College of Business and Economics

Department:- Logistics and Supply Chain

Management

Course Title:- Fundamentals of Logistics

Management

Chapter Seven: Logistics performance

dimension

Prepared By: Mastewal M.(MA)

 LOGISTICAL MEASUREMENTS
• As logistics competency/capability/ becomes a more critical in creating and
maintaining competitive advantage, accurate logistics measurement and
controllership increase in importance,
• Because the difference between profitable and unprofitable operations
becomes increasingly narrow.
• The objectives of logistical controllership are to track performance against
operating plans and to identify for enhanced efficiency and effectiveness.

• The combination of slower economic growth and increased competition has

forced firms in every industry to concentrate on efficient and effective
deployment of logistical resources.
• This effort is resulted in the emergency of logistical controllership.
• The logistic controller is concerned with continuous measurement of a
firm’s performance.
Dimensions of performance measurement:
Objectives: the three objectives for developing and implementing performance
measurement systems include monitoring, controlling and directing logistics
operations.
1. Monitoring: it measures track historical logistics
system performance for reporting to management and
customers.
• The establishment of performance metrics for the
measurement of a performance parameter which can be
tracked and reported so that they can be controlled.
– Typical monitoring measures include service level
and logistics cost components.
2. Controlling: it measures track ongoing performance
and are used to refine/ improve a logistics process.
• Controlling is established by defining a set of standards
of operations or standard operating procedures against
each of the metrics found in the monitoring stage.
– Example transportation damage tracking. If a system
is in place to periodically report product damage,
logistics management can identify the case and adjust
the packaging or loading process as needed.
 Cont.
3. Directing: refers to how the employees’ motivation and
reward system is managed to improve the performance.
• Typical examples include ‘‘pay for performance’’
practices used to encourage warehouse or transportation
personnel to achieve higher levels of productivity.
• In some cases employees are actually given a bonus
when the task is completed in less than the allotted time.
• An overriding objective of superior logistical
performance is to improve shareholder value.
• The balanced scorecard is a framework for performance
measurement.
• The framework suggests that while improving
shareholder value, a comprehensive system for
assessing performance must represent a balance
between financial and non-financial metrics.
• A balanced scorecard incorporates measures
from four different perspectives.

1. Customer Perspective
• focused on how customers perceive a company and,
therefore, must include customers’ opinion.
• It includes assessment of logistics service, quality and
satisfaction.
2. Internal operation perspective
• The internal operation perspective asks what must be
done internally and typically incorporates metrics
related to process quality (damage rates, errors etc.)
as well as measurement of efficiency and
productivity.
3. Innovation and learning perspective
• The innovation and learning perspective is future
oriented and focuses on process improvement as well
as efforts related to human resources, which are
generally considered the driver of improvements in
any organization.
– Bench marking may also be an aspect of the
innovation and learning perspective.

4. Financial Perspective
• the financial perspective reflects the fact that financial
success must be achieved in every organization.
• Succeeding in the other three perspectives is not
adequate if the organization fails to improve
profitability and return on investment,
Cont.
 Two types of performance measures
• Activity-based measures focus on individual tasks
required to process and ship orders.
– For instance customers’ orders entered, cases
received from suppliers and others.
– Activity-based measures focus on the efficiency
and effectiveness primary work efforts; they do
not usually measure the performance of the
overall process of satisfying customers.
• Process 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.
 Internal performance measurement
• Internal performance measurement focuses on
activities required to serve customers.
• It focuses on comparing activities and processes to
previous operation and/or goals.
• Internal logistics performance measures can generally
classified as:
– Cost
– Customer service
– Productivity
– Asset management and
– Quality and in addition,
– Customer satisfaction and,
– Cycle time
1. Cost: the most direct reflection of logistics performance is
the actual cost incurred to accomplish specific operating
objectives.
– Logistics cost performance measures are like:
 Cost per unit: referred to the cost of good sold or cost
of sales. How much money a company spends on producing
one unit of the product they sell?
• It is the direct cost of producing the goods sold by a
company. this amount includes the cost of the material
and the labour directly used to create the good.
 Warehouse cost: the costs involved in storing goods in a
warehouse.
 Inbound freight cost: refer to incoming freight transport,
storage, and delivery of goods cost borne by a company.
 Order processing cost: The costs to fulfill customer orders
include order taking and customer service, storing and
maintaining inventory, shipping and product tracking
to ensure delivery
 Cont.
 Administrative cost: costs incurred to support the
functioning of a business, but which are not directly
related to the production of a specific product or
service.
• Some level of administrative expenses will always be
incurred as a necessary part of operations.
 Outbound freight cost: cost incurred to handle the
selecting, packaging, and transport of the finished
goods from the manufacturing plant to the customer
 Direct labour cost: include wages for the
employees that produce a product, including workers
on an assembly line, while indirect costs are
associated with support labor, such as employees
who maintain factory equipment
 Cont.
2. Customer service: it examines a firm’s relative ability to
satisfy customers.
– Logistical customer service performance measures
are like:
 Fill rate :the percentage of customer orders you're able to
meet without running out of stock at any given time.
– A strong fill rate is at or near 100%, meaning you're able to
fulfill all of the wholesale sales you make without stock
outs, backorders, or lost sales.
 stock outs: A stock out occurs when customer orders for a
product exceed the amount of inventory kept on hand.
– This situation arises when demand is higher than expected
and the amount of normal inventory and safety stock is too
low to fill all orders.
 shipping errors, wrong Product or package size sent through
no error of distributor or, Product quantity shipped in excess of
the amount set forth on the applicable purchase order.
 Cont.
 on time delivery: refers to a key performance indicator
measuring the rate of finished product and deliveries
made in time.

