3PL operators offer a wide range of services that go beyond simple storage. They manage inventory, process orders, and deliver them to the end consumer. For ecommerce companies, this is a great opportunity to reduce costs and maintain a high level of service. Today, 60% of online stores outsource fulfillment at least partially. This figure is expected to grow in the next 3-5 years.
In the rapidly growing industry, it is important to carefully monitor 3PL warehouse KPIs. These metrics help both companies working with 3PL operators and the 3PL providers themselves maintain high standards of operation.
In the 3PL sector, there is a large set of indicators. Analyzing them can take a lot of time and effort. In our article, we have selected the 10 most important KPIsfor any 3PL provider. If you are a company working with a 3PL provider, these KPIs will help you ensure that the third-party provider can meet all your business needs. If you are a 3PL operator, they will help you maintain a high level of efficiency and stay competitive in the market.
1. Dock-to-Stock Time
Before starting to sell the product, the 3PL operator receives it and places it on their warehouse shelves for storage. The warehouse receiving process includes several stages:
✔ Unloading the vehicle
✔ Checking the quantity and quality of the goods
✔ Labeling
✔ Entering the received goods into the system
✔ Moving the inventory to the storage location
The dock-to-stock KPI measures the time required to move goods from the unloading area to the warehouse shelves. Given today’s increased customer demands for speed, minimizing this time is critically important for any online business.
The faster a 3PL receives and places goods into storage, the sooner they can start being sold and generating revenue for everyone. In a highly competitive market, even minor delays can lead to lost customers and reduced profits. By tracking this KPI, you can monitor the receiving process, identify its “bottlenecks,” and take corrective actions. The better you organize this process, the fewer sales issues you will encounter in the future.
One way to reduce dock-to-stock time is to implement an automated Warehouse Management System (WMS). It allows for real-time tracking of every stage of goods movement, expediting their processing and placement in the warehouse. Additionally, barcode scanners can expedite receiving. Besides quickly inputting goods into the system, they help minimize errors associated with manual data entry.
2. Inventory Accuracy
After goods are received at the 3PL warehouse, they need to be stored until they are needed for sale. Inventory management is crucial during storage. Regular inventory checks help avoid issues such as stockouts or excess inventory in the warehouse.
Typically, 3PLs handle large volumes of data. Accuracy in inventory management is crucial in this case. For any commercial organization, inventory is a critical aspect directly impacting profitability. Consequently, discrepancies in inventory records will lead to reduced service quality and financial losses.
Inventory accuracy entails the alignment of actual inventory quantities with recorded data. This KPI is directly linked to the effectiveness of the inventory system and control over goods movement. It also reflects the efficiency of processes related to receiving, storing, and shipping goods.
For calculating the indicator, the following formula is used:
Inventory Accuracy = (Quantity in the accounting system / Quantity of stock in the warehouse) × 100%
For example, if out of 1000 inventory items, 990 match both in the system and in the warehouse, the accuracy percentage would be 99%. Such a high indicator minimizes errors related to miscounts, shortages, or excess stock. Ideally, it should not drop below 95%.
3. Inventory Turnover
After each sale of a product, whether through in-house efforts or with the assistance of a 3PL operator, the company earns a profit. As turnover increases, profitability also increases. By tracking inventory turnover KPIs, you will understand how quickly your goods are selling. This allows you to find the balance where inventory does not sit on warehouse shelves for long periods and is always available in the required quantities. It’s important to monitor the turnover of each SKU in your warehouse.
The indicator is calculated as the ratio of the cost of goods sold to the average inventory value over a specific period of time. A high KPI indicates that the 3PL warehouse successfully manages inventory, minimizing storage costs for its clients and accelerating order fulfillment. If goods turnover is slow, it indicates excess inventory or low demand. In such cases, it may be necessary to review the rules for purchasing those goods.
