performace mesurement

8/8/2019 performace mesurement

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NEED FOR PERFORMANCE MANAGEMENT

When describing the performance system, it is best compared with the control panelon the machine or the dash board of a vehicle. Just as a control panel or dash board gives

vital information about the machines or vehicles, the performance measurement system

gives insights into the financial and non-financial measures taken by the firm. However, it

requires multiple measures to direct logistics operations for efficiency and effectiveness.

System performance is judged by its output with respect to the inputs. A higher

output to input ratio is a measure of the systems efficiency and effectiveness. However, the

above ratio is also to be reviewed with respect to the time period. In todays dynamic

business environment, business firms are striving for gaining competitive advantage, not for

growth alone but for their survival. Any system operations will deploy resources

irrespectively of its application in functional areas of marketing, procurement,

manufacturing, or logistics.

In todays competitive environment, industries are being forced to focus on the

effectiveness and efficient use of scarce resources. Manufacturing and trading industries

have to deploy a lot of resources in logistical operations for the movement of goods and

information across the supply chain of the firm. Hence, it has become necessary to monitor,

control, and improve the performance of the logistical operation so as to attain the set goals

of cost reduction and customer satisfaction. The performance measurement system neitherhelps in reducing or eliminating non-value-added activities from the system.

In todays competitive business scenario, the importance of accurately measuring and

controlling logistical performance cannot be denied as logistical competency has become

more critical in enhancing the competitiveness of the business process.


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PERFORMANCE MASUREMENT SYSTEM OBJECTIVES

Any performance measurement system shall have the following objectives:-

MONITORING:-

Monitoring focuses on reporting the current status of operations. The information

may be monitored on a daily, weekly or monthly basis depending on the volume and

criticality.

For example: a financial monitoring system will report, to the management, the total funds

outflow and inflow on a daily basis. Similarly, the marketing monitoring system will report

on the order booked, orders cancelled and orders completed.

CONTROLLING:-

Controlling measures compare the actual performance with the set standards or

objectives. It reports deviation from set goals. The decrease in warehouse productivity shall

help in identifying the cause and help in improving storage layout, and material handling

method.

For example: the control system will report on the current order fill rate in a warehouse as60% and will indicate a deviation of 40% from the set standards of 100% so that corrective

action can be initiated for inventory replenishment.

DIRECTING:-

The objective of the performance measurement system is to motivate the individual

in the system to enhance individual performance, resulting in improvement in overall

system performance system. The performance measurement system will help the

management system to evolve and incentive scheme for operations employees to cross the

targeted productivity level.

For example: The warehousing work force engaged in material handling may be motivated

through rewards for crossing the targeted tonnage of goods dispatches in the specified time

frame.


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LOGISTICS AUDIT

What is logistics audit?

For enhancing the performance of logistics system, it is necessary to take stock of

the efficiency & effectiveness status of the various sub-system of the logistical chain. This

process is called Logistics audit.

Logistics audit examines & tests the operations of logistics process in terms of

quality, technology, productivity & external factors.

The auditing process reveals weakness if any in the logistics system of the company.The test results can help in offering proposals to the firm for improvement by investing in

the system, equipment or in new technology.

Following are the areas of logistics audit

QUALITY

The audit identifies the quality of the logistical service. The errors, constraints areidentified, to which causes of the current situation can be attributed. The audit checks

existing standards of stock level so as to suggest improvement.

PRODUCTIVITY

Audit notes the output of the system. It analyses the productivity of assets,

equipments & Labour force employed, with respect to time & cost.

PACKAGING SYSTEM

The audit indicates the adequacy of present packaging system, in terms of capacity

technology & cost economy.


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WAREHOUSE CAPACITY

Audit will spell out whether the warehouse is underutilized for the existing capacityor there is a need for hiring or constructing an additional storage space based on the level of

order.

TECHNOLOGY

Technology audit may include equipment reliability, speed of information and material

flow, warehouse management system (storage, packaging, sorting, picking and loading) and

transaction system. The audit will compare the critical subsystems: with state of the art

systems and subsystems

EXTERNAL FACTORS

Logistical audit will bring out facts on the changes between buyer & supplier

relations, Transportation conditions, and customer services in logistics. This will help in

taking corrective actions.

STRATEGIC LOGISTICS PLANNING

Even though the main purpose of logistics audit is to concentrate on process details,it also draws conclusions and helps in preparing strategic plans to bring efficiency &

effectiveness into the entire system.


