Performance Measurement

Chapter 22 Logistical Management Bowersox, Closs Chapter 12 Logistics Management Satish Ailawadi, Rakesh Singh

Contents
Definition !rinciples Role "#nctions $mportance %&'ecti(es of performance meas#rement Classification of performance meas#res Acti(it) Based Meas#res * !rocess Based Meas#res $nternal * +xternal !erformance Meas#rement Acti(it) Based Meas#res !rocess Based Meas#res $nternal !erformance Meas#rement Cost, C#stomer Ser(ice, !rod#cti(it) Meas#res, Asset Meas#rement, ,ime Meas#rement, -#alit) Meas#rement .!erfect %rder/ +xternal !erformance Meas#rement C#stomer !erception Meas#rement, Best practices &enchmarking Logistics A#dit .!erformance A#diting/ 0 Ser(ice Le(els * Service levels has been covered in Inventory Management Collated from presentation &) 1a#ra(, Arwa, Ankita * 2esha .LSRC ,2BMS .2311 Di( A/ Aparna, Anant, Swati * "a4ila .LSRC ,2BMS 2311 Di( 5/ 2

Introduction

,he com&ination of slower economic growth * c#t6 throat competition has forced the ind#str) to concentrate on efficient * effecti(e deplo)ment of logistical reso#rces ,his makes it essential to evaluate, control & improve the performance of logistics s)stem "or this p#rpose, logistics s)stem m#st &e first meas#red Meas#rements are di(ided into two categories

Internal Measurements External Measurements

3

Objectives of Performance Measurement

,here are three main o&'ecti(es of performance meas#rement

Monitoring Controlling Directing Meas#res * tracks historical logistics performance for reporting to management * c#stomers Monitored parameters incl#de ser(ice le(els and logistics costs of acti(ities s#ch as transportation, wareho#sing etc

Monitoring

Objectives of Performance Measurement

Controlling

Meas#res * tracks the ongoing performance $s #sed to re(iew a logistics process in order to &ring it to pre6defined accepta&le le(els or control standards e7g7 transport6damage tracking7 B) ha(ing a s)stem that periodicall) reports damage d#ring transportation, logistics management can identif) the ca#se and modif) the packaging or material handling process Refers to the methods designed to motivate personnel 8s#all) this in(ol(es 9pa) for performance: practice #sed to enco#rage wareho#se or transportation personnel to achie(e higher le(els of prod#cti(it) 5

Directing

Classification of Performance Measures

!erformance meas#res can &e classified in a (ariet) of wa)s ,wo of the classifications of performance meas#res are

"ctivit# $ased Measures % Process $ased Measures &'(is met(od of classification is AKA Perspective Measurement) Internal Performance Measurement % External Performance Measurement

"ctivit# $ased Performance Measures

"oc#s on indi(id#al tasks re;#ired to process * ship orders ,he o&'ecti(e of acti(it) &ased meas#res is to record le(el of acti(it) ,his method helps to e(al#ate the prod#cti(it) of each task ,)pical logistics acti(it) &ased meas#res are %rder entr) time per order %rder selection time per c#stomer $n;#ir) time per order

%rder selection time per order Deli(er) time per order %rder entr) time per c#stomer

Deli(er) time per c#stomer %rder selection time per prod#ct Deli(er) time per prod#ct
*

Process $ased Performance Measures

!rocess meas#res consider the c#stomer satisfaction deli(ered &) the entire supply chain "oc#s on total performance6c)cle or total ser(ice ;#alit) ,his res#lts in meas#ring the collecti(e effecti(eness of all acti(ities re;#ired to satisf) c#stomers ,oda)<s firms are pa)ing far more attention to process meas#res alongside acti(it) meas#res %ne of the most common process meas#re is the perfect order
+

Internal % External Performance Measurement

Internal Performance Measurement

$nternal performance meas#rements foc#s on comparing acti(ities and processes to pre(io#s operations and or goals e7g7 c#stomer ser(ice might &e compared to last period<s act#al performance * to this period<s goal $nternal meas#res are commonl) #tili4ed for the following reasons

Management #nderstands the so#rce of information $nformation o&tained is relia&le $nformation re;#ired is relati(el) eas) to collect and anal)4e
-.

