Identifying logistics performance indicators ppt

Measuring Performance Powerpoint Presentation

MEASURING PERFORMANCE 9

Measuring Performance

Isaac Perry

TLMT 441 Advanced Business Logistics, Winter 2015

American Public University

Doctor Stacey Little

22 February 2015

Abstract

This research paper focuses on the subject of measuring performance in supply chains. Performance measurement in the areas of planning and responsiveness, logistics execution, and continuous improvement is discussed in detail. Logistics metrics are utilized in measuring the performance of many logistics functions both external and internal. These metrics focus on reliability, cost, time, profit, and availability. The performance could be monetary such as revenue and cost, or they could be non-monetary such as productivity and service. Effective planning and quick response basically helps supply chain companies in meeting customer demands for ever-shorter lead times. Supply chain organizations need to review and improve their logistics practice continuously. For them to do this, they should espouse a clear structure for measuring their shipping activity

Keywords: logistics execution, logistics metrics, planning and responsiveness, continuous improvement

Measuring Performance

Logistics execution

Managing logistics and transportation is a crucial focus area for distributors, manufacturers, as well as 3rd-party logistics organizations in their pursuit of developing an efficient, agile, and lean customer-oriented supply chain. To attain better customer service at lower costs, businesses are more and more adopting the 2 levers of process improvement and technological advances in improved control systems, track-and-trace, and IT innovations like cloud platforms (Griffis, Cooper & Closs, 2011). To totally achieve the benefits from initiatives such as these and move towards a period of continuous improvement in their operations management, it will also be important for companies to re-align their strategies for measuring logistics performance.

Logistics metrics: Campagna (2009) pointed out that logistics metrics are used in measuring the performance of different logistics functions both external and internal. These metrics focus on reliability, cost, time, profit, and availability. The performance could be fiscal such as revenue and cost, or they could be non-fiscal such as productivity and service. The reasons for measuring logistics performance are as follows: to lower operating costs. By measuring operating costs, a Supply Chain Company will be able to identify whether and where to make operational alterations in order to control expenditures. It also helps to identify the areas for improved asset management. To drive growth of revenue: Compagna (2009) pointed out that to draw and retain important customers, the price/value of the products provided by the company can be improved through service improvements and cost reductions in logistics activities. To improve shareholder value: the performances of firm logistics have an impact on the returns on shareholder investment as well as the market value of the company. There are two categories of logistics metrics: external and internal (Compagna, 2009). Internal logistics metrics: these are used in measuring the system’s performance or the internal elements of the logistics including warehouses, production plant, and transportation equipment. Examples of internal metrics are:

Complete shipments = number of orders delivered in full / total number of orders in a period

Utilization of truck = loaded travel time / total travel time

External logistics metrics: these metrics reflect the anticipations of the company by external players such as 3rd-party agencies, government, stock markets, and customers. Example of external metric:

Service reliability = number of shipments within ± 3h of promised delivered time / total number of shipments.

Compagna (2009) stated that internal performance metrics basically drive the external. For instance, the percentage of on-time deliveries of shipments by a given transporter is an external metric. Nonetheless, several internal metrics drive it, such as percentage of time on the road, reliability of trucks, and on time departure of delivery trucks. Usually, external metrics are fiscally and service oriented (Roy, 2010). Metrics can be measured either manually or automated. Manual measurement of the metrics includes data collection through paper forms, analysis of fiscal documents, and time measurement of the logistics processes. Automated measurement of the metrics entails the use of Information Systems such as DB analysis and ERP; using Communication Technology such as Tracking & Tracing; and using dedicated software, which is considered as crucial to Key Performance Indicators (Compagna, 2009).

Planning and responsiveness

It is important for supply chain companies to sense and respond to changes in demand in real-time so as to make the most of business outcomes. For supply chain companies to adapt to the more and more challenging environment wherein they operate, they have altered their processes and embraced IT capabilities which help then them in reducing cost, improving responsiveness, and increasing performance (Roy, 2010). Effective planning and quick response, according to You and Grossmann (2013), allows supply chain companies to satisfy customer demands for ever-shorter lead times. It also enables them to synchronize the supply chain in order to meet troughs and peaks of demand. Today, responsive supply chains are keys to competitive success and survival because of the growing pressure to decrease costs and inventories for competitions in the international marketplace. Performance of supply chain organizations with regard to planning and responsiveness is measured by gauging how quickly the organization plans and responds to changes in demand in real-time, and how they quickly respond to satisfy customer demands in very short lead times (You & Grossmann, 2010).

