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SRISIIM 1 PGDM 2010-12

Sri Sharada Institute of Indian Management-Research

7, Institutional Area,Phase-II,Vasant Kunj, New Delhi 70 Website:

Project on


Submitted to: Prof Sanjeev Sareen

Submitted by: Sandeep Dubey Roll No- 20100144 Shitij Chandhok Roll No-20100151 Rajiv Kumar Roll No- 20100118 PGDM (2010-12)

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SRISIIM 2 PGDM 2010-12

We, Sandeep Dubey, Shitij Chandhok and Rajiv Kumar students of PGDM (2010-12) hereby declare that we have completed this project on performance measurement framework of DHL. The information submitted is true to the best of our knowledge.

Sandeep Dubey Shitij Chandhok Rajiv Kumar (PGDM 2010-12)

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SRISIIM 3 PGDM 2010-12

By doing this project, we feel greatly honoured to be a management student of SRI SIIM. We have got a great theoretical & practical experience of the corporate world. This report is the result of labour spanning over 2days. We have got lots of encouragement and co-operation from our fellow friends, respected teachers, our parents, good wishers. We would like to thank Rev. Swamiji, CMD of SRI SIIM & we would like to thank Prof Sanjeev Sareen for his sincere co-operation. Finally, we would like to thank all my friends, parents, faculties, all group members, who shared their views with each others & helped to be easy with the project.

Sandeep Dubey Shitij Chandhok Rajiv Kumar (PGDM 2010-12)

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SRISIIM 4 PGDM 2010-12

CONTENTS Introduction6

History and background of DHL..6 The world's largest express and logistics Network..7 Integrated Logistics....8 Supply Chain Management.12
International Logistics13

Service logistics.14 Inbound to Manufacturing.15 Extended supply chain management.16 Order Management ..16 Call Centre Management 16 Implementation services.17 Quality Management .17 Performance Management..18 Performance Measures..19 Performance Measurement Systems ....21 Performance Measurement at DHL Solutions22
Transportation.27 Inventory Management and Warehousing............................................................29
Warehouse Infrastructure Networks..29 Warehouse Management Solutions..30 Inventory Optimisation.....31 Special Warehouse Solutions....32 Outsourcing Projects33

Technological Electronics/Telecom solutions..34

Electronics/Telecom...34 Core and Value-added Technology Solutions35 Inbound to Manufacturing..35 Service Parts Logistics...35

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SRISIIM 5 PGDM 2010-12

Technical Distribution.35 Technical Services..35

Conclusion..37 BIBLIOGRAPHY...................38

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SRISIIM 6 PGDM 2010-12

Logistics is concerned with getting the products and services where they are needed when they are desired. It is difficult to accomplish any marketing or manufacturing without logistical support. It involves the integration of information, transportation, inventory, warehousing, material handling, and packaging. The operating responsibility of logistics is the geographical repositioning of raw materials, work in process, and finished inventories where required at the lowest cost possible The formal definition of the word logistics is: - it is the process of planning, implementing and controlling the efficient, effective flow and storage of goods, services and related information from the point of origin to the point of consumption for the purpose of conforming to customer requirements. In order to understand the concepts of logistics in terms of practical usage and to glimpse into the how a real company or organization uses logistics as a formidable tool to gain customer satisfaction, reduce overall cost and increase efficiency we selected DHL the worlds leading courier service company. But DHL is multi faceted and offers myriad types of services. History and background of DHL DHL are the first letters of the last names of the three company founders, Adrian Dalsey, Larry Hillblom and Robert Lynn. In 1969, just months after the world had marveled at Neil Armstrong's first steps on the moon, the three partners took another small step that would have a profound impact on the way the world does business. The founders began to personally ship papers by airplane from San Francisco to Honolulu, beginning customs clearance of the ship's cargo before the actual arrival of the ship and dramatically reducing waiting time in the harbour. Customers stood to save a fortune. With this concept, a new industry was born: international air express, the rapid delivery of documents and shipments by airplane. The DHL Network continued to grow at an incredible pace. The company expanded westward from Hawaii into the Far East and Pacific Rim, then the Middle East, Africa and Europe. By 1988, DHL was already present in 170 countries and had 16,000 employees.

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SRISIIM 7 PGDM 2010-12

At the beginning of 2002, Deutsche Post World Net became the major shareholder in DHL. By the end of 2002, DHL was 100% owned by Deutsche Post World Net.In 2003, Deutsche Post World Net consolidated all of its express and logistics activities into one single brand, DHL The world's largest express and logistics Network DHL is the global market leader in international express, overland transport and air freight. It is also the world's number 1 in ocean freight and contract logistics. DHL offers a full range of customised solutions - from express document shipping to supply chain management. Below are the global facts and figures that show you the scale of the world's largest express and logistics network. Global Facts and Figures Number of Employees: around 285,000 Number of Offices: around 6,500 Number of Hubs, Warehouses & Terminals: more than 450 Number of Gateways: 240 Number of Aircraft*: 420 Number of Vehicles: 76,200 Number of Countries & Territories: more than 220 Shipments per Year: more than 1.5 billion Destinations Covered: 120,000 The reason for the success of DHL is due to its very effective and efficient way of carrying out the process of project management. The basic steps in it are as follows: Project Management DHL manages projects according to a six-step process:

