Transportation Performance Indicators
Key Performance Indicators (KPIs) are an important means to measure cost for value provided. Today, however, KPIs mean different things to different companies.
In our industry, many people focus outsourcing on the high-visibility 4PL or Lead Logistics Provider types of solutions. However, you should not lose sight of the fact that any time a shipment is tendered to a common or contract carrier, you are a participant in an “outsourcing” activity. By exercising a choice to not build your own fleet and to gain economies of scale and focus on the core business, manufacturers have been “outsourcing” transportation for thousands of years. Whether by beast of burden, sea, highway, or air, this form of “outsourcing” has oft been overlooked. Also frequently overlooked is the importance of quality, pragmatic, and consistent metrics to hold providers accountable to the same set of standards. The need for a common set of terms and measures that will correlate to a meaningful customer satisfaction measure is becoming acute across every aspect of the transportation industry.
High customer satisfaction levels are widely believed to be the best indicator of a company’s future profits (1). The transportation industry is no exception to this theorem. Recent studies outside of the transportation industry show customer satisfaction creates shareholder value by increasing a firm’s cash flow and reducing cash flow variability. More specifically, in a significant study, it was determined that a one-point increase in a firm’s satisfaction score results in an increase of over 7% of the firm’s net operational cash flow and a decrease of 4% in its variability (2). In an industry as intensely competitive as transportation, where the next carrier’s salesperson is just a phone call away, these are important lessons.
At our company, we believe that investing in customer satisfaction is analogous to taking out an insurance policy. If temporary hardship befalls the company – such as the capacity constraints of the current truckload market – there is data to believe that customers will be more loyal (3), remain customers longer (4), and will be more predictable in their behavior (5). Furthermore, in an industry where switching barriers are inherently low, transportation professionals should heed Bolton’s research findings that state, “Customers who have higher prior cumulative satisfaction have longer relationships with the organization.” (6)
As one of the most respected brands in the industry, the attention Schneider National affords customer satisfaction is not surprising. We are well aware that a lack of performance in service level in one area degrades a carrier’s brand at an asymmetric rate (7) and it has a brand diluting effect (8). Data shows that while only 4% of customers will complain, the average disappointed customer will tell nine other people (9) - - doing damage to the brand.
Our company began measuring formally customer satisfaction in August 2001 as a means of tracking our One Way Van Service. Over the subsequent years, each of our large lines of business have adopted a methodology specific to their business to monitor customer satisfaction. The complexities that arise from having eight large lines of business, operating under distinct business models, and performance drivers, makes simplification challenging.
By understanding the respective important criteria by line of business, we have devised a weighted scale unique to each business unit across the broad portfolio. By applying standard importance-performance mathematics to the service indicators, we produce a weighted index for each line of business that provides a reliable inside-out look at the month-to-month performance of the business unit. Presently however, the indices fail to represent the customer’s perspective and we will begin remedying this through on-line surveying in 2005.
In addition, nearly all of our top customers require that Schneider monitor and report on select Key Performance Indicators (KPI’s). Unfortunately the industry lacks common KPI’s. This creates obvious challenges when one customer wants monthly reporting on ‘loads accepted vs. loads tendered’ as their primary KPI and another customer wants ‘on-time pickup’ as their primary KPI. Furthermore, customers will often ask for the same KPI to be reported, but use different measures. The result is that we, like most of the industry, spend an inordinate amount of time gathering, rationalizing, interpreting data to produce KPI’s that mean widely different things to different customers.
To paraphrase the infamous 1964 quote from Supreme Court Justice Potter Stewart, “I shall not further attempt to define [customer satisfaction]…but I know it when I see it.” The industry desperately needs a single set of KPI’s or evaluation metrics by which all carriers will be held accountable. If such a set of metrics were available and universally endorsed by shippers and consignees across North America, the transportation providers could spend more time fixing service issues and less time reporting on them.
When properly measured, customer satisfaction is one of the single most important long-term metrics for the enterprise. In industrial markets, the importance of managing customer satisfaction is widely recognized (10). Satisfied customers only have to be acquired once (11), reducing costs since the cost to acquire a customer is typically 5-7 times greater than retaining current ones (12).
In conclusion, while we have our own reliable measures of customer satisfaction, we are often reminded of the expression that someone else’s perception becomes our reality. This reality is an important one that has deep implications.
We look forward to the day that the industry embraces a common set of measures and definition.
Works cited