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The main goal of business logistics is to plan, manage,and execute an efficient and cost effective movement of goods, materials and associated flows across the entire supply chain system, at agrees level of customer satisfaction.
By reviewing the literature on logistics performance, list the main logistics performance matrices (or indicators) and discuss the importance of performance measurement and management in business logistics. Support your answer by any one or several case examples from the industry.
Supply chain management is defined as " an integrated philosophy to manage the total flow of the distribution channel from the supplier to the ultimate user" (fllram, lisa m and martla, 1990). Logistics is an important component of supply chain. Logistics is a French word which mean the art of transport, quartering of troops and supply. Its basic characterstics are reliability, cost, speed and performance. Logistics deals with the planning and management of material flows and information within the organization. Its mission is to get the right material to the right place at the right time.
Business logistics is a coordination of projected requirement, procurement, physical movement and storage of components, parts, raw materials and semi finished goods to achieve the optimum demand service level at minimal cost. It includes both inbound and outbound movement in a larger concept then distribution management which doesnot includes activities such as forecasting. Logistics is the important function in business today no marketing, manufacturing or project can be succeed without the logistics support. "The globalization and the free trading has raised the competition now it's the requirement that customer get the right material at the right time at the right place in the right condition at the lower cost".(www.projectmonnitor.com)
The word "indicator" is rooted in the Latin verb indicare, which means to indicate, make known,or point out. Most common definitions of "indicator" describe it as a person, thing, or device that measures, records, or declares something. Indicators can be thought of as pieces of information that provide evidence on matters of broader concern.In the literature view we can find a lot about the performance matrices. In the following there is a brief literature view about the logistics indicators. Logistics metrices are the indicators which measures the performance of various logistics functions(internal or external). It basically focus on time, quality, availability, cost, profit and reliability. It also includes the criticial success factors of all levels of the business. Logistics matrices are later on divided into two parts internal and external. Internal one measures the performance of the systems or the internal componants of the logistics systems(production plants, warehouse, transportation equipment). The external one tells us the expectation of the organization by the external activities(customers, stocm market, government and third party agencies).Performance measures and metrics are essential for effective managing logistics part curly in a competitive environment. "Three purposes of metrics can be identified as (Melnyk et al., 2004): control, communication and
Improvement". According to Melnyk et al. (2004) "literature has until now mainly focused on the use of metrics, but less on generating metrics and putting them into execution. They mention several reasons for an increased interest in performance measurement: (1) ever changing and ever increasing demands of customers, (2) the moving focus from internal operations to a chain of collaborating companies (3)decreasing product life cycles, (4) increased amount of data (not necessarily data quality) and (5) growing number of options a company can choose from. Logistics service providers offer services in a wide variety of areas" (Sink et al. 1996)
"The increasing focus on core competencies opened up many business opportunities for Logistics Service Providers (LSPs)" (Christopher, 1998). "LSPs, often also referred to as Third Party Logistics Service Providers (3PLs), carry out the logistic activities for one or more companies within the supply chain; functioning as an intermediary" (Lai et al., 2004). "The functions of 3PLs or LSPs can be divided in: warehousing, transportation, customer service, and inventory and logistics management" (Sink et al.,
1996). " Planning and control is crucial for the operations
of an LSP: both for the day-to-day operations as well as the more long-term strategic objectives. A good insight in performance information and therewith steering mechanisms for planning is important. Historically, companies concentrated on financial
indicators. Nowadays it is widely recognized that non-financial and even non-numerical indicators can give valuable information as well" (Brewer et al, 2000, Ittner et al., 2003). "Such indicators though are more difficult to measure and compare. cost efficiency
may be one of the important measures for an LSP, still this might not be what the shippers and consignees desire . they would instead prefer high quality and low price" (Lai et al., 2004).
After a brief literature review we come to the conclusion that there are many logistics matrices which are used in logistics. Some of the main indicators are 1.ware housing 2.timeliness 3.inventory turnover 4.transportation 5.internal logistics cost 6.maintenance 7.goods safety 8.number of deliveries 9.number of customers 10.supply demand planning.
Performance indicators can serve many purposes. management literature suggests a wide variety of uses for performance indicators by organizations. Among the most common uses are:
â€¢ Support strategic and other long-term planning efforts
â€¢ Improve program effectiveness
â€¢ Identify performance problems and needed corrections
â€¢ Provide data for in-depth program evaluations
â€¢ Communicate with public and enhance accountability
â€¢ Help make operational and resource allocation requests
â€¢ Formulate and justify budget requests
â€¢ Motivate personnel to make program improvements
Performance management is considered as a process for constituting common
understanding about what is desired to be achieved and how it can be achieved. Measuring, analysis and enhancement of logistics performances are the basis of continual improvement of quality of logistics services. There are four key areas for measuring performances in logistics and they are the following:
measuring the level of customer satisfaction, measuring the level of satisfaction of all actors and other interested subjects, measuring characteristics of logistics services and measuring performances of logistics processes. The literature has examined a variety of measures to measure general or specific performance of logistics service providers regarding transport activities (Van Donselaar et al. 1998), "timeliness and accuracy" (Bromley, 2001; Johnson, 2001), "delivery performance" (Stewart, 1995), "personnel scheduling and safety measures" (Crum and Morrow, 2002; Mejza et al., 2003). Mentzer and Konrad (1991) define performance measures in five sub-areas of logistics: "transportation, warehousing, inventory control, order processing and logistics administration. Logistics service providers can also be distinguished based on characteristics of customer relationships" (Knemeyer et al., 2003), "customer satisfaction and loyalty" (Stank et al., 2003). "Findings of Lai et al. (2004) suggest that perceptions of shippers and consignees differ."
Performance measurement is very important inorder to stay on the right track. Performance measurement tells you that in which field you are going right and in which one you have to emphasize more. While doing the performance measurement we do analysis of all the departments. For example cost benefit analysis is used to set the standards for the physical distribution. Warehouse management measurement areas are labour, cost, time utilization and administrarion. Inventory control performance measures are those of puechasing overall inventory management it covers forecasting accuracy, inventory carrying cost, timeliness, availability and quality of order fulfillment. These are organized under the factor of labour cost, equipment and time. Order processesing includes order entry, order editing, scheduling, shipping and the billing.
So inorder to measure the performance of logistics many companies use different techniques and measures. Such as the modular database. A modular database is an assential measurement tool for a sophisticated logistics organization. It is a computer database system which allows information to be assessed in a format that is useful to the logistics managers.