Logistics Performance
Measurement and
Customer Success
Stanley E. Fawcett
M. Bixby Cooper
Performance measurement is critical to the success of almost
any organization because it creates understanding, molds be-
havior, and leads to competitive results. World-class firms rec-
ognize the central role measurement plays in their success and
are therefore compulsive about their performance measurement
efforts. This research presents findings from a longitudinal em-
pirical study of logistics performance measurement practice.
In addition to the survey results, findings from over 100 inter-
views with leading companies worldwide are discussed. The
bottom line is that world-class performance requires superior
process measurement both within the firm and across organi-
zational boundaries. © 1998 Elsevier Science Inc.
Address correspondence to Stanley E. Fawcett, Department of Management,
Marriott School of Management, 679 Tanner Building, Brigham Young
University, Provo, UT 84602.
Industrial Marketing Management 27, 341–357 (1998)
© 1998 Elsevier Science Inc. All rights reserved.
655 Avenue of the Americas, New York, NY 10010
INTRODUCTION
Comprehensive performance measurement capability
is fundamental to achieving organizational success. The
time-honored cliché “If you can’t measure it, you can’t
manage it” is so often repeated for the very reason that it
represents an inescapable management reality. Indeed, ba-
sic roles of performance measurement systems include
yielding insight into the nature of value-added processes,
guiding the organization’s progress toward achievement
of goals, and providing critical feedback concerning the
success of organizational strategies. More importantly,
perhaps, performance measurement molds the behavior
of not only the managers charged with the responsibility
of developing competitive and operating strategies but also
the workers who must implement the strategies. For these
reasons, sound performance measurement almost always
precedes the achievement of strategic goals.
0019-8501/98/$19.00
PII S0019-8501(97)00078-3
 Better performance measurement is
essential to combining cross-functional
agility with functional excellence.
Given the importance of performance measurement sys-
tems, traditional approaches to performance measurement
have come under increasing criticism for failing to ade-
quately address the needs of managers in an environment
far different from that in which they were created [1, 2].
Oriented primarily toward short-term financial results as
well as efficiency and input-output ratios, existing systems
ignore new competitive realities that require a strong focus
on such issues as product and process quality, customer
satisfaction, and cross-functional integration. Nowhere are
the inadequacies of traditional measurement schema more
evident than in the discipline of logistics [3]. Quite simply,
firms in diverse industries and occupying different channel
positions have found that meeting ever higher customer
service requirements necessitates greater logistics profi-
ciency. Responding to these new customer-driven impera-
tives, organizations have attempted to develop logistical
capability as a core competency. Unfortunately, traditional
logistics measures do not yield the understanding or moti-
vation needed to achieve true logistical excellence. Im-
proved measurement systems are therefore essential. This
article reports results of a recent study of how leading orga-
nizations are improving measurement systems as one part
of their effort to develop world-class logistical capability.
BACKGROUND
Traditional logistics measurement systems have been
designed to capture information regarding five types of per-
STANLEY E. FAWCETT is Associate Professor of International
Business and Supply Chain Management in the Marriott School
of Management at Brigham Young University, Provo, Utah.
M. BIXBY COOPER is Associate Professor of Marketing and
Supply Chain Management in the Broad School of Business at
Michigan State University, East Lansing, Michigan.
342
formance generally regarded as essential to accomplish-
ing the organization’s logistics/distribution activities [4].
These five categories are: asset management, cost, cus-
tomer service, productivity, and logistics quality [5]. Sev-
eral measures from each performance category are gener-
ally put in place to monitor and manage a variety of
logistics functions including transportation, warehousing,
inventory management, order processing, and adminis-
tration. For example, typical transportation performance
measures by category type are listed below:
• Asset management: Capacity utilization, return on in-
vestment
• Cost: Cost per hundredweight, transportation cost per
unit
• Customer service: Average transit time, transit time
variability
• Productivity: Orders delivered per vehicle, full versus
partial loads
• Quality: Damage in transit, documentation accuracy
Similar sets of performance indicators exist for each of the
other logistics activities. Although not inherently “wrong,”
this traditional approach no longer provides the insight
needed to manage logistics resources for competitive ad-
vantage in today’s dynamic and intensely competitive
global marketplace. That is, recent years have brought a
number of competitive and environmental developments
that require more aggressive and innovative performance
measurement. Some of these developments include the
advent of just-in-time management practices, an empha-
sis on internal integration and process management, the
adoption of integrated supply chain strategies, the estab-
lishment of global operating networks, and a much
greater recognition of customer needs.
First, the importance of measurement for decision-mak-
ing in logistics was reemphasized in the 1980s as the
just-in-time revolution required that information be sub-
stituted for inventory [6, 7]. Managers began to place
emphasis on expanding performance measurement capa- to build better measurement systems, this study begins to
bilities as a mechanism to improve just-in-time perfor- address the following questions:
mance. In particular, a new awareness of the importance
• Have companies, in fact, improved performance mea-
of time-based measures emerged [8, 9]. Second, the past
surement capability?
5 years have witnessed a new emphasis on process inte-
• Does improved measurement capability lead to better
gration. The move from a functional to a process orienta-
performance?
tion is evidence throughout managerial efforts to enhance
• What specific steps should managers follow to im-
firm competitiveness—from cross-functional product de-
prove their organization’s performance measurement
velopment teams to efforts to reengineer the firm [10,
systems?
11]. Better performance measurement plays a key role in
these efforts and is essential to combining cross-func-
tional agility with functional excellence [12]. Third, the METHODOLOGY
realization that competition in today’s marketplace is “no
An understanding of real-world competitive issues
longer company vs. company but supply chain vs. supply
such as the role and impact of performance measurement
chain” has also brought performance measurement to the
on firm competitiveness can best be gained by gathering
forefront of managerial attention [13]. The ever increas-
data from actual organizational settings [19]. Therefore,
ing complexity of supply chain systems puts additional
an empirical approach using a multimethod survey and in-
pressure on measurement activities to coordinate and con-
terview methodology was undertaken [20]. It should be
trol integrated channels. Fortunately, the redesign of per-
noted that because a longitudinal perspective is taken,
formance measurement systems to provide accurate, rele-
several research instruments were used to collect the data
vant, and timely information needed to manage entire
used in the following analysis and discussion. In fact, two
supply chains has been made feasible by improvements
major studies were conducted to collect the appropriate
in information technology such as bar-coding, electronic
data: a baseline study conducted in 1988–89 and a follow-
data interchange, integrated databases, and satellite com-
up study performed in 1993–94. In each of these two ma-
munications.
jor studies, a thorough literature review was conducted to
Fourth, the implementation of global operating net-
assure the best possible content validity. Further, advisory
works to gain access to both the best resources available
boards consisting of senior-level logistics managers were
worldwide and rapidly growing world markets has cre-
used to provide guidance in the design of the data collec-
ated a need for better measures. Three network design
tion instruments. Further, in conjunction with the follow-
and management issues are particularly influenced by the
up study, a series of in-depth interviews were performed
firm’s measurement system: network configuration, net-
to help contextualize the survey findings and to provide
work coordination, and day-to-day operational control
insight into key issues affecting logistics performance
[14, 15]. Finally, events in recent years have led to a con-
measurement and overall logistics competence.
centration of channel power closer to the end consumer,
greatly increasing the importance of developing a cus-
tomer orientation complete with appropriate measures of Baseline Survey
customer satisfaction. The challenge is that traditional The baseline data for the longitudinal comparison was
measures tend to be inward-looking and often do not take collected in 1988–89. This database included a total of
into account customer perceptions [16]. Greater efforts 421 usable responses from North American firms. This
are therefore needed to align measurement systems with initial study focused on developing a general understand-
customer’s real needs [17]. The cumulative impact of these ing of what constituted best practice in the increasingly
changing conditions is that today’s information systems important discipline of logistics. With the guidance of the
must collect a broader array of information targeting not advisory board, performance measurement was identified
only traditional cost-driven measures but also non-cost as a key element of the study. As a result, data regarding
issues such as quality, delivery, flexibility, and innova- the availability and usefulness of a variety of perfor-
tion [18]. Likewise, a more symmetrical balance between mance measures were collected. These data were catego-
internally focused and externally oriented measures is rized into the five areas described above: asset manage-
needed. In light of both the need for improved performance ment, cost, customer service, productivity, and quality.
measures and the ability to apply technological advances One of the central findings of the initial study was that

