Measure for success: logistics measurement is

critical for gaining efficiencies and quantifying

the value of logistics to your organization
[Excerpt from Keeping Score: Measuring the
Value of Logistics in the Supply Chain]
Publication info: Canadian Transportation Logistics ; Don Mills  Vol. 102, Iss. 11,  (Nov/Dec 1999): 42,44.

ProQuest document link

ABSTRACT (ABSTRACT)
Few business areas need to be measured more extensively, more frequently, and more effectively than logistics.
This is in part because logistics has so many "moving parts" -- products, orders, information on orders, and so on --
that flow through numerous points (factories, wholesalers, retailers, and carriers) around the world. This creates
many places where things can go wrong. In addition, logistics represents a significant share of overall costs, and
any major cost centre must be monitored. Most importantly, logistics capabilities have become a key basis of
competition in industry after industry. In fact, in industries such as retail and computers, companies like Wal-Mart
and Dell have set the standard for logistics as the basis of competition. Consequently, the measurement and
control of logistics is critical to your firm.
Research on the logistics measurement programs of more than 350 companies showed that while the majority
were measuring the performance of some logistics activities, few were measuring their performance where it really
counted: with customers and suppliers. Most logistics managers are focusing their measurement internally -- on
the performance of warehousing, transportation, and other logistics activities -- not externally, on those activities
that collectively satisfy their customers. Until now, logistics measurement itself has focused on monitoring the
performance of individual logistics functions, instead of tracking the performance of end-to-end logistics
processes.
7. Use information technology. Gathering, processing, and analyzing thousands, even millions, of bits of
information every day on logistics performance require advanced information systems. Some organizations do not
capture the right information. Other companies capture information differently in each business function or
business unit. Trading partners usually gather logistics information differently, which makes it difficult to compare
logistics information. Fortunately, several major technology developments spell progress for logistics
measurement: supply chain management systems, enterprise resource planning software, and data warehouses.
Information technology rapidly is becoming a powerful tool for logistics measurement.

FULL TEXT
 
The following is an excerpt from Keeping Score: Measuring the Value of Logistics in the Supply Chain, jointly
authored by the University of Tennessee and Computer Sciences Corporation, and published by the Council of
Logistics Management.
Do you know whether your logistics operations are enhancing or eroding shareholder value? Do you have capital
tied up in slow-moving inventory, funds that should be going to growth initiatives? Can you quickly identify and
recover the capital without affecting service? Do you know whether you are providing enough -- or too much --
service to customers, and the impact on your bottom line?
When a major customer says that your service is not meeting its standards, do you have the information to

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respond?
Are you sure that your logistics organization is aligned with and focused on the company's strategic goals?
The ability to answer questions like these depends on how well you "keep score" in logistics -- that is, how well you
measure the performance of your logistics operations. In today's business world, effective logistics measures
increasingly are separating the leaders from the laggards. Certainly, measurement has become critical to the
success of many business operations -- manufacturing, engineering, merchandising, and others. Managers in
many industries quickly have adopted tools like "balanced scorecards" to monitor the health of their activities and
make necessary changes.
However, few business areas need to be measured more extensively, more frequently, and more effectively than
logistics. This is in part because logistics has so many "moving parts" -- products, orders, information on orders,
and so on -- that flow through numerous points (factories, wholesalers, retailers, and carriers) around the world.
This creates many places where things can go wrong. In addition, logistics represents a significant share of overall
costs, and any major cost centre must be monitored. Most importantly, logistics capabilities have become a key
basis of competition in industry after industry. In fact, in industries such as retail and computers, companies like
Wal-Mart and Dell have set the standard for logistics as the basis of competition. Consequently, the measurement
and control of logistics is critical to your firm.
Research on the logistics measurement programs of more than 350 companies showed that while the majority
were measuring the performance of some logistics activities, few were measuring their performance where it really
counted: with customers and suppliers. Most logistics managers are focusing their measurement internally -- on
the performance of warehousing, transportation, and other logistics activities -- not externally, on those activities
that collectively satisfy their customers. Until now, logistics measurement itself has focused on monitoring the
performance of individual logistics functions, instead of tracking the performance of end-to-end logistics
processes.
Why is there such little useful measurement occurring in logistics? There are several reasons. The first is that a
successful measurement program is hard work. It demands the commitment of top managers, who must persuade
employees, customers, and suppliers that the return from measuring performance across the supply chain is worth
the substantial effort. In many companies, effective measurement forces a cultural change, one in which people
learn to evaluate by the numbers and seek improvements across functional boundaries.
Secondly, the measures used to evaluate logistics performance are often out of synch with corporate strategy.
Logistics is often monitored by yesterday's strategy. Meanwhile, senior management may have shifted its
direction and failed to communicate this to managers located far from headquarters in the warehouses and on the
shipping docks.
The third reason ineffective logistics measurement has failed to take hold is that there are often too many
measures being collected. These measures are set independently by functional managers who lack accountability
for an entire business process. A procurement manager, for example, looks for ways to reduce inventories. But a
store manager who reports to a different division head is not concerned with minimizing inventories. He is
rewarded on sales volume, which means minimizing stockouts by maximizing inventory. Contradictory logistics
measures like these are rampant in organizations.
A fourth reason for the lack of useful measurement is that companies are reluctant to provide information on their
performance. Logistics measures appear threatening to workers -- and their companies -- who wonder what their
boss or their customers will do with the data.
Lastly, logistics measurement is beset by problems with language. There can be substantial disagreement over the
definition of basic terms, which can remain dormant until there is a problem. For example, to some manufacturers,
"on-time" shipments means meeting predetermined dates when their goods leave the plant or the warehouse. To
customers, "on-time" means when they take possession of the goods at a specified time and place. This
disagreement on basic definitions can cause major misunderstandings.
These misguided measurement practices must end if companies are going to compete in today's ever-changing

