What Are the Top 7 KPIs of a Transportation Management System (TMS) Provider Business?

As the transportation industry becomes increasingly competitive, it's essential for businesses in the artisan marketplace to stay ahead of the curve when it comes to performance metrics. Key Performance Indicators (KPIs) play a crucial role in measuring the success and effectiveness of a Transportation Management System (TMS) provider. In this blog post, we'll explore seven industry-specific KPIs that are essential for small business owners and artisans to track in order to optimize their transportation operations. From on-time delivery rates to cost per mile, understanding and analyzing these KPIs can provide valuable insights into how well your TMS provider is meeting your transportation needs, ultimately leading to improved efficiency and customer satisfaction.

On-Time Delivery Rate

Definition

The On-Time Delivery Rate KPI measures the percentage of shipments that are delivered on time as promised to customers. This ratio is critical to measure as it directly impacts customer satisfaction, retention, and overall business reputation. In the logistics context, on-time delivery is crucial for meeting customer expectations and maintaining a competitive edge in the market. Failure to achieve a high on-time delivery rate can result in increased customer churn, negative reviews, and a loss of business opportunities.

How To Calculate

The formula for calculating the On-Time Delivery Rate KPI is:

Where the number of on-time deliveries is divided by the total number of deliveries, and the result is multiplied by 100 to express the rate as a percentage. This calculation provides a clear assessment of the company's ability to meet delivery commitments.

Example

For example, if a company has 800 deliveries in a month and 720 of them are delivered on time, the on-time delivery rate would be calculated as follows:

Thus, the company's on-time delivery rate for that month is 90%.

Benefits and Limitations

The On-Time Delivery Rate KPI provides a clear indication of customer satisfaction and helps identify areas for improvement in the delivery process. However, it does not account for the reasons behind late deliveries, such as external factors or carrier performance, which may limit its effectiveness as a standalone measure of logistics efficiency.

Industry Benchmarks

According to industry benchmarks, the average On-Time Delivery Rate for the transportation and logistics industry in the United States is around 90%. Companies that consistently achieve rates above 95% are considered to have exceptional performance in this area, reflecting high efficiency and customer-centric logistics operations.

Tips and Tricks

• Implement automated route optimization to minimize delays and improve on-time performance.
• Utilize real-time tracking technology to proactively identify potential delivery issues and take corrective actions.
• Establish clear communication channels with carriers to ensure alignment on delivery expectations and reduce the risk of delays.
• Analyze historical data to identify patterns and trends that may impact on-time delivery, allowing for proactive adjustments to logistics operations.

Freight Bill Accuracy

Definition

Freight bill accuracy is a key performance indicator that measures the precision of invoicing and billing within the transportation management system. It is essential to ensure that the charges, rates, and fees on the freight bill accurately reflect the contracted rates and services provided. In the business context, accurate freight bill processing is vital for maintaining financial transparency, preventing revenue leakage, and ensuring fair compensation for carriers and shipping partners. This KPI is critical to measure as it directly impacts the company's financial health, operational efficiency, and customer satisfaction. A high level of freight bill accuracy indicates reliable billing processes, transparency, and cost control, which are essential for sustainable business operations.

How To Calculate

The formula for calculating freight bill accuracy is the total number of accurate freight bills divided by the total number of freight bills processed, multiplied by 100 to express the result as a percentage.

Example

For example, if a transportation management system processes 500 freight bills in a given period and 480 of them are accurate based on the contracted rates and services, the freight bill accuracy would be calculated as follows: Freight Bill Accuracy = (480 / 500) x 100 = 96%

Benefits and Limitations

The benefits of maintaining high freight bill accuracy include financial integrity, improved relationships with carriers, reduced payment disputes, and enhanced trust with customers. However, the limitations may include the complexity of processing diverse freight billing scenarios and the potential for human error, especially in manual invoice verification processes.

Industry Benchmarks

According to industry benchmarks, the typical freight bill accuracy rate in the transportation and logistics sector ranges between 95% to 98%. Above-average performance is considered to be in the range of 98% to 99.5%, while exceptional performance levels exceed 99.5%.

Tips and Tricks

• Implement automated freight auditing and invoice verification systems to minimize errors.
• Regularly review and update carrier contracts and rate tables to align with billing processes.
• Establish clear communication channels with carriers to resolve billing discrepancies promptly.
• Leverage TMS capabilities for real-time monitoring and validation of freight billing data.

Carrier Compliance Rate

Definition

Carrier Compliance Rate is a key performance indicator that measures the percentage of carriers adhering to the agreed-upon service level agreements and compliance requirements. This ratio is critical to measure as it provides insights into the reliability and performance of carriers, which directly impacts the efficiency of transportation operations. In the business context, this KPI is important as it ensures that carriers are meeting their obligations in terms of timely delivery, safety standards, and overall service quality. A high Carrier Compliance Rate is indicative of smooth and consistent transportation processes, leading to improved customer satisfaction and cost-effectiveness.

