PLM Study Guide v2.0 PDF

PRINCIPLES OF LOGISTICS MANAGEMENT Topic 05 – Logistics Performance Monitoring where is the weakness to improve ? Lesson Learning Outcomes  Understand the need t...

PRINCIPLES OF LOGISTICS MANAGEMENT Topic 05 – Logistics Performance Monitoring where is the weakness to improve ? Lesson Learning Outcomes  Understand the need to monitor logistics operations, and assess the different approaches to its performance monitoring;  Evaluate logistics performance;  Identify elements of a performance monitoring system. Guiding Questions  How do we monitor the performance of logistics?  How can the logistics performance be evaluated?  What makes for a good performance monitoring system? A Logistics Performance Monitoring Framework The implementation of a logistics performance monitoring system helps to ensure that the logistics function meets the standards and tolerance limits set by the firm and accepted by the customer. It exercises control over the logistics activities to make sure that time, place and quantity utilities, are created in accordance to the customers’ needs (Novack, 1989). The performance monitoring starts with the performance standards, termed as the objectives of the system, or the identification of what the firm’s logistics is planning to achieve. This would then allow the determination of the extent to which the logistics plan can be fulfilled, that is, can the logistics strategies and plans meet the objectives that has been agreed upon by the firm and its customers. Would it then be possible that in monitoring the logistics activities, that it would guide the firm to achieve its business objectives. And does the system can provide a feedback of the status of the logistics operations? A typical framework, emphasizing the cyclical nature of this planning and control process, is shown below: KHE-LCD-SGD-00296 26  PRINCIPLES OF LOGISTICS MANAGEMENT scorecard assess by 4. Have we achieved ! 1. Set 3. correcting objectives data 99 % on-time eg. delivery 2. Planning (Rushton, Croucher, & Baker, 2012) It has been mentioned before that logistics gets the product to the customer, at the right place, at the right time, in the right quantity. It must do so without damage, using whatever facilities it has at its disposal such as transportation, warehousing, packaging, etc. However, each activity must be performed in a coordinated manner, to provide the utilities necessary for quality in customer service (Novack, 1989), which can be achieved through the development of standards and tolerance limits, necessary for the customer satisfaction. The aims of logistics performance monitoring can then be surmised as follows: To enable the achievement of current and future objectives of the firm. To facilitate the effective provision of logistics services to achieve those objectives, i.e., ‘doing the right thing’. To enable efficient operation of logistics resources, i.e., ‘doing the thing right’. To support the planning and control of logistics operations, so that information can be fed back for improvement. To provide measures that focus on the outputs of logistics, so that action can be taken when potential improvement can be identified. In trying to achieve the above‐mentioned aims, each activity in the logistics function must be disaggregated into its basic elements for appropriate measurement and control. The elements most frequently mentioned in the literature for customer satisfaction in logistics are order cycle and accuracy. These elements must be translated to be representative of the organisation’s customer service requirements. KHE-LCD-SGD-00296 27  ~ ~ ~ : are there non-value any adding ~ : improving for the future  PRINCIPLES OF LOGISTICS MANAGEMENT Approaches to Logistics Performance Monitoring A firm’s desire to monitor and control will be influenced by the activity’s cost reduction or profit improvement potential. The measures taken of the activity, however, is dependent on the degree of control that the firm uses to make sure that the activity performs the way it was intended. And the basis for that monitoring and control is information and whether that information is presented promptly and frequently so that the desired action will result. Critical to that information is its level of detail because as this increase, better decisions can be made from it. In that sense, there are four different systematic approaches to performance monitoring, with varying degrees of sophistication and detail. tool to monitor The first of this is the Balanced Scorecard. It is an approach that translates the strategic mission of the business into tangible objectives and measures. It aligns all the operating units in the logistics function and focuses the business’s attention on what is important. In doing so, it helps develop key performance indicators to support the business. The scorecard has four perspectives. The financial perspective measures revenue, cost reduction, productivity, asset utilisation and investment strategies. It generally concerns the shareholders and aims to improve profits and meet financial targets. On the other hand, the goal of the internal perspective is to look within the firm to see how that can be done, by improving and enhancing the firm’s operational competitiveness. It focuses attention on the logistics processes, on its innovative elements, flexibility, and time‐based measures. These internal process perspective measures should help to enhance customer relationships, the impact of which is provided by the customer perspective portion of the balanced scorecard. This latter perspective comprises of measures that focus on customer requirements and satisfaction, such as reliability and responsiveness which should assist in keeping existing customers and attract new ones. This is supplemented by the learning and growth perspective, which should help the logistics function to generate new ideas and respond to customers’ evolving needs and development. The measures can include enhancing information technology and systems, environmental sustainability