Critical factors for logistics performance management.
Logistics is not only about technological innovation, but also mainly about performance itself. And that is not always smooth sailing
Many factors are beyond the control of logistics. Costs of energy, fuel, labor or, for example, ever-changing customer requirements. All the more important is performance management within logistics. Optimal control, insight and control of the factors that are within reach. However, not all logistics organizations are able to achieve productivity and the right level of service, while this allows them to distinguish themselves from the competition.
It is important, however, that one realizes exactly what performance management entails.
Logistics performance management.
The right product, with the right customer, for the right quantity, the right conditions, the right locations, the right time at the acceptable cost. That is essentially what Logistics aims for.
Performance management Is the continuous monitoring of every aspect of the logistics chain and continuous search for possible improvements in order to better meet the wishes and requirements of internal and external stakeholders.
This means that all relevant data must be collected from Inbound, Outbound, Warehousing, stock, order fulfillment etc. Everything that has a [significant] impact on costs. By defining performance variables, determining the measurement method and ensuring reliable data, the foundation for good performance is laid. By continuously monitoring the performance on a daily / weekly basis and determining whether the set objectives are being achieved
This sounds logical and feasible in itself, but the barriers in daily practice often prove to be a major challenge for every logistics professional. It is therefore important to identify the barriers in time so that they can be anticipated.
Three critical factors
1) strategy
Many companies formulate a strategy that is too weak and not well thought out. The result is that people ultimately fail to set up the best possible logistics chain and perform optimally. From the strategy, the approach in setting up logistics performance management must already become clear. In general, then three things need to be defined: Metrices, decision making and action orientation.
Once the organization has identified opportunities for improvement, the next step is to determine the objectives and how the process should proceed. The activities can be monitored along both financial and operational objectives. This applies to both internal and external metrices.
An example. The percentage of timely deliveries by a carrier is an external metric. But one that depends on internal factors such as timely loading and departure of the truck.
The following steps are conceivable using logistics performance management:
- Collect and use data related to this process
- Analyze the data and look for significant deviations and determine the source causes
- Determine a set of improvements together with the team involved
- Measure again and follow for the partial steps whether the desired
- improvement takes place and monitor the overarching metrics to see whether the intended result is achieved.
Naturally, the team must have sufficient knowledge and experience to be able to make the right decisions based on the data. In addition, one must have a platform that provides real-time information so that the team can continuously adjust when desired.
2) Define metrics.
If the correct metrics are not installed, your data will not be able to tell you much. On the contrary. You will make wrong decisions and the situation will get worse. It is often difficult to choose the right metrics, precisely because of the enormous amount and variety of metrics. Much depends on your product, service and customer. However, there are some that always come back in every logistics scoreboard.
- Total lead time
- Number of orders per period
- Number of completed orders
- Operational costs
- Average stock level or turnover rate
- Fixed and variable cost factors
- Service level
When determining it is important that the Key performance Indicators are three dimensional. Time-Volume-Value. For the operational metrices it is important that they accurately reflect the intended objectives. Good logistics performance management ensures that data is transparent, available in real time and can be easily aligned with your objectives.
3) Inadequate technology.
Technology is changing faster and faster, making it difficult for even the most progressive companies to keep up. One of the major challenges is to ensure that the IT infrastructure remains able to support the constantly innovative logistics software in the right way. There is also the problem that different packages often have limited integration. As a result, the information reliability decreases, information cannot be compared properly or it is not available in time enough.
This makes it difficult to use and analyze data throughout the entire chain for logistics performance management. It often leads to silo formation in data and therefore decisions.
However, the ability to provide accurate information in real time is essential these days. When a problem arises, the logistics team needs to know exactly and immediately what is different and where it takes place. When purchasing your software, compatibility, real-time reporting, analysis options are of great importance for your performance. In addition, it should be possible to assess certain metrices from different dimensions.
The next step.
Setting up your IT environment properly can be time consuming and even expensive. But the benefits are undeniable, which will make the Return of Investment positive. An optimally functioning logistics performance management will enable you to increase your customer satisfaction, more possibilities to improve your turnover and margin. For the longer term, that is always decisive despite all the bumps you have to take.
