Today we continue our series on successfully working with a logistics company, often called a third party logistics company by focusing on how to properly understand the success of the engagement by knowing all the key performance indicators that a shipper could put in place. In our first post in the series, we set the mindset of the shipper by going over the 9 key topics to understand about effective KPI management and followed that post with the 7 strategic performance business practices to track and 4 KPI problems to solve.
Now that we have an overview understanding of KPI (Key Performance Indicator) management, let’s dig deeper today and cover ways to create total stakeholder satisfaction, how we can create fully functioning outputs, and finally how to establish the framework to develop KPIs and other measurements.
We will then finalize the series on logistics key performance indicator success management with practical techniques to carry through the academic subjects we’ve covered thus far.
Before we fully get to establishing a framework effective KPIs when engaging with a logistics company, we must take a step back and understand how to apply the creation of stakeholder value. This starts with deploying the S.M.A.R.T. technique to your own business. If your business is not sound and prepared for engagement with any vendor, much less partnering with a logistics company, you will hardly reap the rewards of hiring outside expertise to bridge the gaps your company is not able to fill using in-house resources.
Firstly, what does your current in-house team look like? Write down the current job descriptions and roles of your current in house team. Then, and you may not know this yet or you may, write down your desired job descriptions and the roles of the logistics company and how your team would work with the logistics company. This will give you an idea of where your gaps are as an organization and what you need to fill.
At the end of the day, whether you perform logistics fulfilment in-house or with an outside hired logistics company, the goal is to bring value to all customers and go beyond their expectation.
Stakeholders are satisfied when they have bought in and KPIs are being met.
Who are your stakeholders? The entire company of both partners are stakeholders in this relationship.
Both parties get value when there is clear communication of objectives, or goals.
This first step is the most important. All communication objectives must clearly support your organization in achieving its stated goals in the engagement with a logistics company. If you are clear about where your organization is going and what it needs to achieve, it becomes much simpler to work out what you need to do in terms of communications activity to support that.
Ideally, all objectives should be S.M.A.R.T. The S.M.A.R.T. acronym stands for “Specific, Measurable, Achievable, Realistic and Time-bound”. Sometimes, the S.M.A.R.T. technique is not always possible when delivering communications to a myriad of different audiences, and often on a small budget.
The best way to work out your objectives is to ask the question:
A year from now, what do we want to have achieved from a communications point of view that will support our organization in achieving its goals when working with a logistics company?
Using a fictitious organization, Rounders NZ, we have set two key business goals for them to achieve in the following year:
To support these business goals, your communication objectives may be:
The effect of any communications effort with this may be difficult to measure unless specific measurement tools are put in place upfront. Evidence may be just as useful in situations like this.
Objectives won’t work if you make them too broad or try to achieve too much in one statement. For example, saying you want to improve relationships with your key stakeholders might be a worthy objective. However, without the why? It could be interpreted any number of ways when it came to developing activities to support it. That is why it is vital to now think about the desired outcome and how you can crate fully functioning outputs with better inputs.
As we have now taken a step back to first understand how to create stakeholder value for the organization (shipper) who is looking to engage in the partnering with a logistics company. Let’s talk about the outputs, or desired metrics worth measuring, in each category of what a logistics company might provide. Now, if you are in this industry, you know that not every logistics company offers the same services. Cerasis is squarely focused on transportation management through technology and managed services, however, there are logistics companies who offer fulfillment, warehousing, freight forwarding, and more. But, we want to make sure and include the outputs to look for in each of the core logistics areas.
Warehousing can have numerous outputs, but here are the core outputs to expect to measure:
Implementing and sustaining LEAN initiatives: 5S, Kaizen, Kanban and LEAN Six Sigma to bring value to the customer and go beyond their expectations
Continued monitoring of Safety/OSHA outputs to protect the people of the logistics company and your own employees.
Continued management education and training to keep abreast of the sate-of-the art in logistics
IT improvement outputs: is the customer delighted with the IT integration, customization, inventory and transportation tracking visibility, and data information. Are your IT systems state-of-the-art?
Is the customer happy with communication?
Are you using voice of the customer (VoC) techniques to improve operations and customer service?
KPIs are set by the customer/shipper and logistics company in collaboration and trust. It must be a “win-win” collaboration. The customer states what measurement they want to use to monitor the performance of the logistics company. The logistics company works with the customer to agree or disagree with the requested KPIs. Both find a “win-win” middle ground.
Consider Six Sigma quality will be used and measured. Six Sigma continuous improvements using DMAIC (Define, Measure, Analyze, Improve and Control), PDCA (Plan Do Check Act) and VSM (Value Stream Mapping) are applied for Cost Reduction and Process Improvements.
In Six Sigma you must find the ROOT CAUSE of a process to be able to solve it, and improve the process. The concepts of root cause analysis seem simple, but applying them in every aspect of your company is difficult. Experience dictates:
The statistical representation of Six Sigma describes quantitatively how a process is performing. To achieve Six Sigma, a process must not produce more than 3.4 defects per million opportunities. A Six Sigma defect is defined as anything outside of customer specifications. A Six Sigma opportunity is then the total quantity of chances for a defect. Process sigma can easily be calculated using a Six Sigma calculator .
Common pitfalls are not reviewing the SLA/KPI living document frequently enough with a logistics company. A pitfall in practice, is not giving the ACTUAL KPI performance thus making the KPI look good, but not factual. At times, an audit of the percentage behind KPIs will be necessary. If times, or activities change, the KPIs should also change. The SLA/KPI is a “living” document that reflects the current reality of the times.
Join us in the next post in the series as we show you practical techniques to carry through the strategies around effective KPI management within logistics.
Also, please feel free to leave a comment below with anything we are missing. Your opinion and input are much appreciated!
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