343
leading-edge firms use comprehensive performance mea- from 2 to 6 hours with interview findings being written
surement in their efforts to provide sophisticated logisti- up shortly after the interviews. The participants also
cal solutions and thus meet customers’ real needs. agreed to answer follow-up questions via telephone. Thus,
an opportunity for clarification and further exploration
Logitudinal Survey was established before the interviews began. The follow-
ing companies participated in the interviews:
The comparative data for the longitudinal analysis were
collected using a two-step procedure. First, in 1993, a Europe
relatively short six-page survey was mailed to 6,010 lo- Automobiles Peugeot
gistics managers to generate a better understanding of the BASF Laecke 1 Farben AG
general trends affecting logistics practice. The mailing Barilla SPA
list included the entire membership of the Council of Lo- Bols Benelux B.V.
gistics Management (CLM), the leading professional lo- Boots the Chemist PLC
gistics organization in the United States. A total of 1,254 CibaGeigy, Ltd.
usable surveys was returned (a response rate of 20.4%). Coin SPA
Second, using the information gathered in this initial El Corte Ingles SA
probe of logistics practice together with the baseline Exel Logistics, Ltd.
study, a detailed questionnaire was developed and ad- Groupe Facom
ministered to selected firms that had been identified pre- Herba Apotheker AG
viously as leading logistics companies. This 25-page de- F. Hoffman-LaRoche, Ltd.
tailed instrument targeted a variety of logistics-related IKEA International A/S
topics. The length and detailed nature of the survey in- Isover Saint-Gobain
strument required a very strong commitment to participa- Karstadt AG
tion among the participants. The vast majority of the Royal Frans Maas Group NV
firms who were asked to fill out the survey agreed to do LEGO Systems A/S
so and then followed through. The one exception in- Lucas Applied Technologies, Ltd.
volved Japanese companies—they almost universally in- MD Foods amba
dicated an unwillingness to fill out the survey. Nestle SA
Philips Medical Systems B.V.
Interview Study Proost & Brandt B.V.
SKF Bearings
To support the detailed survey instrument and provide
J. Sainsbury PLC
greater interpretability, an in-depth interview guide was
Siemens Medical Systems
designed. The interview guide was used with a set of
Spedition Dachser GmbH and Co.
leading logistics organizations from around the world. A
Volvo Transport AB
panel of leading logistics experts helped identify over
100 companies with reputations for having outstanding Pacific Basin
logistics practices. These firms were then asked to partic- Ajinomoto Company, Inc.
ipate in the study. A total of 111 firms from North Amer- Ajinomoto General Foods, Inc.
ica, Europe, and the Pacific Basin participated in the in- Arnott’s Biscuits, Ltd.
terviews, which were conducted in 1994. In total, firms Bridgestone Corporation
headquartered in 17 different countries were interviewed. Carlton & United Breweries Pty., Ltd.
The interviews were typically held at the company’s Cheil Foods and Chemicals, Inc.
headquarters with the senior logistics executive of the Daewoo Electronics Company, Ltd.
firm. In many instances, multiple members of the logis- David’s Distribution Pty., Ltd.
tics management team participated in these face-to-face Goldstar Company, Ltd.
interviews, each sharing knowledge in specific areas of Ito-Yokado Company, Ltd.
responsibility and expertise. (These same individuals filled Jusco Company Ltd.
out the portions of the survey instrument over which they Kawasaki—Rikuso Transportation Co., Ltd.
held decision-making responsibility.) The interviews lasted Kirin Brewery Company, Ltd.

