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LOGISTICAL PERFORMANCE

MEASUREMENT

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What is logistical performance measurement?

A system to assess logistical performanceA system of auditing logistical performanceAn activity of Logistical Management

Why logistical performance measurement isdone?To improve level of logistical competencyTo gain competitive edge in business

To raise the level of Customer ServiceTo identify weak areas of performance

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When is it done?

Measurement/Assessment/Auditing is an on goingscheduled activity

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Why logistical performance measurement is

important? Logistical competency is crucial

Logistical resources are scarce, hence right

allocation, monitoring and utilization of such

resources is vitalMeasurement is important for achieving

objectives-measure, monitor, control & direct

performance to objectivesMeasurement leads to improved performance-

periodic tests

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How is this done?

By following logistical performance

measurement systemMeasurement system is a set of

mathematical measures like ratios, percentages

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Objectives of logistical performance

measurement systems

Monitoring: tracking historical performance Controlling: tracking ongoing performance Directing: encouraging performance by

employeesMeasures to track above dimensions of

performanceMonitoring measures Controlling measures Directing measures

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Types of measures based on perspective of

measurement Activity based & process based

internal & externalActivity based measures measure first level

efforts in performance at individual activity levelNo of trucks dispatched per day

Orders booked per day

Delivery time per orderDelivery time per product

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Process based performance measures measurecustomer satisfaction process

Total performance cycle time (customer lead

time)Response time to customer query

Number of O T Ds

Number of perfect orders

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Internal Performance Measurement

All the information necessary to calculate thesemeasures is available internally

To measure

Activities of customer satisfaction processInternal customer satisfaction

Classification of Internal performance

measures in categories

Cost, customer service, productivity, asset

management & quality

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Cost: logistical cost as percentage to sales or as

cost per unit of volume is a reflection of logistical

performance indicating resources expended tomeet specific operating objectives.

Examples: Cost per unit, Cost as a percentage of

sales, Inbound freight, Outbound freight etcCustomer service: Service levels indicating a

firms ability to meet customer expectations

examples: Fill rates, Stock outs, Shipping errors,On-time delivery etc

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ProductivityEasily understood and extensively used.

Some times difficult to obtain all relevant detailsIndicate resource utilization

Classification of productivity measures

static, dynamic and surrogate Static productivity measures are calculatedacross one span of time, example: total factor

productivity

Dynamicproductivity measures compare onestatic measure against another representing another

span of time.

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Surrogateproductivity measures consider

factors correlated to productivity like customer

satisfaction, profit, quality, efficiency.Examples: Units shipped per employee, Units

shipped per labour rupee, Orders booked per sales

representative etc.Asset Management: indicate utilization of fixed

as well as current logistical assets. Logistical fixed

assets and inventory are major portion of

companys assets

Examples: inventory turns, inventory carrying

costs, inventory levels, return on investment

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Quality: measure for logistical quality is

Perfect Order

Complete delivery of all items requestedOTD with one days tolerance

Complete and correct documentation

Product faultlessly installedObstacles in delivering Perfect Order : order

entry errors, incomplete information, damaged

shipment, invoice error, problems in installation.Examples: number of customer returns, dollar

amount of damage, frequency of damage

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External performance measuresCustomer perception measurement

Bench marking to gain insight into the practicesin other industries

Customer perception measurement

Surveys and polls sponsored by firm or industryDone by the firm, by consultant, or industryorganizations

Information about firms and competitions

performance in specific areas like availability,performance cycle time, information availability,

problem resolution and product support

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Best practice bench markingAs a tool to calibrate logistical operations of the

firm in selected areas using key performancemeasures

Bench marking a comparable organization.Bench-marking a non competitor company

leads to a comprehensive study, being bilateral,

proprietary knowledge adds value mutually

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Bench-marking methodsPublished logistical data, published by

periodicals and university researchBench-marking a non competitor company

leads to a comprehensive study, being bilateral,

proprietary knowledge adds value mutuallyData sharing by alliances of organizations

Examples of bench-marking: asset management

cost, customer service, productivity, quality,

strategy, technology, transportation, warehousing

order processing

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Comprehensive supply chain measurement:

Four types of metrics developed for outcome

and process are customer satisfaction, time and

cost, assets management

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Characteristics of an ideal measurement systemCost/Service Reconciliation:

An ideal measurement system should reconcile

cost and service [eg. freight bill and shipment]

time separation & cause/effect relationshipDynamic knowledge based reporting:

To reveal current situation. To reveal data in the extended past

To reveal trend in future. An ideal system

should do all these to enable appropriate actionproactively.

Not only data in a specific time-span

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Exception based reportingException from anticipated logistical results.

Indicator of process deviating from desiredIdeal report enables manager to act proactively

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Levels of measurement and information flow

Measurement provides informationInformation is reported for various levels of

management hierarchy for decision makingInformation need is dependent on management

hierarchy levelTo signal a process deviation or break down for

action to prevent recurrence

Management hierarchy levels are direction,variation, decision and policy

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Direction levelMeasures generate information on execution of

operational plan

Data base for subsequent levels

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Variation level:

What is measured?

Accumulated deviations from planIdentification of trends that may result into

problems.

What is done?Concerned manager interprets the trend and

takes appropriate action at his/her level or seeks

help

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Decision Level

Information is selective and manager friendly

What is measured?Exceptions and deviations of previous levels

What is done?

Modifications to operational plan

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Policy level

What is measured?

Need for change in the system objectives at anylevel in the logistical management and functions

outside the department like marketing in view of

competitionInformation volume is less but high in

importance

What is done?

change in the system objectives if required

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Report Structures Reports are generated from information revealed

by measurement for effective decision making Three types of logistical reports are status, trendand ad hoc

Status Reports

Information in detail to ascertain current situationof a chosen aspect

Trend Reports

Required at a higher level indicates trend in future

with respect to the chosen logistical aspect

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Ad hoc Reports

Specifically ordered for decision makingInformation in detail on specific areas of

performance

Ad hoc Reports are diagnostic report, positionpaper and policy report

Diagnostic report

detailed information about some phase oflogistical performance like backorders

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Position paperPrepared by lower levels of management for

executives at higher levelsAlternative courses of action for an anticipated

or current problem with resource requirements

Policy reportOrdered by CEOs whenever a policy modification

is requested for change in objectives