Initiation: The formal start of the project Design: The formal agreement on how to approach the project and its deliverables Planning: Following agreement, a detailed plan is created Execution: After detailed planning and preparation, the project goes 'live' Closing: Gradually phase out and prepare for handover of the deliverables Handover: The formal end of the project

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SRISIIM 8 PGDM 2010-12

INTEGRATED LOGISTICS Logistics is viewed as the competency that links an enterprise with its customers and suppliers. Information from and about customers flows through the enterprise in the form of sales activity, forecasts and orders. As products and materials are procured, a value added inventory flow is initiated that ultimately results in ownership transfer of finished products to customers. Thus the process is viewed in terms of two inter-related efforts, inventory flow and information flow. Inventory Flow


Physical distribution

Manufacturing support


Customers Information Flow

Inventory Flow The management of logistics is concerned with the movement and storage of materials and finished products. From the initial purchase of a material or component, the logistical process adds value. By moving inventory when and where needed. Thus the material gains value at each step. For a large manufacturer, logistical operations may consist of thousands of movements, which ultimately culminate in the delivery of the product to an industrial user, wholesaler, dealer or customer. In order to understand logistics it is useful to divide it into three areas: Physical distribution Manufacturing support Procurement For DHL:

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SRISIIM 9 PGDM 2010-12

DHL is completely service oriented therefore it does not have its own material movement but that of the customers both the sender, the receiver and also the intermediateries. That means it only involves physical distribution and procurement. Procurement also includes the material needed for packaging such as paper, moulded trays and boxes, wooden crates, standard containers wraps, plastic inlays etc. The materials or the goods collected from the senders (including papers, documents, physical goods like clothing, household good, chemicals, exotic animals etc) are weighed, checked for condition, and depending upon its various characteristics it is packed. The goods are then dispatched to their destinations. There is no value addition to the material itself but it is done to the service which is provided ( eg if there has to be a certain package delivered from India to UK the normal services would take about 2 days whereas as a super fast delivery would be done in about 9 hours) Information flow Information flow identifies specific locations within a logistical system that have requirements. Information also integrates the three operating areas. The primary objective of developing and specifying requirements is to plan and execute integrated logistical operations. Logistical information involves two major types of flows: 1. Coordination flows 2. Operation flows 1. Planning and coordination flows Coordination is the backbone of the overall information system. Strategic objectives: Strategic objectives detail the nature and location of customers, which are matched to the required products and services to be performed.


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SRISIIM 10 PGDM 2010-12

It implies estimating the time requires for collecting the goods from the door step of the sender and then estimating the time for the goods to reach the final customer. Forecasting Forecasting utilizes historical data, current activity levels, and planning assumptions to predict future activity levels. Logistical forecasting is generally concerned with relatively short term predictions. The overall purpose of information planning/coordination flow is to integrate specific activities within a firm and to facilitate overall integrated performance. For DHL DHLs whole business is dependent on the vital point of timely delivery. Based on the distance to the final receiver, the accessibility, the documentations and procedures that need to be handled etc they have fine tuned the process of delivery. They can accurately gauge how much time it will take for the goods to reach its end destination. 2. Operational flows The second aspect of information requirements is concerned with directing operations to receive, process, and ship inventory as required supporting customer and purchasing orders. Operational requirements deal with Order management Order processing Distribution operations Inventory management Transportation and shipping Procurement

For DHL: DHL owns its success for the efficiency with which the operations are carried out. Here not only the company but the sender and sometimes the receiver can track the goods through their information center. They are given a certain password which they can use to trace via online or their customer service helpline.


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SRISIIM 11 PGDM 2010-12

DHL WEB SHIPPING is the on-line express shipping tool that helps customers prepare documents, book pick-ups, store contact details and track their deliveries. Ideal for busy office managers, business travelers or receptionists, DHL WEB SHIPPING needs no special software or training. Purpose of DHL Web Shipping: DHL WEB SHIPPING's new, simplified navigation guides customers, quickly and easily, through the entire process. So they can respond to any shipping request within minutes. With a click of a mouse customers can:

Select the right shipping and value-added services for each shipment Prepare air waybills and customs documentation on-line Get the latest service bulletins and customs information Book collections and track shipments on-line Save up to 300 customer addresses Access shipment records for 99 days Alert recipients and other interested parties

DHL WEB SHIPPING is also perfect for telecommuters. You can order a pick-up, check service availability or track your shipments from any location, in real time, direct from your wireless laptop.


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SRISIIM 12 PGDM 2010-12

Supply Chain Management

Definition for supply chain management Supply chain management is the management of upstream and downstream relationships with suppliers and customers to deliver superior customer value at less cost to the supply chain as a whole. Explanation: The supply chain is the network of organizations that are involved through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services in the hands of ultimate consumer. For DHL: Supply Chain Optimisation Good design is at the heart of an effective supply chain solution. DHL has developed a reputation for consistently developing innovative solutions that streamline operations and improve control. Their in-house teams have contributed to the solutions design of some of the world's leading brands and enabled to win key contacts. DHL solutions design team offers a wide portfolio of expertise and services, from logistics network strategy, transport design, warehouse design and simulation, through to operational improvement and inventory analysis. International Supply Chain Extended Supply Chain Services Implementation Services Outsourcing Projects


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SRISIIM 13 PGDM 2010-12

International Supply Chain DHLs international supply chain management solutions are focused on helping customers take increased control of international inbound supply chain to maximise the value of international and global sourcing. DHL helps customers :

Give visibility of the upstream supply chain, and enable earlier decision making Create a more agile supply chain, better able to respond to changes in consumer demand Reduce lead times, inventories, and associated storage costs

Customer-focused solutions are built up from the following core services:

Origin management, including: vendor management; supplier collections; customs brokerage; consolidation services and value-added services Global forwarding, including: air/ocean/road/rail freight forwarding and management; European managed transport Destination management, including: port and demurrage management; customs brokerage; de-consolidation and pre-retail services; port to distribution centre transportation; direct store delivery (US only) Supply chain visibility and management, including: purchase order management; RFID product tracking; exception management; planning and forecasting; inventory management. Global forwarding services are provided across all major routes.