Internal Performance Measurement

,he following are $nternal performance meas#rements

Cost Customer /ervice Productivit# Measures "sset Measurement 0ualit# Measurement 'ime Measurement
--

Internal Performance Measurement

Cost

Reflects in percentage, the act#al cost inc#rred to accomplish a specific logistic task Logistics cost performance is t)picall) meas#red in terms of Rs7 as a =age of sales or as cost per #nit of (ol#me Costs incl#ded herein are operating costs ,)pical cost meas#res are

Cost per #nit >areho#se costs $n&o#nd freight o#t&o#nd freight %rder processing

Cost as a = of sales Administrati(e costs Direct la&or

-2

Internal Performance Measurement

Customer /ervice

+xamines a firm<s a&ilit) to satisf) c#stomers "oc#ses on the ser(ice pro(ided &) the man#fact#rers, wholesalers and retailers ,hese ser(ices incl#de

"ill rate Stock6o#ts %n6time deli(er) Backorders

C)cle time C#stomer feed&ack Sales force feed&ack

Also examines satisfaction of internal customers

-3

Internal Performance Measurement

Productivit# Measures

+sta&lishes a relationship ?#s#all) a ratio or an index@ &etween an o#tp#t ?goods and or ser(ices@ prod#ced and ;#antities of inp#ts ?reso#rces@ #tili4ed &) the s)stems to prod#ce that reso#rce Common logistics prod#cti(it) performance meas#res are

8nits shipped per emplo)ee 8nits per la&or ?Rs7@ %rders per sales representati(e Comparison with historical data Comparison with standards set !rod#cti(it) index
-4

Internal Performance Measurement

Productivit# Measures

!rod#cti(it) meas#res are hard to asses d#e to

Diffic#lt) in meas#ring o#tp#ts and inp#t #tili4ation Constantl) changing inp#t * o#tp#t mix Diffic#lt) in o&taining non6a(aila&ilit) of data

-5

Internal Performance Measurement

"sset Measurement

AAA Asset Utilization "oc#ses on the #tili4ation of capital in(estments in fixed assets s#ch as facilities * e;#ipment Seeks to meas#re how well fixed assets generate ret#rn on in(estments Also foc#ses on the application of working capital to li;#id assets s#ch as in(entor) Logistics asset management meas#res, reported as =age are

$n(entor) t#rno(er $n(entor) carr)ing costs $n(entor) le(els ?no7 of da)s of s#ppl)@

%&solete in(entor) Ret#rn on net assets Ret#rn on in(estment

-!

Internal Performance Measurement

0ualit# Measurement

Refers to the process oriented e(al#ation to determine the effecti(eness of a series of acti(ities rather than an indi(id#al acti(it) Common ;#alit) meas#res reported as a percentage are

"re;#enc) of damage Damages reported in Rs7 B#m&er of c#stomer ret#rns Cost of ret#rned goods

Deli(er) of perfect order is the #ltimate meas#re of ;#alit) &eca#se the prefect order is concerned with the effecti(eness of the integrated logistical performance -*

Internal Performance Measurement

'ime Measurement

An important meas#rement to '#dge the le(el of c#stomer ser(ice offered &) the organi4ation Common time meas#res are

Response time Lead time %n6time prod#ct shipment

-+

Internal Performance Measurement

$nternal !erformance Meas#res are sometimes di(ided in two &road categories which are f#rther categori4ed as &elow

1inancial Measures

O2erating Costs "sset Measurement Customer /ervice Productivit# Measures 'ime Measurement 0ualit# Measurement Perfect Order
-,

3on41inancial Measures

Internal Performance Measurement

Perfect Order

!erfect order represents ideal performance Meas#res order entr), credit clearance, in(entor) a(aila&ilit), acc#rate picking, on6time deli(er), correct in(oicing, pa)ment witho#t ded#ctions Represents the following standards

Complete deli(er) of all items re;#ested Deli(er) as re;#ired &) c#stomer with a one6da) tolerance Complete * acc#rate doc#mentation s#pporting the order, incl#ding packing lists, &ills of lading, in(oices "a#ltless installation, correct config#ration, no damage

Best organi4ations report achie(ing a 55 to 60% perfect order performance while most organi4ations report less than 20% 2.