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Perspective

The appropriate management perspective must be evaluated and determined. The

continuum of possibilities ranges from all activity based measures to entirely process based

measures.

Activity based measures

Focus on individual tasks required to process and ship orders. Examples include customer

orders entered, cases received from suppliers, cases shipped to customers. These measures

record the level of activity and in some instances the level of productivity.

While activity based measures focus on the efficiency and effectiveness of primary work

efforts they do not usually measure the performance of the overall process of satisfying

customers. For example order takers who are judged on the number of calls per hour may

be rated high with respect to activity based measurement may do poorly in the overall

satisfaction process because they fail to take the time to listen carefully to customers. For

this reason it is important that some performance measures taken an overall process

perspective

Process based measures

Consider the customer satisfaction delivered by the entire supply chain. They examine total

performance cycle time or total service quality, both of which measure the collective

effectiveness of all activities required to satisfy customers. Todays firms are paying more

attention on process measures while trying not to sub optimize individual activities. The

Perfect Order is an increasingly common process measure.

LOGISTICS PERFORMANCE LEVELS


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There are two levels of performance measures. The first one is internal measure and the

second one is external measure. The firm must strike a balance between external measures

such as customer satisfaction and internal measures such as productivity, cost quality and

asset management, because companies normally ignore external results in the belief that

internal measures are enough, or they sacrifice internal development for external results.

Performance measures must be evaluated from various perspectives before they are

implemented. In general, the performance measure may be viewed through four

perspectives such as financial, no financial, internal and external perspectives.

The information may be monitored on a daily, weekly or monthly basis depending on the

volume and criticality.

Financial Measures

Performance Measurement Perspectives

PerformanceMeasurement

Perspectives

External

Measures

Internal

Measures

FinancialOperating Cost

ROI

Non-FinancialProductivity

Asset Management

Order Fulfillment

Quality

C Customer

PerceptionsService Quality

Reliability

Responsiveness

Relationship

InnovationsBest Practices In

Industry


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Operating cost

The operating cost is the most important performance measure that reflects the efficiency

and effectiveness of the logistics system. The operating cost element covers warehousingcost, freight, material handling equipment running and maintenance cost, labor cost, cost of

return goods and inventory carrying cost. Cost is measured in terms of percentage of total

sales or per unit volume. The typical logistics cost performance measures are:

Warehousing cost per unit of throughput.

Freight cost per unit of material transported

Labor cost

Cost of goods damaged during transportation

Logistical packaging cost

Order processing cost.

Per unit cost in the warehousing

Administration cost

Return on investment

Return on investment (ROI) has both financial and non financial perspectives. This is an

important financial performance measures that indicates whether the investment made in

logistical assets such as warehouse, equipment, storage systems and transportation vehicles

is paying the company dividends by way of profit enhancement through cost reductions.

The numerator in the ratio is the income and the denominator is the investment. It also

indicates whether the investment is properly utilized so that it generates the desired

revenue.


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Non Financial Measures

Productivity

Productivity is another measure of organization performance. Productivity is a relation

between output produced and quantities of inputs utilized by the system to produce that

output. Productivity is thus a very simple concept.

Conceptually, there are three types of productivity measure static, dynamic and surrogate. If

all the output and input in a given system are included in the productivity equation, it would

be a total factor static productivity ratio. The ratio is considered static because it is based on

only one measurement.

A dynamic measure, on the other hand, is completed across time. If output and inputs in a

system compare static productivity ratio from one period to another the result is a dynamic

productivity index fore.g.

Output 1994/input 1994

Output 1990/input 1990

The third type is a surrogate productivity measure. This represents factor that are not

typically included in the concept of productivity but are highly correlated with it customer

satisfaction, profit, effectiveness, quality.

ASSET MANAGEMENT

Asset utilization means the utilization of the capital invested in assets such as warehouse

building, storage system, and material handling equipment, and also funds tied up in

inventories. The utility of the investment is measured through the inventory turnover ratio,

returns on investment, and inventory stock levels in a particular number of days.

Inventory turnover ratio indicates the rotation of the given value of inventory with respect

to the value of sales in a set timeframe. Normally the timeframe is one year. Higher

turnover ratio indicates faster cash rotation in the business cycle and higher utilisation of

assets. This ratio has both financial and non-financial perspectives.