344
Kokubu & Company, Ltd.
Mitsukoshi Company
Myer Stores, Ltd.
Online Distribution Services
Pohang Iron & Steel Company, Ltd.
Ryoshuku, Ltd.
Samsung Electronics Company, Ltd.
Seven-Eleven Japan Company, Ltd.
Shinsegae Department Stores
Shiseido Logistics Company, Ltd.
Suntory, Ltd.
Takashimaya Company, Ltd.
Toyota Motor Corporation
North America
3M Company
Ace Hardware Corporation
Amway Corporation
Baxter Healthcare Corporation
The Bay
L.L. Bean, Inc.
Becton Dickenson and Company
Bergen Brunswig Corporation
Campbell Soup Company
Chrysler Corporation
Colonial Hospital Supply Corporation
Continental Freezers of Illinois, Inc.
Cummins Engine Company, Inc.
Digital Equipment Corporation
The Dow Chemical Company
Eastman Kodak Company
Jack Eckerd Corporation
Federal Express Corporation
General Mills, Inc.
Gerber Products Company
The Gillette Company
Gordon Food Services
Hershey Foods Corporation
The Home Depot
Intel Corporation
Johnson & Johnson Health Care
The Kellogg Company
Kimberly-Clark Corporation
Kraft Foods, Inc.
The Kroger Company
The Limited, Inc.
McCain Citrus, Inc.
Meijer, Inc.
Nabisco, Inc.
Oshawa Foods
PPG Industries, Inc.
Payless Cashways, Inc.
The Procter & Gamble Company
Quill Corporation
Rich Products Corporation
Roadway Logistics Systems
Schneider National, Inc.
Schnuck markets, Inc.
Scott Paper Company
Spartan Stores, Inc.
Sysco Corporation
TNT Contract Logistics
Target Stores
UPS Worldwide Logistics
Vitro SA
Wal-Mart Stores, Inc.
Walgreen Company
Whirlpool Corporation
Xerox Corporation
Zellerbach
Zellers, Inc.
Overall, the data collected via the interviews and de-
tailed questionnaires allowed for a comparison of logistics
performance measurement practice from 1988 to 1994. The
primary area of comparison is on the availability of useful
performance measurement information in five different ar-
eas: asset management, cost, customer service, productiv-
ity, and quality. In addition to the longitudinal comparison
of information availability, additional insight into logistics
performance measurement practice can be gained by ex-
ploring differences in practice among top and bottom per-
formers in a given year. Therefore, using the 1994 data, a
comparison of practice among the upper one-third and the
lower one-third of the firms was carried out. The firms
were classified based on a 40-item logistical performance
index that was compiled for each firm. The index scores for
the firms ranged from a low of 70 to a high of 185 (a total
of 200 points was possible). This top-versus-bottom analy-
sis looked not only at the availability of performance mea-
surement information but also at the importance of each
type of information to decision-making.
SURVEY ANALYSIS AND RESULTS
To ascertain the extent to which companies have im-
proved their performance measurement capabilities, re-
spondents were asked to indicate whether or not their
345
 The most apparent trend is an increased
emphasis on managing time.
firm’s information systems provided useful information
for a variety of different measures. The 1988 survey in-
strument included 36 different performance measures of
interest. The follow-up 1994 instrument included an ad-
ditional 19 items. These added items were included based
on input from various key informants who suggested that
these new measures had become somewhat common-
place since the initial study. Thus, the first finding of the
study is that companies have increased the breadth of
measures they use to coordinate and control their logis-
tics activities.
Table 1 presents data that makes possible the compari-
son of measurement information availability across the
1988 and 1994 responses. The data show consistent im-
provements in the availability of performance measure-
ment information across the longitudinal comparison. In
fact, the 1994 respondents report significantly greater in-
formation availability for 14 of the performance measures
that were included in both studies. By contrast, the 1989
respondents report greater in formation availability on
only three of the measures. Particularly relevant is the
fact that the 1994 respondents report greater information
availability for specific measures in all five categories of
logistical performance. This result indicates that organi-
zational commitment to improved systems of measure-
ment includes all relevant aspects of logistical commit-
ment and is not limited to a single focus or limited view
of logistical operations. Of interest, the area with the least
improvement over the period of comparison involved tra-
ditional logistical productivity measures.
Looking more closely at the 10 measures that experi-
enced the greatest change in information availability yields
some insight into measurement trends (see Table 2). The
most apparent trend is an increased emphasis on manag-
ing time, which is indicated by the greater availability of
cycle time, order processing, and on-time delivery infor-
mation. Another relevant trend is the move toward nontra-
ditional cost measures including the use of cost-trend anal-
ysis and the use of broad-based productivity indices. More
emphasis is also being placed on customer service. These
346
three trends all support the notion that firms are seeking
to increase the breadth and depth of the information pro-
vided by their performance measurement systems. It is
also interesting to note that two measures recording large
shifts in availability actually experienced declines in use.
First, the availability of information regarding sales force
complaints decreased by over 50%, largely falling out of
favor with logistics managers. Logistics organizations in-
dicate a preference for measures of their internal opera-
tions tempered by information that directly relates to cus-
tomer perceptions. The underlying theme here is that
complaints registered by the sales force are viewed as be-
ing self-serving and not generally reliable as a measure
of performance of the logistics process. By contrast,
complaints registered directly by customers are seen as
relevant and important, because they affect the future re-
lationship with the customer. Direct customer feedback
also allows logistics managers to explore thoroughly the
nature, seriousness, and consequences of performance
failures. Information that is filtered or screened by sales
representatives does not offer the same value as a driver
of continuous improvement. Second, firms place some-
what less emphasis on inbound freight costs. This finding
appears to reflect an organizational change as some firms
have shifted responsibility for inbound freight to pur-
chasing, because inbound transportation costs are often
included in the negotiated price of purchased materials.
Focusing specifically on the measures most frequently
available in 1994 provides perspective on what measures
companies truly emphasize (see Table 3). Somewhat sur-
prisingly, despite the recent emphasis on customer ser-
vice measurement, nine of the 10 most often available
measures still focus on cost measurement and control.
This emphasis on cost derives from the fact that logistics
has traditionally been viewed as a support activity and
evaluated as a cost center. The most available cost infor-
mation is comparison of actual versus budget, which is
the only item that all of the firms claimed to measure.
This fact highlights the pervasive influence of traditional
cost accounting on the design of logistics measurement
TABLE 1
Comparison of Availability of Performance Measurement Information

