BLOG: SLA'S AND KPI'S - HOW DO THEY AFFECT THE FREIGHT MARKET?
June 27, 2018
Efficiency is a key part of the supply chain. Here at Spot, we utilize several methods to create the most efficient processes possible. Two of the tools that we utilize are service level agreements (SLA’s) and key performance indicators (KPI’s). They both play a major role in ensuring consistency and cost savings for shippers.
What Are SLA’s and KPI’s?
SLA’s and KPI’s are the two primary components that hold carriers to a certain performance level. An SLA is an agreement that sets the level of service expected. These are utilized by the shipper or by Spot on behalf of the shipper. KPI’s are essentially the rubric used to determine whether that service is up to par with the agreed upon level of service.
How Do We Measure These?
A few of the KPI’s that Spot uses to measure performance include on-time pickup and on-time delivery percentages, routing guide compliance, missed loads, rejected trailers, and tender acceptance. Each of these combined gives an accurate view of how the carrier is performing.
What is the Impact to Shippers?
By using the KPI’s listed above, an efficient supply chain is more easily attainable. SLA and KPI measurement provides the following benefits to shippers:
- Cost avoidance: Typically, the number one carrier on the routing guide accepts 78% of the volume, and customers with greater volume are less likely to be rejected. Measuring acceptance levels as a KPI helps hold the carriers to the agreed upon levels set in the SLA. By ensuring those top carriers are not making a shipper waterfall down the routing guide, there is a large cost avoidance. On average, the cost per load rejected is $175. A few actions that lead to cost penalties are short lead times, weekend tenders and pickups, and relying on large carriers. Larger carriers rarely adjust their rates, so smaller carriers can be a great option to garner better pricing. Extending lead times out between 5 and 11 days saves $42 a day on average. Being aware of rate changes throughout the week can also save. For example, Saturday is the most expensive tender day because shippers have to go deeper into their routing guides at the end of the week.
- Fewer interruptions to the supply chain: Holding carriers to an acceptance percentage avoids a time-out, or any disruptions in the supply chain and on-time performance.
- Consistent supply chain: Common carriers know shipper requirements, which makes it easier for them to measure up to the agreed upon KPI’s. The deeper you go into the routing guide, the more carriers you have to introduce to any unique requirements, causing inconsistency in the supply chain.
Holding carriers accountable with KPI’s and using best practices as a shipper can dramatically reduces costs, cause fewer disruptions to the supply chain, and lead to a more consistent supply chain.