The Logistics Performance Indicators And Importance Commerce Essay

The Logistics Performance Indicators And Importance Commerce EssayLogistics encompasses a complex set of activities which require a collection of prosody to adequately measure performance. Chow et al. (1994) were probably the first to attempt to define egress chain (logistics) performance and they presented some measures for measuring logistics performance. Since then, most of the literature on logistics performance appears to focus on models and frameworks (Clarke and Gourdin, 1991 Mentzer and Konrad, 1991 Rao and Grenoble, 1991 Hubbard, 1992) and on managing different aspects of logistics (Larson, 1994).Sink and his colleagues sop up defined seven dimensions in order to capture their conception of what performance operator they are effectiveness, efficiency, quality, productivity, quality of work life, innovation and profitability/budgetability International Journal of Logistics Management.Given the lack of any universally definition for performance in the organizational literat ure, it should not be surprising that extant literature offers many ideas about the dimension that ought to be incorporated into a conceptualization of logistics performance. One of the best examples is the framework presented by Rhea and Shrock, where physical distribution effectiveness is defined as the extent to which distribution programmes satisfy nodes International Journal of Logistics Management, 5, p. 3While measuring logistics performance, a comprehensive dodging of measurement is necessary for the successful planning, realization and control of the different activities which comprise the business logistics function ( Andersson et al. (1989). As Thor (1994, pp. 13-28) correctly advocates, there should be a strong family of measures. This is a balanced collection of four to six performance measures, usually including productivity, quality and customer satisfaction, which together furnish an all-inclusive view of results but, individually, also set up a diagnostic value. Developing much(prenominal) an approach, Mentzer and Firman (1994) claim that the management and control of logistics performance entails four broad aspectsInformation organisations to collect and report performance measures expeditious performance measuresVariance analysisCorrective actionProductivity within the performance scenario female genitals be seen as a measurement of resource utilization, including the clock element. The productivity philosophy and its improvement has been a high priority, in the first instance, in manufacturing, then in marketing, and later in physical distribution and materials management. Thus, the time is now ripe to focus on the whole logistics surgical operation. It is the shape of the organizations physical manifestations which is largely influenced by the nature of the values, beliefs and underlying assumptions of logistics management (Ericsson (1990, pp. 42-49).Quantitative rhythmic pattern of supply chain performance can be classified int o two broad categories Non-financial and financial. In fact, in the late 1880s financial measures were mainly focused such as return on investment (Christopher, 1992 Schermerhorn et al.,, 2000). However as the second progressed during 1980s, the world market changed and companies began to lose market share to overseas competitors who were able to admit higher-quality products with lower prices and more diversity. To re- capture the belligerent edge, companies not only directed their strategic focus from low-cost production to quality, flexibility and short break time, as non-financial measures. (Bower Hout, 1988 Rushton Oxley, 1989 Stewart, 1995)Logistics performance measures can be categorized into two categories such as qualitative and quantitative measures. Qualitative measures include such as customer satisfaction and product quality etc., and quantitative measures include such as order-to- rescue lead time, supply chain response time, flexibility, resource utilization, de livery performance, etc.It has been suggested that the deprecative elements that form the basis of logistics management are time, distance and money. Some utilization, productivity and effectiveness metrics used in the logistics management areDimension measuredExample exampleActual input/norm inputArea of warehouse occupied/ total areaProductivityActual output/existing inputTon-miles delivered/cost incurredNo of orders processed/ no of hours of laborEffectivenessActual output/norm outputNo of payload on-time/no of shipment sentUtilization measuresThey are used to track the use of input resources in process. In logistics, input could be characterized as financial, physical assets or inventory. Utilization metrics include the followingSpending measuresPurchase price varianceDistribution cost as percentage of salesVariance of transportation cost from budgetNon financial resources measuresUsage ratiosAmortized costsInventory measuresStatic metrics (capture level of inventory expressed in physical, financial or other terms) escape metrics (capture speed of inventory as it flows through the system of rules over a period of time)productivity measuresPartial productivity measures (SFP-single factor productivity ratios ) center factor productivity measurementFinancial productivity measurement (ROI-return on investment )( (Frameworx, 2005)Effectiveness metricsOrder fill rates( order filled /orders pass alongLine item fill rates( total line items not filled / shipped in time per periodDamage rates (line items damaged per order)Order bike time (elapsed time between receiving request and delivering order)Delivery or transit time (elapsed time between readying order for shipment and delivery order)( DfT, 2004)On-time ( orders shipped on time or orders received by customer on time )Perfect deliveries (orders received by customers with no logistics service fullness)Importance of performance metricsImplementing performance measures is a key to optimizing the supply chain. That reflects the entire process, rather than the individual components that make up the process. Managers can obtain a better picture of the process by focusing on the entire supply chain, rather than its individual parts. This is vital to emphasize the vital importance of the logistics process to the rest of the company and how logistics can affect the financial stability of the organization as a whole. (Rick J Blasgen, 2007)The effectiveness of supply chain of a company heavily affects its profitability and survival. surprisingly few companies appear to have effective measures of each business process within the supply chain or information systems which readily produce the data necessary to drive improvement forward. Within the supply chain, logistics are considered to be the link between production/purchasing and marketing. Controlling logistics performance is a study concern for management. This is mainly because of the constantly changing environment and unforeseen events which may affect forecast performance levels. (Anonymous 1997)Three major reasons for measuring logistics performance muffle their operating costsDrive their revenue growthEnhance their shareholder valueExampleBy using the latest logistics performance indicators Dell has successfully become the dominant market player in the personal computer industry. It derives its growth because of mass customization, efficient supply chain management and reduced delivery time.In the era of global supply chains and mass customization, Dell has maintained close linkage of logistics. Dells performance measurement, manufacturing, logistics and shipping and strategies make it possible to produce computers for individual consumers at a low cost.It has successfully implemented low cost strategy through its efficient manufacturing operations, better supply chain management, reduced cycle time and direct sales model. orders are directly taken from its customers either on phone or online. Thus, this reduc es the cost of intermediaries that would otherwise add up to the total cost of PC for the customer. Dell also saves time on processing orders that other companies normally incur in their sales and distribution system by having latest performance measurement tools. Moreover, dell is able to get a clearer indication of market trends by directly dealing with customers. A two-to-three full stop cost advantage is also obtained by delaying assembly until a customers order is received (King, 2005).Three or four days finished inventory is unploughed on hand versus 30 to 45 days worth at some competitors. Parts inventory is replenished as often as every 90 minutes. an additional four or five points cost edge is brought by supply chain efficiencies derived from lean inventory management.(William Hoffman, 2005)ConclusionIn todays severe competitive market place, product or service differentiation separates the winners from the losers.Mostly, the service differentiation is achieved by managin g the logistics process efficiently and effectively. To achieve excellence in logistics, successful firms have to ensure that the firms business strategy is aligned with the key logistics processes and they are measured against predetermined performance objectiveThe approach that a firm takes in establishing logistics measurements system does not matters a lot as the real value come when the information is acted upon to align the effectiveness and efficiency of the logistics process performance to value the customers. The use of goods and services 3PL can have in your success is dependent on when you start measuring your logistics performance (james S. Keebler and David A. Durtsche 2007).