Information Availability

Measure 1994 1989 Difference P-value

Asset Management
Inventory levels 97.3% 89.9% 7.4% 0.05
Obsolete inventory 95.9 86.4 9.5 0.05
Inventory turns 94.6 90.2 4.4 NS
Return on net assets 88.9 80.7 8.2 NS
Inventory classification 87.3 NI — —
Return on investment 86.3 84.8 1.5 NS
Cost
Comparison of actual versus budget 100 92.4 7.6 0.01
Outbound freight 97.4 94.3 3.4 NS
Cost as a percent of sales 94.6 91.5 3.1 NS
Total cost (logistics) 93.5 84.1 9.4 0.05
Administrative 93.3 85.1 8.2 NS
Direct labor 92.0 85.1 6.9 NS
Cost trend analysis 89.6 73.7 15.9 0.01
Cost per unit 86.5 82.0 4.5 NS
Cost of damage 81.6 66.8 14.8 0.01
Warehouse order processing 81.6 62.4 19.2 0.01
Inventory carrying cost 79.2 76.8 2.4 NS
Inbound freight 76.7 87.3 210.6 0.01
Cost of returned goods 71.1 68.5 2.6 NS
Direct product profitability 54.1 58.1 24.0 NS
Customer or segment profitability 47.9 NI — —
Cost of service failure 41.3 NI — —
Cost of backorder 31.0 NI — —
Productivity
Warehouse labor productivity 86.8 NI — —
Comparison to historical standard 85.1 83.7 1.4 NS
Goal programs 83.1 76.2 6.9 NS
Units shipped per employee 71.6 70.3 1.3 NS
Productivity index 71.5 59.2 12.3 0.05
Units per labor dollar 63.5 67.8 24.3 NS
Order entry productivity 56.5 NI — —
Equipment downtime 56.2 NI — —
Orders per sales representative 52.3 59.5 27.2 NS
Transportation labor productivity 62.2 NI — —
Customer service
On-time delivery 88.0 74.8 13.2 0.01
Stockouts 88.0 79.9 8.1 NS
Shipping errors 85.3 80.5 4.8 NS
Fill rate 85.1 79.4 5.7 NS
Delivery consistency 83.8 NI — —
Cycle time 82.7 61.7 21.0 0.01
Backorders 74.3 76.4 22.1 NS
Complete orders 73.6 NI — —
Customer complaints 73.0 81.3 28.3 NS
Overall customer satisfaction 56.8 NI — —
Overall reliability 51.4 NI — —
Response time to inquiries 37.5 NI — —
Sales force complaints 36.8 76.5 239.7 0.01
Response accuracy 26.0 NI — —
Logistics quality
Number of customer returns 93.2 78.0 15.2 0.01
Picking/shipping accuracy 83.1 NI — —
Number of credit claims 82.9 75.7 7.2 NS
Damage frequency 74.0 58.6 15.4 0.01
Document/invoicing accuracy 61.8 NI — —
Order entry accuracy 61.6 NI — —
Information availability 51.4 NI — —
Information accuracy 38.9 NI — —

T-tests are tests for differences between two proportions.

NI 5 not included in the 1989 survey.

347
 High performance logistics firms have
greater access to measurement information.

TABLE 2 TABLE 3
Measures with the Largest Change in Information Availability Ten Most Frequently Available Measures (1994)

Information Availability Rank Availability Rank

Availability Measurement 1994 1994 1988 1988

Measure 1994 1989 Difference P-value Comparison of actual versus

budget 100.0 1 92.4 2
Sales force complaints 36.8 76.5 239.7 0.01 Outbound freight cost 97.4 2 94.3 1
Cycle time 82.7 61.7 21.0 0.01 Inventory levels 97.3 3 89.9 6
Warehouse order processing 81.6 62.4 19.2 0.01 Obsolete Inventory 95.9 4 86.4 8
Cost-trend analysis 89.6 73.7 15.9 0.01 Inventory turns 94.6 5 90.2 5
Damage frequency 74.0 58.6 15.4 0.01 Cost as a percent of sales 94.6 5 91.5 3
Number of customer returns 93.2 78.0 15.2 0.01 Total logistics cost 93.5 7 84.1 11
Cost of damage 81.6 66.8 14.8 0.01 Administrative cost 93.3 8 91.4 4
On-time delivery 88.0 74.8 13.2 0.01 Number of customer returns 93.2 9 78.0 19
Productivity index 71.5 59.2 12.3 0.05 Direct labor cost 92.0 10 85.1 9
Inbound freight 76.7 87.3 210.6 0.01

systems. The second most frequently measured item is
outbound freight cost (this measure was the most avail-
able in 1988). Because transportation costs typically rep-
resent the single largest logistics cost, this finding is not
surprising. The remaining three of the top five measures
all focus on inventory management. Again, given the re-
cent emphasis on inventory reduction as part of just-in-
time delivery systems combined with the fact that inven-
tory costs often account for the second largest portion of
the logistics budget, this result is not entirely unexpected.
The only non-cost measure included in the top 10 is num-
ber of customer returns, which is ranked ninth. Table 3
also shows that eight of the most available measures in
1994 were also among the 10 most available measures in
1988. The two newcomers are total logistics costs and
number of customer returns. Added emphasis on total lo-
gistics costs points to a more holistic view of logistics
performance, suggesting that firms are beginning to more
aggressively use tradeoff analysis in the management of
logistics systems. Finally, managers reported greater in-
formation availability for all 10 measures when com-
pared to 1988.
To examine the relationship between performance
measurement capability and overall logistical perfor-
mance, the 1994 respondent firms were divided into
high- and low-performing groups. Specifically, firms
were classified into top-third, middle-third, and bottom-
third categories based on their score on a 40-item logisti-
cal performance index that was compiled for each firm.
This categorization allowed for a comparison of perfor-
mance measurement practices between high- and low-
performing firms (see Table 4). Two areas of practice
were considered. First, the availability of useful informa-
tion was examined. The data in Table 4 indicate that
high-performance logistics firms generally have greater
access to measurement information. In fact, the high-per-
forming firms report greater levels of information avail-
ability for 44 of the 55 different measurement items (low-
performing firms reported higher levels for 10 items and
the two groups had equal access to actual versus budget
information). All 16 of the statistically significant differ-
ences favored the high-performing firms.
Second, the importance placed on each measurement
item was evaluated. This analysis was made possible by
asking the respondents to indicate using a 5-point scale
how important each type of measurement information is
to logistical decision-making. Again, the data in Table 4
suggest that high-performing logistics organizations gen-