issues, and so on. All the above‐mentioned perspectives are linked together using performance measures, within each of the four areas. It is meant to strike a balance between external measures for shareholders and customers and internal measures of critical business processes. But the objective of using the balanced scorecard is based on the understanding that suitable performance measures in each of those perspectives can help the firm detect problem areas before they become significant, trace the ↑ problem to its root causes and make improvements to alleviate the problem. planning sourcing making , delivering return , , , The SCOR (Supply Chain Operations Reference) Model, on the other hand, takes a broader approach to logistics. It helps to integrate the logistics function of supply chain members by linking the delivery operations of the seller to the sourcing operations of the buyer. The aim is to benchmark, refine and improve key logistics operational processes. This is done by identifying key measures that monitor cost and performance targets and trace those performance attributes that contribute to the financial measures which are then used to develop appropriate performance metrics. For example, if supply chain responsiveness is a performance attribute, its metric would be order fulfilment lead time. The SCOR model is used as a supply chain management diagnostic, benchmarking and process management tool by many firms in a variety of industries. It helps the firm to focus on serving internal and external customers and instigating improvements along the supply chain. KHE-LCD-SGD-00296 28  PRINCIPLES OF LOGISTICS MANAGEMENT / In contrast, the Integrated Supply Chain approach, identifies the required outcomes that need to be measured, and then subsequently establishing relevant diagnostics measures, for the identification and rectification of problems within the supply chain. order cycle time > which part of cycle can improve - (fulfillment processi It is a total systems approach, and process‐oriented in that it attempts to evaluate cost and performance monitoring, from a supply chain view of logistics. For example, if the outcome to be measured is order fulfilment lead time, the diagnostics measurements would focus on source or make cycle time, supply chain response time, and the production achievement plan. This is a vital element of a good performance monitoring system in that the diagnostics measures are built in which is often neglected in the other performance monitoring systems. The Operational Approach, however, is the most widely used performance monitoring system. It starts off by identifying the organisational objectives followed by a determination of the scope of · logistics activities or elements required to achieve those objectives. The operating methods are then clarified with respect to the different logistics elements. These factors will provide the basis for establishing relevant measures. what is the ? specific activity to improve , For example, productivity and performance goals are set in relation to the operating methods that are being used, but with respect to the overall output requirements for the logistics function. They are generally based on some acceptable standards, and compared with the performance of the logistics task, that is being monitored and measured. These standards should be representative of the task that is being performed and should identify any deviations from the standard norm so that corrective action can be undertaken. However, when operational approaches are applied at the firm’s functional level, the standards or comparative data, can reinforce the idea of functional silos (Wisner, Tan, & Leong, 2019), where logistics can meet its performance standards, but does not optimize firm or supply chain performance. The approach does not reveal the firm’s underlying performance, nor unravel specific issues that may exist in logistics, to suggest solutions for these problems. Performance Measurement Systems (measure against ( Firms need to understand that long‐term competitive advantage is created, when strategies are geared towards meeting and exceeding customer expectations, on a continuous basis. Even though performance monitoring systems assess what is important to customers, they must also be evaluated against internal and external measures, and trends that are likely to affect the firm and its logistics performance over time. These changing trends can be measured in several ways. The most common way to assess trends is through historical data, which allows for the comparison of logistics activities on a period‐by‐period basis. With historical data, the focus is on monitoring trend metrics that capture both direct and indirect contributions of logistics. Two metrics which are commonly looked at over time are, asset and cost management. However, they may prove to be less than useful for ongoing performance, because any lack of background information to the measure, would make it difficult to be sure, whether there is an improvement in terms of performance. standard At other times, budgets are used to internally validate the logistics function. In that sense, logistics is evaluated in relation to the budget plan, and it can assist in identifying logistics functional activities across business‐oriented processes in the firm. The challenges with this form of evaluation are that it does not account for savings made, nor changes in markets, technologies and volumes. KHE-LCD-SGD-00296 29  PRINCIPLES OF LOGISTICS MANAGEMENT with compare actual performance past Engineered Standards try to identify measures for logistics tasks and operations. It can be adjusted for direct measurement of actual performance against expected performance, the latter of which could be industry accepted performance metrics. The key is to focus on capturing the contribution of logistics to the firm because unless it can be determined what is to be evaluated, the question of how to evaluate has little meaning. from the outside compare In contrast, benchmarks can be a source of new ideas