Logistics Management

What is better: to have an excellent strategy and show poor implementation, or to have satisfactory strategy and do everything possible to fully implement it?  Well, experience shows that in course of time strategy can be amended and change.  Companies are operating in volatile markets with frequently occurring changes.  That’s why, strategy should be adjusted according to new market conditions.  But if company top management and personnel refuses to change, it will do very little to implement strategic goals.  In fact, they will think that they are performing actions aimed at implementation of strategic goals but those actions will have nothing to do with the strategy.

Tasks of BSC team

That’s why it is extremely important to form competent working groups and teens that will be in charge of development and preparing for balanced scorecard implementation.  Balanced scorecard is not a get rich overnight scheme.  Unfortunately, some companies view balanced scorecard as a magic tool.  BSC will not solve any problems it will only help company find the right way to implement strategic goals.  BSC does not substitute strategy.  BSC team members have to understand this.

The 4 BSC perspectives

One of the most common mistakes is that balanced scorecard team consists of top managers only or the entire BSC project is completed by one top manager.  It is interesting that this top manager has the most complete and profound knowledge of the company strategy.  His balanced scorecard will have all necessary key performance indicators and clear cause and effect ties.  But the problem is that balanced scorecard will be used by just one person – top manager who has developed BSC.  Other top managers and ordinary personnel will be only presented with a strategy map and that’s it.

In order to make balanced scorecard work it should become a part of everyday routine for every employee.  Moreover, balanced scorecard should be understood by personnel.  Everyone in the company should be aware of his/her contribution to implementation of strategic goals.

That’s why, BSC team should consist of representatives of company business units and departments since they know much about business processes on the operational level.  Top managers must understand that they have to change managerial style in order to initiate changes in the company.  It is better to have the right approach is to strategy implementation one and then amend strategy if necessary then to implement the best strategy using old fashioned of managerial styles and approaches.

Balanced scorecard has received a huge portion of criticism from top managers, business owners and generally all those who tried to use balanced scorecard and failed.  However, there are companies who think they use balanced scorecard but in fact this revolutionary strategic management tool plays a role of just another accounting or managerial control system.  Well, it is possible to use balanced scorecard in such a way, but balanced scorecard will be VERY expensive tool.  Besides, it has been observed that ordinary personnel does not like any control tools.  Thus, misuse of balanced scorecard will ‘cause opposition and resistance of personnel.

How to create an effective working group?

Sometimes company simply develop strategy maps, lead a seminar and present strategic maps to business owners and company personnel, and it all ends at this stage.  Besides, it often happens that strategy maps are developed by some external advisors and company top managers which are sometimes unaware of problems on lower company levels.  Attraction of external advisors is a good thing but these people do not know the history of the company, its organization structure, current problems and concerns, future challenges etc.  That’s why, it is imperative to attract own professionals to development and promotion of balanced scorecard in the company.

Do not forget to get ordinary personnel involved to discussion of BSC project

For example, when developing strategy maps for a logistics company is not just enough to have a few managers who will draw something that looks like a strategy map.  A real strategy map should include cause and effect ties between goals and measures.  For example, if customers timely receive their products they are more likely to use company services once again.  Or if logistics managers use new IT tools the shipment time decreases of which improves customer satisfaction and this results in the fact that one time customers may become regular ones.

Strategy maps for logistics company were department must be developed both by business expert and professionals in the field of logistics.  It is through an extensive discussion that company top management and ordinary personnel may reach consensus.  Of moreover, the dissipation of ordinary logistics managers in discussion of balanced scorecard and strategy maps will intensify their faith in the power of this system which is very important, as when personnel does not believe in balance scorecard strategy maps will now work in the company.

Even before getting started the company should share responsibilities.  In other words, everyone should know his duties and responsibilities as well as to understand how his job influences company progress on the way to implement strategic goals.

Much has been said and written about conditions and requirements for successful implementation of balanced scorecard.  It’s not a secret that this system will not work unless such conditions are observed.  It often happens that companies claim they are using balanced scorecard but in fact they use BSC as a kind of accounting system or a system of managerial control.  But BSC can become the most expensive system of management control the company has ever had.  First and foremost, balanced scorecard is a strategic management tool that ideally becomes company business philosophy.  Balanced scorecard is not just a managerial tool or an accounting system.  Balanced scorecard should start discussion inside the company.  As a rule, such discussions lead to adoption of the wisest decisions.