Logistical services that are offered. Reverse Logistics Service Logistics Inbound to Manufacturing Medical Device Distribution Distribution to Stores Management Engineering Response


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SRISIIM 14 PGDM 2010-12

Reverse Logistics DHLs reverse logistics solutions help customers plan, implement and control flow of materials and manage related information, back up the supply chain to recapture values and ensure the safe disposal of goods. Items include the recovery of obsolete or nonoperational white goods such as refrigerators, plus the removal of old furniture on delivery of new or replacement products. Services include:

Roll in Management: de-installation of finished goods at the customer's site Returns Management: receiving, sorting, verifying and managing returned products Express Delivery: Exchange of Dead On Arrival products

Service logistics Service and replacement parts DHLs service and replacement parts service involves the management of manufacturers' replacement parts delivered to and from customers according to pre-defined service levels or warranty agreements on a one-, two-, four- or eight-hour and next-day basis, 24 hours a day, seven days a week. DHL works closely with customers to overcome common issues such as:

Poor parts availability High inventory investment Long lead times, accentuated by global sourcing High levels of customer returns Poor visibility, reporting and control Cost control of the demand chain

Key services include:

International freight forwarding Domestic and regional inbound deliveries Inventory planning, forecasting, procurement and analysis Distribution centre operations Outbound delivery

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SRISIIM 15 PGDM 2010-12

The entire process is underpinned by a web-enabled electronic order processing and order monitoring tool. Inbound to Manufacturing Inbound to manufacturing is the complete end-to-end logistics management of inventories, facilities and labour associated with the inbound flow of materials from vendors and supplier origins to consumption points in manufacturers production lines. The service encompasses:

Network, transportation and facility design Inventory optimisation Supplier management Transportation management In-plant services

Key to the service is integrating manufacturers' forecasting, order management and supply chain execution processes with their component suppliers. DHL implements warehouse management and supply chain event management systems to manage just-in-time deliveries and allow supply chain participants to exchange forecast requirements in real time. Value is created for manufacturers and component suppliers throughout the world by:

Enabling a robust and cost-effective supply chain Providing the necessary visibility so that the location of all components within the supply chain is known to all supply chain participants Reduce inventory and investment costs Improve delivery times Co-ordinate multiple components more efficiently


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SRISIIM 16 PGDM 2010-12

Medical Device Distribution DHL country-based warehouses for a number of manufacturers to service a local customer base. This includes the receipt of product from local or global manufacturing sites and downstream distribution to hospitals. Distribution to stores management DHL distribution to store services are focused on helping retailers create efficient and flexible supply chains to deliver product to retail outlets at high levels of service. These solutions are built from several core services: reverse logistics collections; sortation; processing; repair/refurbishment; value recovery; disposal and compliance. Engineering Response Through our Engineering Response services, we manage the materials supply chain from works planning and inbound goods through to on-site works, delivering stock out to engineers, builders and construction workers in the field.

Extended Supply Chain Services

DHL not only provides physical logistics services but also manages other enhanced supply chain services, improving efficiencies and reducing costs. Order Management Receipt, management, execution, sequencing and dispatch of orders in a timely manner. Call Centre Management A Call Centre manages orders, monitors sales activities, provides customer services and functions as a Help-desk. Global Inventory Management DHL gives the customer a global view of inventory, thus enabling informed decisions regarding the disposition of stock.


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SRISIIM 17 PGDM 2010-12

Consolidated Billing Services The creation of a consolidated and categorized invoice, based on all services performed in a specific time-period by more than one service provider, made available in an agreed format. Freight & Customs Solutions DHL's many years of experience with international trade requirements and formalities, combined with the European Competence Centre and country expertise, gives customers the leading edge in service, quality and management in cross border transactions.

Implementation Services
Implementation and Project Management Implementation starts by defining project aims, setting the targets and describing the deliverables in detail. The major topics in implementation include business processes, engineering, real estate, IT systems, migration, HR, finance and legal considerations. Quality Management Total Quality Management is a management strategy that integrates quality orientation into the whole structure and workflow of a company by using methods and techniques of quality management Corporate Policy for Quality, Environment, Health and Safety (QEHS) is based on five corporate values:

Customer satisfaction: Providing our customers and their customers with excellent, high value logistics solutions Employee motivation: Building on the know-how and stimulation of individual potential in multi-cultural teams Operational excellence: Continuous improvement of processes and services to fulfil or exceed expectations


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SRISIIM 18 PGDM 2010-12

Corporate citizenship: Acting as a responsible corporate citizen in all countries Shareholder reward: Developing a sustainable business to provide increasing shareholder value

Globally, DHL management systems are certified according to the international standard for quality management systems ISO 9000 in almost every operating unit.