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ORDER FULFILLMENT

This is an important criteria to judge the level of customer service of the firm. This is the

relative ability of the firm to satisfy the customer. This requires close coordination amongall the functional areas of the organization. The various sub-measures covered under the

order fulfilment are:-

Cycle time (order processing, replenishment, procurement, manufacturing, and

distribution)

Delivery-on time/delayed

Fill rate (order fill, case fill, product fill)

Stock out frequency

Shipping errors (wrong delivery, incorrect invoice, material shortage)

For the firm to enhance its order fulfilment capability, close coordination among all thelogistics arms is a must. The system needs real time information support and exceptional

report generating and alarming capability for proactively initiating corrective steps.

QUALITY

The perception of the logistical service quality is created through near-to-perfection in the

order fulfilment process. This may be interpreted as error free order delivery. The

impression of quality logistics service is created through initiating and controlling the

following performance measures:

Transit damage frequency

Value of the total damage

Frequency and cost of goods returned from customers (damaged/sub quality)

Material shortages frequency

Delivery commitment deviations-frequency and tolerance

Quality measure is basically an evaluation of the entire logistical process rather than

individual activities involved in the logistical operation. It speaks of the degree ofeffectiveness of the entire order fulfillment process to deliver error free service.


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CUSTOMER PERCEPTION MEASURES

For initiating steps to achieve competitiveness in logistical operation, the firm needs to get

regular feedback from its customers on the existing service levels and its shortfalls.Customer feedback may give the firm a comparative analysis of the service levels and value

added service offerings of its competitors operating in the market. The feedback on delivery

performance, reliability, responsiveness, and the relationship initiatives. The firm should

regularly conduct customer surveys to get such measures for mapping customer

perceptions, for improvement in logistical service and enhancing competitiveness. These

surveys may be conducted or organized through the firms own marketing and service team.

INNOVATIONS

For calibrating logistical performance measures, firms go in for innovative techniques like

excellent logistical practices in the industry. Benchmarks may be with competitors, firms in

a related or non-related industry. Benchmarking performance measures help firms to gain a

competitive edge. Typical benchmarking measures in logistics are:

Order processing procedure

Transportation-route, modes, freight rationalization

Warehousing-storage, material handling system, automation Packaging

Logistical productivity

Delivery service

Information flow and connectivity

The benchmarking may be done based on published information, alliances with the firm to

be benchmarked, or by appointing a consulting firm/expert, depending on the criticality of

the results.

CREATING A COMPETITIVE FRAMEWORK


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In todays dynamic Business environment, competitive pressures and customer demands are

forcing majority of the firm to shift their priorities to understand the logistic chain

supply chain process in order to deliver superior value to customer. For fulfilling this

objective, logistic has left behind the old role of warehousing, transport, material

storage and handling and has assumed a new role that is much more comprehensive and

pervades the entire supply chain of the firm. There is not doubt that logistics is

imperative to the supply chain process, for its efficiency & effectiveness, to provide

superior service to the customer.

It is a powerful tool for gaining competitive edge with support from emerging

technologies. Logistic activates the physical flow of material with information support

pulled by market demand and optimizes the cost of desired service level. The operation

process of logistic today covers conceptualization, purchasing, processing, distribution,

after sales service function includes responsiveness, reliability, relationship, &rationalization. As customers today are seeking added value, logistic strategies need to be

augmented with the above for service variable.

Responsiveness

This refers to speed in responding to customer demands. Responsiveness need to be

reflected in all the various phases of transaction. In a competitive environment response tothe customer pre-sales enquiry is important as filling the customer order with in a shorter

lead time. The degree of responsiveness can be enhanced through the used of latest

information & communication technologies. The winning logistic strategy will be to supply

the material as per customer needs, in terms of lot size, frequency of delivery, & place of

delivery. In order to reduce the inventory related cost, the customer may demand frequent

deliveries with small lot sizes. Deliveries may further be required at the various assembly

centers, which are in proximity to the markets. Under such circumstances, the emphasis in

formulating a strategy will be on developing a flexible system for customized requirements

of strategic customers. The deciding factor in responsiveness strategy will be

differentiation, which can be achieved with speed, through mass customization with flexibleback end support in all the three phase of the transaction process. The responsiveness

strategy gives the firm a winning edge in competitive markets.