How can a warehouse increase inventory turnover:
✔ Regularly analyze inventory and take action on items that have been sitting on shelves for a long time. Non-moving inventory takes up space and increases storage costs.
✔ Implement clear criteria for purchasing low-turnover items. Limit purchase volumes or plan purchases more carefully based on demand analysis.
✔ Develop a sales strategy that takes into account seasonal fluctuations, marketing campaigns, and promotional offers.
✔ Periodically check prices with competitors. If items are significantly more expensive, it may slow down their sales. Adjust prices according to market conditions to stimulate demand and accelerate inventory turnover.
✔ Stimulate sales through discounts, promotions, loyalty programs, and special offers.
4. Inventory Shrinkage
Inventory shrinkage refers to the reduction in the volume of goods in the warehouse. This KPI requires constant attention and improvement because every lost, damaged, or worn-out item leads to financial losses for the company.
The reasons for inventory shrinkage can include:
✔ Theft
✔ Accounting errors
✔ Damage to goods during transportation, improper storage, or handling
✔ Natural wear and tear
To prevent losses, it is important to continuously monitor the shrinkage rate. The indicator is calculated using the following formula:
Shrinkage = (Book value of recorded inventory – Book value of physical inventory) / Book value of recorded inventory
It is important not only to determine the causes of inventory loss but also to develop effective methods for its prevention and minimization, namely:
✔ Implement security measures for inventory;
✔ Improve inventory procedures;
✔ Strengthen control over the movement of goods;
✔ Introduce modern technologies for tracking and monitoring inventory.
It is equally important to train staff on proper handling of goods. The human factor often plays a key role in the occurrence of shrinkage. The more attention you pay to the security of your inventory, the lower the shrinkage rate you will see in future calculations.
5. Accuracy of Order Fulfillment
Order fulfillment is one of the most complex and time-consuming processes in a 3PL warehouse. At this stage, warehouse employees pick items according to the customer’s order and transfer them to the packing area. Any mistake here will lead to additional costs for returns and exchanges. For the business, this is not just an increase in expenses; it is a loss of customer trust.
Various methods are used to assess the KPI of order fulfillment accuracy. However, most of them are based on the ratio of correctly filled orders to the total number of orders over a specific period. The following formula is used for this:
Order Fulfillment Accuracy = (Number of Correctly Filled Orders / Total Number of Orders) x 100%.
Order fulfillment accuracy should be high — around 98%. Achieving this level requires a high degree of attentiveness and responsibility from warehouse workers, as well as the use of technologies to minimize the human factor.
6. Average Order Processing Time
Prompt order processing should be a priority for any customer-oriented company. The faster a customer receives their order, the higher their satisfaction and the likelihood that they will return for future purchases. Statistics show that 53% of 3PL providers process orders in less than an hour. To aim for such a metric, you or your 3PL provider should know the exact time it takes to process an order from the moment it is received to the moment it is shipped to the customer.
Execution requires control and coordination of multiple processes, starting from communication with customers and ending with loading the transport vehicle. By tracking the average order processing time, you can identify all inefficient processes and correct them.
To reduce the average order processing time, automate the process using a good Order Management System (OMS). The system automates processes such as order intake, processing, and tracking. This reduces the likelihood of manual errors and speeds up each stage of fulfillment.
7. Perfect Order Rate
Striving for efficiency, it’s important to remember that quick order processing shouldn’t compromise the quality of fulfillment. Balancing fast and high-quality processing is the key to successful customer service. When an order is fulfilled without errors, the customer gains a positive experience with the company. Such a customer is more likely to be loyal and make repeat purchases.
The KPI of the perfect order is important for several reasons:
✔ It directly influences customer satisfaction. The more perfectly executed orders, the higher the likelihood that customers will be pleased and continue collaboration.
✔ Helps reduce operational costs associated with returns, re-shipping, and error correction.
✔ A high perfect order rate contributes to strengthening the reputation in the market for both the 3PL company and its clients.
