Logistics Management

For big, middle sized and small businesses we are merely customers who got used to get products shipped to our houses. We like to make online purchases and we like to get products on time. When two companies have business together, one of the companies is a customer while the other is a contractor that needs to make sure that products/goods are delivered on time. There is a separate department that assumes responsibility for shipment of products. This is logistics department. There are even separate logistics companies that offer their services to different companies. These days logistic managers are using special software to evaluate business performance.

Customer satisfaction pretty much depends on timely delivery of products. If you ordered something on the Internet you expect the product to arrive on time. Logistic managers are the people who are in charge of this. But of course, they have more other tasks other than making sure you receive your products.

Logistics is about 100% use of transport and warehouse facilities. A logistic manager needs to contact producers (to ask when the new batch of produce will arrive), end customers which may be huge companies that accept no delays (to negotiate delivery terms), warehouse managers (to negotiate storage capacities) and drivers/airlines (to negotiate shipment terms). One delay may destroy the entire delivery chain.

Logistics is also about saving money. It may be not profitable to deliver goods from town A to town B, using trucks. But if the trucks take some products on board on the way back, your logistic department can have big profits. It is not profitable to have trucks and drivers wait too long for new batches of produce as this costs money. Logistics is about making sure that all elements of delivery chain are efficiently used.

In order to evaluate logistic department of your company you should not look only at revenue. There are numerous factors that influence the work of a logistic company. These factors are commonly called KPIs – key performance indicators. Every business has its own indicators. Logistic is using Supply Chain Balanced Scorecard which includes 4 elements: financial issues, customer matters, internal business and training. Balanced Scorecard system evaluates KPIs which are parts of the abovementioned 4 groups. In order to evaluate performance of logistic department one needs to asses the following KPIs.

1. Customer order cycle time. This is a figure represented by difference between creation date of the order and delivery date. Cycle time can be promised and actual. If the values have only slight differences then your logistic company is doing OK.
2. Line count fill rate. This is amount of order lines delivered on the shipment versus the number of lines which have been ordered.
3. Inventory carrying rate. This figure includes costs for storage, handling, damage, administrative costs, costs related to loss of shipment.
4. On time shipment is calculated as a ratio of orders delivered on time and all line orders delivered. In simple words, this indicator shows how fast your logistic department is working and if you can live up to delivery terms.
5. Perfect order measurement. An order is undergoing many stages in its cycle. Thus, if you calculate how many orders have passed all stages without any mistakes you will have a clear understanding of how logistic department works. When an error occurs a corrective credit is issued. There should be a reason code, or simply a reason for error. You can group these reasons to see what the most common causes of problems are. Isn’t it the best way to evaluate performance of a logistics company?
6. Transportation KPIs

a)      Freight cost per unit. The program divides all costs related to shipment by total number of units. It is also possible to group costs by means of transportation (truck, train airplane).

b)      Transit time. This is the time calculated from the moment a product leaved facility of a logistic department to the time it arrives to customer’s location.

c)      Losses. These are expenses related to damage or loss of units. If this figure is too high take urgent measures.

d)     Load capacity. This is a very interesting indicator. Imagine that your trucks can deliver  50,000 lbs of product, but yesterday they carried only 40,000 lbs. By dividing these figures you get utilization percentage. The higher the percentage, the more efficiently your logistics company works. However, it needs saying, that 100% remain a dream!

e)      Truck turnaround time. This is the time a truck spends at warehouse facility before departure. This is an indication of how your warehouse personnel work.

Pros of using logistics metrics tools

Most important KPIs in logistics

Sure, this is only a short list representing major KPIs influencing performance of a logistic company. Balanced Scorecard system focuses on the main factors and indicators, which makes it possible to find the root of a problem.

Use of balanced scorecard system is highly recommended for logistic managers as the software performs a thorough analysis and offers results which can be used in development planning. If you are inefficiently use logistic facilities you decrease profits gained by producers. Perfect work of a logistic department is MUST for all companies that want to have long lasting business relation with business partners and customers.

Focusing on most important KPIs is extremely important. You may focus on things that do not deserve too much of attention, forgetting about major problems. Balanced Scorecard is closely connected with the strategy of future development. It is impossible to develop and increase capacities without being sure that the company has chosen the right path.

With Balanced Scorecard a logistic manager can locate problems at all stages. Thus, everyone would be aware of company’s weaknesses: office clerks, warehouse workers, drivers, shipment agent etc. If all employees know own weak point they will be additionally motivated to work better. Besides, you can use Balanced Scorecard to evaluate organization climate which is also very important in a big company.

Using business metrics is highly recommended for logistic companies and departments, especially those handling great amount of orders.

Take advantage of business metrics methods

Evaluation of business performance is a never-ending process