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Abstract: The foremost goal of business is to plan, manage and execute an efficient and cost effective moment of products, materials and associated flows across the entire supply chain system, at approved levels of consumer satisfaction. In today's culture most of the customers take admirable logistics service provided from different companies for granted and have a tendency to notice logistics only when there is an issue. For Example- Non availability of products and services which they require very badly, when a customer visits a wholesale store they expect goods to be in good condition, for ex- fresh fruits, meat, vegetables and the like and they don't find the required material there. Without any logistical support, it is really difficult to visualize accomplishing any production and advertising actively, proficiently and effectively. Logistics is an extensive function, having a great impact on the standard of living in today's modern society.
In the assignment we will review the literature on logistics performance, the main logistics performance metrics (or indicators) and discuss the importance of performance measurement and management in business logistics.
1. Introduction: In simple words, if a company makes an item from parts which have been bought from suppliers, and these items are sold to consumers, then we have a supply chain. Supply chains are sometime simple, while others times they are quite intricate and difficult. The intricacy of the supply chain will show a discrepancy with the not only the dimension of the business and the complexity and numbers of products that are manufactured.
1.1 Essentials of Supply chain:
An easy and rather uncomplicated supply chain is made up of several fundamentals that are connected by the progress of goods alongside it. The customer is the considered to be the start as well as the end of a supply chain.
Customer/Consumer: The chain of events begins first by the customer; this is the time when they make a decision to purchase a product that has been presented / kept for sale by a business. The consumer first contacts the sales division of the company, which records the order for a definite amount to be delivered on a particular date. If the item for consumption has to be manufactured, the order will include a requirement that needs to be satisfied by the manufacture facility.
Planning: This step involves the obligation that has been initiated by the consumer's sales order to be combined with other orders. The planning division will generate a production map to manufacture the goods to accomplish the consumer's orders and requirement. To produce these goods the company will then have to acquire the raw materials desired. (Martin Murray)
Purchase: To complete the customer's orders, the purchasing division receives a list of raw materials and services required by the production division. The purchasing division sends orders to preferred suppliers to deliver the required raw materials to their manufacturing location on the specific date.
Inventory: In this part, once the raw materials have been received from the suppliers, the quality and accuracy of the material is verified and later they are moved into the warehouse. Once this is completed the supplier sends an account to the company for the items they delivered. The raw materials are stored in the warehouse until they are required by the production division.
Production/Manufacture: Based on a manufacture plan, the raw materials are taken from the stock to the creation area. The item that has been ordered by a consumer is made from these raw materials. Prior to delivery of the order to the consumer, these items are tested once they are completed, after this they are stored back in the warehouse.
Transportation/Shipping: Once the completed item comes in the warehouse, now it depends on the transportation department to find out the most resourceful method to ship the products so that they are delivered on or before the date given by the customer. The company sends a proof of purchase and bill for the delivered products after it has been received by the consumer. (Martin Murray)
1.2 Supply Chain Management:
The companies have adopted Supply Chain Management processes and its related technology to make sure that the supply chain is operating as resourceful as possible by generating the highest level of consumer satisfaction at the lowest cost. Different parts of the company need to focus on three levels of activities as per Supply chain management: strategic; tactical; and operational.
Strategic: At this level, company's management will be looking to high level strategic decisions concerning the whole organization (the size and location of manufacturing sites, partnerships with suppliers, products to be manufactured and sales markets).
Tactical: Tactical decisions focuses on adopting measures that will not only produce cost benefits such as using industry best practices but also developing a purchasing strategy with privileged suppliers and working with logistics companies to develop cost effect transportation and developing warehouse strategies to reduce the cost of storing inventory.
Operational: Based on the daily performance of the businesses, companies take decision that affect how the products progress down the supply chain. These Operational decisions involves making schedule changes to manufacture, purchasing agreements with suppliers, taking customer's required order and moving goods in the warehouse. (Martin Murray)
In simple terms, logistics means having the précised thing, at the appropriate place and at the appropriate time. But in Business terms, Logistics can be defined as a business planning framework. It is the management of substance, service, information and capital flows. It includes the progressively more complex information, communication and control systems which is mainly required in today's business environment. (Helsinki, 1996)
Consumer/customer satisfaction mainly depends on time delivery of products/goods. Logistics is all about absolute usage of convey and stockroom facilities. Logistics is also about saving funds. Logistics is about making sure that all elements of supply chain are resourcefully utilized.
