Shippers typically hire third-party logistics (3PL) providers to offload logistics and fulfillment, freeing up resources to be redirected to core competencies and revenue-generating activities. But, as a shipper, how much should you take on faith when it comes to trusting your 3PL? You might assume your partner is doing a great job (or at least an adequate one), but if you aren’t tracking and benchmarking their performance, it can be difficult to know how much they are actually helping or hurting your brand.
To really understand your 3PL’s impact on your business, you must do more than take their word for it. The best way to see if a 3PL’s operation measures up is to collect data on key performance indicators (KPIs). Reviewing KPI data lets you compare it with service-level agreements (SLAs) in your contract and identify any changes or variations over time that might indicate problems.
So, which KPIs should you be watching? While your operation may have some specific KPIs that tie well into unique business goals, understanding some general KPIs can help you get started on your journey toward gaining a more solid view of your 3PL’s performance.
3PL KPIs to Watch
Inventory management is the cornerstone of any 3PL’s value. If a logistics provider can’t tell you what you have in stock and exactly where it is, that might be a red flag regarding their capabilities. Here are some inventory KPIs you can track to see how well your partner handles the storage and movement of your goods:
- Inventory accuracy. This metric reveals how closely your 3PL’s inventory records match the actual physical inventory in the warehouse. Maintaining high accuracy (usually above 97%) helps you avoid stockouts, unnecessary orders, and angry customers.
- Shrinkage rates. Some loss is inevitable in any storage or logistics situation, but high incidences of theft, loss, damage, or otherwise unsellable inventory—known as shrinkage—indicate a lack of accountability on your provider’s part.
- Inventory turnover. Turnover refers to the speed at which inventory moves through the warehouse. Slow turnover could mean inventory isn’t laid out efficiently or that inaccurate forecasting has created an inventory glut, whereas fast turnover indicates a close alignment between warehouse operations and demand.
- Dock-to-stock time. When inventory arrives at the warehouse, it must be processed quickly. The faster your 3PL moves inbound cargo into inventory so it can be sold, the more positive the impact on your sales.
For 3PLs serving retailers, efficient fulfillment is tied closely to the end customer experience. As such, poor performance can directly impact the bottom line. Here are some fulfillment KPIs you can track:
- Order accuracy. This KPI measures how often customers receive the item or items they ordered in full. Regularly missed items result in costly reships, poor reviews, and higher return rates. The margin for error is low on this KPI, and you should expect your 3PL to hover around 99% accuracy.
- On-time fulfillment rate. Your contract’s SLAs specify acceptable timelines for picking, packing, and shipping orders. If your 3PL regularly misses cutoffs, it makes it hard for your customers to trust your brand.
- Cost per order. While this metric may shift somewhat based on market conditions, the cost of fulfilling an order should not significantly increase without noticeable improvements in speed or accuracy.
There may be other metrics that are useful to you based on your specific business model and needs, but these KPIs should help you establish a firm baseline for where your 3PL ranks in terms of performance.
Other Factors to Consider
It’s worth noting that any 3PL’s performance will fluctuate somewhat between benchmark periods. KPIs can provide quantitative insights into your 3PL, but they don’t necessarily tell the full story. Looking at more qualitative factors, such as communication practices, technology investments, scalability, and your 3PL’s commitment to continuous improvement, can help you gain a well-rounded view of your partner and how well they are supporting your business.
As Frank P. Crivello, Founder and Chairman of Phoenix Investors, puts it: “A 3PL’s true value isn’t just in the numbers—it’s in how consistently they support your growth. Metrics matter, but the strongest partners are the ones who stay transparent, responsive, and aligned with your long-term strategy.”
Hold regular business reviews with your 3PL partner to create a space where you can address any concerns about metrics and performance.
Remember that good 3PLs should always welcome transparency and be proactive about improving performance, so a refusal to collaborate and provide KPI data is a warning sign. After all, healthy strategic partnerships are built on collaboration, so your 3PL should treat KPIs as a shared tool rather than a reporting requirement.
About Phoenix Logistics
Strategic Real Estate. Applied Technology. Tailored Service. Creativity. Flexibility. These fundamentals reflect everything we do at Phoenix Logistics. We provide specialized support in locating and attaining the correct logistics solutions for every client we serve. Most logistics competitors work to win 3PL contracts and then attempt to secure the real estate to support them. As an affiliate of giant industrial real estate firm Phoenix Investors, we can quickly secure real estate solutions across its portfolio or leverage its market and financial strength to quickly source and acquire real estate to meet our client’s need.
