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.

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.

As any other branch of business logistics department needs to be evaluated from time to time. But before evaluation process one needs to decide how he or she will measure performance of logistics managers? In other words, a manager needs to decide what he or she will evaluate and in what values?

Balanced Scorecard system is a helping hand for all top managers and people who need to measure business performance. This system measures individual KPIs which differ depending on the business type. Why is Balanced Scorecard system valuable? It makes possible to find weak point in the work of a company. In fact, you will be able to find the root of your problems.

Supply chain kpi will show you business performance

Supply chain kpi evaluate performance of a logistic department

Performance evaluation is also important because it is impossible to plan anything before knowing what is going wrong in the company, otherwise small problems will grow into big ones.

If we are talking about logistic, we should evaluate only those KPIs relevant to delivery and supply chain. What are these indicators?

The most important and representative indicator is freight cost per unit. Sometimes, it happens that delivery costs exceed the cost of the delivered product which is nonsense. If you are delivering shoes ($50 per pair) and you have to pay another $50 to deliver them to end customer, think of the ways to decrease transportation costs.

Transit time is known as the second most important indicator. This is the time from taking order to delivery of product to the end customer. The less time you need the less money you spend to deliver products and cargos.

Load capacity is the amount of cargo all your means of transportation can carry. If a 20 ton truck carries just 5 tons of cargo, then your logistics manager did a poor job. You need to make sure that your trucks carry as much cargo as possible.

Losses. As a rule some cargos are lost or spoiled during transportation. Make sure the shipment is safe and tracked at all stages.

Sure, there are many more KPIs that can be evaluated. The more KPIs you measure, the fullest picture you will have.

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

These days, more and more people are realizing the importance of logistics management. This is because logistics management ensures the smoother flow of operations in any existing enterprise. But if you want to take it a step further, then there is a need to incorporate logistics benchmarking. This actually refers to the organization of a company’s resources, materials, and people, so that it would be made to stand out amongst its competitors. If you aim to do this, then lots of analysis and the right forecasting should definitely be implemented. This process can be complicated and costly, as there is a need for complex mathematical analysis that entails costly sources and software all in itself. So, how does your company do this?

The first step is for your company to perform self-evaluation. No company is exempted from this step. You need to ask yourself how well your company is doing when it comes to accomplishing corporate goals and objectives. You also need to determine how far along your company is against its existing competitors. Your company may be earning a lot right now, but there could still be some potential that remains untapped. Through self-evaluation, this untapped potential can be determined and utilized accordingly.

The second step is to profile your existing competitors. Have a clear picture of what your competitors are all about, especially the things they are doing that are of greater value and profit. Identifying the strong areas of your competitors will do wonders for your company because you would also know their weak areas. These are then the areas you should target.

Thirdly, have a clear picture of what is in store for your company in the near and far future. Forecasting is very important here because this is also a motivating factor that you company can use. Apart from that, you should also determine what your competitors are doing in terms of their own plans for the future. If you know ahead of time that your competitors are expanding their sports apparel line in some way, you can easily determine what you can do with your own company to counterattack that expansion. The great thing about this is that you already have ready-made solutions to problems that have not even occurred yet.

To achieve all of these steps, you need to analyze all of your processes then, particularly, just how efficient they are. Are your service levels met? How long is your order cycle from start to finish? Do you have clear measurement procedures in determining customer satisfaction? What are the resources you use in achieving customer satisfaction? Are these resources really maximized to their full potential? These are but just a few questions you need to ask yourself, if you want to get ahead of your competitors in the arena.

This is why logistics benchmarking is an important endeavor companies should take on. Through benchmarking, you actually ensure that all of your products or services are always available. By having them constantly available, you also increase your dependability from the perspective of your customers. At the same time, you are promoting branding as well. All of these have a positive effect on your company in the long run.