When outsourcing logistics and fulfillment to supply chain partners, it’s important to understand how to track and monitor your fulfillment partner’s performance. Not all providers operate the same or have the same core competencies. Choosing the provider who can meet your brand’s needs requires a diligent and thorough interview process, but also continual analysis of how they continue to serve your business.
Many ecommerce businesses outsource fulfillment and logistics to a third-party logistics provider (3PL). The best way to monitor your 3PL’s services and how they meet your brand’s demands is to have an agreed upon list of metrics to track—this is often outlined in a business contract called a service level agreement (SLA).
What is a Third-Party Logistics Service Level Agreement?
It’s common practice that an ecommerce business will sign a contract with a 3PL called a service level agreement (SLA). An SLA outlines the exact ways the 3PL expects to perform their fulfillment and logistics duties. The contract is a promise they’ll ensure you’re getting the service you’ve signed up for when hiring them.
Within a fulfillment SLA the main metrics will identify the speed and accuracy of the services your 3PL can provide. All fulfillment and logistics providers are different, so they may include different metrics within this contract.
Ecommerce businesses outsourcing fulfillment to a 3PL company should be well-versed in all the metrics within their SLAs. This is the best way to track the ROI of working with your 3PL and assess if it’s time to find a new 3PL provider. Your SLA contract may also be how your 3PL determines pricing or invoices you for fulfillment costs.
Common Key Performance Indicators (KPIs) to Track Your 3PL Services
Service level agreements are contracts that exist in many industries (warehousing, storage, distribution, and more). Fulfillment companies and 3PLs use them as well, but because providers each have different core competencies and different services offered, SLAs can include different metrics.
Here are many of the more common key performance indicators (KPIs) listed in 3PL SLAs.
Direct-to-Consumer or Parcel Fulfillment
One of the most common metrics that 3PLs are measured by is their ability to fulfill orders by the agreed-upon daily cutoff time. Typically, 3PLs have a local cutoff time, often set at noon, meaning they commit to fulfilling and shipping all orders received by that time. This is typically for direct-to-consumer or parcel fulfillment. To assess their SLA performance, you would calculate the percentage of orders fulfilled by the cutoff time by dividing the number of orders fulfilled on time by the total number of orders received before the cutoff.
>98% of orders received by noon local will be fulfilled and shipped the same day
LTL and Large Order Fulfiullment
Unlike direct-to-consumer or parcel orders, LTL and large orders are often more complex, needing extra time and coordination to prepare, fulfill, and ship. These orders usually involve picking cartons, master cases, or pallets. Additionally, larger orders may need more truck space or even dedicated trucks, which requires careful coordination with the chosen carriers. It’s common that large orders will be fulfilled within three business days from order receipt time to ship.
>95% of large orders will be fulfilled and shipped within 3 business days
Inbound Goods Receiving
It’s crucial for 3PLs to efficiently receive goods so they are ready for fulfillment as quickly as possible. When inbound shipments are correctly labeled, packaged, and set up in the Warehouse Management System (WMS) ahead of time, the receiving process should be smooth and speedy. Additionally, providing accurate inbound shipment details, typically through an electronic Advanced Shipment Notification (ASN), is essential. This information allows the 3PL to properly schedule labor for unloading and storing the inventory.
>95% of inbound shipments will be processed and ready within 2 business days of receiving the goods
Order Accuracy
Order accuracy is essential for ensuring customer satisfaction. While 100% accuracy is challenging, partnering with a 3PL that strives for near-perfect order processing is crucial. Known as “picking accuracy,” this metric tracks how correctly orders are picked, packed, and shipped. Regularly monitoring and improving this metric helps prevent errors, reduces costs, and enhances the overall customer experience, making it a vital aspect of successful fulfillment operations.
>99% accuracy rate for fulfilled orders
On-time Delivery Performance
One of the most important metrics for ecommerce brands to track, on-time delivery performance measures the number of orders shipped on or before a requested delivery date or delivery time. This KPI is commonly the leading indication of a your 3PL partner’s performance, especially because the time between when an order is placed, and when that package arrives is one of the most important aspects of ecommerce customer satisfaction.
Want Faster Delivery?
Learn how Therabody maintained same-day fulfillment on 100% of their orders during their biggest holiday rush.
Fulfillment Lead Time
A component of on-time delivery is fulfillment lead time, which refers to the amount of time in between when an order is placed and when it is ready to ship. This includes the pick, pack, and any assembly or kitting needed to be performed. If you’re seeing slower than desired deliveries (whether for DTC customers or retail accounts) look at the fulfillment lead time first to determine if there’s anything that can be streamlined.
Storage Utilization
Storage costs can add up quickly so it’s important for ecommerce brands to optimize the amount of space you pay for warehousing your products. You’ll want to ensure you have enough warehouse space for the ebb and flow of products in and out of the warehouse, but you also want to ensure you’re not overpaying for deadstock to sit and tie up your capital.
Fill Rate
Fill rate is a metric that tracks the percentage of orders that a brand can ship out without any backorders or stockouts. It’s an important thing to monitor as it reflects whether you’re meeting customer demand. Having this KPI in your SLA will help brands follow order volume peaks during busy periods like the holiday season.
Return Processing Time
Returns management is nuanced and complex, and processing returned merchandise quickly and effectively is something that can have a big impact on a brand’s overall revenue. Return processing time refers to how long it takes your 3PL to receive returned inventory and return it to “good” stock. Partnering with a 3PL with efficient receiving and returns processes means more sales opportunities for your brand.
Customer Service Response Time
Fulfillment is a business of exceptions, there are always things that require extra attention and anomalies that deserve special treatment. A singular error can lead to a large issue, so a 3PL’s customer service needs to include response time to address these exceptions. A quick response time will help solve issues before they become customer complaints.
< 3 hours first reply time to email
Inventory Accuracy
Inventory management is a core competency of most 3PLs and they are responsible for your inventory accuracy rate. They’ll need to record SKUs as orders are shipped out and more products are received in. Any inventory discrepancy can have big consequences. As part of your inventory SLAs you might see a specific number of cycle counts or audits done throughout the year. Shrinkage rates may be included as well.
> 98% Accuracy rate of items counted
Bottom Line
An ecommerce fulfillment partner needs to be just that, a partner not just another vendor. Logistics service providers are responsible for some key aspects of your business, ones that directly affect how customer orders are processed and how customer expectations are met.
When evaluating your 3PL and the fulfillment services they provide, use your SLA contract to track their performance over time.
This post was written by Maureen Walsh, Marketing Manager at DCL Logistics. A writer and blogging specialist for over 15 years, she helps create quality resources for ecommerce brands looking to optimize their business.
Need a Reliable 3PL?
We’ve been in business for over 40 years. Let us know how we can help your company grow.
Tags: KPIs & Metrics, warehouse management