and measures. It is a process of evaluating logistics’ methods, processes, service levels against meaningful benchmarks, and make comparisons against other firms. The company’s performance can be compared to similar operations in other firms, making the comparison more realistic and valuable. Guidelines for Performance Monitoring Quality of data To attain the most out of a logistics performance monitoring system, there must be a clear definition of the purpose, and objectives expected of the logistics function. The benefits of a good performance monitoring system are many, and can include drawing attention on priority areas, providing data for taking corrective action, identifying resource needs, and so on. But for the system to be effective, ‘best practices’ for performance monitoring need to be considered. These practices can be broadly categorized as principles, content and output, governing the monitoring system. The principles of performance monitoring should suggest guidelines for the development of logistics, or at least, provide an indication of unsatisfactory performance of its operations. They cover areas such as accuracy, whereby the input of the measurement must be correct, or else it will undermine those measurements, making it less likely for the firm to meet its objectives. The measurements must Hierarchy + (different level also be valid, reflecting the activity in the logistics function, providing specific information to the of datal target person, who would then find it useful, conferring ownership of that information on that person. ↳ right data to right management ↳ responsibility reliability , In addition, the system must be flexible and dynamic enough to consider of changes in business activity, in that whatever happens, the measurements are made available in a timely manner, so that appropriate control or corrective action can be taken. how much ! cost to manage data benefit value cost , I The system itself must be simple and of an optimal cost, for ease of maintenance, but effective in providing meaningful metrics and approaches to evaluation. forecast trend target , , The elements of best practices that come under the category of content, suggest that the monitored logistics elements should be evaluated against certain reference points. Most of these have been discussed in the previous section, but they include trends that consider events that may affect the level of demand for logistics, and may include seasonality, but also buffers against random shocks; budgets that provide a breakdown of the logistics costs in terms of its activities, which can then help to identify and differentiate functions in the logistics operations; targets where the logistics activity is measured against an accepted target, which could be internally derived measures for logistics activities, or similar external operations and standards; and even forecasts in which historic demand can be used to identify trends in demand for logistics, and projected into the future, and used as a reference for logistics level of demand. data , Indices Ratio Show the performanceTrend Comparative , , The ‘best practice’ of output in the performance monitoring system must be in a form which allows for action to be initiated, either for correction or development. These outputs can have characteristics that can be in the form of a trend, of moving averages, that identifies long term changes; comparative data, which allows for analysis over a time period, or against a target; indices, which allows for graph KHE-LCD-SGD-00296 30  PRINCIPLES OF LOGISTICS MANAGEMENT statistical analysis over time; ratios, which make comparison between two sets of data possible; or graphs that show comparative trends over time. In most cases, a logistics performance system can monitor areas such as volume, for example, inbound flow through the distribution center; efficiency or how well the operation is being run; cost, in that does it reflect the work being done; or quality which refers to the service levels being provided. - Input , Output , Productivity The outputs of these measures are called key performance indicators (KPIs), and they provide an indication of the performance of individual elements within the logistics function, as well as their cost effectiveness. In general, they allow for the deduction of broad categories such as inputs into the logistics activities, such as time, labour and cost; their outputs in throughputs, profit and turnover; and perhaps even ratios that include efficiency or productivity. Effective monitoring systems make it possible to validate the performance of logistics. The adage that if you do not measure the performance, you cannot manage it still applies to the function of logistics. But to attain effective results, there must be a clear definition of purpose and objectives expected of the logistics function. Cost & Quality Conclusion Logistics performance monitoring facilitates the planning, provision and control of logistics to meet current and future business objectives of the firm. A framework is provided that can be used to develop the performance monitoring system. Several different approaches to performance monitoring were offered and these include the balanced scorecard, the SCOR model, the integrated supply chain model, and specific operational approaches. However, whatever approaches are taken in monitoring the performance of the firm’s logistics, they must be measured against internal or external standards, and there are best practices that can be applied to ensure that the measurements take to help achieve the objectives expected of the logistics function. References Novack, R. A. (1989). Quality and Control in Logistics. International Journal of Physical Distribution and Material Management, 2‐44. Rushton, A., Croucher, P., & Baker, P. (2012). The Handbook of Logistics & Distribution Management. London: The Chartered Institute of Logistics and Transport. Wisner, W., Tan, K., & Leong, G. K. (2019). Principles of Supply Chain Management 5th Edition. Boston: Cengage. KHE-LCD-SGD-00296 31