Unit 4 logistics performance lscm (13 pages)

©Bijesh Shrestha – Logistics and Supply Chain Management - Unit 4 – BBA 8th Semester - Page 1 of 13
Unit 4: Logistics Performance
Learning Outcomes:
1. Benchmarking the supply chain
• Concept and Benchmarking the logistics process
2. Supply chain process mapping
3. Supplier and distributor benchmarking
4. Setting the benchmarking priorities
5. Logistics performance indicators
Measures for logistics
Managers in every organisation have to measure the performance of logistics. If they do not take
measures, they have no idea how well they are doing, whether things are improving or getting
worse, whether they meet targets, or how they compare with competitors. An old maxim says,
‘what you can’t measure, you can’t manage’. The problem, of course, is finding what to measure
and how to measure it.
There are a huge number of possible measures of logistics. Some of these are indirect measures and
often relate to finance, such as the return on assets, payback period, or contribution to profits.
Financial measures are popular, as they are easy to find, sound convincing, give a broad view and
allow comparisons. However, they also have weaknesses as they concentrate on past rather than
current performance, are slow to respond to changes, rely on accounting conventions, and do not
record important aspects of logistics. Financial performance can show that something is wrong, but
it does not show what is wrong or how to correct it. This is like a doctor finding that you have a
fever – it shows that something is wrong, but does not show how to get better.
In practice, it is much better to use direct measures of logistics, such as the number of tonnes
delivered, stock turnover or distance travelled. Again, there are many possible measures. We will
start by looking at general ones for capacity, utilisation and productivity.
Capacity and utilisation
The capacity of a supply chain is defined as the maximum amount that can be moved through it in a
specified time. This is a basic measure of supply chain performance. Each part of a supply chain has
a different capacity, and the overall capacity is set by the bottlenecks.
It might seem strange to describe capacity as a measure of performance, rather than a fixed value or
constraint on the throughput. There are two answers to this. First, we can say that the capacity
depends on the way that resources are used. Two organisations can use identical resources in

different ways, and get different throughputs. Then the capacity gives a direct measure of
performance and management skills. Second, we can point out that capacity is not fixed, but varies
over time. At the start of the day a team of people might be able to move 500 cases an hour; at the
end of the day the same team are tired and can only move 400 cases an hour. The operations seem
to be exactly the same, but the capacity has declined.
To allow for these effects, we define difference types of capacity. Designed capacity is the
maximum possible throughput in ideal conditions; effective capacity is what we can actually
achieve over the long term; actual throughput shows what we actually achieved. The designed
capacity of Ellison’s call centre is 1000 telephone calls an hour. They can achieve this for a short
period, but after taking into account different types of calls, staff schedules, holidays, faults with
equipment and other factors the effective capacity is 850 calls an hour. In one typical hour Ellison
actually handled 710 calls. This shows that they were working below capacity and have not fully
used their resources.
Utilisation shows the proportion of designed capacity that is actually used. Suppose you have a
vehicle fleet that is designed to deliver 100 tonnes of materials a week. This is its designed capacity.
If the fleet only delivers 60 tonnes in one week:
Productivity
Productivity is one of the most widely used measures of performance. Unfortunately, people often
confuse its meaning, assuming that it is the amount of work done by each person. There are really
several kinds of productivity. The broadest picture comes from total productivity, which relates
throughput of a supply chain to the amount of resources used.
Unfortunately, this definition has a number of drawbacks. Throughput and resources must use
consistent units, so they are normally translated into units of currency. This depends on the
accounting conventions used – so we no longer have an objective measure. Another problem is
finding values for all the inputs and outputs. This is particularly difficult for intangible inputs (such
as sunlight, the environment and reliability) and outputs (such as pollution, waste products and
reputation). We could say that we are only interested in the important factors – but then someone
has to decide which these are, and we have again lost our objectivity.

