After the business has been awarded to the carriers, it can be that they need help to deliver world-class performance. In this process of supplier development, the shipper works with the carriers to improve their performance and increase their capabilities. A pre-requisite for a successful supplier development process is to act as partners and maintain a good relationship management in order to create value in all processes from raw material to delivery to the customer. Carriers need to be considered as the extension of the shipper and both are working towards the same goals.
Build long-term relationships and prevent short-term price reductions leading to lower margins for the carrier. Limit the number of carriers, focus on cost reduction, and share the benefits: two thirds for the shipper and one-third for the carrier. Create multi-functional teams across the companies and collaborate to eliminate waste with the trust that benefits will be shared. After implementing the carriers, start measuring the agreed KPIs in line with their definitions and compare the actual performances against the targets. Analyze the KPIs by asking questions like: what is the actual performance? What is the trend: stable, improving, or declining? Is the standard met? If the standard is not met in combination with a stable or declining performance it is needed to sit together with the carrier and talk about performance improvement actions they have to implement to meet the standard. This improvement process starts with describing and quantifying the issues. It is then important to find the root causes behind these issues to take temporary and/or permanent countermeasures. Carriers are ranked and labelled as a preferred carrier to keep, a potential carrier that could be used in the future or a carrier who needs to be eliminated from the carrier list. Installing, measuring, and reviewing KPIs on a daily basis is crucial, as transportation networks cannot be managed only through incidental network redesigns and tenders. Disciplined daily management is necessary to identify and eliminate waste. Set targets, check actual condition to the plan, find root causes, and solve the problems by using the Lean problem- solving tool. Each carrier is supposed to provide performance and exception reports in the agreed format on daily, weekly, and monthly bases. These reports are used when having carrier reviews to discuss the performance and agree on corrective and/or preventive actions. KPIs give information about the current performance, but they also provide ideas how to become
more effective and efficient. Choose the right KPIs, as there can be many PIs, which can be important but not necessarily key for the success of the business. Leadership needs to focus only on the key ones, understand them thoroughly and learn what factors are driving them. It is crucial to identify areas of improvement and set challenging targets, which can be derived from benchmark information of comparable companies. Check if the corrective actions indeed led to the right results. If not, check what did not work, find out the root causes, and plan new improvement actions. Go through the PDCA cycle multiple times if needed.
There are many performance indicators shippers use. Some of them can be PIs for one shipper, while the same PIs can be KPIs for the other ship- per. This depends on the shipper’s strategy focus at that moment and how crucial those (K)PIs are for being successful in the business. Commonly used KPIs for all flow types are:
• Number of shipments per employee
• Transportation costs per kg, m3 or shipment
• Outbound costs as % of sales value
• Inbound costs as % of purchase value
• Delivery reliability (% net, % gross)
• Claims value as % of transportation costs
• Correct invoice value as % of total transportation costs
• Loading degree of a truck as % of the maximum volume a truck can
• Confirmed PODs as % of all shipments load
• Traceable shipments as % of all shipments
• On-time pick-ups as % of all pick-ups
• Loading and unloading time per truck per employee
• Damages as % of all shipments
• Correct documentation as % of all shipments
• Complaints as % of all orders
From the transportation management point of view, a perfect delivery is a shipment that is delivered on time, without errors (complete), undamaged, and with the right documentation. The perfect delivery performance (%) is calculated as: delivered on-time (%) × without errors (%) × undamaged (%) × right documentation (%). Therefore, the delivered-on-time, errors, dam- ages, and documentation performances can be considered as the main
transportation management KPIs. Each individual performance part is calculated as:
• Delivered on time (%) = total number of shipments delivered within SLA/total number of shipments
• Errors (%) = total number of shipments delivered without errors/total number of shipments
• Damages (%) = total number of shipments delivered without damage/total number of shipments
• Documentation (%) = total number of shipments delivered with the right documentation/total number of shipments
Figure 3.9 illustrates some examples of the transportation KPIs: “Delivered on time” (delivery reliability) and “%Errors & % Damages” (delivery quality).
FIGURE 3.9
Example transportation KPIs.
The delivered-on-time performance, also called delivery reliability, can be expressed in a net and gross performance. Net performance is impacted by all the factors that can be controlled by a carrier such as wrongly sorted shipments, capacity issues, and planning mistakes. Gross performance includes both the carrier misses and other items that cannot be controlled by a carrier such as adverse weather conditions, late customs releases, traffic jams, and customer-related issues. This gross performance is what the receiver experiences. To find actionable improvements it is necessary to find the root causes of non-performance. Examples of typical carrier-controllable root causes, also called “delay codes,” to structure transportation delays are:
• Late delivery attempt: driver showed up after the delivery address opening times.
• Connection delay: shipment missed the next truck connection at a carrier cross-dock location.
• Damaged: shipment content and/or packaging is damaged due to carrier handling.
• Driver failure: shipment is delayed because of driver mistakes such as oversleeping.
• Wrongly sorted: shipment forwarded to the wrong carrier cross-dock location.
• Lost: carrier, temporary or permanently, cannot find the shipment.
• Equipment failure: break-downs and other mechanical issues.
• Partial delivery: driver did not deliver all the shipping units.
• Split shipment: shipping units have been delivered on multiple dates and/or times.
• Customs delay: customs clearance is not completed on time by the carrier’s customs department.
• No shipping label: shipping label is lost and the shipment could not be forwarded on time.
• No paperwork: paperwork is lost and the shipment could not be customs cleared on time.
• Wrong shipping label: wrong label on the packages delayed the delivery.
• No pick-up: carrier did not pick up the shipment on time.