348
TABLE 4
Comparison of Measurement Practices between High- and Low-Performance Logistics Organizations

Information Availability Importance Rating*

Measure High Low High Low

Asset Management
Inventory turns 96.9 94.7 4.34 4.11
Inventory levels 100.0 94.7 4.22 4.32
Obsolete inventory 96.8 100.0 3.70 3.37
Return on net assets 93.3 94.4 4.10 4.18
Return on investment 90.0 84.2 4.07 4.13
Inventory classification 93.6 94.7 3.86 3.84
Cost
Total cost (logistics) 93.8 95.0 4.56 4.35
Outbound freight 100.0 95.0 4.41 3.67
Administrative 93.8 84.2 3.70 3.33
Direct labor 96.8 84.2 4.03 3.76
Cost of damage 87.5 80.0 3.55 3.26
Inventory carrying cost 86.7 73.7 3.79 3.39
Inbound freight 77.4 79.0 4.00 3.50
Cost of returned goods 81.3 75.0 3.45 3.17
Cost of service failure 40.6 47.4 3.78 3.73
Cost of backorder 33.3 27.8 3.71 3.18
Warehouse order processing 87.5 80.0 3.90 3.33
Cost per unit 83.9 83.3 4.38 4.06
Cost as a percent of sales 96.8 84.2 4.33 3.95
Comparison of actual versus budget 100.0 100.0 4.34 4.40
Cost trend analysis 93.8 90.0 4.41 4.42
Direct product profitability 62.5 36.8 3.81 3.79
Customer or segment profitability 41.9 55.0 3.52 3.94
Productivity
Units shipped per employee 83.9 57.9 4.07 3.86
Units per labor dollar 67.7 57.9 3.60 3.77
Orders per sales representative 50.0 55.6 3.00 3.54
Comparison to historical standard 87.5 73.7 3.93 3.29
Goal programs 90.3 58.8 4.28 4.08
Productivity index 78.1 57.9 4.15 3.57
Equipment downtime 65.6 27.8 3.64 2.92
Order entry productivity 65.5 52.9 3.69 3.29
Warehouse labor productivity 90.6 80.0 4.13 3.65
Transportation labor productivity 64.5 73.7 3.68 3.69
Customer service
Fill rate 96.9 61.1 4.50 3.73
Stockouts 93.8 77.8 4.52 4.19
Shipping error 90.6 73.7 4.20 4.17
On-time delivery 93.6 89.5 4.43 4.47
Backorders 79.3 76.5 3.92 3.80
Cycle time 90.6 72.2 4.16 3.82
Customer complaints 71.0 79.0 4.35 4.28
Sales force complaints 42.9 33.3 3.94 3.64
Delivery consistency 87.5 77.8 4.24 4.17
Response time to inquiries 41.9 29.4 3.73 3.93
Response accuracy 32.3 22.2 3.90 4.00
Complete orders 90.0 52.9 4.26 3.71
Overall reliability 70.0 29.4 4.35 3.92
Overall customer satisfaction 58.1 55.6 4.39 4.41
Logistics quality
Damage frequency 87.5 75.0 3.80 3.56
Number of credit claims 93.3 70.6 3.82 3.15
Number of customer returns 96.8 88.9 3.87 3.60
Order entry accuracy 80.0 45.0 4.19 4.00
Picking/shipping accuracy 90.6 75.0 4.43 3.94
Document/invoicing accuracy 84.4 35.0 4.21 3.79
Information availability 54.8 50.0 4.00 3.92
Information accuracy 45.2 33.3 4.19 3.91

*Scale: 1 5 unimportant, 5 5 important; Significantly different at P 5 .10.

349
 Particularly surprising was the low level
of measurement of overall
customer satisfaction.
erally attach more importance to the measures than do
their lower-performing counterparts. The respondents from
high-performing firms reported higher average importance
scores for 42 of the 55 measurement items. In addition,
of the 15 statistically significant differences related to
measurement importance, the top-third firms report higher
average importance scores for 14 of the measures. Inter-
estingly, the one measure where low-performing firms
reported greater emphasis is orders per sales representa-
tive—a very traditional productivity measure that has
been deemphasized by leading logistics organizations. Two
factors appear to influence the decline in importance of
this measure among leading firms. First, in many leading
logistics organizations an increasing percentage of actual
customer orders are received via electronic data inter-
change in some form of continuous replenishment system.
Under these circumstances, the number of orders per sales
representative is no longer a valid measure of productiv-
ity. Second, an increasing number of leading firms are orga-
nizing their selling efforts around teams, requiring a dif-
ferent approach to the measurement of productivity.
Because these sales teams often work with key accounts,
their emphasis is on developing long-term relationships
and commitments from customers. In this setting, the tra-
ditional emphasis on the generation of immediate orders
is much less relevant, reducing the importance of tradi-
tional measures of order productivity. Thus, a change in
the way leading firms work with customers has changed
the type of measures that are used.
Combining the results regarding availability and im-
portance clearly demonstrates that superior performance
logistics organizations are more committed to developing
comprehensive measurement systems and consider per-
formance measurement capability more important to suc-
cess than do lower-performing firms.
A closer look at the overall importance ratings for the
most important measures reveals that firms are aggres-
350
sively attempting to manage the traditional logistics tradeoff
between cost and customer service (see Figure 1). With
an average importance rating of 4.46, total logistics cost
is perceived as the single most important performance
measure. Interestingly, cost-trend analysis is rated as the
third most important measure. The emphasis on these two
cost measures suggests a greater desire to proactively un-
derstand and manage basic cost elements of the logistics
system. Two other cost-directed items are among the most
frequently emphasized measures. Further, two measures
of inventory management are included on the short list of
most important measures, reinforcing the importance of
cost control among the respondent firms. Led by on-time
delivery, the remaining five most important measures all
focus on delivering high levels of customer service. Two
service-oriented themes emerge as vital—time manage-
ment and assessing customer satisfaction. Overall, logis-
tics managers are attempting to use measurement to help
them design and manage more efficient and customer-
effective logistics systems.
To summarize, the survey results provide evidence for
two fundamental propositions. First, companies are in-
deed committed to improving their overall logistical per-
formance measurement capabilities. The longitudinal com-
parison of information availability demonstrates that firms
have access to better measurement information in each of
the five performance areas. Interestingly, whereas addi-
tional emphasis has been placed on the issues of cus-
tomer service, quality, and time, this emphasis has not
come at the expense of cost control. Indeed, firms are
paying even more attention to traditional measures of lo-
gistics cost and productivity. Second, the comparison of
high-performing and low-performing firms with respect
to both information availability and measurement impor-
tance supports the connection between logistical perfor-
mance and logistical measurement capability. Thus, higher-
performing firms have more information available and
 FIGURE 1. Ten most important measures (1994).
place greater emphasis on a broad-based set of perfor-
mance measures. Enhanced measurement appear to be a
fundamental requirement for achieving improvements in
operational performance.
One caveat emerged from the longitudinal analysis—
the rhetoric regarding customer service and quality mea-
surement exceeds the current level of effort expended to
collect and disseminate this information. When informa-
tion availability for customer service and quality is com-
pared to the availability of cost-related measures, the
conclusion that customer service and quality measures
remain as secondary areas of importance is evident. Par-
ticularly surprising was the low level of measurement of
overall customer satisfaction and other closely related is-
sues. However, despite the relatively lower levels of in-
formation availability on customer-satisfying issues, it is
important to reiterate that, in general, more information
is available regarding customer service today than was
available in the late 1980s. Further, managers placed
strong emphasis on the importance of customer-focused
information, suggesting that more dedicated efforts will
be forthcoming in the development of better measures of
customer satisfaction.
DISCUSSION OF INTERVIEW FINDINGS
Given the important role of performance measurement
suggested by the survey findings, the question of interest
becomes, What approach should managers adopt to im-
prove their organization’s performance measurement
systems? Some important insights emerged from the on-
site personal interviews conducted in conjunction with
the 1994 survey. These interview findings not only help
clarify some of the survey findings presented above but
also provide potential guidelines to facilitate measure-
ment improvement efforts. The first issue that emerged
from an analysis of the interviews is that attitude is criti-
cal to measurement capability. Indeed, the issue that best
sets the stage for the design of an appropriate and rele-
vant measurement system is the attitude a firm’s man-
agement takes toward measurement. One executive ex-
pressed his company’s philosophy toward measurement
as follows:
If it moves, we measure it. We measure for how much it
costs to move, what resources were used, did we move it
to the right place without damaging it, and how long it took.
If it doesn’t move, we measure how long it stays there and
351
 No consensus exists among managers as to
precisely what total logistics cost is.

