Measuring and Managing Logistics Performance

Measuring and Managing Logistics Performance

1. Basic Measurement

   • LSPs providing transportation
     • tachograph: device that fit to a truck and is used to record the speed, distance travelled and breaks taken by the driver.
       • Legal requirement, in some geographies the results must be recorded and field by the operator
   • Warehouse
     • Total number of pallet or carton spaces consumed versus / total available or total space consumed within the warehouse
   • Road transport companies
     • Total number of deliveries successfully completed / dropped deliveries (failed deliveries)

2. A contemporary viewpoint

   • Most successful warehousing companies have had to invest significantly in IT
     • WMS used it to record all movements, controlled by RF
   • 3PL, their customers and agents - access to information relating to this flow as and when it is required
     • 3PLs have dedicated staff to record data that can be used in the developemnt of metrics
   • Metrics and key performance indicators are shared with staff at all levels and with customers

3. Driving Forces for Performance Measurement

   • 1. Increased reliance on contract manufacturers
     • Outsourcing by manufacturing companies keen to focus on their core competencies
       • By outsourcing manufacturing and logistics, companies can spend more time focusing on their key competencies
   • 2. Strategic importance of LPSs to supply chain success
     • LSPs have a direct impact not the end customer
       • Online purchasing - a late delivery, or a negative service encounter at point of delivery, could affect the consumer´s impression of the product or the retailer
   • 3. Adoption of manufacturing management principles
     • 3PLs being asked to adopt more world-class manufacturing based principles
       • Just-in-time JIT
       • Total quality management TQM
       • Six sigma
       • Lean principles
   • 4. Impact on customer experience
     • Customer satisfaction is an important business philosophy
       • To ensure that the costumers are satisfied is key requirement for any business looking to be successful in long term
         • Quality programs, customer polls and customer service metrics
   • 5. Increased competition
     • LSPs compete not only with local competitors, but in more and more presence of a multinational or global 3PL
       • Larger 3PLs generally bring financial stability that may allow them to take certain risks to gain market share
         • So, smaller competitors is important to control their costs
           • Measures need to be available to give management good visibility of resource utilization
             • Reports should be detailed to shown in what specific areas of the business profits or losses are being recorded
   • 6. Information technology improvements
     • IT employed in warehouses and to control and track shipments have led to a grater availability of data
       • As this systems are more and more advanced, information is available in real time
         • This information should also be less prone to error and so can be used for important decision making
   • 7. Empowerment practices
     • Empowerment of lower level employees with tasks and responsibilities of more level
       • Logistics industry - make decisions quickly so as not to hold up receipt freight or an important customer shipment
   • 8. Employee motivation
     • Motivate employees to beat the previous number of pallets received or orders executed
       • Public recognition can drive a higher levels of productivity
   • Other performance aspects
     • Selecting the best measures
       • "measure results, not activities"
         • Try to design set of indicators
           • What the benefits would be as a result of having these measures in place
             • What data may be easily available
       • The majority of of measures should be focused on quantitative results
         • Add some qualitative measures to a set ok KPIs
     • Benchmarking costs and other variables
       • On order to benchmark against the industry, the company needs to use a similar set of measures in order to map performance against the companies being benchmarked
         • The time to first consider benchmarking is when a company is initially putting together a set of performance measures
           • Logistics industry is very dynamic and benchmark levels of performance can constantly change
     • Number of metrics report
       • Whit logistics being so process focused, the measures used will need to ensure the they can measure the performance of these processes
     • Designing key performance indicators
       • Once a company understands the need of performance indicators and what the right measures may encompass
         • Must be clear about its own aspitrations

4. Commonly used metrics

   • When designing a set of KPIs, the logistics company must take into account any requirements that its customers may have for specific reporting
     • Most LSPs tend to have generic set of metrics, also additional customer-specific metrics, which include relevant measures only for customers
       • Mass customisation
   • Three different set of metrics
     • Senior management
     • Operational management
     • Functional management

5. Inventory/warehouse related metrics

   • Type of measures that a typical warehouse operation may employ
   • Receiving
     • The first to be recorded receiving of product into the warehouse -the most important transaction
       • Receiving time - WMSs can track the time between a shipment arriving into the warehouse
         • Advanced shipment notification
           • Notification of inbound shipment from the freight system can automatically initiate the inbound process prior to the shipment arriving
   • Put-away
     • Involves physically moving product that has just been received onto the IT system to a pallet or carton location where the product will be stored
       • Metrics: number of pallets, cartons or units put away - % of product put away within a started time

6. Logistics Costs Performance

   • Total landed costs
     • Financial measures are key metrics for 3PLs
       • Total landed costs
         • -Vendor and packaging costs - Transportation charges - Working capital employed/opportunity costs - Costs associated with risk migration- Broker fees- Insurance costs - Taxes and duties - Management costs - Revers logistics costs
           • Allows manager to take better decisions regarding raw materials sourcing, and rather than just going with the lowest possible product costs
   • 3PL costs models
     • Cost plus margin
       • http://www.letslearnfinance.com/advantages-and-disadvantages-of-cost-plus-pricing.html
     • Transactional pricing
       • http://www.logisticsmgmt.com/article/moore_on_pricing_pricing_models_for_3pls
       • http://www.fpz.unizg.hr/traffic/index.php/PROMTT/article/viewFile/1198/1022

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