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LOGISTICAL PERFORMANCE MEASUREMENT

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What is logistical performance measurement?Assessment of logistical performance

Auditing logistical performanceAn activity of Logistical Management

Why logistical performance measurement is done?

To improve level of logistical competencyTo gain competitive edge in businessTo 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 going

scheduled activity

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Why logistical performance measurement is important?

Logistical competency is crucial Logistical resources are scarce

Measurement is important for achieving objectives• Direct• Control• Monitor• Measure

Measurement leads to improved performance-periodic tests

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How is this done?By following logistical performance

measurement system

Measurement 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 employees

Measures to track above dimensions of performance

Monitoring measures Controlling measures Directing measures

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Types of measures based on perspective of measurement

Activity based & process based Activity based measures measure first level

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

Orders booked per dayDelivery time per order

Delivery time per product

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Process based performance measures measure customer satisfaction process

Total performance cycle time (customer lead time/order cycle time)

Response time to customer queryNumber of O T Ds

Number of perfect orders

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Types of measures based on availability of information

Internal Performance Measurement & External Performance Measurement

Internal Performance MeasuresMeasurement is done inside the organization•Activities of customer satisfaction process

•Internal customer satisfactionClassification of Internal performance

measures in categories Cost, customer service, productivity, asset

management & logistical quality

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CostLogistical cost as percentage to sales or as cost

per unit of volumeResources expended to meet 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 calculated across one span of time, example: total factor

productivity Dynamic productivity measures compare one static measure against another representing another

span of time.

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Surrogate productivity measures consider factors correlated to productivity like customer

satisfaction, profit, quality, efficiency.Examples: OTD, Lead time, ROI etc

Asset Management indicate management performance of fixed as well as current logistical assets. Logistical fixed assets

and inventory are major portion of company’s assets

Examples: inventory turns, inventory carrying costs, inventory levels, return on investment

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Logistical Quality Perfect Order

Complete delivery of all items requestedOTD within tolerance range

Complete and correct documentationProduct faultlessly installed

Obstacles in delivering Perfect Orderorder entry errors, incomplete information,

damaged shipment, invoice error, problems in installation.

Examples: number of customer returns, rupee amount of damage, frequency of damage

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External performance measuresCustomer perception

Bench markingCustomer perception measurement

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

Information about firms and competition’s performance in specific areas

• Product availability• Performance cycle time• Information availability

• Problem resolution• Product support

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Best practice bench markingAs a tool to calibrate logistical operations• Bench mark a comparable organization

• Bench mark a competitor company• Analyze the competitor’s product

• Attract competitor’s resources • Bench-marking a non competitor company

• Comprehensive study being bilateral• Proprietary knowledge adds value mutually

• Systems• Practices

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Bench-marking methodsPublished logistical data, published by

periodicals and university researchData sharing by alliances of organizations

Closely examining a non competitors practices with mutual consent

Information received from• Vendors

• 3rd party service providers• Customers

Examples of bench-marking: asset management,cost, customer service, productivity, quality,

strategy, technology, transportation, warehousing order processing

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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 relationship

Dynamic 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 action proactively.

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Exception based reporting• Exception from anticipated logistical results. • Indicator of process deviating from desired

• Ideal report enables manager to act proactively

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Levels of measurement and information flowMeasurement provides information

Information is reported for various levels of management hierarchy for decision making

Information need is dependent on management hierarchy level

To 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 level At this level operational plan is executed

Measures generate information on execution of operational plan

Data base for subsequent levels

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Variation level: What is measured?

Accumulated deviations from plan Identification 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 levelWhat is measured?

Need for change in system objectives like customer service

Various levels of logistical management• Service levels and cost of maintaining service

levelsMarketing inputs

• Bench marks in competitionInformation volume is less but high in

importanceWhat is done?

change in the system objectives if required

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Logistical reports

Status report Trend report Ad hoc report

Diagnostic report

Positionpaper

Policyreport

Logistical Reports

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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, trend

and ad hocStatus Reports

Information in detail to ascertain current situation of a chosen aspect like inventory or material

handling etcTrend 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, position

paper and policy reportDiagnostic report

detailed information about some phase of logistical performance like backorders

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Position paper Prepared by lower levels of management for

executives at higher levelsAlternative courses of action for an anticipated or current problem with resource requirements

Policy report Ordered by CEOs whenever a policy modification

is requested for change in objectives