10 Critical KPIs for Carrier Scorecards: Improving Carrier Performance Rating
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, 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 carrier performance rating (CPR), a set of extensive and pertinent KPIs (key performance indicators) should be included. Integrating KPIs that are relevant and comprehensive is paramount to maximizing the impact of any carrier's performance. Companies must adopt KPIs that align with their vision while also covering the most important aspects of evaluation.
Keep reading to learn:
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Importance of KPIs
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Invoice Accuracy
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Timely Invoicing
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On-time Delivery Performance
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Adequate Capacity
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High Data Quality and Accuracy
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Responsiveness to Resolution
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Number of Damages
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Routing Compliance
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Accessorial Charges
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EDI or API Invoicing
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Bonus KPI: Freight Transfers
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Creating Your Scorecard KPIs for Carrier Performance Ratings
Importance of KPIs for Carrier Performance Rating
Carrier scorecard KPIs are one of the most efficient and effective ways to comprehensively measure the performance of consistent 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. 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 system 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 scorecard KPIs:
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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.
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Increase visibility—Strong scorecards can enhance visibility into your transportation operations, which enable you to make swift and precise decisions.
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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 scorecards can help your carriers improve processes, and give your company better carrier service. It’s a win-win.
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Avoid biases—KPIs use objective data, leaving little to no room for conjecture or bias.
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Personalization—A major advantage of carrier scorecards is the ability to customize them to meet your specific needs.
With years of industry leadership experience at Trax, we fully realize the importance of well-structured scorecards. We’ll guide you through the most integral of KPIs that you should keep in mind when customizing your scorecard to meet your ideal carrier performance ratings.
1. Invoice Accuracy
Accurate invoicing can tremendously impact your bottom line. Inaccurate or duplicate invoicing drains valuable time, money, technology, 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 loads of costs throughout the process.
Assigning a KPI for invoice accuracy can help give leverage in contract negotiation or when choosing a carrier for a major 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. If 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 note on a scorecard. Although some companies don’t have time-specific 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 brand.
Repeated delivery delay can result in refunds, alienated clients, lost sales, or a bad reputation in the industry. 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 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 equipment 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 scorecards to see if you’re better off switching your primary carrier.
4. Adequate Capacity
Many companies choose carriers or brokers based on price, review, and reputation, overlooking the imperative aspect of carrier capacity. Many carriers deny business from shippers due to capacity, which happens for a variety of reasons: the holiday season, natural disasters, or even the COVID-19 pandemic.
Capacity issues have the potential to put your operation in a tight spot with customers, as they lead to delayed pickups and deliveries, which translate into lost sales, damaged brand reputation, mistaken delivery loads, 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 determine which is suitable for any given shipment. Diversifying your options for different types of shipments while also considering carrier performance and competence in transmodal shipments is paramount to ensure the best possible results.
5. High Data Quality and Accuracy
The significance of high-quality data cannot be overstated. Data informs business decisions your industry competitors rely on. Unreliable data creates poor historical tracking and leads to misinformed—and potentially bad—company decisions, which exponentially broadens risk and hurts your bottom line.
This is why Trax has set standards for what we consider minimally 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. Data that is two or more months old isn’t useful. 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 one 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 mishaps, 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.
At Trax, we understand the importance of communication with our clients, especially with issues that need quick resolution. Hence, we always advise clients to consider the power 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 shipping quality in a carrier performance rating. A high percentage of damaged shipments can make a carrier unsuitable in order for your company to thrive in a highly competitive market.
Giving review 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 organization— 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 ensures cost savings and efficiency. So, it’s only logical to monitor a carrier’s routing compliance.
With a routing compliance KPI, you can note which carriers adhere to these guidelines. It’s imperative to get feedback on the guidelines. Once a consensus is reached on the most suitable routing guides for your industry shipments, you can monitor compliance and route guide efficiency. This can be achieved by 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 required to manage your transportation spending.
Fuel, load, permits, freight expenditures, insurance, after-hours deliveries, points of contact, 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 users issue 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, reviews, and prosperity.
Bonus KPI: Freight Transfers
Risk increases each time your freight load 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.
Creating Your Scorecard KPIs for Carrier Performance Ratings
From poor performance or negative ratings, there are many factors that influence your carriers' success or failure. To set up scorecards that effectively contribute to positive carrier performance, you need to start with KPIs.
A rating system only works when it's established and measured properly on a consistent basis. If you need help creating or navigating carrier performance rating system, reach out to Trax Technologies to see if we're a good fit.