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supply chains. Research has found a strong association between measurement and operational performance.
Companies reporting a major advantage over their competition were more likely to measure their logistics
processes than companies whose logistics performance was trailing the competition.
While good logistics measures are now instrumental to business success, they are not easy to develop or
implement. This book explains the lessons learned from the successful logistics measurement programs from
companies such as Modus Media, 3M, Caliber Logistics, Graybar, Texas Instruments, Tyson Foods, International
Paper, Motorola, Welch's, and H.E. Butt. The critical lessons are many:
1. Make sure logistics measures are in synch with strategy. Different business strategies have different
implications for logistics. Being the low-cost provider means having efficient logistics operations, with a strategy
of providing tailored customer service. Effective logistics measures are ones that help managers execute their
company's strategy.
2. Truly understand customer needs. Do not assume you know what customers expect or that their needs will
remain static. Motorola's pager division once measured its delivery performance according to how often orders
were shipped on the dates had set. On this measure, the business unit enjoyed a very high rate of on-time
shipments. However, many paging and cellular service providers were dissatisfied with Motorola's performance.
The measure did not compare Motorola's delivery performance to the shipping date requested by customers.
Motorola began tracking the delivery according to customers' requested date of receipt. This measure and other
initiatives have helped the company reduce its lead time with PageNet, a large customer, from 120 days to 30
days.
3. Know your costs in providing logistics services. Deciding how much customer service to offer and at what price
requires comprehensive cost measures. With this information, managers can do sophisticated cost-benefit
analyses on different logistics service scenarios.
4. Take a "process" view of logistics. Logistics measures must be defined first at the business process, not
functional, level of an organization. This means grouping all logistics activities into three key processes:
Sourcing/Procurement, Fulfillment, and Planning/Forecasting/Scheduling. Logistics measures must let you
monitor the performance of these processes. The day when companies across the supply chain use the same
measures to monitor their combined performance will be the day when order-of-magnitude improvements in
logistics performance across the supply chain will be truly possible. However, most industries are not at the point
of making this a reality because there is little agreement today in any supply chain about how to measure
performance. Companies can start down the road of supply chain improvement by instituting process measures
with key customers and suppliers.
5. Focus only on key measures. there are hundreds of ways to track logistics performance, about two dozen
measures are important. These are process measures. They track the overall performance of the
sourcing/procurement process and the fulfillment process in terms of time, cost, and quality. Measures of
logistics functions and activities must be derived from these process measures.
6. Stop ineffective measurement activities. Measures are ineffective when they are subjective, when they obscure
bad performance, and when they provide misleading statistics. For example, rating a supplier's on-time
performance on a scale of one to five without data on the percentage of deliveries that arrive as promised is a
subjective measure. Logistics measures must be objective to be useful.
7. Use information technology. Gathering, processing, and analyzing thousands, even millions, of bits of
information every day on logistics performance require advanced information systems. Some organizations do not
capture the right information. Other companies capture information differently in each business function or
business unit. Trading partners usually gather logistics information differently, which makes it difficult to compare
logistics information. Fortunately, several major technology developments spell progress for logistics
measurement: supply chain management systems, enterprise resource planning software, and data warehouses.
Information technology rapidly is becoming a powerful tool for logistics measurement.
Unless logistics managers keep up with the changing world outside, their companies soon will find themselves

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trailing seriously behind. Effective logistics measures are the first key step in staying in the game of supply chain
improvement. Executives who can put the right measurement systems in place will give their companies a major
advantage in a world where logistics truly has become the competitive difference.

DETAILS

Subject: Customer services; Supply chains; Management; Logistics; Suppliers; Inventory;

Supply chain management; Manufacturing; Success; Shipments; Performance
evaluation; Information technology; Competition

Business indexing term: Subject: Customer services Supply chains Management Logistics Suppliers
Inventory Supply chain management; Industry: 42511 : Business to Business
Electronic Markets

Classification: 9172: Canada; 42511: Business to Business Electronic Markets

Publication title: Canadian Transportation Logistics; Don Mills

Volume: 102

Issue: 11

Pages: 42,44

Number of pages: 0

Publication year: 1999

Publication date: Nov/Dec 1999

Publisher: Business Information Group

Place of publication: Don Mills

Country of publication: Canada, Don Mills

Publication subject: Business And Economics--Marketing And Purchasing, Transportation

ISSN: 11874295

Source type: Trade Journal

Language of publication: English

Document type: PERIODICAL

ProQuest document ID: 203013039

Document URL: https://www.proquest.com/trade-journals/measure-success-logistics-measurement-

is-critical/docview/203013039/se-2?accountid=136204

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 Copyright: Copyright Southam Business Communications, Inc. Nov/Dec 1999

Last updated: 2021-09-13

Database: ABI/INFORM Collection

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