Reliability


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It is the factor that decides the degree of trust the customer may have in a company s

capability to hour commitments. The supplier has to exhibit certain service characteristic

for being perceived by the customer end is based on certain assumption regarding the

reliability factor the supplier exhibits. A higher degree of reliability in material delivery will

help the customer in releasing some of his resources to be used for other productive

purpose. Consistency in on time delivery performance will help the customer to reduce

inventory levels or operate on the JIT system. Hence the prime objective of the logical

system should be reliability in meeting the customer service needs, as per the assumptions

in the planning exercise for resource allocation and risk bearing

Rationalisation

Many leading companies across the world are adopting the rationalization approach in

logistics to reduce cost and enhance customer service. This means reducing the supplier

base and working in partnership with select suppliers .the buyer treats the suppliers

facility as an extension of its own facility and shares information, experience, and

resources for mutual benefit s. the rationalization approach reduces the transaction cost

and allows the buyer to operate on the JIT system so as to take inventory related cost

out of the supply chain. With better control on material movement; customer service

capability is enhanced, which is leveraged for competitiveness.

In competitive markets, wherein the products are at the maturity stage in the lifecycle, leading firms resort to the strategy of mass customization. However, this strategy

works well only when product deigns are rationalized to have minimum standard

components or parts to offer variety in the product or service. With the existing logistics

product portfolio the service provider may cater to different logistics service needs of a

variety of customers, but certainly not all segment of the customers. The logistical strategy

will be to rationalize and organize the service modules in such a way that with simple

permutations and combinations the specific logistical needs of a large number of customers

is met and wider coverage is possible.

Relationship


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In the competitive environment, organizations are trying to reduce their suppliers

base and develop partnership with few suppliers who are reliable and ready to share the

benefits. The firms are spending huge amounts in Customer Relationship Management

(CRM) programmes to retain customers, develop long term relationship for customer

retention, and reduce the risk element in demand management. A partnership with right

supplier, wherein the firm considers the suppliers operations as the extension of its own,

will help in enhancing supply chain efficiency and effectiveness. A relationship based on

mutual trust will help in sharing information, knowledge, and resources for mutual gains of

cost reduction, which may be leveraged for competitiveness. Leading business firms across

the world are finding logistics the best route to form partnership with suppliers, customers,

and channel members, and develop long term relationships to act as an integrated system

weaved in one thread to fight collectively on the competitive front.

LOGISTICS STRATEGIES ACROSS PRODUCT LIFE CYCLE

(PLC)


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Traditionally logistics is conceived as a functional support system and is used as one

of the tools for extending differentiated customer service to gain competitive edge. The

logistics strategy is formulated in line with the overall business strategy of the firm to

achieve the desired business objectives. Firms try to optimize various elements of the

logistics mix to get a desired service level that supports the product market strategy.

The criticality of the various elements of the logistics mix varies with the product,

market and the customer service level. For example, the distribution network of FMCG

products needs more warehouse to serve a large number of customers spread across the

country through an intensive channel structure while a glass (sheets) manufacturing firm

will have no field distribution warehouse. Because of the fragile nature of the product,

shipments are directly made to the end customer or dealers. In other cases, for low unit

value products like soft drinks, distribution is done within a 100 kilometer radius of themanufacturing plant. Here transportation route selection and vehicle scheduling is more

critical to control the transportation cost, which has a major share in the total landed cost of

the product at the customers end.

The other variables which influence the formulation of logistical strategy is the

adjustment across the product life cycle phases it is passing through.

At each stage of the product life cycle, the requirement of the logistical performance

change to suit market conditions.

Introduction Growth Maturity Decline

Sales

And Logistics Cost #

Profits ProfitsSales

#Logistics cost as % of sales Product Life Stages


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Introduction

At this stage, basic logistical support this required for making the product available at

places where product awareness is created for demand generation. Heavy promotional

expenditure made will be wasted if the product is not available when the customer wants it.

It will dilute the impact of the marketing strategy. It may even have a negative effect on

product acceptance by the perspective consumers and may lead to product failure. Here, the

primary objective is to establish consumer acceptance and market position, and the

emphasis is on the stock availability. During the introductory phase the demand pattern is

erratic and shipments size is small and hence the logistics cost as a percentage of the

revenue generated is pretty high. In a nutshell, at the introductory stage the firm needs to

organize and mobilize the elements of the logistics mix to exhibit high level of servicecommitment.

Growth

In the growth stage the emphasis shift to the creation of the logistical infrastructure.

