Logistics Management

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.

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.

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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.