Because of these practical difficulties, hardly any organisations measure total productivity,
preferring to use partial productivity, or single factor productivity. This relates the throughput of
a supply chain to a single type of resource.
There are four types of partial productivity relating the throughput to different types of resource:
● equipment productivity – such as the number of customer visits per van, weight moved per
forklift, or miles flown per aeroplane
● labour productivity – such as the number of deliveries per person, tonnes moved per shift, or
orders shipped per hour worked
● capital productivity – such as the amount stored for each pound of investment, deliveries per unit
of capital, or throughput per dollar invested in equipment
● energy productivity – such as the number of deliveries per litre of fuel, amount stored per
kilowatt–hour of electricity, or the value added for each pound spent on energy.
Productivity can be a very useful measure of performance. But when an organisation simply reports
its ‘productivity’ you have to look very carefully at what they mean. If an automated warehouse
increases its labour productivity, this might be much less important than changes to its equipment or
capital productivities.
Other measures
Capacity, productivity and utilisation give general measures of logistics performance, but we can
use many more specific ones. For example, some common measures of transport performance
include:
• Reliability of delivery
• Total travel time and distance
• Delivery cost
• Customer satisfaction
• Frequency of service
• Loss and damage
• Availability of special equipment
• Helpfulness of drivers
• Time to load and unload
• Total weight moved
• Number of errors in deliveries
• Errors in processing and administration
• Size and capacity of vehicles
• Skills of drivers
• Utilisation of vehicles.

Benchmarking Overview:
Supply chain operations within an organization should be constantly reviewed to identify where
improvements can be made or deficiencies eliminated. One method to help do this is to perform a
series of benchmarking tests on their supply chain processes. Benchmarking or goal setting allows a
company to assess the opportunities they may have for improving a number of areas in their supply
chain including productivity, inventory accuracy, shipping accuracy, storage density and bin-to-bin
time. The benchmarking process can provide a company some estimate of the benefits achieved by
the implementation of any improvements.
History of Benchmarking:
Benchmarking is the process whereby an assessment of an act or performance is measured by some
means, whether this is by a measurement of time, value or quantity. For example, an assessment of
moving items from one storage location to another can be measured by time for a single movement
or by quantity if the performance is over a set period. A benchmarking project will gather the
assessments and develop a plan of action to improve the process that was assessed. The popularity
of benchmarking was spearheaded by the Xerox Corporation in the 1980’s and is now used in
corporations throughout the world.
What is benchmarking?
Ongoing process of measuring products, services, practices and processes against the best that can
be identified in order to:
Learn about & improve best practice.
Achieve realistic targets.
Integrate improvements into your strategy.
Use best practice as inspiration for innovation.
Be externally focused.
Be purposeful about improvement.
Measure improvement.
Types of Benchmarking:
Three types of benchmarking can be identified; internal which is focused on the processes of a
single company, external which examines processes outside of a company and competitive, which
examines processes at firms within the same industry or different industry as well.

Internal Benchmarking
The internal benchmarking process allows a company with a number of facilities that operate the
same supply chain processes to compare and contrast the ways in which the process is performed in
those facilities. For example if a company operates five distribution centers in the US and Canada,
the benchmarking process can examine a number of operations that take place at each of the
distribution centers and compare how they are performed and what improvements can be made by
comparing the results of the benchmarking. If a company benchmarks the processes around
inventory accuracy, shipping accuracy and storage density, the results of the assessments of the
facilities can help a company to improve on those processes at all of the facilities.
External Benchmarking
For companies that have performed internal benchmarking and want to investigate new ways in
which to improve performance of their internal processes, external benchmarking can produce
significant improvements. Many companies believe that their processes are as efficient as possible,
but quite often, the efficiencies are limited by the knowledge within the company. The external
benchmarking process takes a company outside of its own company and exposes them to different
methods and procedures. For example, a manufacturer and distributor of electrical components have
internally benchmarked their warehouses for a number of years and have exhausted ideas on
improving efficiencies. They approached a very successful retail company to visit their central
warehouse and benchmark the processes that occur there to compare to their own warehouse
processes. The external benchmarking allowed the manufacturer of the electrical components to
assess the processes seen in the retailer’s warehouse and develop an improvement plan for their
own facilities based on the results.
Competitive Benchmarking
For companies that are not performing as well as their competitors they may want to identify the
reasons why their processes are not as efficient. Consulting and research firms can perform
competitive benchmarking studies for companies that will identify the strengths and weaknesses of
their processes based on those of their competitors. The company can then produce improvement
plans based on the results of the competitive benchmarking.

