Logistics Management

Use of balanced scorecard is the promise and thing.  Indeed, more than 80% of the most successful and largest companies in the world are using this system.  However, there are so many managers who make a fatal mistake of considering balanced scorecard to be a universal treatment for all business problems and hardships.  BSC is just a managerial tool.  It doesn’t substitute the strategy.  It doesn’t make decisions.  But it really helps company management to transfer strategy into actions through development of key performance indicators that show progress of the company on the way to its strategic goals.

How logistics can increase company profits

Balanced scorecard is used in fairly different business areas.  In each business area BSC implementation is performed in an individual way.  Besides, company strategy predetermines the way balanced scorecard will be implemented.  Companies operate in different internal and external environment.  Businesses have different goals and objectives.  Moreover, some companies are not ready to use balanced scorecard or have no strategy it all.

These days, balanced scorecard is widely used in logistics services. Logistics is a tricky thing.  On the other hand logistics manager needs to make sure that cargos and products are timely delivered.  On the other hand he should make sure that the company spends the minimal amount of money to shoot the products.  And this is the problem for most logistics companies.

Balance logistics KPIs in categories

Some logistics managers consider timely delivery to be the most important indicator.  However, this indicator does not prevent a logistic manager from sending half empty or almost empty trucks to deliver products on time.  As a result shipping cost per unit reaches cosmic figures.  Sometimes shipping cost exceeds the cost of the product itself.

In order to correct the situation, logistic manager should balance timely delivery with other indicators.  If it is possible to negotiate delivery time with customers, a logistic manager should look for ways to decrease shipping cost.  Load capacity is of trucks and other means of transportation should be used at maximum.  For example, if the truck can carry 20 tons it should take as much as possible on board.

In such a way, both customer and logistics company will benefit.  A customer will receive his shipment at a suitable time and logistics company will spend a reasonable amount to deliver the products.

Actually, this is the secret of balanced scorecard and that’s why it is called balanced since the indicators are interrelated and well balanced within categories.

Balanced scorecard has proved to be an effective tool that communicates strategic vision and operational management.  In other words it helps the company put strategy into action.  BSC System works in the 4 perspectives: financial, customer, internal processes, learning and growth.  Balanced scorecard was the first system that broke the tradition of measuring and focusing on financial indicators only.  Creators of this system included non-financial indicators to the scorecard.  Well, it doesn’t mean that financial indicators stopped playing an important role.  Nothing of the kind!  Financial indicators remain the focus for measures and response actions in the other three perspectives.  As a rule, the company first says financial goals.  It is not a secret that any commercial business, enterprise, company or organization aims at making money.  With clear strategic financial goals it is possible to develop the rest of the balanced scorecard.

Efficient logistics department

Of course the choice of key performance indicators, measures and categories depends on the company strategy.  It often happens that different departments for business units of one company should pay different attention two different categories of indicators.  Thus, a sales department should focus more on customer perspective, while strategic planning department should take into account all four categories.

In case of logistics department it is reasonable to use all four categories to link strategic goals of logistics department with its operational activity.  The goal of the logistic company is to timely deliver products or cargoes and spend a minimum amount of money for shipment.  There are very many factors influencing the cost of shipment.  An efficient and smart logistics manager should make the most effective use of transport, customs procedures, storage facilities etc.

Steps of BSC implementation

One should not forget about relations with customers.  It is well known that customer satisfaction improves loyalty of potential and existing customers.  Timely and cheap delivery is the best advertising for a logistics company.

Logistics metrics evaluates key performance indicators that directly represent efficiency of a logistics company.  Such indicators as cost per unit, average shipment costs, truck turnaround time, load capacity and a number of others will draw a full picture of the shipment procedure.  This will help reveal strong and weak points and introduce amendments to business processes, if necessary.

Of course, balanced scorecard should not be viewed as a universal treatment against all business problems.  When implementing BSC if logistics department one needs to make sure that the department has educated and dedicated personnel ready to use balanced scorecard.

Perhaps you have heard of affiliate in reseller programs.  It is really possible to sell someone else’s products and services and get commission paid.  AKS-LABS offers its affiliate/reseller program for software called BSC Designer.  It is difficult to characterize this programming a few words.  We should say at least one thing: Balanced Scorecard System has proved to be the best performance evaluation tool that links operational management with strategic goals of the company.  80% of most successful companies in the world use Balanced Scorecard.