Performance Management :
Performance management is a key part of the supply chain. Measured elements are reviewed as a system, as each component interacts with all the other parts around it. Performance measuring not only records historical performance but also provides early indication of any service slippage. In this second role, the measures provide a valuable contribution to DHL's Continuous Improvement Programmed In a sense, all organizations measure performance. They may do it systematically and thoroughly, or on an ad hoc-basis and superficially, but they do it. The bottom line is that organizations have to track and monitor events to be able to know what they are doing. Or as Lord Kelvin (1824-1907) once put it: performance that are important to the core competencies or critical to the competitiveness of an organization. The use of KPIs stems from the concept of critical success factors (CSFs), which were developed in the late 70s. CSFs can be defined as: Those few critical areas where things must go right for the business to flourish.1 In other words, KPIs are the set of performance measures that a manager need to track to be able to know how the organization under his or her responsibility is functioning. When you can measure what you are speaking about, and express it in numbers, you will know something about it. Organizations measure performance for many different reasons. Some of the reasons may be to: Identify success Identify if they are meeting customer requirements Help them understand their processes: to confirm what they know or reveal what they do not know Identify where problems, bottlenecks or waste exist and where improvements are necessary Ensure decisions are based on fact, not on supposition, emotion, faith or intuition

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SRISIIM 19 PGDM 2010-12

Show if improvements planned, actually happened According to Neely et al. (1995) the level of performance a business attains is a function of the efficiency and effectiveness of the actions it undertakes. In this statement, efficiency is a question of doing the things right, whereas effectiveness is a question of doing the right things.12 With this in mind we can make the following definitions: 13 Performance measurement: The process of quantifying the efficiency and effectiveness of actions. A performance measure: A metric used to quantify the efficiency and/or effectiveness of an action. A performance measurement system: The set of metrics used to quantify both the efficiency and effectiveness of actions. One specific type of performance measures is the so called key performance indicator (KPI). A KPI is, as the name reveals, a performance measure that is a key to success for the organization. The KPIs are aggregated measures of performance that are important to the core competencies or critical to the competitiveness of an organization. The use of KPIs stems from the concept of critical success factors (CSFs), which were developed in the late 70s. CSFs can be defined as: Those few critical areas where things must go right for the business to flourish.1 In other words, KPIs are the set of performance measures that a manager need to track to be able to know how the organization under his or her responsibility is functioning. The academic literature on performance measurement is diverse, and different authors emphasize different perspectives of the topic. Although, one common recommendation among authors is that performance measures and performance measurement systems should be derived from corporate and business strategy. That is, there should be a closed management loop with the deployment of strategic objectives and the feedback through measures.8, 14, 15, 16, 17 and 18 Judson (1996) also promotes this idea by stating that performance measures and reporting systems established to track organizational performance are not strategically neutral. By this he means that every measure of performance, once instituted, focuses the attention of every manager and employee concerned on the issue that is being measured. Hence, what is being measured and tracked is signaled as important; to be given a higher priority than other matters. This is in fact one of the purposes of performance measures. Conflicts arise when there is little relationship between the aspects of organizational performance that are being measured, and the aspects that are critical to the successful execution of the strategy. Performance Measures The concept of performance measurement has historically been focused on financial measures, such as sales turnover, profit and return on investment.

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SRISIIM 20 PGDM 2010-12

However, traditional financial measures do not match entirely with the competencies and skills companies require to face todays business environment.19 In fact, there has been a lot of criticism on the role of financial measures during the past two decades. This is primarily due to the fact that they reflect the results of management actions and organizational performance, not the cause of it.8 In other words, financial measures have a backward-looking focus. Furthermore, traditional measures have a tendency to focus on individuals or functions, rather than on the processes that are at the core or the organization as a whole. Additionally, traditional performance measures encourage a short-term vision due to their lack of strategic focus. Another dangerous shortcoming of financial measures is that they have a strong emphasis on control. This makes individuals more concerned with conforming to standards than with continuously improving. As a consequence, they encourage local optimization.19 In order to meet this criticism on financial measures, a new way of looking at performance measurement was developed. Important works by R. S. Kaplan, among others, in the late 80s and the early 90s seriously changed the knowledge and practice of accounting and performance management.20 The emphasis now is to complement the financial measures with measures built around other perspectives as well. Or as Sinclair and Zairi (2000) puts it: Performance should no longer be measured by financial measures alone. A wider, more balanced range of measures is required. [] Measures should be used as a part of the management process to improve performance, rather than standards to be met. Managers must also have in mind that developed measures are not cast in stone and that areas which need to be measured will change over time, as strategies change. There are a wide range of recommendations on how to develop and use performance measures and KPIs. Neely et al. (1997) presents a summary of these recommendations in their ambitious review of the literature on the subject. Neely et al. used this knowledge to develop a framework for the design of performance measures. Table 3.2 shows this framework, the performance measure record sheet, which seeks to specify what a good performance measure constitutes. The framework ensures that a developed measure follow the recommendations presented above if the measure is clearly specified on each element of the record sheet. An explanation of the ten elements in the record sheet and their relationship to the recommendations summarized in Table 3.1 are presented in appendix 4. Table 3.1 Recommendations with regard to the design of performance measures Recommendations 1. Performance measures should be derived from strategy