Develop a clear and comprehensive reward system

But how to get company personnel involved in discussion of strategy maps and implementation of balanced scorecard?  Of course, employees should be well motivated.  Work with balanced scorecard will require time and effort.  If employees do not understand why they need such a system they will work with balanced scorecard because they have to but not because they are interested in success.

Financial motivation proved to be one of the most effective systems of reward.  But it is very important to reward employees for real success, but not for achievement of certain indicators values.  For example, in logistics evaluation there is such an indicator as timely delivered units.  If logistics managers receive bonuses for each timely delivered unit they are likely to forget of about such an indicator as cost per unit.  In other words, logistics managers are not interested in saving companies money.  As a result, logistics company or logistics department may suffer enormous losses, although customers will be satisfied as they will receive their products or cargoes on time.

What makes a motivated employee?

The right choice of indicators and results for which employees will be rewarded is one of the preconditions for successful implementation and maintenance of balanced scorecard.  But rewards can be also nonfinancial and nonmaterial.  It is not only about money.  For example, employees may receive such rewards for personal achievements and great contribution to implementation of company goals as additional vacation or time off, attendance of business seminar, meeting with business experts.  It often happens that nonmaterial rewards are greatly by employees, as compared to financial bonuses.

If logistics managers are properly motivated and receive bonuses not only for high performance according to current scorecard but also for contribution to implementation of strategic goals, such logistics company is very likely to achieve success.

Download SWOT Analysis Guide

SWOT analysis is widely used in all business spheres.  This is a very effective method of defining company’s strengths, weaknesses, opportunities and threats.  In other words, the company finds its weak and strong points, as well as opportunities for future development.  Moreover, SWOT analysis is now widely used in combination with other strategic management tools, including Balanced Scorecard which has gained tremendous popularity over the last two decades.

AKS-LABS offers business owners, mid level and top managers, as well as all those who are interested in SWOT analysis, to download SWOT analysis guy which is available in free and paid packages.  Both versions of the guide include much valuable information on SWOT analysis, frequently asked questions on this issue, problems and pitfalls of using this strategic management tool in practice.

The guide will also describe implementation stages of SWOT analysis and define the most important terms and notions related to this issue.  The package includes PowerPoint slides and the SWOT guide in pdf extension, so there will be no problem viewing package contents at your computer.

The material describes  most important factors and signs related to strengths, weaknesses, opportunities and threats.

Free version of SWOT analysis guide is available here.  Get the paid version from this page.

The recent economic crisis has vividly demonstrated that human resources is the most valuable capital any company has.  Innovation and creative ideas make it possible for any business to overcome the crisis.  But innovative ideas are not generated by computers or investments.  It is people who make decisions, assume responsibility and take risks.  Without efficient personnel the company is doomed to fail no matter how much money, production facilities and real estate it has.  It is possible to drive the best company down.  Incompetent personnel may kill any creative idea.  Of course, humans make mistakes, but still no computer all machine can substitute a human being.

Losgistics BSC implementation cycle

That’s why it is important to evaluate performance of human resource department that manages personnel.  It should be noted that human resource management has become extremely popular in the recent decade.  Human resource capital refers to intangible assets which are sometimes very difficult to evaluate.  That’s why use of balanced scorecard is recommended to all big companies that have human resource departments or similar business units.

When we’re talking about logistics, not everything depends on trucks, ships, airplanes and trains.  The art of logistics is to make sure that cargos are timely delivered and at the same time the company spends minimal amount of money for shipment.  Some logistics companies have turned bankrupts because they were so much focused on timely delivery, which is, however, an excellent key performance indicator to evaluate logistics.  But shipment cost per unit is another important indicator which should balance shipment time.

What is effective logistics?

But let’s get back to evaluation of human resource performance and logistics companies.  As known, high staff turnover rate is an alarm to any company.  Newly hired employees have to be educated and trained.  Besides, the company spends certain amount of money to recruit them.  That’s why, if a person failed to stay with the company for a minimum period of a year, the company usually suffers losses, since such an employee brings less profits as compared to the amount of money the company has spent for his education.

