound Logistics

Transportation Metrics: Keeping Score. September 03, 2015. Track key performance indicators to make sure your carriers are up to par. More to the Story: When every mile—and every dollar—counts, shippers need to know which carriers are keeping them on a course to profitability. That's why carrier metrics are so important. A scorecard that measures carrier performance promotes better dialog. "Scorecards provide a quantifiable way to measure the success of the relationship between the parties," says Ken Sherman, vice president and general manager of IntelliTrans, a logistics technology vendor and a business unit of Nashville-based TransCore. Sometimes shippers—or their service providers, such as third-party logistics (3PL) companies and bill payment and auditing firms—collect and analyze data on carrier activity to generate key performance indicators (KPIs). Other times carriers do that work themselves. In either case, the metrics often spark important conversations, aimed at improving the flow of freight and information and controlling costs. "Data helps shippers quickly identify opportunities, and allows them to react to them faster than ever before," says Todd Holt, president of transportation at supply chain company NFI in Cherry Hill, N.J. Which carrier metrics should a shipper track? That depends on the company's goals. But it's no surprise that two of the most popular KPIs are on-time pickup and on-time delivery. Shippers scoring carriers on timeliness gain an objective way to evaluate service. "In an environment without a scorecard, customers can claim carriers aren't on time, while the shipper has no visibility into why customers are complaining," says Sherman. What Do You Mean by 'On Time'? Before you can implement an on-time metric, you must define what "on time" means to you. "The requirements are different, based upon your industry, your own distribution center (DC) setup, and that of the consignees," notes Katy Keane, president of supply chain consulting firm Koncatenate, in Columbus, Ohio. Keane's experience with on-time delivery metrics includes seven years as vice president of transportation services at closeout retailer Big Lots. In her estimation, a carrier is on time when the truck arrives within one hour before or after an appointment. For 3PLs, which often use the same carrier to serve multiple shippers, the definition of on time becomes extremely complex. "Customer A might define on time as pickup within three hours, delivery within one hour," says Tom Nightingale, vice president, transportation logistics at Pittsburgh-based 3PL GENCO, which became part of FedEx in 2015. "But Customer B might define on-time pickup or delivery as within 24 hours." The same carrier might earn a mediocre score for its work with Customer A but an excellent score for Customer B. A related metric applies to shippers that pay for their inbound transportation. Once a carrier accepts a load, how promptly does it make a pickup appointment with the vendor so the shipment will be ready? "Vendors often complain that carriers do not call, they just show up," Keane says. "Or they call three hours before a pickup." Carriers who persist in those habits don't fare well on scorecards. Several important carrier metrics focus on communication. For example, how long does it take the carrier to send a status update through an electronic data interchange (EDI) message or some other means? "Most carriers are very good at providing EDI messages, but not all are good at timeliness," says Nightingale. A status message that arrives one day late isn't useful. Quick notification is also essential when an exception is about to occur. "It's critical that shippers know as early as possible that the carrier will be late," says Keane. That's why she scores carriers on whether they provide timely communications. Keane also scores carriers on whether they use EDI at all. "I wouldn't even consider using a motor carrier that was not EDI compliant and able to send shipment status messages (214s), and to accept or reject my tenders," she says. Not only must those EDI messages arrive on time, but they must also be accurate, she notes. Shippers that use CarrierPoint , IntelliTrans' transportation management system (TMS), rely on its status updates from carriers. So rather than focus on EDI compliance, IntelliTrans advises shippers to score their carriers on how consistently they use the TMS. Like Keane, Sherman suggests shippers monitor those communications for accuracy and promptness. "For example, if our customer wants to collect proofs of delivery, does the carrier provide them accurately and on time?" he says. To help shippers with data quality, IntelliTrans operates a service bureau that audits carrier data in the TMS, making sure it's complete, timely, and correct. "If it's not, then scorecards, reporting, or analytics might be inaccurate," Sherman says. Capacity, Safety, Accuracy. For GENCO, another important metric involves capacity: How consistently does the carrier accept committed freight? "Committed" is an important distinction. Some shippers and 3PLs measure the number of tendered loads their carriers accept. But if a contract says the carrier will accept 10 loads a week, and the shipper then tenders 30, it's unfair to downgrade that carrier's score because of the 20 loads it declined. "If a carrier gives us a commitment to pick up 10 loads per week—two loads every day on five business days—that's what we will hold it accountable for," says Nightingale. GENCO also rates carriers on safety, using scores from the Compliance, Safety, Accountability (CSA) system operated by the Federal Motor Carrier Safety Administration (FMCSA). "And we look at claims—not their quantity, but the time it takes to resolve them," says Nightingale. Because it hauls a high volume of perishable freight, NFI often tracks adherence to temperature standards for its customers. "Some shippers are concerned about the temperature of their products when loaded, en route, and in the warehouse," says Holt. Some shippers also want NFI to measure loading efficiency. "They want to know how much weight and volume they can fit on our equipment, to make sure they ship as few loads as they can," Holt