After this unit you should be able to answer following questions

A. Concept Questions & B. Short notes

1. Logistical performance measures
2. Logistical Performance appraisal
3. Internal/ External performance measurement
4. Explain various Logistical performance measures used in Logistical performance
measurement
5. Benchmarking
6. Comprehensive supply chain measurement
7. Performance auditing
C. Section II descriptive questions [10 marks each]
1. Comment on Internal/ External performance measurement and relevant measures
2. Explain Comprehensive supply chain measurement Performance Appraisal
[Measurement]
3. Explain different objectives of developing and implementing performance measurement
systems in Logistics
4. How is performance appraisal carried out in Logistics Function?
5. What are key measures of performance of logistics?
6. What is bench marking? How is it used for performance appraisal in logistics
management?
7. Explain the concepts of logistical performance measurement & controlling
8. Objectives of logistical performance measurement systems
9. Explain comprehensive supply chain measurement
10. What are various levels of measurement and information flow
11. Explain various report Structures used in logistical performance reporting
Logistical performance measurement and controlling
[L/M-Bowersox, pages 668 onwards]
In a highly competitive business environment logistical competency is critical to the survival
and growth of the organization. Logistical resources are scarce and right allocation of such
resources is vital. Logistical performance measurement is to ensure right allocation and to

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monitor utilization of the resources. Performance measurement is required to ensure careful
evaluation and review of logistical performance of a company. Importance of logistical
performance can never be overstated in competitive environment.
Objectives of logistical performance measurement systems:
Monitoring, controlling and directing are said to be three objectives of measurement
systems for logistical performance. Specific measures are developed to keep fulfillment of
the above measurement objectives for logistical performance measurement.
Monitoring measures: are used to track historical performance for reporting to management
or customers
Controlling measures: track ongoing performance for refining logistical system if it goes
below the performance standards
Directing measures: are developed to encourage performance by employees. Based on
assessment done using these measures good performance is rewarded.
Perspectives of measurement: based on perspectives of measurement two types of measures
are developed. The measurement perspectives are activity based and process based.
Activity based measures measure performance at individual activity level. These activities
are small tasks performed to execute customer orders. Activity based performance measures
indicate efficiency and effectiveness of first level efforts in the process of customer
satisfaction.
Process based performance measures measure effectiveness and efficiency of customer
satisfaction process. They examine total performance cycle time, or total service quality.
These two examples collectively indicate effectiveness and efficiency of customer satisfaction
process.

Internal performance measurement: comparing activities and processes to operations and

or goals to previous year. For example customer service may be compared to previous years
performance and current years goal. All the information necessary to calculate these internal
measures is available internally. Hence they are called internal performance measures.
Internal performance measures are classified into following categories
Cost, customer service, productivity, asset management and quality.

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Cost measures: logistical cost is a measure very popularly used to measure logistical
performance. It is a reflection of logistical performance as this indicates the resources
expended to meet specific operating objectives. It is measured in rupees or dollars as a
percentage of sales or as a cost per unit of volume
Some of the cost measures commonly used are
Total Cost Per Unit, Cost as a Percentage of Sales, Inbound Freight, Outbound Freight, Ware
House Costs, Administrative Costs, Order Processing, Direct Labor, Comparison Of Actual
Vs Budget, Cost Trend Analysis, Direct Product Profitability.
Customer service measures: Service levels are common Customer service measures. They
indicate a firm’s ability to meet customer expectations
Some of the customer service measures commonly used are Fill rate, Stock outs, Shipping
errors, On-time delivery, Back orders, Cycle time, Customer feedback, Sales force feedback,
Customer surveys
Productivity measures: Productivity measure are normally easily understood and extensively
used although some times it may become difficult to obtain all relevant details. This measure
gives an indication of resource utilization. Productivity measures are static, dynamic and
surrogate. Static measures take all factors of out put and input into account. This is also called
total productivity. As the measurement is across only one span of time it is called static
productivity measure.
Dynamic measures compare one static measure against another. Total productivity of one
period is compared to static productivity of another time period.
Surrogate measures take into account such factors not normally included in productivity
calculations but correlated with the concept. For example, customer satisfaction, profit,
effectiveness, quality, efficiency etc.
Some of the surrogate logistics productivity measures commonly used are :Units shipped per
employee, Units per labour dollar, Orders per sales representative, Comparison to historical
standards, Goal programs, Productivity Index.

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Asset Management: ROI and inventory turns are the measures used for asset management.
They indicate utilization of fixed as well as current assets. Logistical fixed assets and
inventory put together account for major portion of company’s assets.
Some of the commonly used measures are inventory turns, inventory carrying costs, inventory
levels, number of days supply, obsolete inventory, return on net assets, return on investment
Quality: ‘perfect order’ is treated as a concept for assessing quality of logistics. Features of a
perfect order are complete delivery of all items requested, OTD with a mutually acceptable
tolerance [of one day], complete and correct documentation, product faultlessly installed.
Obstacles in achieving perfect order are order entry errors, incomplete information, damaged
shipment, invoice error.
Examples: number of customer returns, dollar amount of damage, frequency of damage.
External performance measures: maintain an externally focused perspective. Performance
of the organization is measured through the perception screen of customer. These measures
are used to gain insight into the practices in other industries. The two concepts for the above
measures are customer perception measurement and bench marking. These two are the focus
areas of external performance measures.
Customer perception measurement
Customer perception is measured by carrying out surveys sponsored by the organization
interested in measurement or by the industry. Either the firm, or consultants or delivery agents
or industry organizations carry out these surveys. Information surveyed is about firm’s and
competition’s performance in specific areas. Generally, information generated by these
surveys is customer’s perception of availability of firm’s products, performance cycle time,
information availability, and performance in the areas of problem resolution and product
support.
Best practice bench marking
This is a tool to calibrate logistical operations of the firm. Bench marking review focuses on
measures, practices and processes of a comparable organization. Review committee identifies
key performance measures to improve in the firm and tracks historical and current
performance levels
Benchmarking methods