Logistics managers are not like ordinary office clerk.  Indeed, it is rather difficult to find an efficient logistics manager who will make an effective use of all available means of transportation to get maximum profits for the company.  That’s why new hire retention rate, every surviving time, employee satisfaction and some other indicators refer to human resource management evaluation play a very important role in logistics measurement.

There has been much debate on how are nonfinancial indicators and their evaluation can benefit the company and help it achieve financial goals.  Let’s be frank – every commercial organization aims at making as much money as possible.  Very often, strategic goals concern financial results – increase of net income, increase of cash flow, increase of market share, increase of company capital etc.  Naturally, business owners and investors want return on their investment.  But how nonfinancial indicators help in implementation of financial goals?

Transportation benchmarks

You should know that balanced scorecard system was the first include nonfinancial indicators to the total set of KPIs.  It became understood that intangible assets are very valuable for any company.  Besides, nonfinancial indicators represent future events.  They are also called leading indicators which means that after fulfillment of certain goals the company may expect positive financial results.  Most financial indicators are lagging indicator which tell us about past events.  In combination these two types of indicators work greatly.

The point is that all indicators and all the categories/perspectives in balance scorecard are interrelated.  This means that in order to achieve positive financial results the company should implement goals set in the other three categories: customer, internal processes, learning and growth.  For example, in order to get increases revenue you it is necessary to win favor of new customers through introduction of innovative products at competitive prices.

How customer satisfaction implements strategic goals

In terms of logistics, nonfinancial indicators played a great role.  Of sure thing, customer satisfaction can improve financial results of a logistics company.  How?  The answer is very simple.  Let’s view a hypothetical example.  A logistics company always delivers cargos and products on time.  This means that the company leaves customer satisfied.  But there is a reverse side of the medal.  Logistics managers may overpay to deliver products and time.  This means that a certain balance between shipping costs and timely delivery should be found.  But anyway, a satisfied customer is likely to use services of such a company again.

It is extremely important to find the right key performance indicators and logistics otherwise timely delivery may cause massive losses for the logistics company.  There will be no sense in timely delivery if the shipping cost per unit will exceed the cost of the product itself.  Logistics, is about smart use of available human resources and transportation means.  That’s why, key performance indicators should focus on them.

Strategic planning has become tremendously popular in different business areas.  One of the reasons of growth in popularity of strategic planning is a tough competition in the market, which has become tougher over last decade.  It is very important for any company to know where it is going and what results should be achieved.  But sometimes there is a real gap between company strategy and its operational management.  In other words the company sets ambitious goals but really does nothing to achieve them.

That was the major precondition for emergence of strategic management tools.  Of business owners and scholars came to understand that there should be clear cause and effect ties between operational in strategic management, or in other words the strategy must be transferred into action.  Balanced Scorecard developed by Norton and Kaplan has become the most popular performance evaluation tool that communicates strategy and operational management.

It has a very simple principle: the company chooses key performance indicators in the four categories.  KPIs are those indicators that represent the most important success factors for the company.  In such a way, top managers of the company can focus on most important issues.

BSC implementation cycle

In logistics strategic planning is especially important as timely delivery of products and cargoes creates a positive image for the logistics company.  Logistics is about timely and inexpensive delivery of products.  Some logistics managers are too focused on shipment time and timely delivery that they forget about cost factor.  As a result, shipment costs may exceed the cost of products themselves.

With the help of Balanced Scorecard it will be possible to find compromise between time for shipment and shipment costs.  In such a way customers will receive their products on time and logistics company will spends minimal amount of money to deliver them.

During implementation of Balanced Scorecard in logistics it is important to find the right indicators.  As already said above, shipment time per unit and shipment cost per unit are considered to be the most important and widely used indicators.  Of course, one should pay attention to such indicators as truck turnaround time, customs procedures, truck load capacity usage, etc.

Major logistics KPIs

One should always remember that use of Balanced Scorecard and peculiarity is of this system have to be understood to ordinary employees.  Logistics managers must understand why the use Balanced Scorecard and what benefits this system is buffering.  Only in such a way use of Balanced Scorecard would be profitable both for company shareholders, top management and ordinary employees.