adds. Another metric Keane tracks is how effectively carriers participate in official freight bids. "Do they submit accurate information—ZIP to ZIP, state to state, or whatever level is required, and do they follow the correct format?" she asks. Accuracy in billing is also an important metric. "Did the bill match what the shipper sent in the tender? Did it match what the carrier moved in terms of miles and costs?" Keane notes. The shipper—or a third party—should also track whether the carrier applies accessorial charges accurately, she adds. One company performing freight audits for shippers is Cass Information Systems, based in St. Louis. Cass creates scorecards for customers to evaluate carriers, using billing data that passes through Cass's information systems. Billing accuracy is an important metric. "Shippers should try to eliminate as many exception invoices as possible," says Tom Zygmunt, Cass's manager of marketing and business development. "If a carrier keeps misbilling, the shipper gets charged for every time a bill comes through. It takes more time and more effort to resolve exception invoices." It might also be important to track the accessorial charges that come attached to bills. Say, for example, a carrier frequently adds retention or demurrage charges—fees for time beyond an initial free period when freight sits on a truck but isn't en route. "Shippers have to ask why this is happening," Zygmunt says. Did the retention or demurrage occur, or does the carrier habitually tack on the charge without justification? Benchmarking Rates. Along with KPIs focused on accessorials, shippers might track other metrics related to rates. The important data points in that category are spend per carrier and spend per lane. When shippers capture that data, they can compare what it costs to move similar loads in similar lanes. That exercise might show, for example, that Carrier A charges a higher base rate, but then offers a significant discount during negotiations, while Carrier B charges a lower base rate but offers a smaller discount. "The higher rate can turn out to be less than the lower rate, depending on the discount," Zygmunt explains. Cass offers a benchmarking tool that includes aggregate rates for certain kinds of lanes, transportation modes, and weight categories. A shipper can use the tool to see how its carriers' rates stack up against typical market rates. DAT Solutions in Beaverton, Ore., offers a product called RateView that gives subscribers access to real-time spot market freight rates and current contract rates. Shippers can use the system to benchmark the rates they pay against market rates for the same lane. Say, for example, a shipper looks up rates for a trip from Chicago to Minneapolis. "The shipper looks at a 13-month history of market rates, and sees a scatter chart of their loads and the line-haul rates they paid for those loads," explains Ralph Galantine, RateView 's product manager. The system shows at a glance how the shipper's actual rates line up against the average. RateView can also list every load a shipper sent on a particular lane during a 90-day period, with the name of the carrier attached to each. "By sorting that information, shippers can look at how each carrier is performing in terms of rates, and their overall rate on the lane," Galantine says. Because it operates a major load-matching board used by shippers, carriers, and brokers, DAT also has a good handle on metrics related to capacity. "We can show capacity variations by geography and season, so shippers know when capacity constraints in the market are tight and when they're loose," Galantine says. "That can help shippers evaluate individual carriers—who's delivering and holding to their bid when capacity is tight, and who's offering trucks at a higher rate." Although a shipper might be concerned mainly with contract rates, it's a good idea to keep an eye on the spot transportation market as well, suggests Mark Montague, industry pricing analyst at DAT Solutions. That's because a sustained rise or fall in spot rates usually portends a similar movement in the contract market. "A calm spot market is a sign to shippers that it's a good time to negotiate," says Montague. Shippers are likely to get better contract rates at that time. "If spot market rates start to percolate up, it's time to get engaged with contract carriers and lock in some capacity," he adds. From Data to Dialog. Whichever metrics a shipper chooses to track, the raw data—drawn from TMS solutions, EDI platforms, auditing and billing systems, and other transactional systems—needs to be processed, then presented in a format that's easy to read and understand. GENCO, for example, feeds data from its TMS, proprietary middleware system, and EDI system into a business intelligence tool. "We run those analytics daily," Nightingale says. When she worked as a transportation executive, Keane and her team automatically received much of the data for carrier metrics from the company's EDI system, which provided a date and time stamp for each transaction. "Shippers can import that data into a spreadsheet and create a macro to do the evaluations," she says. Shippers can then compare this information with yard management data to find out, for example, if a shipment arrived late and if the carrier sent advance warning about that problem. No Surprises. Many shippers and carriers use carrier metrics as the basis for regular performance reviews. Keane recommends sending each carrier a scorecard every week. "That way, nothing is ever a surprise, and both parties have an ongoing dialog," she says. Shippers should clearly spell out their performance requirements in a carrier guide—for example, 98 percent on-time delivery or 100 percent EDI compliance. If a carrier misses the mark three or four weeks in a row, it's time for a serious conversation. NFI works with each customer to compile a list of required performance metrics, then delivers the results at whatever intervals the shipper requires. "Some are weekly, some are monthly, some are quarterly," says Holt. The carrier also meets with each shipper every quarter to discuss any trends the numbers indicate. If they identify a problem, they can trace it back to its