How To Calculate

Carrier Compliance Rate is calculated by dividing the total number of compliant carrier shipments by the total number of carrier shipments within a specific timeframe. The numerator represents the successful, on-time, and compliant deliveries, while the denominator includes all carrier shipments regardless of their compliance. This ratio provides a clear indication of the percentage of compliant carrier services out of the total volume.

Example

For example, if a company had 800 carrier shipments in a month, and 720 of those were compliant with the agreed-upon service level agreements and compliance requirements, the Carrier Compliance Rate for that month would be calculated as follows: (720 / 800) x 100 = 90%. This means that 90% of the carrier shipments met the required compliance standards.

Benefits and Limitations

The primary benefit of monitoring Carrier Compliance Rate is ensuring consistent and reliable transportation services, which directly impacts customer satisfaction and operational efficiency. However, a limitation of this KPI is that it may not account for external factors that could impact carrier performance, such as weather conditions or unforeseen events.

Industry Benchmarks

According to industry benchmarks, the typical Carrier Compliance Rate in the transportation industry ranges from 85% to 95%. Above-average performance would be considered at 95% or higher, while exceptional performance levels may reach 98% or more.

Tips and Tricks

• Establish clear service level agreements and compliance requirements with carriers
• Regularly review and communicate performance expectations to carriers
• Utilize technology for real-time tracking and monitoring of carrier compliance
• Conduct periodic audits and assessments to ensure carrier adherence

Transportation Cost Per Unit

Definition

The Transportation Cost Per Unit Key Performance Indicator (KPI) measures the average cost of transporting each unit of goods and is critical to track as it directly impacts the overall profitability of a business. By analyzing this KPI, companies can identify inefficiencies in their transportation processes, make informed decisions about carrier selection, and optimize their supply chain costs. This KPI is essential in the business context because it allows companies to manage and control their transportation expenses, which ultimately affects their bottom line and competitive position in the market.

How To Calculate

The formula to calculate Transportation Cost Per Unit is straightforward. Simply divide the total transportation costs by the total number of units transported. This provides insight into the average cost incurred per unit of goods transported, allowing businesses to assess their cost-effectiveness in their transportation operations. By breaking down transportation costs on a per-unit basis, companies can gain a clearer perspective on their expenses and make strategic decisions to optimize their transportation processes.

Example

For example, if a company incurred total transportation costs of $20,000 and transported 5,000 units of goods, the Transportation Cost Per Unit would be calculated as follows: $20,000 / 5,000 units = $4 per unit. This means that, on average, the company spends $4 to transport each unit of goods.

Benefits and Limitations

Effectively tracking Transportation Cost Per Unit enables companies to identify cost-saving opportunities, negotiate better carrier rates, and optimize their shipping strategies to increase profitability. However, it's important to note that this KPI does not account for other factors such as order size, distance traveled, or specific delivery requirements, which can impact the accuracy of the calculations.

Industry Benchmarks

According to industry benchmarks, the average Transportation Cost Per Unit in the United States ranges from $1.50 to $3.00 per unit for small to mid-sized businesses in various industries. Companies that consistently achieve a Transportation Cost Per Unit below $1.50 demonstrate exceptional performance in cost-effective transportation management.

Tips and Tricks

• Optimize delivery routes to minimize fuel and labor costs
• Consolidate shipments to take advantage of volume discounts
• Negotiate favorable rates with reliable carriers
• Invest in technology for real-time tracking and efficient logistics management

Load Optimization Percentage

Definition

The Load Optimization Percentage KPI measures the efficiency of the transportation management system in optimizing shipments to ensure maximum capacity utilization. This ratio is critical to measure as it directly impacts transportation costs, resource utilization, and overall operational efficiency. By optimizing the load, businesses can minimize the number of vehicles required to transport goods, reduce fuel consumption, and lower associated costs.

How To Calculate

The Load Optimization Percentage is calculated by dividing the total actual weight of shipments by the total maximum weight capacity of vehicles and then multiplying the result by 100 to express it as a percentage. This formula provides a clear indication of how efficiently the available capacity is being utilized and the extent of optimization in the transportation process.

Example

For example, if the total actual weight of shipments is 15,000 pounds and the total maximum weight capacity of vehicles is 20,000 pounds, the Load Optimization Percentage would be calculated as (15,000 / 20,000) * 100 = 75%. This indicates that the available capacity is being utilized at 75% efficiency.