Selling BSC Designer is not like offerings potential customers some useless piece of software.  Target audience for this program is quite different from typical PC users.  These are managers, directors, SEOs and business owners.  In other words, these are people who want to make their companies into successful businesses and they need tools to manage and evaluate business performance.  BSC designer is just what they need.

To learn more about affiliate/reseller offers from AKS-LABS visit this page and watch video.

Evaluation of business performance is a must for any successful company.  Recent crisis has shown that those companies without comprehensive strategy are doomed to fail.  80% of most successful companies in the world are using different performance evaluation systems.  But balanced scorecard is known as one of the best management systems that makes it possible to link operational management and strategic goals.  In fact, it is useless to use balanced scorecard without a comprehensive strategy.  At the same time, balanced scorecard helps set strategic goals.  Many people are making mistake and often substituted strategy with the balance scorecard.  Well, this is the most typical and deadliest mistake.  A comprehensive strategy is the company vision, mission, set of values, correct positioning and strategic goals.  Balanced Scorecard is a unique tool as it was the first to include nonfinancial indicators to the set of KPIs to be evaluated.

Effective logistics company

Most large companies have own logistics departments or use services of logistics companies.  As business turned international the delivery and shipment issues have become very acute.  Customers and customer companies want to timely receive their products and cargoes.  Moreover, they do not want to overpay for such services.  Thus, a logistic company or logistics department needs to make sure the product is delivered as soon as possible and the minimal amount of money is spent for shipment.

How can one say whether or not a logistic department is operating efficiently?  Products and cargoes are delivered on time?  Well, this is a good indicator but not the only one.  The problem is, that the ship can cost may sometimes exceed the product value which makes it extremely expensive for a customer.  A logistic company may possess a huge fleet of trucks and cooperate with airlines and railway companies but still lose money because of inefficient management.

Balanced scorecard will help set strategic goals and logistics and develop a set of key performance indicators that will represent most important aspects in the work of a logistic department.  At the same time all those key performance indicators will be integrated into the system of strategic goal for the entire company.

Consequences of effective logistics

Balanced scorecard will offer to look at nonfinancial indicators such as customer satisfaction or employee satisfaction which sometimes have a very deep influence on performance of a logistic company.

Optimizing work of the logistic company is making it profitable and efficient.  A satisfied customer who received his product on time is a loyal customer and thus he is a supreme value for the company since he is a regular source of income.

It is very important to know whether or not the company is ready to implement balanced scorecard as well as to find out whether the company actually needs it.  Balanced scorecard, despite its popularity and excellent reviews, can become a waste of money and time.  This usually happens when the company is not ready to use this system or it doesn’t need it (that sometimes happens to small business).  It is even more difficult to implement balanced scorecard in separate departments of a company.  Any business has certain goals all at least should have these goals.  All actions and measures of department should be subordinated to the company strategic goals.  This is not easy to do, especially in the large companies consisting of many departments and branches.

Logistics BSC in 4 perspectives

For example, most large companies either have own logistics departments or use services of logistics companies.  Logistics services are very popular these days.  Individual customers as well as companies prefer to have products delivered to their locations.  This is what logistics departments deal with.  At that a logistic manager should make an effective use of all resources, facility is and transportation means to minimize shipping costs for delivered units.

An inefficient logistics department may become the source of losses for a company.  That’s why it is extremely important to perform a continuous control and evaluation of logistics efficiency.  It is imperative to find those indicators that directly represent performance of logistics department as well as factors (both internal and external) that influence logistics performance.

Balanced Scorecard offers managers a unique opportunity to communicate operational management (what they’re doing everyday) with strategic goals of logistic department as well as the entire company.  As said above, the right choice and the right number of key performance indicators is very important.  The wrong choice of logistics KPIs will lead to wrong response action and wrong analysis.  This may result in losses and misbalancing of the delivery system.

Logistics managers as well as ordinary employees should clearly understand the concept of BSC and why this system is used.  They should also understand their contribution to implementation of strategic goals both for the logistic department and for the company.

It is not recommended to concentrate only on financial indicators like cost per unit or losses per unit.  It is important to take into account all factors and elements in the supply chain.

BSC implementation process

Evaluation of performance is important for any business, especially taking into account post crisis realities of the recession hit economy.  Competition is getting tougher and that is why every company needs to make sure it efficiently spends every dollar.  Most large production and sales companies have own logistics departments or use services of logistics companies.  At a first glance, the work of the logistic department seems very simple.  One should take a unit or a product and take it to another place.  But in fact, shipment expenses may exceed the prize of the delivered product itself which makes it two times expensive.  A logistic department spending too much money on delivery of products and cargoes makes the whole companies suffer losses and increase prices for products.  As known, prices fall many products include transportation costs.