what resources are consumed while it sits. This frame- • A process orientation that facilitates internal integra-
work is applied to the measurement of products, people, tion and external alignment
and equipment. Finally, we try to measure whether we did • A benchmark that provides the impetus for continued
it as well as or better than anyone else could do it. [18] learning and improvement
Although this statement does not at first appear to be • The use of partner and supply chain scorecards to eval-
dramatic or truly innovative, a closer look reveals several uate the role and performance of supply chain members
important insights. First, as expected, the measurement and the overall supply chain.
of movement is important; however, the explicit linkage
of movement to resources requires the active use of activ- Measurement Capability
ity-based costing and an attempt to make the movement
The previous discussion of information availability
process transparent. Further, not only is cost measured
shows that firms have improved their overall measure-
but so are the critical dimensions of time, place, and
ment capabilities. This improvement is particularly evi-
damage. This focus is the foundation for the “perfect or-
dent when the definition of capability improvement fo-
der” measurement. Second, placing equal emphasis on
cuses on the number of items measured. Almost without
those things that do not move is relatively new to logis-
exception, firms have increased the number of measures
tics measurement and is critical to measuring and manag-
used to manage their logistics activities. Although this
ing cycle times. Again, the understanding gained here
finding was true for firms throughout the world, U.S. and
helps increase the visibility of the logistics process and
European managers indicated the most consistent im-
thus helps identify non-value-added activities that can be
provements. More importantly, whereas the items added
eliminated. Third, extending this framework beyond
to existing measurement systems target all five assess-
products and equipment to people helps to integrate the
ment categories, a persistent emphasis on tracking total
firms technology and human resource systems—a key to
logistics costs appears to be a driving force behind mea-
process development and improvement. Finally, the no-
surement improvement efforts. Table 1 shows that 93.5%
tion of comparing to best practice is unique and underlies
of firms measured total cost in 1994—a number almost
continuous improvement efforts. Combining these in-
10% higher than in 1988. yet, closer inspection of the
sights reveals the point of greatest impact that emerges
other cost items reveals that a substantially higher num-
from this philosophy statement—it establishes the bound-
ber of respondents claim to measure total cost than have
aries and focus of the firm’s measurement system. In
information available for many of the individual compo-
short, the firm’s attitude toward measurement defines its
nents of total cost. For example, only 81.6% of the re-
efforts to use measurement for competitive advantage.
spondents reported that their measurement systems pro-
A careful analysis of the interview findings demon-
vide warehouse order processing cost information, 79.2%
strated that managers realize that competitively defined
inventory carrying cost information, and 31% backorder
performance measurement systems take into account
cost information. During the interviews, it became clear
both the internal and external assessment of all value-
that despite extensive academic and trade literature on
added operations. More specifically, a content analysis
the nature of total logistics cost, no consensus exists
revealed that four dimensions encompass effective mea-
among managers as to precisely what total logistics cost
surement practice at world-class companies:
is. Executives offered wide-ranging definitions with very
• An improved measurement capability, especially with different, and frequently narrow, conceptualizations of
respect to total cost measurement logistical cost components. This lack of agreement re-