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SRISIIM 21 PGDM 2010-12

2. Performance measures should be simple to understand 3. Performance measures should provide timely and accurate feedback 4. Performance measures should be based on quantities that can be influenced, or controlled, by the user alone or in cooperation with others 5. Performance measures should relate to specific goals (targets) 6. Performance measures should be relevant 7. Performance measures should be part of a closed management loop 8. Performance measures should be clearly defined 9. Performance measures should focus on improvement 10. Performance measures should have an explicit purpose 11. Performance measures should be based on an explicitly defined formula and source of data 12. Performance measures should employ ratios rather than absolute numbers 13. Performance measures should use data which are automatically collected as part of a process whenever possible 14. Performance measures should be based on trends rather than snapshots 15. Performance measures should be precise - be exact about what is being measured 16. Performance measures should be objective - not based on opinion (Source: Neely et al., 1997) Table 3.2 The performance measure record sheet Elements Title Purpose Relates Target Formula Frequency Who measures? Source of Data Who acts on the data? What they do? Notes and comment Performance Measurement Systems The need to integrate the performance measures obtained in a system is twofold. First, as Sinclair and Zairi (2000) points out, it is imperative to convey information through as few and as simple a set of measures as possible. These measures must be analyzed as an entity in order to avoid redundancies and to find a balanced set of measures. Second, measures need to be part of a comprehensive system which integrates the goals of everyone in the organization, in a way that enables them to work together for the benefit of the


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SRISIIM 22 PGDM 2010-12

organization as a whole. In response to the dissatisfaction of traditional performance measures, a number of frameworks and models were developed in the early 90s to support companies in their process of measuring performance. Among the most widely cited are the balanced scorecard and the performance pyramid.8 These performance measurement models are explained briefly below. The Balanced Scorecard Kaplan and Norton made a significant contribution in overcoming some of the limitations of traditional performance measurement systems by linking them to strategy. They developed a balanced scorecard, which was first presented in 1992. It is a comprehensive performance summary that complements financial measures with operational measures, which are the drivers of future financial performance. The word balanced calls attention to the fact that the system must combine financial and non-financial measures.19 The set of measures can be grouped into four main perspectives (i.e. dimensions of performance), which respectively enable managers to answer four important questions about their organization. These are: 15 How do we look to our shareholders (the financial perspective)? What must we excel at (the internal business perspective)? How do our customers see us (the customer perspective)? How can we continue to improve and create value (the innovation and learning perspective)?

Performance Measurement at DHL Solutions

Traditionally, the culture of performance tracking at DHL Solutions has primarily been governed by control of the financial dimension. This dimension has a rather long history in the organizations accounting culture. Still, headquarters follow-up their operating units on financial performance tightly and they monitor the units overall conformance to budgets on a monthly basis.24 and 25 DHL Solutions in Sweden has not formulated and distributed any support tools or guidelines for how and when performance measures are to be developed.24 Consequently, measures are established on an ad hoc-basis and no manager in the organization have full insight into the entity of measures used at a particular time. The only overall policies for measurement are those indirectly formulated as a result of corporate projects, such as the MORE-project (an international project that addresses multiple improvement initiatives).26 Although, such projects are often instituted for a particular reason and therefore, there is a risk that their conclusions are based on a parochial view of the organization. All too often operating unit managers experience that directives for performance measurement resulting from

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SRISIIM 23 PGDM 2010-12

such projects lacks clear purposes and are irrelevant for and incongruent with their day-to-day operations.27 Although frequently used in the organization, the term KPI has no unified definition throughout the company. Moreover, there are no documents or lists stating which measures that are KPIs and which are not. However, on a request to define it the operating unit managers explained that: A KPI is a key ratio with which the performance of the business can be explained on some dimension. A portfolio with a number of KPIs monitored simultaneously should be able to describe if the company or unit is healthy and well managed. KPIs are the most important control parameters in the company. Managers should try to identify a handful of KPIs among a wide spectrum of measures, and give them the attention they deserve. A suitable KPI portfolio should consist of about three or four distinctive measures which explain the business in a holistic way. KPIs are measures which contain information that makes it possible to manage a business properly. The most important characteristics of a KPI are that it should be measurable, easy to understand and reflect one of the core processes of the business. A KPI is a measure with which one can review the performance of the operations in a relevant way. The reasons why managers want to measure the performance of the parts they are responsible for are somewhat different between the respondents. Table 6.1 presents the reasons for measurement stated by heads of divisions and units.


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SRISIIM 24 PGDM 2010-12

Table 6.1 The reasons why managers at DHL Solutions measure performance


Reason for measurement

Identify success Identify if they are meeting clients requirements Help them understand their processes Identify where problems, bottlenecks or waste exist Ensure decisions are based on fact Show if improvements planned, actually happened

Customer Industrial Unit A Unit B


Unit C

Unit D

Performance Measures at DHL Solutions When looking at the portfolio of measures used at DHL Solutions in Sweden and investigating each measure on why it was instituted and by whom, there are basically four groups of performance measures in the organization


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SRISIIM 25 PGDM 2010-12

Managers at central levels

Managers at Swedish head quater

2 4
Manager at Operating Unit

C l i e n T

Internal Process


The first group of measures (1) includes those developed by higher organizational levels than the Swedish headquarters. Examples of such are the measures that each unit is compelled to report to managers at the global headquarters in Basel. These measures are reported into the shared company.
server on a monthly basis and the methods of measurement are clearly defined. However, managers in Sweden lack purposes for the measures and they are rarely forced to explain poor performance on them