Use BSC to measure efficientcy of logisitics

For this reason, in order to increase competitive advantage of a company and its products in the market it would be a reasonable to decrease transportation and logistics costs.  That’s why it is imperative to set strategic goals for logistics department or make such a department work in concord with the company strategic goals.

Balanced scorecard system is known as the most effective tool that successfully communicates strategic goals of the company with its operational management.  It often happens that lower management levels are not aware of company strategy and their own role in it.   Balanced scorecard visualizes company strategy and links it to operational level.  In other words, employees and managers of logistics department will actually see what needs to be done to improve performance of their department.

Efficient logistics is about fast and cheap delivery.  Of balanced scorecard uses a number of key performance indicators that represent performance of the company or logistics department in our case.  So, what are most important KPIs in logistics?

Select the most important logistics KPIs

Without any doubt, freight cost per unit is one of the most important indicators.  This is the amount of money the company spends to deliver product to an end customer.  The less one spends the cheaper the product is or the greater the savings are.

Load capacity is known as another indicator showing efficiency of the logistics department.  If airplanes, ships, trucks for other means of transportation can take for example 100,000 tons of cargoes a month, but in fact they take only half of this amount, logistics managers should think of the ways of a more efficient use of transportation means.

Nowadays customers became very picky.  By customers winning also companies not only individuals.  Everyone wants his products or services to be delivered immediately.  Customers ordering products hope to get them at their doorway.  Customers form their judgment based on how fast they got ordered products or services.  This is to say that logistics plays a very important role in the overall success of the company.  Efficient logistics department needs to make sure that the company spend minimum amount of money to deliver products.  Moreover, the products are to be delivered as fast as possible.

It is imperative to control and evaluate logistics in any company.  Sometimes it happens that shipping cost for a product is higher than the product price itself.  It is not a secret that sometimes companies include shipping costs to the product price.  Thus, the lower this cost the cheaper the product.  If logistics department suffers losses, this will hurt well being of the entire company.

Major logistics kpi

Use of balanced scorecard is highly recommended to logistics managers.  This popular business performance evaluation system measures key performance indicators of different businesses, including logistics.  There are a number of KPIs (key performance indicators) that help control functioning of logistic department.  Moreover, balance scorecard will help communicate strategic goals of logistic company with this operational management.

So, let’s have a closer look at the most important KPI in logistics.

1. Freight cost per unit.  This is perhaps one of the most important KPI in logistics.  By managing to keep this indicator low the company makes sure it doesn’t overpay to deliver products to its customers.
2. Average time for procedures.  This includes time spend to go through formal and legal procedures that customs, borders etc.
3. Speed.  This is the average speed of the transport in the inland.  The higher the speed, the better.
4. Number of documents and signatures.  This indicator is very easy to understand.  The less paperwork required to send one item, the better.
5. Damage costs.  Logically, the company should strive to keep this indicator low.
6. Load capacity.  The company should try to use their vehicles load capacity at maximum.  For example, if the truck can carry 20 tons but takes only 5 tons on board, this is a poor performance.
7. Number of agencies and inspections.  As known different agencies and gov’t bodies can inspect cargoes.

Of course this is not a full list of KPI relevant to logistics, but they represent the general picture of how performance of logistics department is evaluated.

Why develop logistics department?

Balanced scorecard is in fact much more complex than one might think looking at schemes and tables illustrating the 4 perspectives of BSC. The process of BSC implementation is something much bigger than that.  It should be noted that in order to successfully implement BSC the company should spend serious money and make serious efforts.  In other words the company should be ready theoretically, financially and organizationally, otherwise balanced scorecard will be just another performance management system that doesn’t work.

As already said, the company top management and personnel need to be ready to implement balanced scorecard.  This readiness should be expressed in understanding of balanced scorecard concept, the way this system works, the weight every employee contributes to implementation of strategic goals etc.  The problem is that if company management and personnel do not understand why they use balanced scorecard and what balanced scorecard really is, this popular performance evaluation system will not help company reach strategic goals.  This is not going to happen unless people working in and running the company are well educated on balanced scorecard.

