Ing Andrea Campagna

Ing.

Logistics Performance Metrics

2009

1
 Q
Questions
What are logistics metrics?
Why to measure?
How can metrics be classified?
Which metrics are commonly used?
How to develop metrics?
How to measure?

2
 Logistics
g metrics
Measure the performance of various logistics
functions (internal and external)
Focus on time, quality, availability, cost,
profit and reliabilityy
p
May be financial (cost and revenue) or
non financial (service and productivity)
non-financial
Include the critical success factors for all
levels of the business

3
Whyy to measure logistics
g p
performance?
To reduce operating costs
Measuring operating costs helps identify whether and
where to make operational changes to control expenses
and
d identifies
d f areas ffor improved
d asset management
To drive revenue growth
To attract and retain valuable customers, the price/value
of products offered can be enhanced through cost
reductions and service improvements in logistics activities
To enhance shareholder value
The returns on shareholder investments and the market
value of the firm are impacted by the performance of firm
logistics

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The context of logistics
g metrics

ACTIONS MEASURES

DECISIONS

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 Classification of logistics
g metrics
Logistics Metrics

Internal External

Internal metrics measure External metrics reflect the

the performance of the
system or the internal
components off the
h llogistics
system (production plant,
warehouses transportation
warehouses,
equipment)
expectations of the
organization by external
entities (customers,
stockmarkets, government,
third-party agencies)

6
 Example
p of metrics
Internal metrics
loaded travel time
truck utilization =
total travel time

number of orders delivered in full

complete shipments =
total orders in a period

External metrics
No shipments within 4h of promised delivery time
service reliability =
total No shipments

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Internal metrics drive the external
For example
example, the % of on-time deliveries of
shipments by a carrier is an external metric.
However it is driven by internal metrics:
on time departure
p of deliveryy trucks,,
reliability of trucks,
% of time on road,
road
etc.
External metrics are tipically financially and
service oriented
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 Strategic
g and operational
p level
Metrics are strategic and operational
depending on the focus and level of detail
Strategic metrics focus on overall system-level
performance
Operational metrics focus on unit-level or
machine-level performance
Example
% of travel time with full load can be measured
regarding the entire fleet (Strategic) or the single
vehicle (Operational)
In
I both
b th cases metrics
t i can b
be th
the same
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Analysis
y of commonlyy used metrics

Logistics Metrics

Internal External

System-level Function-level Customers Government Investors

Financial
Non-Financial

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 Internal/System-level
y metrics
Example of metrics at system
system-level
level. They can
be divided into

Financial
Inventory turnover ratio

Non-financial
Non financial
% of demand met

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Financial: inventoryy turnover ratio
Useful to evaluate the speed of movement of
goods through a company. It determines the
n mber of times in
number inventory
entor is tturned
rned o
over
er
during the year.

cost of goods sold

inventory turnover ratio =
average inventory investment

Higher ratio is better!

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 Non-financial: % of demand met
It is an indicator of the operational
capabilities of a company
orders fulfilled
% of demand met =
total demand

Reasons for low % can be poor forecasting,

p y, low inventoryy levels,,
insufficient capacity,
poor quality and unreliable production and
distribution system
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 Internal/Function-level metrics
Example of metrics related to the main
logistics functions in the supply chain

Transportation
Warehousing
Production
Maintenance
Vendor selection
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Transportation:
p transit time variabilityy

Non-financial
Non financial metric that captures the
variation in transit time (TTV)
Indicates the reliability of the transportation
function
Maximum TT - Minimum TT
TTV =
Average TT

Less variability in transit time helps customers

plan the work more efficiently
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 Warehousing:
g operating
p g cost p
per unit

Financial measure of the cost

cost-effectiveness
effectiveness of
operating a warehouse; depends on warehouse
si e and throughput
size thro ghp t
Fixed cost ((increases with size))
Building, equipment, fixed payroll
Variable cost (increases with loads processed)
Contract manpower, variable utilities, fuel
Overhead cost
Heating,
Heating lighting,
lighting insurance,
insurance taxes
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 Production: defectives
Defectives not fixable have to be scrapped,
scrapped
bringing down the production rate
The unit cost of production increases
cost of repair
p + cost of labor + cost of material
The related metric is:

number of units that cannot be repaired

% rejects =
total number of units produced

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Maintenance: mean time to repair
p
The average active maintenance time tr
to perform corrective maintenance
It depends on the type and frequency of
failures
t r
=
ft
j j

t j

fj frequency of failure type j

t j average time to repair failure type j
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 Vendor selection: % of g
good parts
p
Measure of the reliability of the supply in
terms of the quality of the delivered parts

total supply
pp y - defectives
% off good t =
g d parts
total supply quantity

If not 100% it leads to shortage of parts and

additional costs (reverse logistics)

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 External/Customers
Customer service has 3 dimensions
Quality (Number of good parts sold, % of
shipments
hi t ddelivered
li d on ti
time,))
Time (Leadtime)
Cost (unit cost of providing a service)
Metrics
Service reliability
Customer
C complaints
l i

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 External/Government
Governments tend to measure industry
performance based on
Number of new jobs created
Revenues from taxes
N
New iinfrastructures
f t t d
development
l t
Impact on other industries
They also evaluate negative aspects such as
Pollution
Congestion
Crimes
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 External/Investors
View in monetary terms of the company
performances
Metrics
retained earnings
earnings per share =
number of shares

total debts
financial leverage =
total assets

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 How to design
g the metrics?
1 Define the system that has to be measured
1.
and its components
2. Determine the functional requirements or
p
expectations of the system
y
3. Identify metrics that can quantitatively
measure the functional requirements

Make sure to understand the relationship

between metrics!
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 Issues in logistics
g metrics
Simple and easy to understand in terms of
measuring, calculating and interpreting
Measurement units
Data availability
Reporting on measures (charts or graph, trend
y )
analysis)
Quality of measures (perceived accuracy,
actionability and internal comparability and
actionability,
compatibility )
Understanding the drivers of the performance
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 How to measure the metrics?
Manually
Data collection by means of paper forms
Time measurement of logistics processes
y
Financial documents analysis
Automated
Information System (ERP
(ERP, DB analysis)
Communication Technology (Tracking&Tracing)
Dedicated software (Cockpit of Key Performance
Indicators, KPI)
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