Manageable employee turnover (that is, total leaving staff less non manageable leaving staff such as retirements) Absenteeism (sickness hours in percentage of total hours) Rent per square meter Sellable capacity (that is, total space in the warehouse) Complaints (claims per outgoing order) On time deliveries (measured on orders) Inventory accuracy (damaged, stolen or incorrectly picked items in percentage of the total number of handled items) Customer net change (gained or lost clients)

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SRISIIM 26 PGDM 2010-12

The second group of measures (2) contains those demanded by managers at headquarters in Sweden. These are primarily total operating unit measures on financial performance incorporated in the accounting system. Primary measures monitored are:
The third group (3) consists of the measures developed at the units to support the management of their own operations. Heads of units develop templates for measurement on their own and they are responsible for the relevance of each measure developed. Examples of measures monitored at the four operating units examined in this project are:

Profit ROS at OR1 SWOT/Net Sales (HA & VAS) On time delivery (percent of total orders that was delivered befor due date) Claims per order line Failures found in control per order line Order lines without failure in picking (percent of complete and correct order lines in outbound control) Scrap articles in percentage of total handled articles (smashed bottles at the unit C) Pallets without faults (inbound and outbound) Occasional labor flexibility analyses based on the business system (SAP) Absenteeism (total sickness hours in percentage of total paid hours) Number of accidents in work Productivity (explained in more detail below) The fourth group of measures (4) includes those instituted at operating units to meet their clients requirements on operational information. Examples of such measures are some of the measures calculated at unit D and reported to their client. For example Inbound pipe (the number of order lines that were not stored in the warehouse on time) Outbound pipe (the number of order lines that were created as pick orders in Prologs, but were not picked on time) Warehouse denials (the number of times that the system have said that there should be articles at a storage position, but there were not) Customer fill (number of delivered order lines in percentage of total ordered order lines)


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SRISIIM 27 PGDM 2010-12


Transport Functionality Transportation is one of the most visible elements of logistics operations. Transportation provides 2 major functions: product movement & product storage. Product Movement Whether the product is in the form of materials, components, assemblies, work-in-process, or finished goods, transportation is necessary to move it to the next stage of the manufacturing process or physically closer to the ultimate consumer. A primary transportation function of product movement is moving up and down the value chain. Since transportation utilizes temporal, financial, and environmental resources, it is important that items be moved only when it truly enhances the product value. Transportation involves the use of temporal resources because product is inaccessible during the transportation process. Such product, commonly referred to as in-transit inventory, is becoming a significant consideration as a variety of supply chain strategies such as just in time and quick response practices reduce manufacturing and distribution center inventories. Transportation uses financial resources because internal expenditures are necessary for private fleets or external expenditures are required for commercial or public transportation. Transportation uses environment resources both directly and indirectly. In direct terms, it is one of the largest consumers of energy (fuel and oil) in the domestic United States economy. In fact, it accounts for close to 67% of all domestic oil use. Indirectly, transportation creates environmental expense through congestion, air pollution and noise pollution. The major objective is to move product from an origin location to a prescribed destination while minimizing temporal, financial and environmental resource costs. Loss and damage expenses must also be minimized. At the same time the movement must take place in

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SRISIIM 28 PGDM 2010-12

such a manner that meets customer demands regarding delivery performance and shipment information availability. Principles There are two fundamental principles guiding transportation management and operations. They are economy of scale and economy of distance. Economy of scale refers to the characteristic that transportation cost per unit of weight decreases when the size of the shipment increases. E.g. truckload shipments cost less per pound than less-than-truckload shipments. It is also generally true that larger capacity transportation vehicles such as rail or water are less expensive per unit of weight than smaller capacity vehicles like motor or air. Transportation economies of scale exist because fixed expenses associated with moving a load can be spread over the loads weight. The fixed expenses include administrative costs of taking the order; time to position the vehicle for loading or unloading, invoicing and equipment cost. These costs are fixed because they do not vary with shipment volume. E.g. suppose the cost to administer a shipment is $ 10.00. Then the 1-pound shipment has a per unit of weight cost of $10.00, while the 1,000 pound shipment has a per unit of weight cost of $0.01. Thus, it can be said that an economy of scale exists for the 1000-pound shipment. Economy of distance refers to the characteristic that transportation cost per unit of distance decreases as distance increases. e.g. a shipment of 800 miles will cost less than two shipments (of the same combined weight) of 400 miles. Transportation economy of distance is also referred to a se tapering principle since rates or charges taper with distance. The rationale of distance economies is similar to that for economies of scale. Longer distances allow the fixed expenses to be spread over more miles, resulting in lower overall per mile charge. These principles are important considerations when evaluating alternative transportation strategies or operating practices. The objective is to maximize the size of the load and the distance that is shipped while still meeting customer service expectations. Transport Infrastructure FOR DHL: DHL uses all the modes of transportations that is airways

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SRISIIM 29 PGDM 2010-12

roadways waterways rail freight DHL has its own fleet of airplanes and motor vans. Depending upon the final destination where the goods have to finally reach and the type of package the customer has paid for, DHL uses the individual modes of transport or a combination of either of these or all. Once again the geographical location and how fast the goods have to be delivered are the factors for the final selection of modes of transportation . The concept of economies of scale and economies of distance are both taken into consideration in case of larger consignments where DHL provides an appropriate logistical solution which helps in reducing the overall cost for the customers.

