LOGISTICAL PERFORMANCE

MEASUREMENT

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What is logistical performance measurement?
A system to assess logistical performance
A system of auditing logistical performance
An activity of Logistical Management
Why logistical performance measurement is
done?
To improve level of logistical competency
To gain competitive edge in business
To raise the level of Customer Service
To identify weak areas of performance

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 When is it done?
Measurement/Assessment/Auditing is an on going
scheduled activity

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Why logistical performance measurement is
important?
 Logistical competency is crucial
 Logistical resources are scarce, hence right
allocation, monitoring and utilization of such
resources is vital
Measurement is important for achieving
objectives-measure, monitor, control & direct
performance to objectives
 Measurement leads to improved performance-
periodic tests
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 How is this done?
By following logistical performance
measurement system
 Measurement system is a set of
mathematical measures like ratios, percentages

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 Objectives of logistical performance
measurement systems
 Monitoring: tracking historical performance
 Controlling: tracking ongoing performance
 Directing: encouraging performance by
employees
Measures to track above dimensions of
performance
 Monitoring measures
 Controlling measures
 Directing measures
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 Types of measures based on perspective of
measurement
 Activity based & process based
 internal & external
Activity based measures measure first level
efforts in performance at individual activity level
No of trucks dispatched per day
Orders booked per day
Delivery time per order
Delivery time per product

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Process based performance measures measure
customer satisfaction process
Total performance cycle time (customer lead
time)
Response time to customer query
Number of O T Ds
Number of perfect orders

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 Internal Performance Measurement
All the information necessary to calculate these
measures is available internally
To measure
Activities of customer satisfaction process
Internal customer satisfaction
Classification of Internal performance
measures in categories
Cost, customer service, productivity, asset
management & quality
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Cost: logistical cost as percentage to sales or as
cost per unit of volume is a reflection of logistical
performance indicating resources expended to
meet specific operating objectives.
Examples: Cost per unit, Cost as a percentage of
sales, Inbound freight, Outbound freight etc
Customer service: Service levels indicating a
firms ability to meet customer expectations
examples: Fill rates, Stock outs, Shipping errors,
On-time delivery etc

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 Productivity
Easily understood and extensively used.
Some times difficult to obtain all relevant details
Indicate resource utilization
Classification of productivity measures
static, dynamic and surrogate
 Static productivity measures are calculated
across one span of time, example: total factor
productivity
 Dynamic productivity measures compare one
static measure against another representing another
span of time.
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  Surrogate productivity measures consider
factors correlated to productivity like customer
satisfaction, profit, quality, efficiency.
Examples: Units shipped per employee, Units
shipped per labour rupee, Orders booked per sales
representative etc.
Asset Management: indicate utilization of fixed
as well as current logistical assets. Logistical fixed
assets and inventory are major portion of
company’s assets
Examples: inventory turns, inventory carrying
costs, inventory levels, return on investment
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 Quality: measure for logistical quality is
Perfect Order
Complete delivery of all items requested
OTD with one days tolerance
Complete and correct documentation
Product faultlessly installed
Obstacles in delivering Perfect Order : order
entry errors, incomplete information, damaged
shipment, invoice error, problems in installation.
Examples: number of customer returns, dollar
amount of damage, frequency of damage
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 External performance measures
Customer perception measurement
Bench marking to gain insight into the practices
in other industries
Customer perception measurement
Surveys and polls sponsored by firm or industry
Done by the firm, by consultant, or industry
organizations
Information about firms and competition’s
performance in specific areas like availability,
performance cycle time, information availability,
problem resolution and product support
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 Best practice bench marking
As a tool to calibrate logistical operations of the
firm in selected areas using key performance
measures
Bench marking a comparable organization.
Bench-marking a non competitor company
leads to a comprehensive study, being bilateral,
proprietary knowledge adds value mutually

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 Bench-marking methods
Published logistical data, published by
periodicals and university research
Bench-marking a non competitor company
leads to a comprehensive study, being bilateral,
proprietary knowledge adds value mutually
Data sharing by alliances of organizations
Examples of bench-marking: asset management
cost, customer service, productivity, quality,
strategy, technology, transportation, warehousing
order processing
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Comprehensive supply chain measurement:
Four types of metrics developed for outcome
and process are customer satisfaction, time and
cost, assets management

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Characteristics of an ideal measurement system
Cost/Service Reconciliation:
 An ideal measurement system should reconcile
cost and service [eg. freight bill and shipment]
time separation & cause/effect relationship
Dynamic knowledge based reporting:
 To reveal current situation.
 To reveal data in the extended past
 To reveal trend in future. An ideal system
should do all these to enable appropriate action
proactively.
 Not only data in a specific time-span
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 Exception based reporting
Exception from anticipated logistical results.
Indicator of process deviating from desired
Ideal report enables manager to act proactively

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Levels of measurement and information flow
Measurement provides information
Information is reported for various levels of
management hierarchy for decision making
Information need is dependent on management
hierarchy level
To signal a process deviation or break down for
action to prevent recurrence
Management hierarchy levels are direction,
variation, decision and policy

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 Direction level
 Measures generate information on execution of
operational plan
 Data base for subsequent levels

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 Variation level:
What is measured?
Accumulated deviations from plan
Identification of trends that may result into
problems.
What is done?
Concerned manager interprets the trend and
takes appropriate action at his/her level or seeks
help

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 Decision Level
Information is selective and manager friendly
What is measured?
Exceptions and deviations of previous levels
What is done?
Modifications to operational plan

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 Policy level
What is measured?
Need for change in the system objectives at any
level in the logistical management and functions
outside the department like marketing in view of
competition
Information volume is less but high in
importance
What is done?
change in the system objectives if required

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 Report Structures
 Reports are generated from information revealed
by measurement for effective decision making
 Three types of logistical reports are status, trend
and ad hoc
Status Reports
Information in detail to ascertain current situation
of a chosen aspect
Trend Reports
Required at a higher level indicates trend in future
with respect to the chosen logistical aspect

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 Ad hoc Reports
Specifically ordered for decision making
Information in detail on specific areas of
performance
Ad hoc Reports are diagnostic report, position
paper and policy report
Diagnostic report
detailed information about some phase of
logistical performance like backorders

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 Position paper
 Prepared by lower levels of management for
executives at higher levels
Alternative courses of action for an anticipated
or current problem with resource requirements
Policy report
Ordered by CEOs whenever a policy modification
is requested for change in objectives

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