This is a short notice to let visitors of our web-site know that there is a new library of Balanced Scorecard articles available online.

In this library you will also find some articles related to logistics, such as:

• Ensuring Timely Service through Logistics Measures
• The Importance of Logistics Measures

In logistics, like in any other business, it is very important to have a strategy.  However, very often strategic goals are confused with short-term objectives.  In fact, it is imperative to set the right goals, especially if the company uses balanced scorecard.  As known, balanced scorecard communicates operational and strategic management, or in other words it puts strategy into action.  The wrong goals sitting will have a negative impact on the entire process of BSC implementation.  The problem is that the wrong goals will require the wrong measures which will make maintenance send implementation of balanced scorecard a total failure.  This is not good, especially taking into account that implementation of balanced scorecard requires sufficient monetary and human resource investments.

How timely delivery benefits logistics company

What goals can a logistics company set?  Timely delivery of all cargoes and products?  Well, this is a good goal.  Of moreover, it is quite achievable.  But what happens if all cargoes are timely delivered but shipment costs per unit exceed the unit price.  What will happen if delivery trucks will be half empty?  Within a short period of time a logistics company will turn bankrupt.

As you can see, a certain balance must be observed.  On the one hand a logistics company is interested in having satisfied and loyal customers.  On the other hand, company management should make sure their logistics business is profitable.  Thus, the goal of timely delivery of 100% of cargoes will not work here alone.  Setting the wrong goal is like building a house with the poor foundation – of the house will collapse sooner or later.

Find balance between shipping costs and timely delivery

Logistics company should take into account all aspects of delivery in the delivery chain to make the most well balanced offer for the customers.  This is where balanced scorecard can help in case the right strategic goals are set.  A good example of strategic goal may be “increase of delivery market share by 15%.” Based on this goal the company management will work out a serious of key performance indicators and internal processes necessary for implementation of such a goal.

It is very important that the strategic goal is simple and clear.  Increase of market share will require introduction of new offers and services, optimization of internal processes and the work of delivery chain, personal responsibility of truck drivers and logistics specialists, active work with customers etc.

The right goal setting is a precondition for success in BSC implementation, no manner in which business area.

Read more on goal setting in this article

What should a business owner of top manager do to improve performance of the company?  First and foremost, it is imperative to identify strategic goals of the company and the ways it will achieve them.  Of course someone must be responsible for implementation of strategic goals.  And in most cases ambitious plans require proper funding.  But there are so many business owners that forget about one thing: it is impossible to develop the company without improving and developing its personnel.  The company may have the most effective and comprehensive strategic plans, all necessary equipment and production facilities, sufficient investments, proper legal and IT support, but it will still fail unless all this is run by professional employees.  There is no business that can function automatically.  Of course, there are some businesses that use mostly IT solutions, or companies with fully automated production process.  However, machines and computers cannot make decisions and solve problems.  That’s why human resources matter a lot.

Some of HR KPIs for logistics

In logistics people play a very important role.  Of course, much depends on means of transportation, information systems and IT support.  But anyway, only logistics specialists can organize delivery chain in such a way so that the company spends minimal amount of money to deliver products to end customers as soon as possible.  And it is only human resource department that can find, employed and educate such personnel.  Moreover, human resource managers should create such working conditions so that an employee feels comfortable in the company and has no desire to leave it.

How HR evaluation works

Evaluation of HR performance in logistics company will make it possible to optimize work, save costs and motivate employees.  Use of balanced scorecard is highly recommended for those companies that decided to link operational and strategic management.  Putting strategy into action is what most companies want to achieve.  Balanced scorecard uses evaluation of key performance indicators which vary from business to business.  However, human resource key performance indicators can be divided into several groups like workforce, compensation and bonuses, training and coaching, retain and etc.

For example, through measurement of employee lateness and logistics company it is possible to sufficiently decrease cargo delays rate which will result in improved customer satisfaction.  It is also possible to optimize travel costs per employee and use save money for some other purposes like compensation and bonus programs.

Use of balanced scorecard to evaluate HR performance in logistics is the best way to align HR goals with the company strategy and bring the company onto a new level.