Carrier scorecards have become a cornerstone for companies to evaluate their carriers—a term that includes logistic service providers (LSPs) and third-party logistic providers (3PLs). A comprehensive and objective tool, carrier scorecards vastly increase visibility, save costs, and provide reliable data needed to make informed decisions. Transportation spend commonly approximates 10% of a product’s total cost, a sizable percentage in any account.
To maximize the impact of carrier scorecards and augment their yield, a set of extensive and pertinent KPIs should be included within them. Integrating KPIs that are relevant and comprehensive is paramount to maximizing the impact of carrier scorecards. Companies must adopt KPIs that align with their vision while also covering the most important aspects of carrier performance evaluation.
- Importance of KPIs
- Bonus KPI: Freight Transfers
- Creating Your Carrier Scorecard KPIs
Importance of KPIs
Carrier scorecard KPIs are one of the most efficient and effective ways to comprehensively measure the performance of transportation operations on both macro and micro scales. Often when shippers look to renegotiate contracts with carriers, the only data available to guide the decision is supplied from the carrier. Carrier scorecards give shippers insight into performance in an unbiased fashion, aligning with what matters most to you as the shipper.
KPIs can help you identify strengths and weaknesses in your processes, which is important in the Trax Transportation Spend Management (TSM) Maturity Model. This model is a framework that provides a roadmap for large, global enterprises to go from a lack of visibility and control to a fully optimized and accurate data-based transportation strategy.
Here are some other benefits of identifying and measuring the right carrier scorecard KPIs:
- Reduce spend—Using KPIs to evaluate your carriers helps minimize spend while reducing risks and otherwise avoidable costs. Managing transportation spend is one of the most crucial aspects that affect your company’s bottom line.
- Increase visibility—Strong carrier scorecards can enhance visibility into your transportation operations, which enable you to make swift and precise decisions.
- Strengthen shipper-carrier relationships—Carriers normally operate on a gargantuan scale, meaning they lack visibility on a micro-level. A carrier-shipper relationship is a symbiotic one: sharing KPI data from carrier scorecards can help your carriers improve processes, and give your company better carrier service. It’s a win-win.
- Avoid biases—KPIs use objective data, leaving little to no room for conjecture or bias.
- Personalization—A major advantage of carrier scorecards is the ability to customize them to meet your specific needs.
At Trax, we’ve had years of experience to fully realize the importance of well-structured KPIs. We’ll guide you through the most integral of KPIs that you should keep in mind when customizing your carrier scorecard to meet your needs.
1. Invoice Accuracy
Accurate invoicing can tremendously impact your bottom line. Inaccurate or duplicate invoicing drains valuable time, money, and resources for what could’ve been easily avoided. According to an American Productivity & Quality Center survey, some companies that struggle with freight audit and payment (FAP) pay nearly 230% more per invoice than the average ($9 vs $3.94). Companies that have optimized FAP can slash that figure down to $2 per invoice, saving colossal costs throughout the process.
Assigning a KPI for invoice accuracy can help give leverage in contract negotiation or when choosing a carrier for a critical product or project. Additionally, invoice accuracy impacts financial accruals. Auditing for invoice accuracy is one of the reasons why many companies prefer to outsource freight audit and payment to experts. For example, when Trax finds a discrepancy between the invoice and services rendered or the terms of the contract, Trax goes back to the carrier directly and resolves the matter, saving the client money and time.
Including invoice accuracy as a carrier scorecard KPI and working with precise partners allows you to collect data over time, improving your business insights and carrier scorecards to help mature your transportation spend management processes.
2. Timely Invoicing
Receiving invoices in a timely manner is just as vital as invoice accuracy. Late invoices—or in severe cases, invoices not submitted at all—lead to accrual problems. Working on a lump sum charge means there isn’t much wiggle room. For example, your carrier accumulates invoices, so you don’t have any bills to pay in one fiscal quarter. But then you receive invoices that are months old. Such influxes can hinder cash flow and immensely affect your profit margin. Over budgeting gives you room for an accrual problem like late invoices, but it also means locking up funds that could’ve been used elsewhere for company growth during that quarter.
Keeping up-to-date liabilities helps you sort out cash flow, create more accurate forecasts, manage risk more adeptly, and plan for future growth. Evaluating a carrier’s ability to invoice correctly and on time is crucial for making informed and risk-averse decisions.
3. On-time Delivery Performance
Receiving a shipment on time is a staple of a good carrier. On-time delivery is, unsurprisingly, an important factor to evaluate in a carrier scorecard. Although some companies don’t have time-specific carrier needs—in which case this KPI is unnecessary—most companies are bound to delivery times. Many carriers charge for faster delivery, and thus monitoring and evaluating a carrier’s timeliness is integral to your company’s brand.
Late deliveries can result in refunds, alienated clients, lost sales, or a bad reputation in the marketplace. Relying on a carrier based on blind faith is risky—it can put your ROI and brand reputation on the line.