352
garding total logistics cost raises concern because total-
cost analysis is fundamental to cost tradeoff analysis for
the purpose of improving operational capability.
A desire to manage quality and improve customer ser-
vice throughout all logistics processes is a second force
driving the improvement of measurement capabilities.
quality measurement issues have become highly visible
because logistics quality failures are expensive in terms
of both dollar cost and decreased customer satisfaction.
Recognizing this adverse impact of poor quality, logistics
managers have sought to document more completely the
nature of poor logistics quality. The data reported in Ta-
ble 1 support the increased emphasis on quality measure-
ment; however, the interviews revealed some dissatisfac-
tion with existing quality measures. Relatively few
executives report the ability to quantify the cost of poor
quality. Even many traditional costs associated with “un-
quality” escape accurate measurement. Among these are
the cost of logistical service failures and the cost of back-
orders. Further, executives conspicuously noted that they
do not have access to customer’s perceptions of their lo-
gistics quality. Without this basic quality-related infor-
mation, serious questions arise regarding the application
of total quality management (TQM) principles to logis-
tics. Indeed, executives noted that while their firms have
been exposed to TQM concepts, very few have applied
the measurement aspects of TQM to the logistics process.
On the positive side, executives did express the opinion
that today’s measurement systems are much better at pro-
viding the information needed to achieve high levels of
delivery performance. Better measurement has helped
firms to more consistently deliver complete and accurate
orders on time.
Whereas the need for total cost and quality-related in-
formation has motivated recent advances in measurement
practice, the interviews clearly showed that technology
has played the primary facilitating role in measurement
capability enhancement. Discussions with executives re-
vealed that information system technology has had a
major impact on organizations’ ability to collect, manip-
ulate, and disseminate information. Specifically, infor-
mation technology allows many aspects of logistical per-
formance that were previously difficult to assess to be
measured in an accurate and timely manner. For exam-
ple, delivery performance is one area that has been a ben-
eficiary of information technology developments. Histor-
ically, firms measured delivery performance from the
perspective of on-time shipment, but they were not able
to ascertain whether shipments actually arrived on time.
Using satellite communication and on-board tracking
systems, firms can now assess delivery to customers in
real time. When this data-capturing capability is coupled
with better database technology, managers can utilize in-
formation for better decision-making in such important
but diverse areas as carrier selection and evaluation,
warehouse design and location, and order cycle reduc-
tion. The accessibility and reliability of the data collected
and stored via the new technology systems provide a
strong investment incentive in comprehensive measure-
ment systems. Indeed, executives consistently stressed
the need to consciously take measurement issues into ac-
count in the design of new information systems.
Process Orientation
Throughout the interviews, executives emphasized
that superior measurement capability goes beyond func-
tional excellence to facilitate integrative efforts whether
they take place within the firm or throughout the entire
supply chain. That is, meeting elevated customer require-
ments requires firms to effectively and efficiently man-
age value-added processes, which almost always take place
across functional departments and/or company bound-
aries. According to most of the logistics executives, ob-
taining the required level of integration is impossible
without effective, process-oriented performance mea-
sures. Three initiatives were identified as critical to achiev-
ing the necessary process focus: better process costing,
more realistic customer input, and relevant supply-chain
metrics.
First, making good integrative decisions requires that
costs be measured across activities, departments, or even
firms. This need places great emphasis on total costing
capabilities, which were discussed above. Unfortunately,
despite the consistent emphasis on measuring total logis-
tics costs, only about 50% of the managers reported that
they actually use total cost tradeoff analysis. The lower
levels of total costing use for decision-making might be a
reflection of the fact that managers recognize the limita-
tions of existing total cost measures, which are incom-
plete and somewhat unreliable. This constrained use is
especially apparent in the context of channel integration.
In conjunction with total costing, logistics executives are
paying much more attention to activity-based costing. By
linking costs directly to the activities that create them,
firms hope to understand better the nature of important
value-added processes. Activity-based costing also prom-
ises to help firms perform segmental profitability analy-
353
sis on a product, channel, and/or customer basis. Actual
use of activity-based costing to improve logistics integra-
tion lags considerably behind that of total costing with
fewer than 40% of U.S. firms actively using this costing
technique. The gap between the stated importance of
both total cost analysis and activity-based costing and the
actual utilization of these techniques reveals a tremendous
opportunity for firms to improve their measurement prac-
tices and thus enhance their integration efforts.
Second, because the primary focus on process integra-
tion is to improve the firm’s value-added ability, a con-
certed effort must be made to determine exactly what ser-
vices customers truly value. High levels of efficiency that
are not highly valued, or even desired, by customers do not
enhance competitive advantage but dissipate resources,
often leading to diminished performance [16]. Experi-
ence in the past several years has reinforced this percep-
tion in the minds of logistics executives. Utilizing logis-
tics to meet and exceed customer expectations was thus a
dominant theme throughout the interviews. Nonetheless,
systematic efforts to measure customer satisfaction were
limited. most often, informal and infrequent approaches
to assessing customer satisfaction were used. Indeed,
fewer than 50% of respondents reported the use of formal
programs to measure customer satisfaction. Among the
firms that do actively seek customer input, surveys, focus
groups, and personal interviews are the most commonly
used techniques. From the executive’s perspectives, the
value of these approaches is twofold—they find out ex-
actly what is valued by customers and exactly how cus-
tomers evaluate their performance. This knowledge is
then used to align the firm’s processes and commensu-
rate measurement practices to those of key customers.
For example, in one supply-chain alliance where tradi-
tional fill rate measures were used, a better knowledge of
customer needs led to the development of a new measure,
which showed the percentage of the time the product was
actually on the shelf. The rationale behind this measure is
that regardless of the fill rate from the warehouse, the
consumer cannot buy the product if it is not on the shelf
at the retail store level. Of course, using this measure ef-
fectively requires high levels of communication between
the two firms, but this is a natural result of process inte-
gration. At another firm, traditional measures that were
expressed in terms of average performance levels (e.g.,
percent of shipments delivered damage free) were changed
to emphasize absolute measures translated into customer-
specific terms (i.e., damaged shipments delivered to a
specific customer). Identifying gaps in perceptions and
354
practice that exist between a firm and its customers helps
focus improvement efforts and preempts competitors ef-
forts to capture market share.
Third, perhaps the most difficult aspect of achieving a
true process focus is the establishment of measures that
capture relevant information across company boundaries.
Much effort has been directed to this task in recent years
such that several measures have become popular among
leading firms. The appeal of the perfect order measure-
ment became apparent early in the interview process. By
definition, a perfect order is one that is received, pro-
cessed, picked, packed, shipped, and delivered on-time
without damage but with all of the appropriate documen-
tation. In short, an error of any kind creates an imperfect
order. Firms that have adopted the perfect order measure
reported perfect order percentages well under 50%. This
low achievement level is not surprising given the nature
of the measure—an order process consisting of 10 activi-
ties where the firm performs at 97% for each activity
would only achieve a 73% perfect order accomplishment.
The value of the perfect order measure is twofold. First,
it makes the need to improve apparent, helping the firm
avoid complacency. Second, by tracking the root causes
of perfect order failure, a firm can target resources to im-
prove the order fulfillment process. Two other measures
that were frequently identified as important are inventory
dwell time and inventory days of supply. Firms using in-
ventory dwell measures are often surprised to find that
the non-value-added time associated with inventory often
exceeds 90%. Likewise, using inventory days of supply
has shown many firms that have worked to reduce their
own inventory levels that total inventory throughout the
supply chain has not been reduce, but simply shifted to
other channel members. Table 5 lists and defines some of
the more popular supply-chain metrics that are used by
the interview firms. When a firm is able to accurately cost
entire processes, focus them to meet customer needs, and
then establish metrics that help coordinate the activities
of different channel members, the value contribution of
logistics increases dramatically.
Benchmarking Endeavors
Another point of interest highlighted throughout the
interviews was the importance of active benchmarking
not only to guide specific process improvement efforts but
also to engender an attitude of continual learning. Ac-
cording to the interviewed executives, benchmarking is a
critical component of a firm’s performance measurement
TABLE 5
Key Measures of Supply-Chain Performance

Measure Definition

Cash-to-cash cycle time
Inventory days of supply
Inventory dwell time
Perfect order
Total order fulfillment cycle time
Supply-chain response time
The average time to convert a dollar spent to acquire raw materials into a dollar collected for finished product 5 inventory
days of supply 1 days sales outstanding 2 days payables outstanding.
The total inventory in the supply chain relationship–incoming, plant, and field–expressed as calendar days of supply based
on recent actual daily cost of sales
The ratio of days inventory sits idle to days inventory is moving
Complete orders delivered to customers by requested date and time in perfect condition, including all documentation
Measures days required for each of the following:
Order authorization to entry
Entry to release
Release to shippable
Shippable to customer receipt
Receipt to customer acceptance
The time expressed in calendar days to recognize a major shift in market demand, internalize the change, replan, and
increase production by up to 20%