Components of Benchmarking:
There are a number of components to a benchmarking study. Not every benchmarking project will
incorporate these components, but a combination of these can be used.
• Financial benchmarking – This involves a financial analysis of the operations that are assessed.
For example, a company can compare the cost of storing a component in each of its warehouses.
• Performance benchmarking – This can compare the efficiency of performing a task in one
company location to another, or to a competitor’s.
• Product benchmarking – This method compares the product of one company against another, or
comparing between facilities in the same company.
• Strategic benchmarking – This method observes how other companies compete. This can be
within the same industry or outside of the companies industry.
• Functional benchmarking – This is considered to be traditional benchmarking where a company
will benchmark a single process at a location or a number of locations to identify where
efficiencies can be made.
Competitive Benchmarking is the continuous measurement of the company’s products, services,
processes and practices against the standards of best competitors and other companies who are
recognized as leaders
Who are doing it?
• Xerox started the practice in 1981, then became popular in all major international companies,
e.g. Motorola
• There are international organizations specialized in this service, e.g., Global Benchmarking
Council, American Productivity and Quality Center
• Asian Benchmarking Clearinghouse, Hong Kong Benchmarking Clearinghouse
Benchmarking the supply chain (Competitive Benchmarking)
What to Benchmark?
Supply Chain Council suggests:
SCOR (Supply Chain operations reference) Christopher, M. 1998 pp 106
Plan, Source, Make & Deliver. SCOR is designed to provide a common
framework to facilitate cross organisational benchmarking.
Who to Benchmark with?
Competitors
Significant opportunities for firms in non competing industries

Key Consideration Dimensions in Logistics Benchmarking:
Logistics output, i.e., achieving customer service goals and customer’s perception of
performance
Performance should be compared to the ‘best of the class’. Don’t limit your effort to players
inside the industry only!
Logistics processes, i.e., not enough to just measure the output, processes which generate
the output should also be measured!
Benefits of Benchmarking:
1. Enable best practices from any industry to be creatively incorporated into the benchmarked
process
2. Provide stimulation and motivation to professionals involved in implementing benchmarked
findings
3. Breaks down ingrained reluctance to change (more receptive to ideas from another industry)
4. May identify technological breakthroughs from other industries (e.g. bar-coding)
Steps in Benchmarking:
Figure: Steps in Benchmarking

Benchmarking Logistics Process:
Key Steps
1. Understand the structure of the process, i.e., process mapping, process analysis, flow charts
2. Identify the critical processing steps, i.e., process bottlenecks, critical path
3. Benchmark those critical processing steps against ‘best in class’
4. Measure performance at supplier/customer interface
5. Derive the most effective processes and adopt the best control and measurement tools
Understanding the Process:
Figure: Understanding the Process
Identifying Critical Points:
The following are the critical benchmarking points:
1. Supplier management
2. Production management
3. Inventory management
4. Order fulfillment
5. Customer Service

Figure: Benchmarking the Process: the critical points
Supply Chain Mapping and Throughput Efficiency:
Value-adding time is time spent doing something which creates a benefit for customer (i.e.,
the right product in the right place and at the right time)
Non-value-adding time is time spent on activities that can be eliminated with no reduction
in benefit to the customer
Throughput efficiency is defined as:

Value Added Through Time:
Figure: Value added through time
How to Use Supply Chain Mapping
It provides a powerful basis for logistics reengineering projects
It makes the total process and its associated inventory transparent
It measures product or service supply chain efficiency (i.e., value-added vs. non-value-added time)
It highlights the consequences of some ‘rules’ and ‘policies’ the company is imposing (or has
inherited) in the areas of inventory, purchasing, production planning, and vendor management
Supplier and Distributor Benchmarking
In reviewing your supplier and distributor relationship and benchmark it against the ‘best in class’,
the emphasis should be on assessing their contribution to overall supply chain performance
(efficiency and effectiveness). Some of the key issues are:
• willingness to work as a partner / co-maker
• commitment to continuous improvement
• acceptance of innovation and change
• focus on throughput time reduction
• utilization of quality management procedures
• use regular and formal benchmarking processes themselves
• do they seek to improve communication with you?
• are they flexible? Customer-focused?

Supplier and Distributor Benchmarking
- Some typical measures
Figure: Supplier and Distributor Benchmarking
Supplier Performance Measurement:
Supplier performance measurement is the process of measuring, analyzing, and managing supplier
performance for the purposes of reducing costs, mitigating risk, and driving continuous
improvement.
Cases: Ford Motor Company
High profile examples of the cost of poor supplier performance abound.
In 2000, Ford Motor Company had to recall over 13 million Firestone tires at a cost of $3 billion
after learning that design and quality glitches were putting certain tire models at risk of shedding
their treads.
Cases: Coca Cola
That same year, Coca-Cola was forced to recall 15 million cans and bottles of its beverages in
key European markets after several consumers became ill. The problem was traced to
contaminated chemicals used at a specific Belgian bottling plant that failed to inspect or monitor
the quality of the incoming chemicals used in its products. The incident cost Coca-Cola $60
million in lost sales.

Case Conclusion
Both examples demonstrate the impact the upstream supply chain can have on an enterprise’s costs,
performance, customer service, and perception in the marketplace.
These examples also illustrate the critical importance of effectively measuring and managing
supplier performance.
Setting Benchmarking Priorities:
Priority Setting: involves balancing both long and short term goals in order to attain both.
Which processes and entities in the supply chain are of strategic importance
Which processes and entities have a high relative impact on the business economics (costs,
revenue, asset performance, and human productivity)
Where there is a choice between ‘make’ and ‘buy’ (processes of high impact on performance
/productivity and hard to source from suppliers)
Where there is internal readiness to change
Figure: Setting Benchmarking Priorities

Key Logistics Performance Indicators
One benefit of a rigorous approach to logistics and supply chain benchmarking is that it
soon becomes apparent that there are a number of critical measures of performance that need
to be continuously monitored.
The idea of ‘key performance indicators’ (KPIs) is simple. It suggests that, whilst there are
many measures of performance that can be deployed in an organisation, there are a
relatively small number of critical dimensions that contribute more than proportionately to
success or failure in the marketplace.
Much interest has been shown in recent years in the concept of the ‘Balanced Scorecard’.
Highlight issues regardless of measurability that have high impact on the organisational
success.
A logical four-step process is suggested for constructing such a scorecard:
Articulate the strategic objectives to personnel.
Understand measurable outcomes of success.
Communicate importance of key processes.
Highlight and focus attention on key performance indicators.
Better faster Cheaper Closer!
Creating the Logistics Scorecard
Figure: Creating the logistics scorecard
Conclusions
Benchmarking vital tool in maintaining world class status.
Massive potential for developing learning and innovation.
Supply chain mapping useful in ensuring that the whole system is kept in view.

Unit 4 logistics performance lscm (13 pages)

More Related Content

What's hot (20)

Similar to Unit 4 logistics performance lscm (13 pages) (20)

More from Suzana Vaidya (20)

Recently uploaded (20)

Unit 4 logistics performance lscm (13 pages)