Inventory Management and Warehousing.

Warehouse Infrastructure Networks Warehouse Management Solutions Inventory Optimisation Special Warehouse Solutions Outsourcing Projects Warehouse Infrastructure Networks DHL warehouse service supports inbound logistics, distribution and aftermarket services in a way that improves inventory management, reduces total operating costs and improves cycle times. DHL facilities offer our customers warehousing that is fully integrated into the wider supply chain and meets demanding service levels. This encompasses the design implementation and operation for both dedicated and multi user sites. Benefits include improvements in:

Customer service levels Stock accuracy Lead times Redundant stock costs Productivity responsiveness to a company's strategic needs

Multi User Centres


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SRISIIM 30 PGDM 2010-12

We provide a network of multi-user warehouses, enabling manufacturers to hold inventory at local level, whilst avoiding expensive, dedicated storage solutions. These facilities can receive products from both local and global manufacturing sites, providing downstream distribution. Strategic Part Centres (SPC) Our Strategic Part Centers (SPCs) are in-country facilities offering:

1, 2 and 4 hour order fulfillment stock optimisation across the complete network of SPCs guaranteed performance against agreed business rules

Express Logistics Centres (ELC) Our Express Logistics Centres (ELCs) are regional centralised facilities offering:

order processing outsourced repair facilities custom final assembly kitting services

Warehouse Management Solutions

Warehouse Management Systems The Warehouse Management System (WMS) records all events and actions in the receipt, handling and storage of products and orders in a warehouse environment. The WMS also accurately records the location of inventory whilst stored in the warehouse. Our Prologs WMS manages all critical processes in the warehouse, and is also an important support for varied transport and distribution concepts (planning, time controlling, booking of transport capacity, communication with customs and other authorities). Strategic Inventory Management

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SRISIIM 31 PGDM 2010-12

Strategic Inventory Management (SIM) has been created to deliver urgent shipments to main business areas within a 2 to 4 hour time frame, usually time critical spare parts with a high value and high impact on business. Direct Express Inventory Management Direct Express Inventory (DEI) allows customers to centralise stock in one warehouse and use express distribution to deliver components the next day. Entire management is done by DHL. Repair Return Inventory Management Return & Repair Inventory (RRI) manages the physical flows for Return material authorisation. In this case, DHL will be responsible for picking up the broken part, sending a new one, bringing the broken part to a repair centre and moving repaired parts back into stock. Cross Docking Cross-dock operations are facilities where shipments are received from one mode of transport and transferred to another mode, or where shipments complete one leg of a journey prior to commencement of another journey. Shipments are consolidated or deconsolidated. Product received into the facility is not taken into inventory.

Inventory Optimisation
Through effective inventory management, inefficiencies can be driven out of the supply chain, overall costs reduced and high service levels achieved. We optimize inventory at a line-item level at every stage of the supply chain. DHL focuses on driving results in:

Supplier management Expediting Order replenishment Demand forecasting Safety stock setting Order pipeline monitoring Excess stock management

Inventory optimisation is supported by inventory management software that calculates 'line item risk profiles' that measure the variability of demand and supply for each line item within a customers inventory.

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SRISIIM 32 PGDM 2010-12

DHL offers:

Average of 20% inventory reduction and 8% improvement in product availability Reduced inventory and overhead costs Improved sales, profitability and return on investment High service standards Better matching of supply with demand More streamlined and responsive supply chain

Shared-user Warehousing Our shared-user facilities are designed to meet the needs of organisations of any size. Currently, we provide shared-user services to leading manufacturers and retailers of medical supplies, consumer products, industrial equipment, chemicals and technology. Through sharing of DHL's resources, such as space, labour, equipment and transportation, customers benefit from synergies that considerably reduce supply chain costs. This environment returns significant value to a small business requiring distribution operations without long term lease or capital commitments, or a large enterprise handling a new acquisition, product launches or seasonal overflow. Campus Solutions We pioneered the campus model to provide regional customers with a flexible solution designed to capitalise on similar distribution channels, minimise labour costs, and increase specialized equipment utilization.

Campuses are strategically located at key distribution points in North and South America, Europe and select locations in Asia, allowing for expedited transit times to large concentrations of consumers. Special Warehouse Solutions Vendor Hubs Warehousing and delivery of service parts, based on demand pull. Vendor hubs are usually located in close proximity to the manufacturing facility.


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SRISIIM 33 PGDM 2010-12

Reverse Centres Specially designated facilities for the receipt and handling of returned parts for repair, recycling or disposal.

Bonded Warehousing Bonded warehouses provide secure environments in which customers' products can be held without immediate payment of local duties and taxes. Shared-user Warehousing Our shared-user facilities are designed to meet the needs of organisations of any size. Currently, we provide shared-user services to leading manufacturers and retailers of medical supplies, consumer products, industrial equipment, chemicals and technology. Through sharing of DHL's resources, such as space, labour, equipment and transportation, customers benefit from synergies that considerably reduce supply chain costs. Consequently, the customer can increase efficiencies throughout their distribution network and maintain a higher level of service to their customers.