As sales growth is witnessed, more revenue are generated and profits are assured in the

growth stage, the strategy focused is on the investment and making the back end support

stronger for gaining competitive edge. The logistical cost as a percentage of the revenue

generated plummets down because of scale economies. In the growth stage, the strategy isto achieve logistical competency through investment in technology and network to build

market share and customer relationship through reliable and consistent generic logistical

services.

Maturity

The maturity stage witnesses the proliferation of competition. The price war becomes

intense to gain market share in stagnant or slowly growing markets. Firms try to reach the

customer through multiple channels. In this phase, the strategy focused shifts to customizedlogistical solutions with a value added services to gain competitiveness. Typically, the

profit margins come down and so does the firms focus on cost control. To maintain a

competitive position firms resort to alliances in logistics and adopt the strategy of service

customization. They evolve a product-market-customer specific logistical solution for

strategic clients and organize the resources to integrate it with the clients supply chains.

Logistics not being the core competency of the majority of manufacturing or trading firms,


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they take a help of experts or logistics service providers to perform logistical operation

effectively and efficiently at reduced cost.

Decline

In this phase the product volume shrinks, costs go up, margins plummet down, an

element of uncertainty creeps in and firms slowly withdraws from the market. Logistical

operations are planned on a selective basis to support marketing operations that are

performed on a restricted scale. Logistical resources are neither overcommitted nor over

stretched in the decline stage.

For example: - Hindustan Unilever limited, as they had introduced RIN bar but because of

the competition they converted Rin bar into surf excel because as surf excel is on maturity

so they wanted Rin bar to be on that path because at the same P&G introduced tide bar.

STRATEGIC LOGISTICS PLANNING


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The importance of logistics in the supply chain has been realized by firms during the

last decade because of globalization of business activities, increasing competitive pressure,

and uncertainties in dynamic markets. This has forced business firms to reengineer or

redefine their business process so as to bring efficiency and effectiveness into their

operations. Hence, there has been continuous improvement in logistics and supply chain

operations to achieve the key goals of cost reduction, flexibility, technology adaptability,

and superior customer service through value additions to gain sustainable competitive

advantage in dynamic markets.

The process of logistics strategy formation and its implementation varies with each

firms business process, the product it is dealing with, and the industry it is operating in.

e.g.; a firm with a manufacturing plant will be concerned with inbound, in process, and

outbound logistics, which require strong IT support for the integration of a large number ofactivities in sub-systems. To reap benefits of scale economics, the manufacturing firm may

go in for an alliance with a 3pl supplier.


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| Strategic logistics planning |

The strategic logistics

planning process staanalysis of the external and

internal environment,

which will determine the

firms limitations, resource requirements, and barriers in extending superior service to

customers. The regulatory framework in the country or internal resource constraints may

not allow the firm to avail of certain opportunities or may create barriers in extending the

ENVIRONMENTAL ANALYSIS

RESOURCE IDENTIFICATIONS

(LOGISTICS MIX)

LOGISTICS GOALS

Strength, Weakness,Opportunities

and Threats

SWOT

Economic, Regulatory, Industry,

Competition

Warehousing, Transportation, Inventory,

Information

LOGISTICS STRATEGIES

IMPLEMENTATION

Customer service and Cost Efficiency,

Effectiveness, Productivity,

Competitiveness

RESULTS

RESOURCES,

SKILLS AND TIMING ENVIRONMENT


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desired level of service to customers. An environment analysis will help in identifying the

companys strengths, weaknesses, opportunities, and the threats in serving the customer.

This will help in formulating the supporting strategies and organizing the appropriate

resource (logistic mix) to achieve the logistics goals.

For the implementation of the strategy, the firm needs the structure to implement the

same. The structural elements include design of a logistics network and evolving a network

strategy. The network design is primarily concerned with planning of warehouses at

strategic locations, transportation facilities and an information flow system across the

supply chain. The network strategy may decide on the warehouse type (private, public, or

contract), transportation modes route and carrier selection, and technology selection, and

adoption for information flow. E.g. the wholesaler will prefer to have large consignment

with fewer deliveries to economize on freight cost, while the retailer will prefer smallerconsignment with frequent deliveries to save on inventory cost. Channel design is

concerned with customer service and it is extended through logistic activities. The

proximity of the warehouse to the market place, the continuous replenishment of inventory,

and reliable and consistent delivery performance are critical factors in the selection of

logistical structural elements.

