The Fundamental KPI's
Amazon FBA sellers rely on third-party logistics (3PL) providers to manage inventory, shipping, and fulfillment. But how can you know if your 3PL is performing optimally? Monitoring key performance indicators (KPIs) is crucial for evaluating the success of your Amazon 3PL operations.
In this post, we’ll explore the top 7 KPIs Amazon sellers should track to ensure their 3PL is enabling FBA success. Mastering these metrics can help you identify opportunities for improvement and make data-driven decisions about your logistics partner.
Looking for a 3PL Company for your Amazon Product or Ecommerce Business?
Table of Contents
What are KPIs and Why Do They Matter?
KPIs (key performance indicators) are quantifiable metrics used to measure the success and progress towards critical goals in a business. KPIs provide concrete criteria for evaluating performance.
Why KPIs Are Essential for 3PLs in Amazon FBA
KPIs provide quantifiable measurements of critical success factors in your business. When it comes to 3PLs for FBA, relevant KPIs include:
- Dock-to-stock time
- Cost per unit shipped
- Inventory accuracy
- Receiving efficiency
- On-time dispatch and shipping
- Return processing time
- Customer satisfaction ratings
Tracking these KPIs on a consistent basis enables you to spot trends, set performance goals, and pinpoint areas for improvement. Without monitoring key metrics, it’s impossible to fully evaluate how well your 3PL is optimizing your Amazon supply chain.
1. Dock-to-Stock Time for Amazon FBA Inventory
Dock-to-stock time measures how long it takes inventory to go from arriving at your 3PL’s dock to being received at Amazon’s fulfillment center, available for sale.
This is crucial for ensuring products are available for sale quickly to meet customer demand.
- This statement emphasizes the importance of speed and availability when it comes to getting products to market and on shelves ready for customers to purchase. Retail is a fast-paced industry, and consumers expect to see items in stock and ready to take home.
- Ensuring a quick turnaround time from when a product arrives at a warehouse and distribution center to when it is picked, packed, and available on the sales floor is critical for meeting consumer demand as it fluctuates. Brands and retailers can’t afford to have products stuck in logistics pipelines and unavailable for weeks.
- If customers come looking to purchase a product and it is out-of-stock because of delays getting it onto shelves, that can result in lost sales and dissatisfied customers. So having an efficient and fast supply chain is an imperative.
Benchmark your 3PL’s average dock-to-stock time against targets like Amazon’s goal of a 1-day turnaround.
- This point recommends using extremely fast turnaround benchmarks like Amazon’s as a comparison point for your own third-party logistics provider’s (3PL) speed.
- Amazon sets the bar high with aiming for receiving inventory at their docks/warehouses and making those products available for purchase in just 1 day. This exemplifies the need for speed in modern retail.
- By comparing your 3PL’s typical speed from inbound to outbound against aggressive 1-day standards, you can better evaluate where there’s room for improvement or efficiency gaps in getting products out swiftly. This type of benchmarking analysis highlights bottlenecks.
2. Cost Per Unit Shipped to Amazon Warehouses
This KPI calculates how much your 3PL charges to handle order fulfillment and shipping per unit.
Compare their rates against industry averages. Cost per unit may vary based on volume and weight.
- When evaluating a 3PL, it’s important to assess their pricing and rates compared to broader industry benchmarks. There are typical ranges that 3PLs charge per unit for warehousing, transporting, and handling products.
- However, logistics rates can fluctuate substantially depending on factors like: 1) Order volumes – prices decrease as volume increases; 2) Weight and dimensions – bulky/heavy products cost more to store and ship; 3) Accessorial charges – fees for extra services.
- Researching industry rate cards and comparing them to a 3PL’s proposed pricing provides context on price competitiveness and where there may be room to negotiate based on your specific needs.
Work with your 3PL to determine fair pricing based on your specific products and order volumes.
- While industry benchmarks serve as comparison points, the best way to arrive at equitable pricing is to work directly with a 3PL to tailor rates and charges to your particular products, supply chain requirements, and order profiles.
- Walk through granular details like average weight per order, seasonal spikes in volumes, delivery timeframes needed, and any special handling needs that may warrant premium fees.
- This collaborative cost analysis process leads to pricing that is calibrated and fair for both sides based on the services required versus trying to fit into generic industry standards.
3. Inventory Accuracy in Amazon Fulfillment Centers
Maintaining high inventory accuracy ensures Amazon has the right stock levels to meet order demand and minimize lost sales.
Measure accuracy regularly by comparing 3PL inventory logs versus live Amazon inventory.
- One key performance indicator for a 3PL is inventory accuracy – how closely their warehouse count for units on hand matches the actual number reflected on retail platforms like Amazon.
- Regularly comparing the inventory quantities the 3PL has logged in their warehouse management system to the live inventory Amazon platform shows in real time allows you to spot discrepancies and measure accuracy rates.
- This could be done daily, weekly, etc. But frequent checks help assess performance.
Aim for over 99% accuracy. Prevent errors through rigorous reconciliation processes.
- While no logistics operation is perfect, top-tier 3PLs should be achieving over 99% accuracy between their inventory counts versus retail platform’s inventory. This minimizes stock outs or overages.
- Reaching high accuracy requires rigorous reconciliation processes the 3PL implements to compare their internal warehouse counts to retail systems via frequent inventory checks, cycle counting procedures, system integrations, and processes to resolve discrepancies when found.
