ChapterLogistics and Transportation

pp 214-234
Logistics performance metrics
RajaG.Kasilingam
http://link.springer.com/chapter/10.1007/978-1-46155277-2_9

 Logistics metrics are quantitative measurements that track certain processes within the
logistics framework. The best design for a logistic system or component(s) of a logistics
system truly depends upon the metric(s) used for measuring the performance. A system
that measures up very high in one metric may not measure very well in some other
criteria. The objective, however, is to design a system that meets or exceeds the
expectations in most of the selected metrics. Logistics metrics vary based upon the
boundary of the system (the various functional areas included such as production,
distribution, inbound transportation, storage, vendor selection etc.), the functional
requirements of the system and the different areas and the ability to define and measure
them quantitatively. Hence the first step in designing the metrics is to define the system
that needs to be measured and its components. The second step is to determine the
functional requirements or expectations of the system. The third step is to identify metrics
that can quantitatively measure the functional requirements. It is also important to
understand the relationship between metrics. One or more metrics may drive the
performance of another metric. For instance, in the case of railroads, customer service in
terms of the percentage of on-time delivery of shipments depends upon the on-time
arrival and departure of trains and terminal dwell time for cars (time spent at a terminal).

Transportation Metrics:
Freight cost per unit shipped: Calculated by dividing total freight costs by number of units shipped
per period. Useful in businesses where units of measure are standard (e.g., pounds). Can also be
calculated by mode (barge, rail,ocean, truckload, less-than-truckload, small package, air freight,
intermodal, etc.).
Outbound freight costs as percentage of net sales: Calculated by dividing outbound freight costs by
net sales. Most accounting systems can separate "freight in" and "freight out." Percentage can
vary with sales mix, but is an excellent indicator of the transportation financial performance.
Inbound freight costs as percentage of purchases. Calculated by dividing inbound freight costs by
purchase dollars. It is important to understand the underlying detail. The measurement can vary
widely, depending on whether raw materials are purchased on a delivered, prepaid, or collect basis.
Transit time: Measured by the number of days (or hours) from the time a shipment leaves your
facility to the time it arrives at the customer's location. Often measured against a standard transit
time quoted by the carrier for each traffic lane. Unless you are integrated into your customers'
systems, you will have to rely on freight carriers to report their own performance. This is often an
important component of leadtime. Transit times can vary substantially, based on freight mode and
carrier systems.

On Time Performance
OnTime Shipping Performance is a calculation of the number of Order Lines shipped on or before the
Requested Ship Date versus the total number of Order Lines. Throughout the following text, I refer to
"shipped" ontime. BUT if actual "delivery" data is available, it may be substituted and compared to the
Requested Delivery Date. (such as with an EDI#214 ).
*OnTime: Shipped on or before the requested ship date (except if the receiving party does not accept
early shipments).
Sample OnTime Metrics:
OnTime Line Count: The amount of order lines shipped OnTime* versus the amount of lines ordered.
example- ABC Company orders 10 products (one order line each) on its Purchase Order #1234. The
Order has a Requested Ship Date of March 1. The manufacturer ships out 5 line items on February 28 and
2 items on March 1 and the remaining 3 items on March 10. The OnTime LineCount for this Purchase
Order is 70%. It is calculated based on the Requested Ship Date OR, if available, substitute actual
Delivery Date vs Requested Delivery Date.
Calculation: Number of Order Lines Shipped on or before the Requested Date / Total Number of Order
Lines Ordered
(7/10 = 70%)

