1. KPIs for 3PLs INSIGHTS & OUTLOOK
Su
Benchmarking ccess
3PLs’
Every 3PL organisation has set targets in the form of service level agreements to achieve. But if they seek to achieve
these targets, they need to have a good understanding of the same. Therefore, key results area (KRA) setting and
key performance indicator (KPI) measurement needs to be part of the organisations’ performance appraisal &
management system. These will help organisations achieve their targets of meeting committed cost, service quality
and delivery schedules.
It is necessary to know the ‘target’ support from other internal functions nutshell, KRAs lead to KPIs and then
before you aim. Without knowing like HR, maintenance, finance & KPIs to SLAs. The same is pictorially
what you are aiming for, all efforts administration, etc. In a small 3PL explained in Figure 1.
will, most probably, be futile. It will set up, all these functions generally Let us now look into how the
be just like searching for a needle in get bundled under operations. Thus, system works through the following
a haystack. This general guideline internally, operations will be the example with sample SLA, KPI, KRA
applies to 3PL operations as well and client to all service functions, each and one support function of HR.
is relevant to all the functions and at of which will have key results areas • SLA of Client A: On time delivery to
the every level within a 3PL set up. (KRAs) identified to it. The KRAs their outlet at 96 per cent
identified to the functions should • KPI to operations function to meet the
Setting targets the SLA way directly or indirectly help operations above SLA: On time delivery at 98
For a 3PL, the target is set by the in meeting the committed cost, quality per cent
client in the form of service level & schedules, i.e., cost of operation (on • KRA of operations function: Meeting
agreements (SLAs). The client specifies which the price to the client is based), SLAs of clients 100 per cent, every
the service standards and deliverables quality of services and schedules of time
expected from the operations managed deliverables. The process of analysing, • KPI for HR: Driver absenteeism at
by the 3PL. Evolved SLAs may have if the KRAs were achieved, is done three per cent
provisions for incentives and penalties. through a system of prescribing KPIs • KRA for HR: Providing adequate
Once the SLAs are agreed upon, and then periodically measuring and manpower resource to operations.
the drill down exercise of finding interpreting the same. Thus, in a The above example takes into
the way up begins. If SLAs consideration the timely availability of
are the pinnacle, then the key drivers as one of the key requirements for
performance indicators (KPIs) SLAs (part of the achieving the SLA of on time delivery.
signed contract)
are the steps leading to it. In It also recognises the responsibility
such a scenario, a top-down of providing drivers rests with HR
approach will work well as KPI 1 KPI 2 KPI 3
function and sets a standard of three
the focus then remains on the per cent driver absenteeism, beyond
client’s expectations. In a 3PL, KRAs which it will hurt the operations.
Operations
the operations function does
the front ending with the client KPI 1 KPI 2 KPI 1 KPI 2 KPI 1 KPI 2 Criticality of KPIs
and is responsible for achieving KRAs KRAs KRAs To the client
the SLAs. But for operations to HR Finance Admin. However good a product may be, an
perform successfully, it will need Figure 1: KRA-KPI leading to SLA in a 3PL model efficient supply chain is a must to make
march 2012 • SMART LOGISTICS • 43

2. KPIs for 3PLs, continued
it a success. The degree of criticality develop new businesses? handled per dock per shift’ could be
of the supply chain varies with factors • Could the Operations Head have a KPI in a situation where dock is a
like product, market, customer, etc. access to one statement which gives bottleneck in the operations.
There are examples of great products him all critical information?
bombing at the marketplace because of There is only one answer to all the Inculcating a KPI-driven
a deficient supply chain. Every business above questions – a well-structured approach
recognises this and takes steps to build KPI reporting and review system. This First on the list to inculcate a KPI-
a strong supply chain. Outsourcing the shows the criticality of KPIs to a 3PL. driven approach is that the 3PL
function to a specialist 3PL is one of Thus, an evolved KPI system is a must organisation needs to be service/
the steps. for progressive 3PL service providers. customer-centric in its approach to
Outsourcing does not take away the business. The entire organisation,
responsibility of ensuring the expected Criteria for selecting KPIs irrespective of the function or role,
performance of the supply chain. The following guidelines will help in should be aware of how their action or
At the same time, it is important identifying the KPIs: inaction will impact the deliverables to
to minimise the direct day-to-day • It should be well defined. The the client. Once the commercials on
involvement, otherwise the purpose of objective and benefit of the data the contract are agreed and finalised,
outsourcing will get defeated. It is here should be understood. the focus needs to be then fully on
where the relevance of KPIs comes in.
The client defines and specifies the Figure 2: 3PL KPI System - Implementation Process Explanation/Example
key performance expectations as a part
of the contractual obligation with the 1 - Identify the objective of operations in Say the SLA for a grocery retailer for
supplies from a DC is - ’on time in full’
terms of internal service level
3PL service provider. The method of standards/clients SLAs (OTIF) rate of 95%
data collection, format and frequency 2 - Identify the key performance areas Number of line items per order/ordering
to be measured and the structure of to delivery window/delivery v/s number
of reporting KPIs and reviewing the the data presentation to align with the of line items delivered and time of
above. delivery
same is also part of the arrangement.
3 - Identify the team/function
Generally, clients would like to see Meeting the service level
standards as in 1, as the responsible for the delivery of above
Here it could be the
‘Warehouse/Operations Manager ‘
KPAs
the performance dash board. Through KRA of the team/function
Make the deliverables the For the OTIF - Inventory management/
the periodical review of performance KRA for the
4 - Identify all other critical performance
standards across functions which need to customer service/IT/transport/HR
function/team & warehouse management have
indicators, clients come to know be achieved to support to fulfill 2 above
measurable roles to play.
the exact health of the supply chain 5 - Specify data collection and
reporting system for 2 & 4 - data
operations. Wherever necessary, deep Part of the organisation’s
source, frequency, format, computation,
responsibility, reporting hierarchy, etc.
performance appraisal
diving may be resorted to and course management & reward 6 - Establish review mechanism - For example the quorum could be
system
correction plans chartered. Frequency, quorum, venue, presentation,
standard agenda, mechanism to address
internal or with the client or multi levels
follow on meetings.
To the 3PL deviations/concerns.
• What is the basis by which a 3PL
player can claim that his operations • It should be simple to compute the operations and SLAs. The spirit
are in best shape or otherwise? and explain. It is important that should be that ‘we need the customer
• What is the performance trend? the person responsible for the KPI more than they need us’.
How to be proactive before the should be able to understand and Everyone in the system should have
client calls up? calculate the same. For e.g., in access and knowledge of the KPIs
• How to identify operational controls transportation, the ‘km per litre’ of trend – like we say, ‘information on
areas? fuel is one of the important KPIs. their fingertips’. Visibility should be
• How will he highlight his This comes under the control of the created on achievements through
performance to the client and claim driver and he could very well work display, communications, rewards,
incentive? out the same without any support. etc. There should be excitement and
• How will he justifiably reject the • The KPI should be assigned to a encouragement. Review meetings
debit passed on by the client? function or a group or to a person. should happen as planned and need to
• What is the way to identify • The KPIs should be aligned to the be conducted seriously. Commitment
weak spots in the operations and end objective i.e. cost, service quality on action plans need to be fulfilled and
effectively address it? and schedule of deliverables or with frequent defaulters need to be pulled
• How to identify performers in the the SLAs. Simple data like – number up. Performers need to be rewarded.
system? of docks in the warehouse, cannot
• What marketing tool to use to be a KPI. ‘Number of vehicles H Shriram, MD, ImpelPro SCM Solutions
44 • SMART LOGISTICS • march 2012