The other problem is that a company should know for sure whether or not it needs balanced scorecard.  Generally, there are four main signs that indicate that a company needs implementation of Balanced Scorecard System.  They go as follows:

• Management of the company does not participate in strategic planning of devotes very little time to company strategy and mission
• Personnel does not understand what the company strategic goals and mission are
• There is no operational control in the company
• There is no feedback and communication between companies in one big holding

It is extremely important to check if the company management and personnel are ready to use balanced scorecard as implementation of this system is not cheap.  AKS-LABS offers free questionnaire on balanced scorecard that will help top managers and ordinary employees evaluate balanced scorecard knowledge.  It would be unreasonable to start BSC implementation without knowing much of the system.

Check your BSC knowledge

How can this questionnaire be helpful for a company?  For example, it is possible to evaluate knowledge of ordinary employees or midlevel management on balanced scorecard.  It would be also helpful for people directly responsible for BSC implementation to undergo such a test.

The questionnaire covers major questions related to balanced scorecard issues such as principles of BSC, KPI selection, strategic map in strategic planning etc.

Download questionnaire from this page

Read more on BSC test here

Do you know much of BSC?

Balanced scorecard is becoming increasingly popular all over the world.  Indeed, it is difficult to find a better tool to evaluate business performance and link operational management with strategic goals.  This system itself uses simple evaluation methods.  But if balanced scorecard is studied thoroughly it becomes clear that this is a very complex system requiring much efforts, investments, commitment and readiness to use it.

Use BSC templates to get a strategic vision of a company

It is imperative to be prepared to implement balanced scorecard in any organization or company.  The right education, training courses and study materials will help managers better understand the concept of balanced scorecard and the way it is implemented in the company.

Authors of BSC Designer are constantly offering their customers, and generally everybody who is interested in balanced scorecard, continuous support through releases of theoretical materials, practical courses and other similar products.

Having recorded that 5 hour audio training course, developers from AKS-LABS are now offering a free product.  This is that collection of templates for balanced scorecard.  What are the main features of these templates and what are the benefits of using them?

The templates contain ready to use tables, charts and screenshots which anyone can fill in.  For example it is possible to design a strategy maps for your company using a free template.  The template contains four perspectives of the company performance: financial, customer, internal process is, learning and growth.  Each perspective already has a free space to be filled for objectives, measures, charges and initiatives.

There’s also a template for a set of key performance indicators for each perspective.  Through completion of templates it is possible to visualize company strategy, outlined the set of required KPIs as well as defined goals and objectives.

Besides, templates contain screenshots from BSC designer which will give users a general idea of what the program is about.

Download templates here

Download free BSC templates

Balanced scorecard system is generally recognized as the most effective tool to automate business management processes and evaluate business performance.  One of the most prominent differences of Balanced Scorecard System as compared to other performance evaluation tools is that balanced scorecard system started to evaluate operational indicators which are also called nonfinancial.  Before, only financial indicators where measure.  But in order to achieve financial results something needs to be done on the operational level.

Balanced scorecard system will help business owners and managers create strategy maps, formulate strategic plans, develop instruments and measures to reach strategic goals.  However, the system is not very easy to use, implement and maintain.  Balanced scorecard is the tool that gives competitive advantage in the long term only in case it is properly used.

Training program will give answers to many questions

Developers from AKS-LABS offer audio training which will answer many questions concerning balanced scorecard, stages of its implementation, tips for managers as well as testing issues.  In fact, this 5-hour training will provide managers who are in charge of implementing balanced scorecard with great support and assistance.

What issues are covered in this training?  The material is sorted out according to the stages of implementation and maintenance of balanced scorecard.  So, the first stage is designing balanced scorecard system itself.  It is very important that all employees in the company understand their contribution to implementation of balanced scorecard.  The training will give answers on how to motivate employees and involve them in the evaluation process.  Also, general questions on balanced scorecard will be answered.  These are questions like what balanced scorecard system is, or what issues will be covered in the training.

The next step involves selection of the right KPIs.  The problem is that the wrong choice of KPIs will result in wrong actions which makes it impossible to reach strategic goals.  The training will help you select the right KPIs and learn to use them to measure business performance.  In other words, you will hear answers to questions like “How many KPIs do I need”,  “What KPIs should I evaluate” and so on.

The last stages refer to building strategic maps and testing balanced scorecard, i.e. using it in real business.  This action will cover issues of cascading schemes, relations between different company levels, etc.

Parts of training program

By purchasing this training program you’ll get access to valuable firsthand information from specialists in the field of balanced scorecard business performance evaluation tools.