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1. Sources of information for performance measures are published logistical data, published
by periodicals and university research. This information being public knowledge lacks in
competitive advantage.
2. Bench marking a non-competitive company. This leads to a comprehensive study, and
being bilateral, proprietary knowledge adds value mutually. As one organization is studied
the information lacks broadness of perspective.
3. Alliances of organizations: share each others bench-mark data. This yields comparatively
better data. But it is difficult to maintain such alliances.
Examples of bench marking: asset management cost, customer service, productivity, quality,
strategy, technology, transportation, warehousing, order processing
Comprehensive supply chain measurement:
Four types of metrics developed for outcome and process in a supply chain are customer
satisfaction, time, cost and assets.
Characteristics of an ideal measurement system
Cost/Service Reconciliation: as cost and service [eg. freight bill and shipment] are separated
by time, cause/effect relationship between them is not established. These get apportioned to
different heads of cost and benefit. An ideal measurement system should reconcile them.
Dynamic Knowledge Based Reporting: performance reports generally report performance
characteristics for a particular time period. They do not reveal current situation. They do not
reveal data in the extended past nor do they reveal the trend in future. An ideal system should
do all these to enable appropriate action proactively.
Exception based reporting: logistical management desires a report on exception from
anticipated results. This is like a deviation from standard that is an indicator of process
deviating from desired course. An ideal report enables manager to act proactively.
Levels of measurement and information flow
Measurement is expected to yield information at various levels to facilitate proactive
decisions rather than reactive. This is achieved by signaling a process deviation or break down
for action to prevent recurrence. Information should be reported in different levels for
hierarchy as per the decision-making needs of that level.
Various levels of measurement and information flow are direction, variation, decision and
policy

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Direction level: this level is concerned with execution of operational plan. The focus is on
day to day transactions to implement predetermined program. Measurement is concerned with
detection of trends and exceptions. Exception is a change from desired result of a micro level
plan in the process. Measurement covers broad area and information provided serves as data-
base for subsequent levels. Managerial utility is limited.
Variation level: accumulated deviations from plan are measured. At direction level these
variations appear to be exceptions. Variation measurement is identification of trends that may
result into problems. Concerned manager is expected to interpret the trend, identify
appropriate action at his/her level and issue instructions or seek help from higher in the
hierarchy. Decisions at this level are generally on specific transactions.
Decision Level: at this level measures help decision -maker make modifications to
operational plan after appraisal of exceptions and deviations of previous levels. Information is
more selective and manager friendly. Modifications to plan need additional resources. At this
levels system objectives are not changed if the operational plan is unable to meet them. But
existing plan is reinforced to meet these objectives by additional resource allocation.
Policy Level: policy level measurement focuses on change in system objectives. Need for
change in policy may be triggered by any level in the logistical management. It may be done
by functions outside the department. Marketing department may initiate a change in the
service levels in view of competition. The information at this level is much less in volume but
high in importance. Ref. To fig.15 in logistical visuals
Report Structures
Reports are an important part of any measurement system. They are generated from
management information system. These reports are expected to give rapid and accurate
information or else decision making becomes ineffective. Three types of reports used in
logistical system are status, trend and ad hoc.
Status Reports: give information about status of a particular logistical aspect. The report is in
detail and enables line manager to ascertain current situation. The report may cover several
locations with respect to the aspect under measurement. If the aspect selected is inventory, in
detail information about inventory levels at all locations is given. This type of report is
relevant to the direction level in the earlier discussion. Trend Reports: are required at a

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higher level as compared to the last and more manager friendly, in the sense they help in
decision making. They indicate the trend in future with respect to the chosen logistical aspect
Ad hoc Reports: ad hoc reports are ordered at some time to make available information in
detain on specific areas of performance for some decision making need. There are two types
of Ad hoc Reports. They are diagnostic report, position paper and policy report.
• Diagnostic report: detailed information about some phase of logistical performance. if
back orders are the chosen phase then information about current back orders and planned
corrective actions on them.
• Position paper: this report contains alternative courses of action for an anticipated or
current problem. Lower levels of management prepare these reports for executives at
higher levels. An alternative suggested may need additional resources. When these
resources are approved the operational plans are modified. Position reports request
additional resources but do not suggest change in system objectives.
• Policy Report: Policy reports are ordered by CEOs whenever a policy modification is
requested where change in objectives is suggested. These reports contain information
outside the realm of logistics. They are highly specific and tailor made to the need of the
organization