The success of strategy implementation depends on the efficiency of the functional

elements in the movement of information and inventory across the supply chain. The

channel length and breadth will depend on the type of product, market size, and the market

share to be gained.

In the overall network design, the critical role of sub-system cannot be ignored. E.g.

the warehouse layout planning exercise will be incomplete without proper consideration of

material handling equipment and storage systems. An improper layout may create barriers

to free and speedy movement of inventory across the supply chain hence, storage layout,

equipment selection, and storage plan should go hand in hand.

The selection of transportation route, mode, and carrier operator is important for

offering and maintaining a reliable and consistent service level. Transportation management

is the key functional area in customer service


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In other functional area to influence strategic logistic planning is materials

procurement and management. It is a critical linkage in the supply chain wherein co-

partnership with vendors, material requirement planning, and scheduled procurement helps

in keeping the supply chain lean and cost effective.

Warehousing, transportation, and inventory management require close coordination

for the smooth flow of material movement across the supply chain. The functional aspect of

structural elements has a greater role in the success of the logistics chain in providing the

desired level of service. Technologies like automatic identification, warehouse simulation,

automated material handling and information communication helps in enhancing the

efficiency, effectiveness, and productivity of the overall system, leading to competitiveness

in delivering superior service to customers at least cost.

The last, but most important aspect of strategic logistic is the implementation of the

strategy, the success of which is dependent on the efficiency of the people, equipment, and

the interfaces involved at the operating level. The major task at the operating level is order

registration, order processing, order picking, replenishment, and dispatching. This is done

through proper policies and procedures at the operation level, use of the latest technology,

and through structuring, training, and initiating the change process at the organizational

level.

In conclusion, the strategic logistic process will enhance the responsiveness of the

organization to the customer through the deployment of both physical and information

resources.

LOGISTICS STRATEGIES

The logistics strategies should have goal congruence with over all strategy of the business.

It should synergize with other functional domains of the organization. For Example, the

management information system, which encompasses all functional areas of the business,


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India through their cold chain network, across the country customized for processed

food products.

Consignment tracking. For example, leading 3PL service supplier likeAFL, BLUE DART offers web based consignment tracking and tracing facilities to their

customers.

Offering guaranteed delivery time and accepting penalty for deviation.

Value addition :

3PL suppliers are providing some extra services to clients in addition to the normal

logistics services to add value to their service offering. These are :

Cobbling: To avoid wasteful practices in transportation and storage TCIcobbles together backhaul arrangement between different MNCs like

Nestle and HL in India for distribution in Uttaranchal.

Payment Collection: Company offers the services of payment collectionfrom the consignee against the delivery of material.

Customs Clearance: Logistics service suppliers provide customsclearance services to their customers for import and export consignments.

This is because the majority of exporters and importers do not have

expertise in this area of logistics operations and are not conversant with

government rules and regulations.

Packing and Labeling: 3PL operation provides this service to customerswho do not have the facilities or resources to pack the manufacturers

material or break bulked imported material. In addition the services of

attaching labels and price tag is undertaken.

Vendor managed Inventory: To reduce the inventory related cost of

critical input in a clients product suppliers offers service of managing

inventory of that item at client place. The inventory ownership lies up with

supplier, who bills the customer for the inventory consumed. The supplier

maintained minimum inventory at the small area allocated to him in the

clients manufacturing premises.


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Outsourcing:

Manufacturing firms opt for strategic alliance with experts in logistics to reduce the cost

and simultaneously bring efficiency and effectiveness into their logistics operations by

outsourcing these services to logistics service providers who have expertise in these

functional areas. Telco Pune has completely outsourced inbound and outbound logistics to

dynamic logistics, a 3PL firm.

Diversification:

Manufacturing firms having huge logistics operations adopt the strategy of

diversification in to logistics operations. The objective is better cost and operational control

to provide superior customer service. The TATA Group is planning to start a separatelogistics company to undertake the logistics operations of all group companies so as to

provide superior service to its customers.


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CHARACTERISTICS OF AN IDEAL MEASUREMENT SYSTEM

The ideal performance measurement system incorporates three characteristics that provide accurate and timely direction for management cost or service reconciliation,

dynamic knowledge- based reporting, and exception-based reporting. Each is described and

illustrated.