A perfect order is one that has been delivered on time, to the right place, in the right quantity, without damage, and with correct documentation. Therefore, to calculate the perfect order rate, you need to:
(Percentage of orders delivered on time × Percentage of orders fulfilled × Percentage of orders without damage × Percentage of orders with accurate documentation) × 100
A high score will indicate the efficiency and reliability of the warehouse and logistics processes of the 3PL company. To achieve this level, it is important to continually improve the processes of planning, warehousing, and transportation, as well as effectively manage inventory.
8. On-time Delivery Rate
Every customer expects to receive their order intact, undamaged, and within the agreed-upon timeframe. Even a small delay can lead to financial losses and damage to the reputation of both the 3PL operator and its clients. Therefore, it is important to regularly monitor and improve the company’s logistics processes. To do this, it is necessary to understand how quickly and reliably the 3PL delivers orders to its customers.
Depending on the order volumes, this KPI is calculated weekly, monthly, or quarterly. Determine how many orders you have shipped for the desired period. Also, understand the number of orders that were successfully delivered to customers during the same period. With this data, you will calculate your on-time delivery percentage:
(Number of orders delivered on time / Total number of orders) × 100%
Regular analysis of this metric will allow you to identify weaknesses in the logistics chain and promptly take measures to address them. You will be able to plan freight shipments more accurately and optimize your routes. This is not just a number in reports; it’s a KPI that reflects the overall efficiency of a 3PL warehouse. By giving it proper attention, you will meet customer needs and improve your competitive position in the market.
9. Cost per Shipped Unit
The cost per shipped unit provides valuable information about the expenses associated with order fulfillment. This KPI covers all costs, from picking the item in the warehouse to its packaging and shipping to the end recipient.
More precisely, the cost of fulfillment includes:
✔ Storage costs;
✔ Labor wages;
✔ Costs for picking and packaging;
✔ Delivery costs;
✔ Insurance;
✔ Taxes;
✔ Return processing costs.
A precise understanding and analysis of this KPI for 3PL will allow you to optimize processes in the supply chain, reduce unnecessary expenses, and increase overall profitability. In addition to cost reduction, you will improve customer satisfaction levels through more efficient and economical order fulfillment.
10. Return Processing Time
A 3PL warehouse processes a large number of orders daily. In such a flow, there are always those who want to return purchased goods. No business is immune to this. In such cases, it is important for the customer to have a quick and hassle-free return process. A well-designed procedure can smooth out the customer’s negative experience with the product and regain their trust. Additionally, often the returned goods are in good condition. The faster the 3PL operator processes the return, the sooner the goods will be back in the warehouse and available for resale.
This KPI tracks the time it takes for a third-party provider to process one return, from receiving the request from the customer to returning the item to the warehouse or disposal. Efficient returns management will help you minimize delays and optimize inventory turnover. This will have a positive impact on the overall efficiency of the 3PL warehouse and customer satisfaction levels.
How to Track and Improve Key Performance Indicators for 3PL?
The goal of every 3PL operator is to ensure high-quality service and customer satisfaction. This is achievable through continuous monitoring and improvement of all stages of the logistics chain. To achieve this goal, it is necessary to regularly track and improve KPIs for 3PL.
Ysell.pro offers a wide range of opportunities for 3PL companies. Integration with trading platforms, online stores, and delivery services allows you to track every stage of order fulfillment in real time. You will gain full transparency and control.
The platform also offers simple and convenient interaction with customers. The 3PL account easily syncs with the customer’s account. Both parties will be able to receive all necessary data about inventory, orders, shipments, and their costs. For the 3PL operator, this is an opportunity to track and improve their performance. For companies interacting with 3PL, this is an opportunity for monitoring and controlling the supplier’s efficiency.
KPI is the measure that will help your business not only to control but also to improve its management strategies for a 3PL warehouse. And well-selected and implemented indicators are what can become the key factor for success in your 3PL business or with the help of 3PL.