Examples of typical carrier uncontrollable root causes to code transporta- tion delays are:
• Customer closed: customer was closed when the driver tried to deliver.
• Holiday: the delivery could not be made on time due to local holidays.
• Customer not available to sign: customer was not in to accept the shipment.
• Customer refused the shipment: customer refused to receive the delivery.
• Delivery interception: change in address and/or service level in transit caused the delay.
• Duties and taxes: shipment is not delivered yet due to the customer not being able to pay for duties and taxes upon delivery.
• Customer’s broker delay: shipment is not customs cleared on time by the customer-assigned customs broker.
• Customs delay: customs authorities did not release the shipment on time.
• Bad weather: the delivery could not be made on time due to adverse weather conditions.
• Force majeure: shipment is delayed due to unforeseen circumstances like strikes and terrorist attacks.
• Traffic jams: shipment is delayed due to too much traffic on the roads.
• Wrong address: delivery could not be made on time because the address was incorrect and/or incomplete.
• Security check: the national authorities held the shipment for an extended security scan.
Figure 3.10 shows an example Pareto diagram of root causes. Such a dia- gram can be created per period, carrier, lane, and more to analyze the transportation misses.
Table 3.6 shows a more structured approach of analyzing performance data on different levels such as period, carrier, country, modality, and service level.
It can be that such an analysis still does not provide enough information to take action. In that case, it is necessary to go back to the shipment data and look into the detailed issue descriptions. Figure 3.7 shows an example overview of shipment data. The same approach can be used for analyzing the delivery quality (errors and damages) and documentation (Table 3.7).
Any carrier is expected to act proactively and continuously improve KPIs.
Meeting the targets should be the minimum; the idea behind Lean is to increase the standards day by day. The improvement initiatives should not be limited to the KPIs as these represent the most important operational activities only. The scope should cover all processes, as it is impossible to capture all process performances in KPIs. This can be realized by mobilizing all the employees in the company to work on proactive daily management and kaizens. Especially in situations where the performance is below target, the carrier is expected to proactively explain the situation, provide root cause analysis, short-term mitigation plan, and resolution and target implementation date. Depending on the severity of the event, specific daily calls can be installed to discuss the progress and maintain an action list. The primary responsible and accountable carrier representative is the account manager. If the issue resolution requires a dedicated resource, the account manager can propose a different project lead but he or she remains the lead for communicating with the shipper. If the carrier is not able to improve within the agreed period, it is time to look for alternatives and prepare a phase-in/phase-out plan depending on the contract terms and conditions.
Transportation KPIs should be part of the Balanced Scorecard (BSC).
This is a tool for reviewing and tracking the organization’s performance
FIGURE 3.10
Example Pareto root causes.
TABLE 3.6 Example of a Structured Carrier Performance Analysis Performance by LevelDay 1 Performance by LevelLevel 1: CarrierLevel 2: CountryLevel 3: ModalityLevel 4: SLNorm (%)Shipments (#)Late (#)Damages and Errors (#)Score (%) Total performance by carrierCarrier x Carrier y Carrier z Total Performance by carrier by ship-to countryCarrier xCountry a Country b Country c Performance by carrier by ship-to country by modality
Carrier xCountry aAir Road Sea Country bAir Road Sea Country cAir Road Sea (Continued)
Performance by LevelDay 1 Performance by LevelLevel 1: CarrierLevel 2: CountryLevel 3: ModalityLevel 4: SLNorm (%)Shipments (#)Late (#)Damages and Errors (#)Score (%) Performance by carrier by ship-to country by modality by service level
Carrier xCountry aAirSL 1 SL 2 SL 3 RoadSL 4 SL 5 SeaSL 6 SL 7 SL 8 AirSL 9 Country bSL 1 SL 2 RoadSL 3 SL 4 SL 5 SL 6 SeaSL 7
TABLE 3.6 (Continued) Example of a Structured Carrier Performance Analysis (Continued)
Performance by LevelDay 1 Performance by LevelLevel 1: CarrierLevel 2: CountryLevel 3: ModalityLevel 4: SLNorm (%)Shipments (#)Late (#)Damages and Errors (#)Score (%) SL 8 SL 9 Country cAirSL 1 SL 2 SL 3 RoadSL 4 SL 5 SL 6 SeaSL 7 SL 8 SL 9
TABLE 3.6 (Continued) Example of a Structured Carrier Performance Analysis
TABLE 3.7 Example Shipment Data ShipmentPlanned Pick-up DateActual Pick-up DatePlanned Delivery DateActual Delivery DateRoot CauseResponsibilityDetailed Issue Description 457285023-9-1723-9-1725-9-1726-9-17Late deliveryCarrierCustomer was closed 340957624-9-1724-9-1726-9-1726-10-17DamagedCarrierPallet collapsed in truck 334534525-9-1725-9-1727-9-1728-10-17Driver failureCarrierDriver overslept 045912326-9-1726-9-1728-9-1729-9-17Wrongly sortedCarrierForwarded to location xyz 099876227-9-1727-9-1729-9-17?-10-17 LostCarrierTracer pending 623423228-9-1728-9-1730-9-171-10-17Equipment failureCarrierTruck does not start
via financial, customer, process, and people KPIs. The BSC tracks the improvement actions through monthly, quarterly, and annual reports.
It consists of leading and lagging metrics, where the leading metrics indicate whether the shipper is on schedule to make the targets, while the lagging metrics show if the targets have been met. A BSC makes a company’s strategy visible while communicating it across the organization. It also supports a fast decision-making process by the leadership team. Typical transportation KPIs in a BSC can be transportation costs, delivery reliability, and employee survey score.