On Time Performance
OnTime SKU Count: The number of SKU's (Stock Keeping Units) ordered and shipped is taken into
consideration. Above, we consider each Order Line to have an equal value (1 ). Here, we count the
SKU's per Order Line.
example: If on Line 1, the order was for 30 skus of product "AB" and on line 2, they ordered 10 skus
of item "AC". The Requested Ship Date is April 1st. If Line 1 ships on March 28 and line 2 on April
20, the the SKU Fill Rate is 75%
Calculation: Number of SKUs Shipped OnTime / Total Number of SKUs Ordered (30/40 = 75%).
OnTime Case Count: The amount of cases shipped OnTime versus the amount of cases ordered.
example- ABC Company orders 6 products that total 200 cases, on its Purchase Order #1235. The
manufacturer ships out 140 cases on 3/1/01 and the remaining 60 cases on 3/10/01. The
Requested Ship Date is 3/1. The Case OnTime Rate for this Purchase Order is 70%. The number of
Order Lines is not considered in this calculation. This OnTime measure gives "weight" to the order
lines that are shipped out.
Calculation: Number of Cases Shipped OnTime / Total Number of Cases Ordered . (140/200 = 70%)
OnTime Value Rate: Same as above, except the order line value is used instead of cases.
Calculation: Value of Order Lines Shipped OnTime / Total Value of the Order ($400/$500 = 80%)

Cycle Time Measurements

Here are just a few of the many Cycle Times you should consider for your Supply Chain. All of these
measures should not only calculate the days (or hours) from the start and finish, but also between the
various steps in between.
Customer Order Promised Cycle Time:The anticipated or agreed upon cycle time of a Purchase Order. It
is gap between the Purchase Order Creation Date and the Requested Delivery Date.
This tells you the cycle time that you should expect (NOT the actual)
Customer Order Actual Cycle Time:
The average time it takes to actually fill a customers purchase order. This measure can be viewed on an
Order or an Order Line level.
The measure starts when the customers order is sent/received/entered. It is measured along its various
steps of the order cycle. Through credit checks, pricing, warehouse picking and shipping. The measure
ends at either the time of shipment or at the time of delivery to the customer (sometimes tracked by
using an EDI #214). This "actual" cycle time should be compared to the "promised" cycle time.
Manufacturing Cycle Time:
Measured from the Firm Planned Order until the final production is reported. It usually takes into account
the original planned production quantity versus the actual production quantity. Example: X% of the
planned quantity must be completed on a production run or the cycle time should not be considered.
Purchase Order Cycle Time:
Measured from the creation of the PO to the receipt at your location (Distribution Center, Hub etc). One

DPMO: Defects Per Million

Opportunities
DPMO is a Six Sigma* calculation used toindicate the amount of defects in a
process per one million opportunities.
To calculate: Total Number of Defects / Total Number of Opportunities for a
Defect. Then multiply the answer by 1 Million.
The challenge here is determining exactly what qualifies as a defect. Some
defects can pass through a quality inspection and have little impact on the end
product. Other defects can result in re-work or scrap.
DPMO is sometimes used instead of Defect per Unit to allow for comparison
between processes with different levels of complexity.
*Six Sigma uses statistical analysis to measure a companies performance by
identifying defects in a manufacturing process. The goal of Six Sigma is to
reduce process output variation to + or - six standard deviations. This results in
no more than 3.4 defects per million opportunities.

Perfect Order Measurement

Perfect Order Measurement: As with most other Supply Chain Metrics, there are many variations to this measurement.
The Perfect Order Measure calculates the error-free rate of each stage of a Purchase Order. This measure should
capture every step in the life of an order. It measures the errors per order line.
But how do you capture errors? Let's look at what happens when an error occurs. Say for example, your warehouse
picks and ships the wrong item. Once the customer receives the order and notices the error, they contact the
manufacturer and notify them of the mistake. The manufacturer then enters a credit for the item not shipped and an
invoice for the item shipped in its place. For almost all errors that occur, a corrective credit is issued. It is through an
analysis of these credits that you derive your metric. Most systems require a "reason code" to be used when entering a
credit. Tracking these reason codes and assigning them to a category allow you to group them for the Perfect Order
Measure.
Example:
Order Entry Accuracy: 99.95% Correct (5 errors per 10,000 order lines)
Warehouse Pick Accuracy: 99.2%
Delivered on Time: 96%
Shipped without Damage: 99%
Invoiced Correctly: 99.8%
Therefore, the Perfect Order Measure is 99.95% * 99.2% * 96% * 99% * 99.8% = 94.04%
There may be other fields used such as "The Sales Representative recommending the correct item" or the "FillRate".