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As you begin your search for a 3PL to outsource some or all of your company’s supply chain activities, service expectations should be top of mind. Working with a 3PL allows you to concentrate on your business’s core functions rather than using your internal resources to manage warehousing, fulfillment and transportation. Contracting with a 3PL also allows you to avoid cost-intensive investments in facilities, technology and labor.

So, what performance improvements can you expect from working with a specific 3PL?

Any 3PL you’re interviewing should provide a report card of its performance on industry-standard metrics and KPIs as part of the consideration process. Once you have established a relationship with a 3PL, ongoing evaluation of these metrics, as well as specific metrics unique to your business, will help you track the success of the partnership.

While 3PLs are usually quick to offer their performance stats, how they compare with industry standards or the competition is not always apparent. We’ll look at some of the standard metrics and industry averages.

Critical Warehouse 3PL Metrics:

Order accuracy (99.00 – 100%)

The rate at which the 3PL picks, packs and ships orders is critical, but fast shipping doesn’t have as much impact if the order or address is incorrect. This metric is critical for customer satisfaction, whether it’s B2B or DTC.

On-time delivery (95.00 – 100%)

A measurement of how often customers receive shipments in the expected delivery window is critical as well. The shipper can’t control how quickly the carrier delivers a package. However, efficient order fulfillment can eliminate preventable delays in on-time shipping.

Inventory accuracy (99.50 – 100%)

The 3PL’s inventory system should track all moves, transfers and adjustments with a high degree of accuracy in real time in order to quickly discover discrepancies during order fulfillment, stock-taking or cycle-counting activities. Inventory accuracy begins with the receiving and put-away process.

Damaged goods percentage (0.2 – 11%)

The rate of goods damaged during delivery should be low. Parcel carriers have the highest rates of damage but a high rate may also indicate problems in packaging.

Missed shipment rate (6 – 8%)

The rate of shipments not delivered on the first attempt will provide performance data on address verification and order management.

Returns handling efficiency (48 – 72 hours)

While returns are a fact of life, the time to process returns is critical for returning product to sales or proper disposition.

Start with quantifying your current state of performance in these areas, and identify gaps relative to industry standards. Would outsourcing to a new or different 3PL help you achieve your desired goals?

Keep in mind there are differences among metrics, KPIs and service level agreements:

  • Metrics measure the operational performance within an organization, e.g., the speed of order fulfillment.
  • KPIs indicate the level of execution, e.g., the percentage of items fulfilled in 24 hours.
  • SLAs establish a minimum level of performance, such as 98% of orders must be shipped within 24 hours.

Make sure you discuss metrics, KPIs and SLAs with any 3PL partners you are considering. In some cases, 3PLs will improve performance for a price. Depending on your business model, you can evaluate whether it’s necessary to buy into 24-hour service compared to 48-hour service at a lower rate.

As you evaluate potential 3PL partners, understand how they perform against industry KPIs and how they will help you accomplish your business goals for efficiency and productivity.