Measuring The Effectiveness of Logistics Services: A Shipper's Guide To Selection

Flashback 2015: U.S.-based retail giant Target planned to expand into Canada. Despite planning the expansion for months, shelves sat empty, inventory piled up in the wrong places, and deliveries missed critical holiday windows. Poor logistics planning hit their bottom line with a $2 billion loss and a complete market exit within two years. 

This highlights that even the biggest brands can fumble without a reliable logistics ecosystem. For modern shippers, choosing the right logistics service provider strategy is critical to their survival and growth. It is all about measurable performance, responsiveness, and fitment.

Performance measurement is the underlying, fundamental activity for long term growth and success for any logistics service. Here are some of the best arguments for measuring your logistics service: 

Logistics performance impacts supply chains 

The efficiency and resilience of supply chains depend on how well you understand the performance gaps. For example, if you measure KPIs like total transit times, order fill rates, and inventory turnover rate, these metrics provide supply chain managers with visibility across the entire chain. 

Comprehensive visibility enables them to identify and resolve delays more efficiently. Understanding the gaps in supply chain performance is important for improving efficiency and building resilience. For example, if you track key performance indicators (KPIs) like total transit times, order fill rates, and inventory turnover gives supply chain managers a clear view of the entire operation. This visibility helps them spot and address delays promptly and effectively.

Key element for seamless logistics operations

Measuring logistics service performance helps to identify inefficiencies, errors, and scope for improvement. These insights are imperative to reduce operational costs, meet customer expectations, and create growth opportunities. 

Metrics like compliance gaps help to comply with applicable regulations and avoid legal hassles that can severely impact key operations. In addition, it helps logistics managers adapt to changing market requirements to boost agility, increase flexibility, and improve resilience. 

Evaluating logistics service performance helps identify inefficiencies before they become bigger. This helps you minimize the probability of errors and highlights areas needing improvement. These insights are essential for logistics managers to lower operational costs, meet customer expectations, and discover new growth opportunities. 

Metrics like compliance help to adhere to regulations and avoid legal issues that could disrupt key operations. They also help logistics managers adapt to changing market demands, improving agility, flexibility, and overall resilience.

Shippers need to make data-driven decisions

Shippers need real time data on performance metrics to make critical decisions. Lack of this insight can lead to poor decisions and pave the road to low service quality and return on investment. 

Tracking metrics like cost per shipment, total delivery time, and order accuracy reveal key insights into which carrier offers the best value. Moreover, performance data offers valuable insights into routing inefficiencies or gaps in warehouse management.  

Logistics services refer to the management of the movement of goods across the entire supply chain - from the starting point to delivery. Typically, it encompasses activities like planning, storage of goods, and execution. For shippers, it includes:

• Transportation of inbound and outbound logistics
• Warehousing activities like inventory management and fulfillment processing
• Freight forwarding and documentation
• Last mile delivery to customers' doorstep
• Reverse logistics, like returns handling and waste disposal

To know if your logistics service provider is falling short of your goals and expectations, measure these: 

Delivery time 

Given that customer satisfaction is the highest success metric for logistics services, the delivery time and accuracy factor play a critical role in meeting it. This metric evaluates the efficiency of your logistics team in delivering within the agreed time frame. 

To measure the time metric, monitor these activities:

• Number of orders fulfilled on time, using the total orders as the denominator. 
• Predicted ETA (estimated time of arrival) against the actual time taken to deliver. Track the additional time taken.

Order fulfillment accuracy rate

Another metric vital to customer satisfaction is your order accuracy rate, which contributes to the overall efficacy of services. Last mile delivery is a success only if the right products are handed to the customer. 

Calculate your order accuracy rate by tracking the number of deliveries completed correctly against the total order volume. Calculate errors like delivering to the wrong address, shipping the incorrect product, or shipping the wrong quantity of goods. 

Inventory turnover

The inventory turnover rate measures how often your company sells and replaces goods in a specific time period. It is an important performance metric because a higher turnover rate shows effective inventory management. In sectors like food, pharmaceuticals, or fashion, high turnover maintains the freshness of products, which is crucial for customer satisfaction. 

You can calculate your inventory turnover rate by dividing the Cost of Goods Sold (COGS) by the average inventory. 

Cost per shipment and transportation spend

Cost-effectiveness is an important financial metric. It shows how well you are managing your supply chain and making informed decisions. Cost per shipment and transportation spend refers to your total expenses for moving a product from its source to its destination. 

To determine these metrics, consider factors such as labor costs for packaging or last-mile delivery, transportation costs like fuel or vehicle expenses, and technology costs for machinery or software. 

Return rate and reverse logistics efficiency

The return rate is another important customer satisfaction metric. If customers are happy with your goods and services, they are less likely to request returns. 

However, measuring the efficiency of reverse logistics is important for controlling operational costs. Returns are expensive since transportation, restocking, inspection, repackaging, and disposal involve multiple processes and resources. 

To calculate your return rate, divide the number of returned orders by the total number of orders. 

Assessing provider performance in real time helps you know if the quality of their service is meeting your targets, mitigate risks early, and ensure accountability. Use the following metrics to evaluate their performance: 

Quantitative vs. qualitative metrics

Measuring logistics performance involves analysing both quantitative and qualitative metrics. While quantitative metrics provide insight into what's happening, qualitative metrics answer the “why”. 

Quantitative metrics are objective in nature; these give you data driven insights into the percentage of on time deliveries, inventory replacement rate, order accuracy rate, and shipment cost per unit. 