An on-time delivery performance KPI can help give you a track record and detailed analysis of your carriers’ timeliness and accuracy. For example, your primary carrier, Company ABC, has low fees but a high rate of late deliveries, which are costing your business in customer reviews, reputation, sales, and the resources involved with resolving customer complaints. You’ve discussed the late deliveries issue with your carrier, but the problem persists. Your secondary carrier Company XYZ doesn’t have as large of a contract because of its higher fees, but it has better on-time delivery performance. It may be worth taking a closer look at your carrier scorecards to see if you’re better off switching your primary carrier.
4. Adequate Capacity
Many companies choose carriers based on price and reputation, overlooking the imperative aspect of carrier capacity. Carriers can and do deny business from shippers due to capacity, which happen for a variety of reasons: the holiday season, natural disasters, or even the COVID-19 pandemic. Capacity issues have the potential to put your company in a tight spot with customers, as they lead to delayed pickups and deliveries, which translate into lost sales, damaged brand reputation, and more. Visibility into capacity and capacity trends allow you to be proactive when heading into critical business seasons.
Hence, setting KPIs to evaluate carrier capacities can help you identify which carrier is suitable for any given shipment. Diversifying your carrier options for different types of shipments while also considering carrier performance and competence in transmodal shipments is critical to ensure the best possible results.
5. High Data Quality and Accuracy
The significance of high-quality data cannot be overstated. Data informs your business decisions. Unreliable data creates poor historical data tracking and leads to misinformed—and potentially bad—decisions, which exponentially broadens risk and hurts your bottom line.
This is why Trax has set standards for what we consider minimal acceptable data quality. Customizing those standards with customer-driven specifications ensures that you receive high-quality data. This type of customization and data accuracy can streamline operations, decision making, and audits.
Receiving timely data is important, as well. Data that is two or more months old isn’t useful, especially when other events have occurred since, such as a pandemic or the holiday season. Trax helps ensure that you have quality, timely data at your fingertips.
6. Responsiveness to Resolution
One of the most straightforward KPIs when grading a carrier is evaluating response time. To measure this KPI, you must know how long it takes for a carrier to respond when you contact them, or worse—if you have to reach out multiple times. How cooperative a carrier is with resolution is also evaluated as part of this KPI.
Any supply chain is vulnerable to the odd mishap, and any shipper-carrier relationship is inevitably subject to strain at some point. A carrier’s responsiveness and willingness to help you remedy the issue is important.
We at Trax understand the importance of communication with our clients, especially with critical issues that need quick resolution. Hence, we always advise clients to consider the strength and responsiveness of their shipper-carrier relationship.
7. Number of Damages
Losses from damaged shipments amount to $1 billion a year in the US alone. Evaluating carriers for the frequency of damaged goods directly impacts your bottom line. Damaged shipments mean refunds and rework, claims filing, expedited logistics, delays, and customer satisfaction issues.
Keeping only a numerical record of damaged shipments isn’t sufficient. You should also include a percentile value to identify the carrier’s quality shipping capability. A high percentage of damaged shipments can make a carrier unsuitable in order for your company to thrive in a highly competitive market.
Giving the carrier feedback on this KPI, especially, is imperative. It helps the carrier find weak points in their operations and remedy them. It can also lead to process improvement insights for your company—for example, it could unveil the need to modify packaging to reduce the possibility of damages.
8. Routing Compliance
It’s become common practice to discuss routing guides with carriers, which ensure cost savings and efficiency. So, it’s only logical to monitor a carrier’s routing compliance.
With a routing compliance KPI, you gain clear insights into which carriers adhere to these guidelines. It’s imperative to get carrier feedback on the guidelines. Once a consensus is reached on the most suitable routing guides for your shipments, you can monitor carrier compliance and route guide efficiency. This can be achieved through measuring your expected savings against actual savings.
9. Accessorial Charges
Accessorial charges are an ever-present issue in supply chain management, especially recently, as extra fees and surcharges skyrocket. So, having increased invoice visibility is critical to managing your transportation spend.
Fuel, permits, freight expenditures, after-hours deliveries, etc., are important factors to keep an eye on, as they’re often areas where you can improve efficiency and eliminate costs. Integrating a KPI to measure the amount, frequency, and consistency of additional charges can give you a clear picture that helps with optimization. Furthermore, it can help you identify if you’re being billed for charges that your contract agreement exempts.
10. EDI or API Invoicing
You also need to evaluate the way a carrier issues invoices. Utilizing electronic invoicing techniques, such as EDIs and APIs, can prove superbly beneficial. Paper or manual invoicing can lead to inaccuracies through elevated human error margins, and it also takes longer. Both of these factors eventually raise costs.
A single EDI or API invoice costs 81% less than a manual invoice, and processing time is 77% faster. The time and money saved are integral to your company’s growth and prosperity.
Bonus KPI: Freight Transfers
Risk increases each time your freight is moved or transferred during intermodal transportation. This raises the chance of damage during multiple shipment loadings and unloadings, as well as losing shipments.
Integrating a KPI to evaluate freight transfers can come in handy when shipments must undergo multiple transportation methods. Be aware of how your freight is transported, how it’s transferred during intermodal transportation, and so on. Collecting this data over time helps highlight factors that contribute to damages, lost freight, late shipments, or other issues that arise within intermodal transportation.