Logistics performance

measurement

1
Overview
 Learning objectives
 Introduction
 Definition
 Reasons behind LPM
 Categories of LPM
 Types of KPI

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Learning Objectives
 To define logistics performance measurement
 To explore the reasons for logistics

performance measurement
 To illustrate the different types of key

performance Indicators

3
Introduction
 Organisational performance can be measured
against many criteria.
 It is vital that management identify the

measures of organisational effectiveness it

wishes to utilise, and to single out them in
order of priority.
 The selection of particular measures of

logistics organisational effectiveness depends

on a firm’s characteristics and needs.

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Reasons behind Logistics
performance measurement
 There are three major reasons why firms measure their
logistics performance. They are to
1. Reduce their operating costs,
Measuring operating costs helps to identify whether
and where to make operational changes to control
expenses and to discover areas for improved asset
management.
-To attract and retain valuable customers, the price/value
of products offered can be enhanced through cost
reductions and service improvements in logistics
activities
2. drive their revenue growth,
3. enhance their shareholder value.

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Benefits of LPM
 Diagnosing problems:
 Better understanding of processes and

activities
 Allocating resources efficiently
 Defining responsibility

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Benefits of LPM
 Making accomplishment visible:
 Making delegation easy and effective:

Without good feedback, on performance,

effective delegation is nearly impossible.
Performance measures let managers see what
is happening while keeping their distance.
(Kaydos, 1991)
 Recognising and rewarding performance:

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Logistics performance Categories
[Link]
Definition and Measurement In any typical delivery
distribution mode, the delivery channel, vehicle
scheduling, and warehouse location play an
important role in delivery performance.
 An increase in delivery performance is possible by

selecting suitable channel, scheduling and location

policies. The most important aspect of delivery
performance is on-time delivery.
 This determines whether a perfect delivery has taken

place or not, and it acts as a measure of customer

service level. (Gunasekaran et al, 2001)

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Logistics performance Categories
The following five aspects are identified as
the measures of delivery performance:
 Delivery-to-request date;
 Delivery-to-commit date;
 Order fill lead time;
 Goods in transit;
 Partial delivery and Undelivered goods

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Logistics performance Categories
 Another aspect of delivery service, which is the flexibility of
delivery systems to meet particular customer needs, reflect
customer satisfaction, hence is wise to be taken into
consideration while developing the measurement metrics
 Nowadays, the delivery systems are becoming more flexible
towards customer needs. By being flexible, a delivery system
can positively influence the decision of customers to place
orders, and hence, this can be regarded as a metric for
winning and retaining customers.
 Like other activities, delivery heavily relies on the quality of
information exchanged. Thus, the quality and the way
information is presented determine the delivery
performance to a large extent, which, therefore, can be used
to measure and improve performance.

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Logistics performance Categories
2. Customer Satisfaction
As customer place demands on suppliers for more
value-added service, it is becoming increasingly
important to be able to measure the value of these
services in terms that are meaningful to the customer.
 Failure to do so will result in erosion of profitability

since it will cost to provide the services to customer,

but the firm may not receive adequate compensation
for these services. (Lambert & Burduroglu, 2000)
 Customer satisfaction occurs when business

successfully fulfill their obligations on all components

of the marketing mix: product, price, promotion and
place.

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Logistics performance Categories
 There are at least four reasons why companies
should focus on customer service:
a) satisfied customers are loyal and are most likely
to make repeat purchases;
b) it can be up to five times as costly to attract a
new customer as it is to keep an old one;
c) customer who decide to defect are very likely
to share their dissatisfaction with others
d) it is more profitable to sell more to existing
customers than it is to find new customers for
this same level of sales increase.

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Logistics performance Categories
Customer satisfaction measures are the less
quantitative in financial terms as compared to
other performance measurement. However, it
is a critical measurement because it allows
management to align the company’s service
package with customer’s needs.
 Higher levels of service can have direct

impact on customer’s financial performance

through higher revenues as well as lower cost
as a result of better service.

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Logistics performance Categories
[Link] Distribution Cost
 the most important research concerning logistics

that is going on is in the area of designing efficient

and cost – effective distribution systems.
 Therefore, a thorough understanding and a good

performance evaluation of total distribution cost are

essential.
 A profile consisting of various distribution cost

elements should be developed so that appropriate

trade-offs can be applied as a basis of planning and
reassessment of distribution systems, and thus, the
overall cost effectiveness can be achieved.

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Logistics performance Categories
 The total distribution cost can be controlled
using:
 Productivity standard= output/input
 Productivity for transportation=Kilometers

transported/actual transportation cost

 Or stops served /actual transportation costs
 Or shipments tranported to

destination/actual transportation costs

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Logistics performance Categories
Flexibility
 Flexibility, which is seldom used in supply

chain analysis, can measure a system’s ability

to accommodate volume and schedule
fluctuations from suppliers, manufacturers and
customers. Indeed,
 flexibility is vital to the success of the supply

chain, since the supply chain exists in an

uncertain environment nowadays. (Beamon,
1999)


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Logistics performance Categories
 There are four types of flexibility:
a) Volume Flexibility: Measure the range of volume in
which the organisation can run profitably.
b)Delivery Flexibility: Ability to move planned
deliveries to accommodate rush orders and special
orders.
c) Mix Flexibility: Measures the range of different
product types that may be produced during a
particular time period, or the response time
between product mix changes.
d) New Product Flexibility: The ease with which new
products are introduced to the system.
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Logistics performance Categories
 Discuss Quality as a category

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What is a Key Performance Indicator

 Definition of 'Key Performance Indicators - KPI‘

A set of quantifiable measures that a company

or industry uses to gauge or compare performance in
terms of meeting their strategic and operational goals.
KPIs vary between companies and industries,
depending on their priorities or performance criteria.
Also referred to as "key success indicators (KSI)".

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Types of KPIs:

1. Process KPIs - measure the efficiency or

productivity of a business process.
Examples - Days to deliver an order.
2. Input KPIs - measure assets and
resources invested in or used to generate
business results. Examples - Dollars spent
on research and development, Funding for
employee training, Quality of raw materials.
3. Output KPIs - measure the financial and
nonfinancial results of business activities.
Examples - Revenues, Number of new
customers acquired.
4. Leading KPI - measure activities that have
a significant effect on future performance.
Drive the performance of the outcome
measure, being predictor of success or
failure.
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Types of KPIs (continue…):
5. Lagging KPI - is a type of indicator that
reflect the success or failure after an event has
been consumed. Such as most financial KPIs,
measure the output of past activity.
6. Outcome KPI - Reflects overall results or
impact of the business activity in terms of
generated benefits, as a quantification of
performance. Examples are customer
retention, brand awareness.
7. Qualitative KPI - A descriptive
characteristic, an opinion, a property or a
trait. Examples are employee satisfaction
through surveys which gives a qualitative
report.
8. Quantitative KPI - A measurable
characteristic, resulted by counting, adding, or
averaging numbers. Quantitative data is most
common in measurement and therefore forms
the backbone of most KPIs. 21