Internal Performance Measurement

Perfect Order $usters 5 Common causes of failure

%rder entr) error Missing information e7g7 prod#ct code Bon6a(aila&ilit) of ordered item $na&ilit) to meet shipment date %rder picking error +rrors in packing list doc#mentation Damaged shipment $n(oicing error o(ercharging ded#ctions +rror in pa)ment processing
2-

External Performance Measurement

+xternal performance meas#rement is done on the &asis of Customer Perce2tion Measurement $est Practice $enc(mar6ing Customer Perce2tion Measurement Refers to the reg#lar meas#rement of c#stomer perception that is o&tained thro#gh compan) or ind#str) sponsored s#r(e) or &) s)stematic order follow6#p S#r(e)s ask ;#estions regarding the firm * competitor performance in general or for a specific order in partic#lar S#r(e)s ma)&e de(eloped * cond#cted &) firm itself or &) cons#ltants, deli(er) agents or ind#str) organi4ations $mportant meas#rement of c#stomer perceptions are A(aila&ilit) !rod#ct s#pport ser(ices Lead times !ro&lem resol#tion $nformation a(aila&ilit) 22

External Performance Measurement

$est Practice $enc(mar6ing Benchmarking is the process of comparing a firm<s &#siness processes and performance meas#res to ind#str) &ests or &est practices from other ind#stries Areas of re(iew incl#de identif)ing ke) performance meas#res * tracking historical * c#rrent performance le(els Benchmarking ma)&e carried o#t in relation to operations of &oth competitors and leading firms in related * non6 related ind#stries $n the process of &enchmarking, management identifies the &est firms in their ind#str), or in another ind#str) where similar processes exist, and compare the res#lts and processes of those st#died ?the CtargetsC@ to the firm<s own 23 res#lts * processes

External Performance Measurement

$est Practice $enc(mar6ing

$n this wa), the firm learns how well the targets perform and, the &#siness processes that explain wh) targets firms are s#ccessf#l Benchmarking pro(ides fo#ndation for c#stomer satisfaction * the perfect order Ae) areas of &enchmarking

Asset management %perating Costs C#stomer ser(ice !rod#cti(it) -#alit)

,echnolog) ,ransportation >areho#sing Material handling %rder processing

24

External Performance Measurement

$est Practice $enc(mar6ing

Methods of &enchmarking

>ith the help of logistics data p#&lished in periodicals or thro#gh cons#ltants and #ni(ersit) researchers Benchmarking pri(atel) against a noncompetiti(e firm in one<s own or a related ind#str) Creating a strategic alliance with organi4ation?s@ that share &enchmark data on a reg#lar &asis

25

7ogistics "udit

Becessar) to take stock of the stat#s of (ario#s s#&s)stems of logistic chain D enhances performance Shortfalls, weakness * gaps can &e identified +xamines * tests the operations Meas#res the capa&ilit) * ;#alit) of the logistics Eighlights reso#rces for rationali4ation Eelps in cost red#ction

2!

7ogistics "udit
"reas of 7ogistics "udit 0ualit# Productivit# Pac6aging s#stem "utomation $f man#al operations are ca#sing red#ction in s)stem prod#cti(it), the logistical a#dit will propose a#tomation 8are(ouse ca2acit# >hether #nder#tili4ed need for hiring constr#cting an additional storage space 'ec(nolog# $ncl#des +;#ipment Relia&ilit) Speed of information Material handling >areho#se management s)stem ,ransaction s)stem 2*

9eferences
!resentation $mage httpF graphiclefto(ers7com graphic financial6anal)sis6GGHHH $ntrod#ction Logistics Management D Ailawadi !g 11G %&'ecti(es of !erformance Meas#rement Logistics Management D Ailawadi !g 123 Classification of performance meas#res Logistics Management D Iina) !andit !g 1JK Acti(it) &ased performance meas#res Logistics Management D Ailawadi !g 123 !rocess &ased performance meas#res Logistical Management D Bowersox !g JL1 $nternal * +xternal Meas#res Logistics Management D Ailawadi !g 12M !erfect %rder Logistics Management D Ailawadi !g 12M Benchmarking httpF en7wikipedia7org wiki Benchmarking

2+