Outsourcing Projects Outsourcing involves DHL taking over and managing previous in-house logistics operations, including:

Distribution centres Transport operations Back-office functions Supply chain management functions After sales services


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SRISIIM 34 PGDM 2010-12

Technological Electronics/Telecom solutions

Electronics/Telecom Core and Value-added Technology Solutions Inbound to Manufacturing Service Parts Logistics Technical Distribution Technical Services Electronics/Telecom Technology Manufacturers have some of the most complicated supply chain requirements of any industry because of the nature of the products: complex, high value and rapid obsolescence. Our logistics solutions help technology companies reduce inventory and cycle time, while providing control and visibility through to final delivery. This is achieved by focusing on product availability and optimisation of product flows and supply chain costs. For optimum flexibility and speed, you can outsource your entire logistics operation, including distribution centers, transport, back-office, supply chain management and after sales, to DHL. Electronics/Telecom DHL provides the know-how to optimize flows and drive down supply chain costs. You reduce stock but not quality, and maintain flexibility to meet market needs. Services include:

Modular networks consisting of warehouses and hubs, downstream links enabling merge-in-transit, and delivery capabilities for any size, speed and dimension Inbound logistics (VMI or JIT) Electronics Distribution Network (EDN) Reverse logistics After sales logistics - spare parts Lead Logistics Provider (SCM) - integrated supply chain services from DHL, whether end-to-end solutions or management of partial supply chain solutions Complete outsourcing, including transfer of staff, infrastructure financing, business optimisation and supply chain integration


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SRISIIM 35 PGDM 2010-12

Core and Value-added Technology Solutions Responding to customer needs, we provide a range of core and value-added services that reduce cycle times and improve performance. These include:

inbound logistics to production facilities, including vendor managed inventory hubs kitting, assembly and light manufacturing operations order fulfillment and finished goods distribution integrated freight management and contract logistics services product delivery and installation, including reverse logistics aftermarket and critical service parts logistics

Inbound to Manufacturing Our Inbound to Manufacturing service enables our customers to more effectively manage the inbound flow of materials from collection points at their component suppliers' facilities to consumption points in their production lines. We help address the constant challenge for both finished goods manufacturers and component and sub-assembly suppliers who must adapt to shorter product lifecycles and the migration of production facilities to developing countries. Service Parts Logistics Our Service Parts Logistics service involves the management of technology manufacturers' replacement parts delivered to and from customers according to pre-defined service levels or warranty agreements on a one-, two-, four- or eight-hour and next-day basis, 24 hours a day, seven days a week. Technical Distribution Supporting companies in a wide range of industries including computer equipment and peripherals, medical equipment, vending equipment, office equipment and telecommunications, our technical distribution service meets the challenges associated with the effective and safe movement of high-value goods. Technical Services Technology manufacturers expect every link in the supply chain to have capabilities to add value to their product or process. Our tailor-made solutions can be integrated into existing customer operations at our warehouses. The strength is the integrated approach with other segments of the business which improves time-to-market and reduces the cost for the


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SRISIIM 36 PGDM 2010-12


QA Control Quality control ensures that product is received into and dispatched from the warehouse in a suitable condition, free from faults and defects. Labelling/Merchandising The application of labels either to the product or to the packaging. Merchandising can include the addition of price stickers or promotional items ready for retail display. External Performance Measurement While internal measures are important for detailed organizational monitoring, external performance measures are also necessary to monitor, understand and maintain a focused customer perspective and to gain innovative insights from other industries. The topics of customer perception measurement and best practice benchmarking, which address these requirements, are discussed and illustrated below.

Customer Perception Measurement To succeed in any activities of business one has to always cater to and satisfy the needs of the customer. To do so, it is essential for one to know how the customer thinks in order to meet his needs in a more satisfying manner. Therefore, an important component of leading edge logistical performance is the regular measurement of customer perceptions. Such measures can be obtained through surveys or by systematic order follow up. These surveys can be company - or industry sponsored. Such surveys ask questions regarding the firms and the competitors performance in general or for a specific order in particular. Most of the surveys incorporates measurement of customer perceptions regarding availability, performance-cycle time, information availability, problem resolution and product support. The survey may be developed and administered by the firm itself or by consultants, delivery agents or industry organizations.


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SRISIIM 37 PGDM 2010-12

Logistics is one the most important and integral part of any organisations strategy and function. When the logistical process is carried out accurately then not only the company reduces the production cost but also improves the efficiency and customer satisfaction. Overall logistics management is very important for todays highly competitive and cut- throat corporate world. DHL has the worlds largest express and logistics Network. Over the past decades it had turned delivering goods into a finely oiled process. Be it a book, pen, WIP material, drugs, hazardous chemicals, clothes, documents, wild animals and any other thing under the sun DHL delivers it . With a network spanning 200 countries and with its private fleet of airplanes, mobile vans, cargo ship carriers & even rail way automotives in some countries DHL can handle any type of goods. Not only that with international network there comes the hassle of documentation and paperwork, standard packaging and other formalities to adhere to. But DHL has its own department which looks into the international laws and other formalities. In the end what maters is delivering good in good condition at the door step of the customer. A happy and satisfied customer makes the business grow. Competitors have come and gone but DHL has been able to keep its No 1 position intact. This is because of its dynamic nature and attitude of maintaining good customer relations. Logistics management is important for every organisation but more so DHL. We have tried to incorporate all the facets of logistics which propel DHL to be the best delievery and carriage-service around the world. No wonder that DHL is head and shoulders above all of its competitors!


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SRISIIM 38 PGDM 2010-12



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