Benefits and Limitations

The main advantage of measuring Load Optimization Percentage is the ability to identify opportunities for maximizing capacity utilization, lowering transportation costs, and reducing environmental impact through more efficient use of resources. However, it may not account for factors such as dimensional weight or specific cargo requirements, which could limit its accuracy in certain scenarios.

Industry Benchmarks

Within the transportation management industry, a typical Load Optimization Percentage benchmark is around 70-80% for small to mid-sized businesses. Above-average performance would be in the range of 80-90%, while exceptional performance would exceed 90% on a consistent basis.

Tips and Tricks

• Invest in load planning technology to improve capacity utilization
• Implement dynamic routing to minimize empty backhauls and maximize load optimization
• Use data analytics to identify patterns and optimize load planning strategies

Customer Satisfaction Score

Definition

The Customer Satisfaction Score (CSAT) is a key performance indicator that measures the level of satisfaction customers have with the services or products they have received. It is critical to measure CSAT as it provides a clear indication of how well the company is meeting customer expectations, which directly impacts customer retention, loyalty, and advocacy. In the business context, customer satisfaction is a vital driver of success and directly influences revenue and profitability. By understanding and monitoring CSAT, businesses can identify areas for improvement, make informed decisions, and enhance their overall performance and competitiveness. It matters because satisfied customers are more likely to continue doing business with the company, spend more, and recommend the brand to others.

How To Calculate

To calculate CSAT, the formula involves aggregating the responses of a customer satisfaction survey and determining the percentage of satisfied customers. The numerator typically consists of responses categorized as 'satisfied' or 'very satisfied,' while the denominator includes the total number of survey responses. By dividing the number of satisfied customers by the total survey responses and multiplying by 100, the CSAT percentage is obtained.

Example

For example, suppose a transportation management system provider, Efficient Routes Inc., conducts a customer satisfaction survey and receives 200 responses. Out of these, 160 respondents indicate that they are satisfied with the platform. Using the CSAT formula, the calculation would be: CSAT = (160 / 200) x 100, resulting in a Customer Satisfaction Score of 80%.

Benefits and Limitations

The benefit of measuring CSAT is that it provides actionable insights into customer preferences, allowing companies to make targeted improvements and deliver a better customer experience. However, a limitation of CSAT is that it only captures a specific moment in time and may not reflect the overall relationship a customer has with the business. Additionally, it relies on self-reported data, which could be influenced by respondent bias or other factors.

Industry Benchmarks

According to industry benchmarks in the transportation and logistics sector, a CSAT score above 85% is considered excellent, signifying a high level of customer satisfaction. A score between 70% to 84% is average, while any score below 70% may indicate a need for significant improvements in customer service and product offerings.

Tips and Tricks

• Regularly conduct customer satisfaction surveys to gauge CSAT
• Seek feedback and act on it to address any gaps in service
• Use CSAT data to identify trends and areas for improvement

System Uptime and Reliability

Definition

System uptime and reliability is a key performance indicator (KPI) that measures the percentage of time that a transportation management system (TMS) is operational and functioning without downtime or system failures. This KPI is critical to measure as it directly impacts the efficiency and effectiveness of transportation operations. In the business context, system uptime and reliability are essential for ensuring that shipments are being processed, tracked, and delivered without any disruptions, which is crucial for maintaining customer satisfaction and supply chain performance. Monitoring this KPI helps businesses identify potential issues, improve system performance, and minimize the risk of costly disruptions.

How To Calculate

The formula for calculating system uptime and reliability is the total operational time divided by the total time in a given period, multiplied by 100 to get the percentage. The total operational time represents the duration the TMS is fully operational and accessible, while the total time is the overall duration of the period being measured. By dividing the operational time by the total time and multiplying by 100, businesses can derive the percentage of uptime and reliability.

Example

For example, if a TMS operates without any downtime for 29 days out of a total 30 days in a month, the calculation for system uptime and reliability would be as follows: (29 days / 30 days) x 100 = 96.67%. This means that the TMS demonstrated a 96.67% uptime and reliability for that month.

Benefits and Limitations

The benefit of monitoring system uptime and reliability is that it allows businesses to proactively identify potential system issues and take corrective actions to ensure continuous operations. However, a potential limitation is that high uptime percentage does not necessarily guarantee high performance quality, as it does not account for system responsiveness, speed, or accuracy of data processing.

Industry Benchmarks

Industry benchmarks for system uptime and reliability in the transportation management industry typically range from 95% to 99%, with exceptional performers achieving uptime percentages above 99%. These benchmarks reflect the standard level of reliability expected in the industry.

Tips and Tricks

• Implement proactive monitoring and maintenance to prevent system downtime
• Invest in high-quality infrastructure and reliable hosting services
• Regularly update and optimize TMS software to enhance reliability
• Establish effective communication channels for reporting and resolving system issues