- These prevention processes paired with actively measuring against 99%+ benchmark ensures the 3PL minimizes costly errors.
4. Amazon Receiving Efficiency
Receiving efficiency gauges how good your 3PL is at swiftly processing inbound inventory for Amazon.
High efficiency minimizes dock-to-stock times.
- The reason speed and fast turnaround times matter so much in retail logistics is that consumer demand is highly unpredictable. Inventory needs to flow quickly to match peaks and valleys.
- An efficient 3PL operation is properly staffed, leverages automation, and has streamlined workflows that speed the flow of receive -> putaway -> pick & pack -> ship processes to rapidly get inbound inventory available for sale to customers.
- Tightly orchestrated warehouse functionality means products transition from arriving at the dock door to ready for order fulfillment rapidly to prevent losing sales due to stock being stuck in processing backlogs.
Track the percentage of shipments received and processed error-free within 24 hours. Efficiency over 97% is excellent.
- One metric to quantify warehouse efficiency is the percentage of inbound shipments a 3PL can receive, put stock away into available inventory, and have completely processed within a 24 hour timeframe without any delays, bottlenecks or errors in workflows.
- Best-in-class operations aim for exceeding 97%+ of shipments transitioning through these workflows smoothly within 1 day of arrival. This sets the pace for rapid fulfillment. Minimal processing time allows inventory to quickly reach shelves.
5. Timeliness of Amazon Dispatch and On-Time Shipping
Getting orders out the door on time is imperative for pleasing customers.
Measure your 3PL’s dispatch timeliness and on-time shipping rate against FBA service level agreements (SLAs).
- FBA (Fulfillment by Amazon) establishes specific service level agreements and delivery time guarantees buyers expect when placing orders. Missing these SLAs results in negative customer experiences.
- Use similar dispatch time guarantees as benchmarks for your 3PL’s timeliness sending out orders. Are they consistently meeting cut-off times? Measure what % of orders depart on time daily.
- For example, if Amazon promises Two-Day shipping, the order must leave your 3PL’s facility within 3 hours of the customer placing it to fulfill that delivery pledge.
For example, One-Day and Two-Day shipping orders must leave the warehouse within 2 and 3 hours of the order being placed, respectively.
- Specifically, Amazon’s SLA requires absolute deadlines for dispatch for fastest delivery classes:
- One-Day Shipping – Package must depart warehouse within 2 hours
- Two-Day Shipping – Package must depart within 3 hours
- Missing these critical cut offs means breaking delivery speed promises made to the customer at checkout, damaging reputation.
6. Amazon Return Processing Time
Speedy return processing prevents inventory from being tied up and improves the customer experience.
Track the average time it takes your 3PL to process returns end-to-end, from receiving to relisting as sellable inventory.
- Returns and reverse logistics represent a significant volume and cost for ecommerce businesses. An efficient returns process is imperative for both the customer experience and recovering asset value.
- Calculate the total end-to-end cycle time for your 3PL to process returns once received – including inspection, disposition decisions, refurbishing, and making available for resale if condition allows.
- Tracking this metric provides visibility into whether returns are flowing smoothly back into inventory at your 3PL facility or if there are bottlenecks eating into days of extra processing time.
4 business days or less is ideal.
- Best-in-class 3PLs with efficient returns workflows are able to intake, diagnose condition, handle any refurbishments to bring back to sellable state, and have returned inventory relapse into active pick & pack operations available to fulfill new orders in 4 days or less once received.
- Striving for this 4 day or under turnaround time on reversing returns back into revenue generating inventory availability is an optimal benchmark for minimizing negative working capital impacts.
Conclusion
Monitoring 3PL performance through measurable KPIs provides visibility into how well your logistics partner is supporting your Amazon FBA success. Consistently tracking metrics like dock-to-stock times, cost per unit, inventory accuracy, and processing efficiency enables you to identify problems, set improvement goals, and make better-informed decisions about your Amazon supply chain.
While this covers some of the most critical indicators, there are additional KPIs like customer satisfaction and quality control that also provide valuable insights into 3PL effectiveness. Determine the right set of KPIs tailored to your business needs. Then work closely with your 3PL partner to review the data and make ongoing optimizations. With the right metrics guiding decisions, sellers can continually improve outsourced logistics and drive growth on Amazon.
FAQ: Evaluating Amazon 3PL Success
KPIs provide quantifiable measurements that help you monitor the success factors in your business. They enable you to spot trends, set performance goals, and pinpoint areas for improvement.
- Dock-to-stock time
- Cost per unit shipped
- Inventory accuracy
- Receiving efficiency
- On-time dispatch and shipping
- Return processing time
- Customer satisfaction ratings
Dock-to-stock time measures the time it takes for inventory to go from your 3PL’s dock to Amazon’s fulfillment center. The goal is to have a quick turnaround, ideally meeting Amazon’s 1-day target.
This KPI calculates the cost your 3PL charges per unit for order fulfillment and shipping. It’s important to compare these rates against industry averages and negotiate fair pricing.
High inventory accuracy ensures that Amazon has the right stock levels to meet customer demand. Aim for over 99% accuracy to minimize lost sales.
Receiving efficiency measures how quickly your 3PL processes inbound inventory for Amazon. A high-efficiency rate minimizes dock-to-stock times.
Measure your 3PL’s timeliness in dispatching orders and their on-time shipping rate against Amazon FBA’s service level agreements (SLAs).