arsenal. Many executives noted that benchmarking en-
deavors are beneficial in two areas. First, because mea-
surement is so important to achieving logistical excel-
lence, benchmarking metrics is vital to establish and
maintain a world-class measurement system. Executives
suggested that it is necessary to find and use the best
measures possible, even when the measures are devel-
oped elsewhere. The perfect order measure discussed
above is an example of a measure that once developed is
being rapidly adopted by logistics organizations around
the world. Second, just as finding, evaluating, and adopt-
ing good metrics is important, aggressive benchmarkers
seek to evaluate all kinds of progressive logistics pro-
cesses regardless of their origin. As high-value-added
processes are documented, firms identify opportunities to
improve their own logistics operations.
Two additional interesting insights regarding bench-
marking practice were identified during the interviews.
For instance, effective benchmarking is highly dependent
on the general competitive attitude of a firm’s managers.
An example involving two competing firms in the same
industry illustrates this point. At one firm, the industry’s
most established and largest competitor, managers noted
that they really did not see any value in comparing them-
selves to anyone. At the other firm, a relative newcomer
to the industry, managers stressed that they constantly
look at other companies—in and outside their industry—
to find better ways to manage key logistics processes.
Whereas the first firm has experienced stagnant sales and
an increasing expenses to sales ratio, the second firm has
enjoyed double digit sales growth and improved profit
margins. Certainly, each firm’s attitude toward bench-
marking is not the sole cause of the different performance
results, but managers at the second firm believe that they
have learned much through benchmarking and as a result
have been able to improve delivery service and logistics
productivity.
A second related insight focused on the relationship
between the firm’s benchmarking efforts and its overall
perception of performance. Managers were asked to eval-
uate their relative performance vis-à-vis leading industry
competitors along 32 different capabilities. These perfor-
mance evaluations were then compared to the firm’s
level of benchmarking aggressiveness. Interestingly, firms
classified as nonbenchmarkers indicated the highest lev-
els of performance for 15 of the 32 capabilities. Firms
classified as limited benchmarkers considered them-
selves to be the highest performers for another 15 of the
32 capabilities. Firms with extensive benchmarking pro-
grams claimed to be the best performers for only two ca-
pabilities. Although this finding might be used as evi-
dence that benchmarking does not improve logistical
performance, the interviews suggest the better explana-
tion is that firms that actively benchmark have a more re-
alistic view of their own capabilities. In other words, for
many firms, “ignorance is bliss” and can potentially lead
to complacency. Overall, the interview findings sug-
gested that carefully managed benchmarking programs
help firms improve both their measurement capability
and their logistical performance.
Performance Scorecards
A final important dimension of world-class measure-
ment involved the use of scorecards to help establish and
manage competitive supply chains. Two types of score-

355
 Leading firms are truly compulsive about
their performance measurement efforts.
cards were identified via the interview process: partner
scorecards and overall supply chain performance score-
cards. Partner scorecards were identified as important by
managers largely because of past problems, and even fail-
ures, among supply chain alliances. That is, executives
related many instances where problematic alliances were
entered into with suppliers, service providers, or even
customers. The fundamental problem underlying these
challenging alliances was the existence of incompatible
systems that were not carefully evaluated before the alli-
ance was entered into. In other words, the firms had
failed to adequately assess the value-added match among
alliance partners. By failing to consider important com-
patibility issues, the alliances were destined for difficul-
ties from the outset.
The use of partner scorecards thus serves as a formal
assessment process to provide insight into the compati-
bility that exists among potential supply chain partners.
Executives noted that partner assessment scorecards play
a key role in evaluating a potential partner’s ability to en-
gage in intense and effective relationships. Scorecards
rate the alignment or strategic and operational fit in key
areas such as information technology, performance mea-
surement, costing systems, and organizational capabili-
ties. The scorecard approach can thus help a firm identify
critical shortcomings that could undermine an alliance as
well as opportunities for investment and improvement.
That is, even when instances of incompatibility are iden-
tified, potential partners might proceed with the alliance
recognizing where changes must be made and invest-
ments will be needed to facilitate success. The scorecard
process also provides baseline information that is used
through the duration of the alliance relationship to im-
prove the rationality and innovativeness of decision-
making.
Overall supply chain scorecards serve a similar pur-
pose in that they formalize the measurement of the actual
performance of the supply chain, creating understanding
that is vital to improving the competitiveness of the en-
tire supply chain. The critical distinction is that overall
356
supply chain scorecards move beyond the dyadic rela-
tionships to measure the performance of the entire supply
chain. Important measurement issues include sales dol-
lars and sales units for the supply chain, market share,
shelf-level-in-stock percent, perfect orders, perfect order
components, and financial performance. Capturing this
type of information can be particularly helpful in manag-
ing supply chain relationships when alternative partners
or configurations are available. Scorecards can thus be
used to assess the performance of supply chains and
identify where and how better integration can be
achieved.
Conclusions
The multimethod longitudinal research approach yielded
valuable insight into performance measurement practice.
The principal conclusion is that leading firms truly are
compulsive about their performance measurement efforts.
These firms believe that performance measurement is the
platform on which competitive position, distinctive value-
added capabilities, and channel integration are built. This
view of performance measurement has led high-perform-
ing firms to invest in comprehensive programs of perfor-
mance measurement that incorporate measures from all
five logistical areas—asset management, cost, productiv-
ity, service, and quality. The comprehensive approach
leads to greater information availability and makes more
accurate, detailed, relevant, and timely information ac-
cessible to managers for strategic planning and daily de-
cision-making. The result is often enhanced functional
excellence.
Of course, the analysis also highlighted opportunities
for improvement. Perhaps the most visible area where
more persistent change is required is in the development
of better customer service and quality measures. Indeed,
whereas high-performing firms now utilize more com-
prehensive measurement systems, a disproportionate em-
phasis continues to be placed on cost control throughout
logistics processes. Given the traditional role of logistics
as a cost center, the existence and availability of cost in-
formation is not surprising. Nevertheless, the rhetoric
surrounding the need for higher levels of quality logistics
customer service needs to be more closely matched by
the development of effective and innovative customer ser-
vice measures. As firms do this, they will be more effec-
tive in using performance measurement to achieve greater
levels of process management and supply-chain integra-
tion that delivers real value to important customers.
In the final analysis, astutely designed measurement
systems serve to align the firm’s logistical strategy with
key customers’ competitive requirements. Such alignment
helps increase profitable customer take away and thereby
enhances customer loyalty. Recent experience suggests
that power has shifted down the supply chain toward the
customer. The emergence of service-hungry customers
that possess increasing leverage means that firms must
use measurement to better define and deliver consumer
take away, which is an issue of satisfactions determined
by the customer’s experiences with the product/service
package delivered by the firm. Measurement must help
the firm understand customers’ real needs so that the firm
can tailor product/service packages to meet those needs.
Ultimately, measurement’s value extends to knowledge
creation as it helps firms calibrate their logistical capabil-
ities and move forward via targeted continual improve-
ment initiatives. From this perspective, performance
measurement capability is competitive power because it
leads to better decisions and better value-added logistical
processes.
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