 back-orders: A backorder (lost sale)is an order for a

good or service that cannot be filled at the current time
due to a lack of available products.
• The item may not be held in the company's available
inventory but could still be in production, or the company
may need to still manufacture more of the product.

 cycle time: is the amount of time a team spends

actually working on producing an item, up until the
product is ready for shipment. It is the time it takes to
complete one task.
3. Productivity measures: It is a relationship, usually a
ratio or an index between output of goods, work
completed, and/or services produced and quantities
of inputs or resources utilized to produce the output.

• If a system has clearly measurable outputs and identifiable,

measurable inputs that can be matched to the appropriate
outputs, productivity measurement is quite routine,
however it can be difficult and frustrating if:

 Outputs are hard to measure and input utilization is

difficult to match up for a given period of time;
 Input and output mix or type constantly changes; or
 Data are difficult to obtain or unavailable.
• Generally, logistics executives are very concerned with
measuring the productivity of labour. While the labour
input can be quantified in many ways, the most typical
manner is by labor expense, labor hours, or individual
employees
 Cont.
– Thus , Some of logistics productivity
performance measures are:
• units shipped per employee:
• unit per labor dollar,
• orders per sales representative,
• comparison to historical standards and etc.
• It is also common for managers to set goals for
productivity improvement and compare actual
performance to goal, or at the very least to prior
year performance.
4. Asset management: is the practice of
increasing total wealth over time by acquiring,
maintaining, and trading investments that have the
potential to grow in value.
• it focuses on the utilization of capital investments in
facilities and equipment as well as working capital
application to inventory to achieve logistics goals.
• Logistics facilities, equipment, and inventory, can
represent a substantial segment of firm’s assets.
– Logistics asset management performance measures
are:
• inventory carrying costs,
• inventory levels,
• number of days’ of supply,
• obsolete inventory,
• return on investment and etc.
5. Quality: quality measures are the most process-
oriented evaluations.
 designed to determine the effectiveness of a series
of activities rather than an individual activity.
 A contemporary measurement concept that is
increasing ‘‘the perfect order.’’
 Perfect order ;is an order that is complete, accurate
and in perfect condition and that is delivered on time
and accepted by the customer.
– Delivery of the perfect order is the ultimate
measure of quality in logistics operations.
 perfect order concerns the effectiveness of the
overall integrated logistical firm performance
rather than individual functions.
 Cont.
• It measures whether an order proceeds smoothly
through
 every step-order entry,
 credit clearance,
 inventory availability,
 accurate packaging, on time delivery,
 correct invoicing, and payment without
deductions, exception processing.
 The logistics quality performance measures are;
 frequency of damage,
 Birr amount of damage,
 number of credit claims,
 number of customer returns,
 costs of returned goods.
 Cont.
6. Customer satisfaction measures of logistics
performance
•This metrics measures the firm’s ability to provide overall
customer satisfaction.
•Customer satisfaction is measured by perceptions regarding
performance cycle time, perfect order fulfilment
components, and the ability to respond to order status and
inquiry requests.

7. Cycle Time Measures of Logistics Performance

• The total logistics cycle time (TLCT) includes order entry time
(OET), order processing time (OPT), purchase order cycle
time (POCT), if the product is not available from stock),
warehouse order cycle time (WOCT), and in transit time
(ITT).
 External Performance Measurement
• Even if internal performance measures are important for
detailed organizational monitoring, external performance
measures are also necessary to monitor, understand,
and maintain a focused customer perspective and to
gain innovative insights from other industries.
1. Customer perception measurement
• Such measures can be obtained through company or industry-
sponsored surveys or by systematic order follow-up.
• Such surveys ask questions regarding the firm’s and
competitors’ performance in general or for a specific order in
particular.
2. Best Practice Benchmarking:
• Benchmarking is the continuous process of comparing one’s
business processes and performance metrics to industry
bests and/or best practices from other industries.
• Dimensions typically measured are quality, time, and cost.
Improvements from learning mean doing things better, faster,
and cheaper.
 Cont.….
• A best practice benchmarking review focuses on the
measures, practices and processes of a comparable
organization.
• The review identifies key performance measures and, if
possible tracks historical and current performance levels.
Firms are employing combinations of three
benchmarking methods.
• The first uses published logistics data available from
consultants, periodicals, and university researches.
• The second method is to benchmark privately against
noncompetitive firms in one’s own or a related industry. It
reviews the others measures, practices, and processes to
develop insight that will improve performance.
• The third method consists of an alliance of organizations
that systematically share benchmark data on regular basis.
 The End of
Chapter
Seven
Thank You!!!