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Carrier management has become an increasingly important aspect of running a cost-effective transportation department. "Cost-effective" shouldn't be synonymous with cheap. Instead, the goal is to reduce business expenses and increase efficiencies without sacrificing customer service levels.
By attaching key performance indicators (KPIs) to their goals, small businesses and freight agency owners can create quantifiable measurements to better understand how their carrier management process is performing at any given time.
Of course, you need to consider the context of the work we do in transportation and logistics. Skyrocketing truckload rates, erratic ordering patterns, and labor shortages are creating significant challenges for transportation managers. Yet, technology investment is also on the rise. Modern solutions to age-old problems allow shippers, carriers, and brokers to become increasingly capable, responsive, and productive. There's always a bright side!
This post will share four ways your organization can use KPIs to reduce transportation spending by improving carrier management.
If you're wondering what KPIs are, we've got you covered! Learn more here:
KPIs: How Small Businesses Measure Organizational Goals
As discussed in a recent post, KPIs are quantifiable measurements used to track an organization's performance. They should match your company's strategy and goals. KPIs can also be used to identify trends and opportunities.
Do you have a hunch that improvements can be made to your carrier management program? By attaching KPIs to your current business processes, you can make informed decisions.
WhileKPIs should be unique to each organization, we've provided a few below that are widely used when evaluating the carrier management process.
1. Comparing Carrier RatesKPIs are an effective way to get a non-biased "apples to apples" comparison of carrier rates. Transportation managers know the rate on paper is only half of the story. On-time performance, over short and damage (OS&D) claims, and trailer rejection rates are good indicators that the lowest rate isn't always the bargain it appears to be.
For example, let's assume that Carrier A has a significantly lower rate than Carrier B. Carrier A accepts their tenders 90% of the time while Carrier B accepts them 100% of the time. The cost of sending Carrier A's rejected tenders to the spot market – or further down the chain – may exceed the initial cost savings of using Carrier A over Carrier B. Using KPIs sets a uniform approach to comparing carriers beyond the rate on paper.
2. Identifying Sources of Increased Cost
KPIs can be useful for identifying cost-saving process improvement opportunities. Carriers consider many factors when providing rates on lanes. Short tender lead time, appointment availability, wait time at shipping/receiving, rejected loads, detention, and layovers are some of the factors that can significantly increase the rates a shipper pays. Assessorials may help mitigate the cost to carriers, but they often don't cover the carrier's actual cost or opportunity cost.
In the early stages of a project, metrics might be tactical and focused on singular measures designed to understand performance, capacity, and cost. As organizations mature, they might use those metrics to inform KPIs, which are like metrics but are aligned to strategic business objectives. In this case, the goal would be reducing transportation spend.
A transportation manager can identify potential problem areas or adjust processes that improve the carrier experience by monitoring KPIs. This will make a shipper's freight more desirable, which reduces transportation spend.
3. Administrative Cost
Aligning KPIs to the carrier management process can also reduce the administrative cost of transportation management. First, identify the most time-consuming activities in which your transportation or logistics department staff engage. Your goal is to eliminate or reduce as many of those duties as possible. Tasks might include appointment compliance, proof of delivery (POD) uploading, purchase order (PO) reporting, billing discrepancies, or estimated delivery time. Setting an expected standard with carriers, then monitoring and reporting performance, will decrease the time staff spends collecting information from carriers. Organizations can direct those time savings toward optimizing other areas of the department.
COVID-19 created its share of logistical nightmares, highlighting the benefits of solid shipper-carrier relationships. KPI scorecards make a solid framework for establishing and communicating expectations, standards, and performance. Carriers gain value from understanding how well they meet customers' expectations. Carriers can use this feedback to identify issues or areas of improvement proactively.
Clearly establishing expectations and regularly communicating results allows the shipper and carrier to focus their efforts on collaborating to find solutions and opportunities that will help grow the relationship. Some shippers use scorecards to award outstanding carriers or name a carrier of the year which can be a great way to express appreciation of the carrier-shipper relationship.
KPIs frequently differ among organizations and certainly per industry. Identifying and tracking the KPIs that are appropriate to your company's performance will give you a better understanding of your organization's progress toward its strategic goals.
Looking for more resources to help your business improve its carrier management process? Armstrong's Carrier Relations team works with our network of more than 55,000 carriers. We focus on delivering the highest level of service, spanning on-time payment, daily communication, and carrier safety and vetting. Connect with our team today!
