Logistics is not only about technological innovation but also mainly about performance itself. And that is not always straightforward. Many factors lie outside the control of logistics: costs of energy, fuel, labour or ever-changing customer requirements, for example. All the more important is performance management within logistics.
Companies need to have optimal control, insight and management of the factors within their reach. But not all logistics organisations are able to achieve productivity and the right level of service, even though this is how they can distinguish themselves from the competition. It is then important to have a clear understanding of what performance management exactly entails.
Logistics performance managementThe right product, to the right customer, at the right quantity, the right conditions, right locations, right time at the acceptable cost. That is essentially what logistics is all about.
Performance management is the continuous monitoring of every aspect of the logistics chain and continuously looking for possible improvements to even better meet the wishes and requirements of internal and external stakeholders.
This means collecting all relevant data, from inbound, outbound, warehousing, inventory, order fulfilment etcetera; anything that has a (significant) impact on costs. By defining performance variables, establishing measurement methods and ensuring reliable data, one lays the foundation for good performance. By monitoring performance on a daily/weekly basis and determining whether one is achieving the targets set
In itself, this sounds logical and feasible but the barriers in daily practice often prove to be a major challenge for any logistics professional. It is therefore important to identify the barriers in time so that they can be anticipated.
Three critical factors
1. strategy
Many companies formulate a strategy that is too weak, not well thought out. The result is that they end up falling short of setting up the best possible logistics chain and performing optimally. From the strategy, the approach in setting up logistics performance management should already be clear. In general, three things should then be defined : Metrics, decision-making and action orientation.
Once the organisation has identified the opportunities for improvement, the next step is to define the objectives and the way the process should proceed. The activities can be monitored along both financial and operational objectives. This applies to both internal and external metrics.
An example. The percentage of on-time deliveries by a carrier is an external metric. But one that depends on internal factors such as timely loading and departure of the truck.
Using logistics performance management, the following steps are conceivable:
- Collect and use data related to this process.
- Analyse the data and look for significant deviations and determine the source causes.
- Together with the team involved, define a set of improvements.
- Measure again and track for the sub-steps whether the desired improvement is taking place and monitor the overarching metrics to see if the intended result is being achieved.
Obviously, there should be sufficient knowledge and experience within the team to be able to make the right decisions based on the data. In addition, a platform needs to be in place that provides real-time information so that the team can make adjustments whenever necessary.
Defining metrics
If the right metrics are not installed, your data will not be able to tell you much. On the contrary, you will make wrong decisions and the situation will worsen. It is also often difficult to choose the right metrices, precisely because of the huge number and variety of metrices. Much depends on your product, service and customer. Nevertheless, there are some that always recur within any logistics scoreboard:
- Total lead time
- Number of orders per period
- Number of completed orders
- Operational costs
- Average inventory level or turnover rate
- Fixed and variable cost factors
- Service level
When establishing, it is important that the Key Performance Indicators are three-dimensional: Time-Volume-Value. For operational metrics, it is important that they accurately reflect the intended objectives. Good logistics performance management ensures that data is transparent, available in real time and can be easily aligned with your objectives.
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3 Inadequate technology
Technology is changing ever faster, making it difficult for even the most progressive companies to keep up. One of the major challenges is ensuring that the IT infrastructure remains capable of properly supporting the ever-innovating logistics software. Added to this is the problem that different packages often have limited integration, reducing information reliability, making information difficult to compare or not available in time.
This makes it difficult to use and analyse data throughout the chain for logistics performance management. It often leads to silo formation in data and thus in decisions.
However, the ability to get accurate information in real time is essential these days. When a problem arises, the logistics team needs to know exactly and immediately what is deviating and where it is taking place. So, when buying your software, comptability, real-time reporting, analysis capabilities, are key to your performance. There should also be the ability to assess certain metrics from different dimensions.
The next step
Setting up your IT environment properly can be time-consuming and even costly. But the benefits are undeniable which will make the Return on Investment positive. An optimally functioning logistics performance management will enable you to increase your customer satisfaction, more opportunities to improve your turnover and margin. For the longer term, this is always decisive despite all the bumps you have to overcome.
Hans Groen - Consultant Supply Chain and Performance Management
