Supply Chain Performance Measurement In Business Logistics Business Essay

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The subset of the larger notion of firm or organizational performance is logistics performance. The process of quantifying the efficiency and effectiveness of an action can be described as performance measurement (Neely, 1994). As, there is no consensus over the universal definition for performance in the organizational literature, physical distribution effectiveness is defined as the extent to which logistics functions and programs meet the customers's requirements(Rhea Shrock, 2003).

Probably the first attempt to define logistic performance was made in 1994, when some measures and performance indicators were presented for measuring logistics performance. Later on, much efforts and research could not be seen in the logistics performance literature. Hence, Logistics performance measurement directed its focus towards models and frameworks and managing different aspects of logistics and supply chain (Clarke and Gourdin, 1991; Chow et al. (1994).

Supply chain management encompasses the logistics management which is about planning, implementing , and controlling the efficient, effective in and out flow and storage of goods, services and related information between the point of origin and the point of consumption in order to comply with customers' needs (Anonymous 2002).

Performance measurement in the logistics functions, like starts at the individual metric level. Because of the great abundance of metrics already in existence there is forceful need for a method with which to evaluate the existing metrics.

Quantitative and Qualitative measures are the two basic categories of Logistics indicators. Product and services quality measurement, customer satisfaction level etc are Qualitative measures, while the order-to-delivery lead time measurement , cycle time indicator , flexibility rate , efficient resource utilization, and delivery performance, etc. are Quantitative measures.

Non-financial and financial are two broad categories of Quantitative metrics of supply chain performance. In fact, in the late 1880s return on investment (as a financial measure) was the main emphasis. (Schermerhorn et al.2000). However as the second progressed during 1980s, the world market changed and overseas competitors began to take market share from the domestic and national companies who were unable to provide higher-quality products with lower costs and more diversity. In the present severe competitive world, non-financial measures such as quality assurance, flexibility to change, shortening the lead time etc. have gain strategic focus to capture the competitive edge in the market (Stewart, 1995).

Business logistics performance metrics could also be classified as


Day to day technical representation

developed schedule adherence

avoiding complaints

defect free delivery

Information carrying cost (Steward (1995)


purchasing order efficiency

Cycle time

procedures booking

Cash flow,

Quality assurance


transportation cost



Rate of return on Investment

Total cash flow time

lead time comparison

Quality level and quality assurance

cost saving

supplier pricing measuring against market(Gunasekaran et al. (2004)

query time

The critical elements that form the basis of logistics management are time, distance and money. Some utilization, productivity and effectiveness metrics used in the logistics management are:





Actual input/norm input

Area of warehouse occupied/ total area


Actual output/actual input

Ton-miles delivered/cost incurred

No of orders processed/ no of hours of labor


Actual output/norm output

No of shipment on-time/no of shipment sent

Utilization measures:

They are used to track the use of input resources in process. In logistics, input could be characterized as financial, physical assets or inventory. Utilization metrics include the following:

Spending measures

Purchase price variance

Distribution cost as percentage of sales

Variance of transportation cost from budget

Non financial resources measures

Usage ratios

Amortized costs

Inventory measures

Static metrics (capture level of inventory expressed in physical, financial or other terms)

Flow metrics (capture speed of inventory as it flows through the system over a period of time)

productivity measures

Partial productivity measures (SFP-single factor productivity ratios )

Total factor productivity measurement

Financial productivity measurement (ROI-return on investment )( (Frameworx, 2005)

Effectiveness metrics

Order fill rates( order filled /orders requested

Line item fill rates( total line items not filled / shipped in time per period

Damage rates (line items damaged per order)

Order cycle time (elapsed time between receiving request and delivering order)

Delivery or transit time (elapsed time between readying order for shipment and delivery order)( DfT, 2004)

On-time ( orders shipped on time or orders received by customer on time )

Perfect deliveries (orders received by customers with no logistics service fullness)

Importance of performance Measurement

The importance of measurement is everywhere as you get what you inspect, not what you expect. Hence, the importance of performance measurement cannot be denied. Therefore, to evaluate work done and to direct the activities metrics are required ((Melnyk et al. 2004).


Pressures (globalization, severe competition, and changing customers needs) are significantly driving force in the present era requiring the organizations to re-focus on utilizing of people and resources based on organizational objectives.

A performance measurement system is needed to evaluate the resource utilization so that the organizations can enhance their strategic management and proper controlling system. It has been pointed out that to get profitable and desired results a performance measurement system is essential tool of controlling process. (Schermerhorn and Chappell, 2000)

Measuring performance is necessary, because of the following grounds are :( Parker (2000)

Success identification

Measuring customer requirements fulfillment ;

Creating customer understanding :

Identifying problem areas critically

Making sure that fact based decision are made (not emotional , supposition or assumptions intuition based)

Measuring that improvement as planned actually happened.

Case Example

To fully utilize the performance measurement system of logistics a firm has to implement latest technological infrastructure so efficient logistics operations could work flawlessly.

Here we examine the case of Transcom Inc. that is a known to be the one of the leading edge a Burnsville, Minn based seals and bearings supplier and distributor .It has successfully enhanced its performance measurements in its supply chain operations through implementing and incorporating latest technological measurement tools in its supply chain operations. Transcom was able to find ways to increase the speed of order-to-ship processing and reduce costs through this strategy that is through effectively measuring the performance of the logistics operation with the help of appropriate technology.

when performance measurement data was analyzed it showed greater industry competitive improvement in inventory control, increase in product turns , shipments volumes and decrease in line -item labor cost.

Implementation of technological performance measurement tools increased the not only efficiencies of Logistics such as DC (distribution center efficiency) but also enhanced the productivity of material handling operations, purchasing, inventory control and customer-service departments. (Dennis Bollinger 2006)


A firm's approach in establishing logistics measurements system does not matter a lot as the true and profitable results come when the information is properly used to achieve effectiveness and efficiency in the logistics process performance to value the customers. The role 3PL can have in your success is dependent on when you start measuring your logistics performance (Durtsche 2007).

One of the logistics challenges is the greater organizational responsiveness towards the higher lever of flexibility in delivery. Performance measurements and process are more emphasized than functions and profitability. Now companies and firms are becoming competitive on the basis of product or service quality, productivity, flexibility of operations, speed and innovativeness. Hence, firms are speeding up the progress towards performance excellence through latest technological and integrated performance measurement models and frameworks (Christopher (1994).