2.1 Key Performance Indicators of Logistics
To evaluate logistics and the associated department of any business apart from revenue we need to understand other factors that influence the work in this part of industry. These factors are called Key Performance Indicators (KPIs). Logistic uses Supply Chain Balanced Scorecard which consists of 4 fundamentals:
Balanced Scorecard method evaluates key indictors which are parts of the above mentioned 4 elements.
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2.1. a KPIs of logistics
To evaluate performance of logistic department we needs to asses the following KPIs:
Customer order cycle time: Represents the time difference when the customer's order was created to the actual delivery time.
Line count fill rate: This is amount of products that has been delivered versus the number of products which have been ordered by the customer.
Inventory carry rate: This represents the costs for storage of the goods, handling or damage of the goods, administrative costs, and costs pertaining to loss of consignment.
On time shipment: This represents the ratio of orders delivered on time to all the orders delivered. In this way This will shows how prompt the logistic department is working and if they can live up to delivery terms of the consumers or not.
Perfect Order Measurement: This is to make sure orders reach the customer with minimal errors.
Freight cost per unit: This program divides all costs related to shipment of a product by total number of products manufactured.
Transit time: It can be defined as the instant a product leaves the facility of a logistic division to the time it reaches to customer's location for delivery.
Losses: These are cost pertaining to the damage or loss of products.
Load capacity: The higher the proportion of the load capacity, the more proficiently Logistics Company operates.
Truck turn around time: the total time spend by a truck at stockroom before its departure
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2.2 Example case:
In this case study we take example of Knoll Incorporated, a global leader in designing and manufacturing office furnishings. They wanted to merge the outbound shipments of several North American manufacturing plants into one network. This merging not only allowed there customers to receive their entire orders simultaneously and reduce overall shipping expenses. The solution to this issue was the development of consolidation warehouses and a unique load plan layout, which not only resulted in a 10-percent reduction in shipping and warehousing costs but also a 45-percent increase in their overall customer satisfaction rating.
3. Logistic Performance
An order undergoes different stages in its completion phase. Thus, depending on how many orders have gone through all phases without any errors, we will have a clear understanding of how logistic department operates. When a problem occurs a corrective measure is implemented, in simple terms there should be a reason for an error. Analyzing these errors after grouping can help to determine the most frequent causes of problems. Isn't it the best way to evaluate performance of a logistics company?
Performance measurement is critical to the success of almost any organization because it creates understanding, molds behavior, and leads to competitive results. World-class firms recognize the central role measurement plays in their success and are therefore compulsive about their performance measurement efforts. The bottom line is that world-class performance requires superior process measurement both within the firm and across organizational boundaries (Cooper, M. Bixby, Fawcett, and Stanley E)
3.1 Importance of performance measurement
In logistics and supply chain management, Performance measurement has always been an issue of continued interest. Most of the logistics performance measurement research till date has focused mainly upon: 1) introduction of characteristics that measures should acquire; 2) perspectives that measures should believe; or 3) specific measures that firms should choose. (Griffis, Stanley E, Cooper, Martha, Goldsby, Thomas J, Closs, David J)
A goal, which mainly establishes the nature of firm operations, is one of the way by which firms or organisations differentiate themselves in the marketplace. In logistics, a measure that addresses the firm's new focus upon the ability to accommodate customer-specific requirements in a timely manner should take priority. We can say that the logistics measurement systems should be as unique as the firms that make use of them. Measures must not only be consistent with the definite requirements of the firm and also be capable of communicating to everyone within the business as to what level of performance is desired. (Griffis, Stanley E, Cooper, Martha, Goldsby, Thomas J, Closs, David J)
Logistic companies and departments, especially those who handle large volume or amount of orders should utilize business metrics as it is highly recommended.
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