Cost/Service Reconciliation

Because of the difficulty in collection certain types of data and in coordination causes and

effect relationships, a majority of reports show logistics expenditure only during a specific

time. For examples, freight bills may not be received until some time after shipment is

made. This practice often causes a problem matching a freight bills with the invoice.Similarly, it is not easy to assign the extra costs related to customer service to those order

that require additional customer effort. Typical reports fail to reflect cost/service trade-off

critical to generating revenue. It is important to identify and coordinate relevant cost and

revenues in order for managers to make meaningful logistics decision. For examples, in the

toy industries, products are typically manufactured in the spring and sold with early order

discounts to encourage purchase commitment by retailers for the holidays seasons. Unless

costs are appropriately sequenced with revenue, management may obtain a distorted view

of the performance effectiveness of its logistics system. An important benefit provide by an

operational plan is that activity levels are matched to projected cost level.

Dynamic Knowledge- Based Reporting

The biggest challenge in logistics reporting is to present a dynamic, rather than static,

picture of operational performance over an extended time period. In general, most logistics

operational reports provides the status of important activities such as current inventory

position, transportation cost, warehouse cost, and other measures of expenditures or activity

level for a single reporting period. Such reports provide vital statistics that can be compared

with previous operational period to determine if performance is tracking as planned. The

deficiency of static status report is a failure to provide a picture over extended past periodsand an inability to project critical trends in the future. Logistics manager require a reporting

system that can project adverse trends before they surge out of control. Ideally, the

reporting system can also query available logistics data and extract relevant information

that will guide corrective management action.


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Exception- Based Reporting

Logistics measurement should be exception- based. The comprehensive and detailed natureof logistics requires that managerial attention be directed to exception from anticipated

result. The existence of an exception to planned results is proof that unanticipated activity is

occurring. Therefore, an idle reporting system will assist manager in isolating activities and

processes requiring attention. Such attention may identify areas requiring problem- solving

efforts or facilitate taking a more in- depth assessment of a specific process or function.


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Logistics Performance Control

To align the objectives of logistics to that of an organisation, or directing the logistical

activities for competitiveness, a powerful control mechanism needs to be evolved andimplemented. Invariably organisations go in for the following control system:

Budgetary control

Irrespective of the organizational reporting structure, the firm fixes up the budget for

each of the logistical activities, which are treated as cost centres. Deviations in costs are

judiciously monitored, the emphasis being cost saving rather than service to the customer.

Structural control

Controls are exercised through proper organizational structure. Typically, an

organization having cost as its differentiation strategy will have several layers of reporting

structure to cut costs at subsequently higher levels of investment proposals. In these

organizations customer service related investment proposals take the backseat.

On the other hand, customer focused organizations will have a flat reporting structure. The

span of control is wider. The degree of authority and responsibility entrusted in each

individual is higher. Managers enjoy work freedom but are accountable for the results.

These are result oriented organizations and performance measures are used for continuouslytracking and improving the health of the supply chain to remain competitive.


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STRATEGY IMPLEMENTATION

Besides strategy formulation, its implementation is equally important. The firm

should properly evolve a framework for successful implementation of its logistics strategy.

The elements of the strategy implementation framework are controls, organization

structure, organization culture, and human resource skills.

| Strategy implementation framework|

Strategy

Performance

Controls

BehaviouralFinancial Non-financial

Organisational

culture

Organisational

structure

Complementaryhuman skills


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The financial dimensions of controls focus on the monetary bottom line, which is net

income, return on equity, net profits, costs, etc. The non financial control parameters are

service quality, customer satisfaction and on time delivery. The behavioural controls are

self imposed by employees and are the outcome of the organizational culture and employee

motivational programmes implemented by the organization. Invariably, higher motivational

levels with good self imposed controls in the work force are observed in the organizations

with an open culture.

Examples : IBM, Microsoft and Motorola.

A lean structure with minimum decision making levels and a wider span of control

for individuals shows a higher motivational level amongst employee to perform well. In

such organizations the success rate of strategy implementation is higher. The other critical

factor for successful strategy in the dynamic business environment. This depends on the

experience and educational background, and the ability to analyse the situation and the risk.

Questions


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1) what is Activity based costing

2) Explain the different objectives of Performance Measurement Systems in Logistics

3) What are Internal Performance Measures in Logistics

4) What are objectives of Logistics Performance Measurement? Describe the

components of Internal and External Performance Measurement

5) How is logistics management helps an organization in gaining competitive advantageto deliver superior Customer Service

6) Explain Logistics Performance Levels( Internal and External)

performace mesurement

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