Qualitative metrics are subjective in nature; they provide insights into performance based on data gathered though non measurable findings. These include customer satisfaction rate, partner communication effectiveness, ease of returns, transparency of processes, and flexibility of internal teams to adapt to change. 

Role of SLAs (Service Level Agreements)

SLAs act as a performance benchmark between shippers and logistics vendors. It plays a critical role in assessing logistics service quality by providing measurable KPIs like delivery time, damage rate, and response time - all of which helps to standardize a method to evaluate provider performance. 

Moreover, it adds the much needed clarity and transparency that aids in minimizing disputes, building performance driven relations, and identifying areas of improvement. In the event of a dispute, this transparency helps determine who is responsible for what, which in turn reduces chaos and confusion during a crisis. 

Set up reporting dashboards

Evaluating performance is challenging without a reporting system that helps you visualise key metrics and consolidates critical data. It helps logistics managers make informed decisions based on latest trends and purchasing patterns, rather than on gut feelings.  

Robust reporting dashboards help to track if the logistics partner is meeting SLAs. It helps improve the quality of logistics services by pulling up data on bottlenecks, shipping delays, and fulfillment errors. This way, logistics teams can discover ways to improve customer experience. 

Establish performance baselines

In order to understand if your provider is meeting the expected level of performance, discuss and agree on a set of baselines to follow. In the long run, these help you assess if your provider is meeting the mark sufficiently, missing it by a huge margin, exceeding expectations, or improving in areas where gaps exist. 

Most importantly, setting baseline performance expectations before onboarding vendors helps to objectively analyze if revenue goals are sufficiently met. Baselines also help teams to improve over time by analysing patterns - over time, they can identify deviations, unexpected failures, and decline in quality. 

Understanding challenges helps in identifying shortcomings, enables shippers to plan better, and solve them effectively. Watch out for these challenges in your supply chain services: 

Inconsistent data across systems

Given that data is critical to decision making and future proofing logistics services, inconsistency can lead to a number of unprecedented challenges. 

For example, if your shipping, inventory, and order data is fragmented across multiple, siloed systems, it can lead to errors in delivery. Issues like double entry, incorrect quantity, or delays will be inevitable - ultimately hampering customer experience. 

Lack of visibility in last-mile delivery

The last mile is the most critical part of logistics as it is the customer facing part of the process. It is also the most expense driven, making it especially important for shippers to have comprehensive visibility. 

If your logistics vendor systems lack the capacity to retrieve tracking data in real time, it can lead to delayed shipments, poor customer experience, and ultimately damage brand value. 

Overreliance on outdated tools

Despite advanced technologies seeping rapidly into most aspects of logistics, many vendors still rely on outdated, siloed systems to conduct their daily activities. Other than competitors with smarter systems scaling at a faster pace than you, the problem with relying on such systems is that it eats up resource bandwidth, fails to provide real time updates, and does not integrate properly with other critical systems. 

Delays and unplanned freight expenses

Two primary goals of logistics providers are to ensure customer satisfaction while reducing investments. Delays and unforeseen freight expenses impact results in poor customer experience as well as reduced ROI (return on investment). In most cases, these challenges stem from inaccuracies in forecasting, inefficient routing, or a lack of capacity planning. 

The modern logistics landscape is complex and chaotic. With new challenges thrown in their way every day, shoppers need the right services to navigate this landscape with little to no roadblocks. 

FarEye offers the tools and capabilities for shippers to track, predict, and optimize their end to end delivery operations. From real time visibility, dynamic routing, and exception management, it helps to provide an exceptional experience for customers. 

FarEye’s transportation and logistics platform powers delivery excellence for 150+ global enterprises. It streamlines operations, reduces delivery turnaround times, cuts logistics costs, enhances productivity, and unifies disconnected logistics processes. These features enable businesses to deliver faster, smarter, and more customer-centric experiences.

Define your needs and service level expectations

As previously outlined, it is a good idea to set expectations and baselines before onboarding. Doing so helps to ensure transparency and maintain accountability. This way, if an issue occurs, you know where to look and who is accountable for it. We recommend setting SLAs to ensure clarity while comparing providers against your unique business requirements. 

Conduct trials and performance reviews

With so many vendors in the market, choosing the right one for your use case can be time consuming and confusing. 

It is important to remember that logistics services are not one size fits all - just because a vendor worked well for a client, it does not mean they are right for you. Ask your vendor for a free demo, discuss the goals and challenges you are trying to solve, and check if businesses similar to yours have positive feedback for their services. 

Identifying real-time tracking and analytics capabilities 

Real time visibility across the supply chain is critical for predicting orders, forecasting issues, and making other decisions. Apart from real time tracking, look for capabilities like geo fencing alerts and intelligent analysis. Modern logistics service leverages smart tools that recommend the best course of action based on historical data - this is an added bonus. 

Automation and technology stack

Most traditional and legacy systems fall short when it comes to automating manual processes, which are time consuming and error prone. These systems don't leverage artificial intelligence for critical activities like predicting order fluctuations, generating insightful reports, or managing edge cases. 

Providers who automate a significant chunk of their workload reduce errors, process shipments faster, and stay ahead of market fluctuations. 

Integration with TMS, WMS, and ERP systems

If your software integrates seamlessly with Transportation Management Systems (TMS), Warehouse Management Systems (WMS), and Enterprise Resource Planning (ERP) systems, it helps improve overall operational efficiency. Moreover, it helps to ensure that data flow is synchronized across your systems.