Continuous improvement

Bond (2009) stated that a stable process can be enhanced through the implementation of a kaizen continuous programme and a radical re-engineering can be applied to achieve a step-change in performance. All supply chain companies need to review and improve their logistics practice continuously. To do this, these firms should have in place a clear structure for measuring their shipping activity. All in all, if one cannot measure it, it is impossible to production manage it – and this is very much applicable in logistics and supply chain.

Improved quality: Hartman (2013) pointed out quality is an important component of logistics and supply chain operations. Continuous improvements in supply chains seek to supply companies with increasing quantities of quality resources. This is particularly significant for specialty goods in which tolerance for error is low and rejected goods or customer returns are expensive. Controlling costs: the ability of a supply chain company to control its costs is a highly valuable and visible benefit of continuous improvement. Costs often increase over time for instance energy costs and labor costs. Increasing costs generally cut into profits unless supply chain companies increase prices devoid of hurting consumer demand (Hartman, 2013). Therefore, a supply chain company’s ability to control its costs over time is a key performance measurement metric.

According to Fawkes (2014) manufacturing companies understand that transportation distance and geographical site affect costs considerably. Nonetheless, service level and order size could be equally vital although they are not always taken into consideration fully. For instance, supplying small amounts of certain products to a site locally could be as costly as transporting bigger shipments to other countries on the continent. As such, it is of major importance to establish a mechanism for capturing the true logistics cost data (Fawkes, 2014). In essence, it is only after a supply chain company has the pertinent information can it successfully measure continuous improvements; run alternative set-ups so as to recognize any opportunities for savings; and evaluate the impact of customer actions, internal processes, and suppliers on the business (Myerson, 2012).

An important way of measuring performance in continuous improvement in logistics and supply chain operations is by using the cost metric considering that for many years, business organizations have been focusing on reducing logistics and supply chains costs (Myerson, 2012). One method that supply chain companies use to cut their logistics and supply chain costs is by implementing the principles of lean manufacturing to their logistics and supply chain operations. Lean, as Myerson (2012) pointed out, is basically a team-based type of continuous improvement, which is focused on identifying, and getting rid of waste. Wastes are activities, which add no value for the customer. In any case, clients are paying for the end-service or end product, which according to them, is the value-added effort of converting raw materials into finished products. As per this definition, activities, which do not add any value to the client, are 100% waste, for instance products being delayed, inspected or stored. In many supply chains, Myerson (2012) stated that the full cycle time – when information/material goes into the supply chain until it is brought to the client – is mainly waste. From the perspective of the customer, little of this processing time is in fact value-added. This is referred to as dock-to-dock time and the shorter it is, the leaner the supply chain process will be.

References

Bond, T. (2010). The Role of Performance Measurement in Continuous Improvement. International Journal of Operations & Production Management, 19(12): 1318-1334

Campagna, A. (2009). Logistics Performance Metrics. Madison, WI: Cengage Learning.

Fawkes, T. (2014). Achieving Continuous Improvement in Logistics. Retrieved from http://www.packagingeurope.com/Packaging-Europe-News/51305/Achieving-Continuous-Improvement-in-Logistics-.html

Griffis, S., Cooper, M., & Closs, D. (2011). Aligning Logistics Performance Measures to the Information Needs of the Firm. Journal of Business Logistics, 28(2): 35-56

Hartman, D. (2013). Why Is Continuous Improvement in Logistics Important? Boston, MA: Kogan Pages.

Keebler, J. S., & Plank, R. E. (2009). "Logistics performance measurement in the supply chain: a benchmark", Benchmarking: An International Journal, 16(6).785 - 798

Myerson, P. A. (2012). The Journey to Continuous Supply Chain Improvement. Rochester, NY: McGraw-Hill.

Roy, S. (2010). Increasing the Responsiveness of Supply Chain Planning. Oracle. Retrieved from http://www.oracle.com/us/corporate/profit/archives/opinion/092610-roy-175554.html

You, F., & Grossmann, I. (2013). Design of Responsive Process Supply Chains under Demand Uncertainty. Pittsburgh, MA: Springer Publishers.