Logistics Service Level Agreement and Logistics Key Performance Indicators: A White Paper
Recently Cerasis started a LinkedIn group called the "Manufacturing, Distribution, Supply Chain, Logistics, Transportation and Freight News and Networking" group in order to help bring the worlds of these industries together to better learn from and network for business. The goal of the group is to offer value from not only Cerasis, but also from thought leaders in the space by way of this blog and other shared content. As Cerasis has been very active in social media, primarily LinkedIn, since the launch of our new marketing plans, we have noticed again and again, as well have others, the lack of a general guideline on Service Level Agreements in logistics, as well as specific KPIs around the different types of logistics providers that exist, such as those who have assets vs. non-assetts, those who are niche vs. those who are more general. One of our goals at Cerasis is to take away the cloud of confusion around these types of areas, and we have built a relationship with Chuck Intrieri, who is a 3PL consultant and works with those needing 3PL services to find the BEST fit for their needs. In his 25 plus years of experience, he has identified the KPIs that should be included in a Service Level Agreement. Please fill out the form below in order to download the white paper: "The KPIs of a Logistics Service Level Agreement". Below the form, you will learn what is a Service Level Agreement in Logistics, and the overview of what should be included.
What is a Service Level Agreement (SLA) in Logistics?
A service-level agreement (SLA) is a contract between a logistics service provider and a customer that specifies, usually in measurable terms, what services the logistics service provider will furnish. Many logistics service providers will provide their customers with an SLA. More recently, logistics departments in major companies have adopted the idea of writing a service level agreement so that services for their customers (users in other departments within the company) can be measured, justified, and perhaps compared with those of outsourcing network providers. Some basic metrics or Key Performance Indicators (KPIs) that SLAs may specify include:
- IT agreements: Customization/Integration
- Inventory Records Accuracy
- Quality Assurance upon receipt
- Returned Material Authorization (RMA)
- Continuous Improvement
- Mutual Inventory Management
- Cost Reduction agreements
- Voice of the Customer (VOC) feedback
There are many more KPIs that can be added to this basic SLA agreement. The more KPIs, the more difficult the negotiation process. It can take months to negotiate a complex SLA/KPI document, as you go back and forth with your logistics provider so the document becomes a “win-win” for both parties. After the SLA/KPI is an approved document by both the customer and logistics provider, this document and its contents need to be reviewed monthly to begin with, and quarterly thereafter. Both parties will know how the partnership is moving along based on hitting the targets in this SLA/KPI document. Without an SLA/KPI there is no way of measuring the performance of both parties. Don’t be surprised if a logistics provider does not jump at a SLA/KPI with a “let’s keep it simple” statement. Always use some kind of basic SLA/KPI to protect you as you outsource your logistics department.
Quarterly Based Review of SLA
There should also be a QBR or Quarterly Business Review on the transportation company you choose. This should also be a contract with agreements and milestones. A specific SLA/KPI document follows. This extensive document will have to be presented in phases as it is large and was agreed upon as a “win-win’ document. Important comment: Always use collaboration and trust in your dealings with a logistics provider. Not everything is costs or price discussions. Let the logistics provider show you his ability to be the professional you partner with in this “win-win” partnership together. You and your logistics partner’s theme should be: What gets measured gets accomplished. If not, why not? What are your experiences in Logistics Service Level Agreements or SLAs in any industry? Have they been effective? What KPIs would you want to see?