Ing.

Ing Andrea Campagna

Logistics Performance Metrics

2009

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?

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

To reduce operating costs
Measuring operating costs helps identify whether and where to make operational changes to control expenses and identifies areas f improved asset management d d f for d

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 metrics g

ACTIONS

MEASURES

DECISIONS

Classification of logistics metrics g

Logistics Metrics Internal Internal metrics measure the performance of the system or the internal components of the l f h logistics system (production plant, warehouses, warehouses transportation equipment) External External metrics reflect the expectations of the organization by external entities (customers, stockmarkets, government, third-party agencies)

Example of metrics p
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 the % of on-time deliveries of example, shipments by a carrier is an external metric. However it is driven by internal metrics:
on time departure of delivery trucks, p y , reliability of trucks, % of time on road road, etc.

External metrics are tipically financially and service oriented

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Strategic and operational level g p

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)

I both cases metrics can b th same In b th ti be the

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Analysis of commonly used metrics y y

Logistics Metrics

Internal

External

System-level Function-level

Customers

Government

Investors

Financial

Non-Financial
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Internal/System-level metrics y
Example of metrics at system-level They can system level. be divided into Financial
Inventory turnover ratio

Non-financial Non financial

% of demand met
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Financial: inventory turnover ratio y

Useful to evaluate the speed of movement of goods through a company. It determines the number n mber of times in entor is t rned o er inventory turned over 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, y , insufficient capacity, low inventory levels, 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: transit time variability p y

Non-financial metric that captures the Non financial 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: operating cost p unit g p g per

Financial measure of the cost-effectiveness of cost effectiveness operating a warehouse; depends on warehouse size si e and thro ghp t throughput Fixed cost (increases with size) ( )
Building, equipment, fixed payroll

Variable cost (increases with loads processed)

Contract manpower, variable utilities, fuel

Overhead cost
Heating lighting insurance taxes Heating, lighting, insurance,
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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 + cost of labor + cost of material p

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

f t = t
j

j j

fj frequency of failure type j t j average time to repair failure type j

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Vendor selection: % of good parts g p

Measure of the reliability of the supply in terms of the quality of the delivered parts
total supply - defectives pp y % of g d parts = f good t 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 d li hi t delivered on ti d time,) ) Time (Leadtime) Cost (unit cost of providing a service)

Metrics
Service reliability C Customer 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 New i f t t N infrastructures 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 the metrics? g

1. 1 Define the system that has to be measured and its components 2. Determine the functional requirements or p y expectations of the system 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 metrics g

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, actionability and internal comparability and 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 DB analysis) (ERP, Communication Technology (Tracking&Tracing) Dedicated software (Cockpit of Key Performance Indicators, KPI)
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