root cause and determine how to solve it. The problem might lie in the carrier's operations, or it might originate on the shipper's side—for example, delays due to a loading dock bottleneck. Either way, it's important to take a hard look at the data and try to understand what it conveys. "Then you can create action items and activities around fixing the problems," Holt says. One way to get to the root of a low KPI is to parse the data behind it. For instance, consider a trucking company whose score for on-time delivery is 95 percent, when the shipper requires 98 percent. "You can drill down by product line, origin, lane, and customer to identify potential areas of focus," says Sherman. The carrier might actually be doing well except for two lanes, which drag down the score. Once the shipper and carrier pinpoint this problem, they can solve it. Keeping Communication Open. Besides contacting carriers immediately when the metrics pointed to problems, Keane discussed the KPIs with each of her carriers in formal meetings held every three, six, or 12 months, depending on the carrier's size. GENCO sends carriers a scorecard every month. "Then we schedule a subsequent call, particularly with our larger carriers," says Nightingale. "We include our procurement team and the carrier's operational and/or business representatives." If the numbers look great, the carrier is happy to get that news. If the scores point to problems, carriers appreciate hearing that as well. "It tends to open a healthy dialog about what we're measuring versus how they're delivering information," Nightingale says. Sometimes it turns out that a low score comes not from a performance failure, but from a data quality issue—for example, an inaccurate code in an EDI message, he adds. Besides fueling conversations about service quality, a carrier report card might help a shipper obtain more favorable freight rates. "Shippers can use the scorecard as a negotiating tool," says Zygmunt. "Or they can look at it to see where rates stack up against the aggregate." This is similar to going online to see what retailers are charging for a product you want to buy, establishing a price point before deciding where to buy. At GENCO, scorecards can influence how much capacity the company buys from particular carriers in general, or for particular lanes. "Some carriers have sweet spots—power lanes they're eager to fill—and their service performance is wonderful on those lanes," says Nightingale. "Other carriers are over capacity in certain lanes, and their service performance tends to reflect that." Identifying Strategies. NFI uses some of its metrics to help shippers make strategic decisions that could save them money. "We track empty miles and empty cost within our networks, and how much this is affecting the customer," Holt says. "Then we talk about the ability to collaborate—even with other customers—to reduce costs." For example, the company might pair two of its shippers to create full roundtrips and eliminate empty miles. However shippers decide to apply carrier metrics, it's important to use them as tools for keeping carriers informed. The goal is to stimulate conversations that reinforce your transportation partnerships. "As long as shippers use scorecards in a collaborative way, and to improve rather than to beat a carrier partner over the head, it's a win-win," says Keane. Warehouse Metrics Keep Workers at Top of Their Game. Transportation isn't the only area where companies improve logistics efficiencies by collecting and analyzing performance data. Metrics can work wonders in the warehouse as well. The Visual Supply Chain, a set of technology solutions from Dallas-based RMG Networks, uses data pulled from warehouse management systems to measure employee performance and overall operational efficiency, in real time. RMG displays the metrics on large LCD screens in work areas, to update staff and managers on how work is progressing. Most distribution or fulfillment centers use static scoreboards to highlight employee performance. "We're going to find out how those employees did yesterday in most cases, or how they're doing month-to-date," says Kerwin Everson, vice president, supply chain solutions at RMG. "They have nowhere to look to find out how they're doing currently, and what they need to do for the rest of the day." To fill the need for current performance metrics, RMG's application sends a periodic query—every 30 minutes, every five minutes, or whatever interval the customer specifies—to one or more management systems—from enterprise resource planning to warehouse, transportation, and labor management. It can even integrate with systems that control automated equipment. "We've worked with customers' Intelligrated, Dematic, or Pyramid systems to capture data about the location of certain boxes, or which chutes might be blocked," Everson says. RMG analyzes the data to calculate, for example, how many units employees are picking, packing, or putting away per hour, often using that information to draw comparisons. "Not only can we rank pick zones against one another, but we can rank individual pickers," Everson says. Those rankings foster a sense of competition. "Just putting up the information, sometimes in a stacked ranking, can automatically create productivity improvements," he says. Displays can also indicate what portion of a job a team has completed—for example, on a loading dock. "We have a bar chart that shows a truck being filled up, indicating whether it's 50 percent or 70 percent full," Everson says. The chart can indicate progress by both volume and weight. In tracking how much of their work individual teams have accomplished for the day, the Visual Supply Chain plays the role of a labor management system. For example, the system might estimate that workers in Zones A and B will finish their work for the day by 2 p.m., making it obvious that those employees have to move to Zones C and D next. In warehouses that give bonuses to workers who exceed performance targets for speed, quality, and other factors, the real-time displays provide extra encouragement. "We can put up incentive information, and sometimes the stacked ranking is enough to help them do a little better," Everson says.