Supply Chain Benchmarking and Key Performance Indicator (KPI) Systems

Stage 1: Transactional focus

Usually managing multiple carriers
Use of transport brokers for ‘best price of the day’ for interstate loads
Poor KPI development and no alignment of common KPIs between the Company and transport operators
Little engagement with senior management of the transport company
Ad hoc review meetings held, if at all
Primary focus is on unit price
No formal contracts in place
Little reporting on performance from the carriers
No or little IT interfaces
‘Track and trace’ visibility is poor

Reduced number of carriers engaged
Allocation of carriers by regional areas or ‘zones of competence’
Some KPI development yet still little alignment of common KPIs between the Company and transport operators other than the primary indicators such as delivery on time
Sporadic with senior management of the transport company
Some review meetings held but usually triggered by serious service failures
Primary focus is on unit price
Some contracts in place but only ‘standard’ form contracts
Some reporting on performance from the carriers
Some IT interfaces
‘Track and trace’ visibility is adequate but not fully integrated

Use of a lead carrier, national carrier that performs all or very significant portion of the distribution requirements
Allocation of carriers by regional areas or ‘zones of competence’
Some KPI development yet still little alignment of common KPIs between the Company and transport operators other than the primary indicators such as delivery on time
Sporadic with senior management of the transport company
Some review meetings held but usually triggered by serious service failures
Primary focus is on unit price
More formal contracts in place that include performance based incentives and disincentives for performance
Regular reporting on performance from the carriers
Solid IT interfaces
‘Track and trace’ visibility available from a single or common source
Collaborative tendering

Use of a lead carrier, national carrier that performs all or very significant portion of the distribution requirements
Full alignment of common KPIs between the Company and transport operator
Active and proactive involvement of senior management of the transport company
Alignment of strategic purpose
Regular review meetings held at different management levels to focus on a) operational, b) tactical and c) strategic direction and performance.
Primary focus is on service excellence and the customer experience
Formal contracts in place that include performance based incentives and disincentives for performance as well as such things as sharing of productivity gains,
Real time as well as period based reporting. Exception reporting, causal analysis, and performance trending against pre-agreed targets
Fully integrated IT interfaces that eliminates paper in the distribution chain.
Full and real time ‘Track and trace’ visibility
Sophisticated transport planning tools e.g. Network design, routing and scheduling systems provided by the carrier as part of the value-add

Given all of the benefits accruing from the superior service and performance levels achieved under a Stage 4 regime, customer become ‘Raving Fans’ of the consistency, reliability and value added service from the transport operator. This is then acknowledged as a competitive advantage to which a real value can be ascribed.
In this environment, it is then possible to either introduce or improve the freight cost recovery of a business, i.e. the amount charged to customers for deliveries vs. the cost of delivery. In Best in Class businesses, ‘freight recovery’ exceeds 100%, yet seldom are all customers charged for freight.
Charges are analysed carefully, and applied progressively and often incrementally over time, for such things as minimum order quantities, expedited deliveries outside of the normal service level offering, building additional transport charges into the sell price, regional surcharges just to name a few.
Because the delivery cost component of the ‘cost to serve’ is clearly understood, management can deploy appropriate freight recovery options that transform the freight cost of business from a cost centre to a profit centre.