Can You Measure Up?
By Jack Bradley, BA, CITT, P.MM
Your company likely takes measurements of everything to do with anything in all sorts of processes that relate to sales, marketing, manufacturing, and customer service functions, but what portions of these findings can you relate to the logistics...
Your company likely takes measurements of everything to do with anything in all sorts of processes that relate to sales, marketing, manufacturing, and customer service functions, but what portions of these findings can you relate to the logistics areas of your business?
Do you know what to measure? Once measured, can you determine what it means and what you should do about it? Measurements for their own sake are a waste of valuable resources. They should be fashioned such that they can assist your ability to use and allocate resources more effectively.
Benchmarking vs. KPIs. – Strategic vs. Tactical
Let’s begin with an understanding of the key types of measurements typically used today – benchmarking and key performance indicators or KPIs.
Benchmarking is part of a larger process – one of process re-engineering, or large scale change of some sort with a specific goal of comparing how you progress towards standards which you have adapted and chosen but have their roots established outside your own direct domain (i.e. competitor’s performance or industry measures). As such, benchmarks are measured over a period of several months, more often years.
Key Performance Indicators (KPIs) and their measurement are part of a day-to-day (week or month) comparison of internal corporate or direct supply chain activities with the goal of reacting to and improving operational activities. In short, benchmarking is proactive and measures attainment of strategic goals and KPIs are reactive measurements of tactical goals.
Where should you start?
Set the benchmarks first, then the KPIs. Benchmarks are where you want to be in the marketplace, KPIs are the tools to help you get there.
The process should begin with a corporate level buy-in to the items requiring benchmarking, the strategic goals of your corporation within the market, with emphasis on the importance of your logistics processes to both cost and service. Senior management needs to know where they want to be, the processes to get them there, and most importantly the costs of these processes and how significant they are, or could be. They also need to know how these processes are to be measured, managed, and controlled. For example, simply adding on 10% to the cost of your freight bill is not managing your transportation costs. You need to identify cost and service opportunities and be able to react to changes in both the distribution landscape (and we’ve had many of late) and the ever changing market and customer requirements for your products/goods.
Some of the areas you can develop for measurement may include any number of the following:
Customer delivery standards, measured in days to geographic areas/zones. Cost of delivery, by lane, by cwt, by product line, by box/barrel/skid or whatever measurement makes sense in your business. Be sure to calculate a cost of transportation and relate it to a sales dollar as a benchmark for your business.
With time pick up and delivery, consider the acceptable level today for your particular business. Is this to be cost or market driven? If your service provider cannot handle your pick up request from time to time because it is short of drivers and/or equipment are you measuring that as part of your pick up non-performance data? Do you include and distinguish between shipper/consignee delays and report back to them?
Other key factors that could be measured include:
Cost of warehousing as a percentage of sales or per handled unit.
Staffing, including man-hours required to support service levels in terms of production or filling customer orders.
Lead time in terms of maintaining fill rates or customer service standards within standard costs, and the impact of accepting orders with shorter lead times (the old trade off between: if we rush this order through do we really know the costs and the impact on other services to existing customers).
Invoice and invoice payment accuracy. This entity relates to both cash flow and employee productivity.
After determining which KPIs you need to measure, evaluate the costs of measurement, the goals you want to hit, the needs and expectations of the marketplace, and the costs of hitting those goals. Next, measure those KPIs, review them and adopt and implement those that are most realistic and viable to your systems. Once analyzed, publish your wins and your losses. Make all of the players aware of your firm’s progress.
Continuous measurement is a key to survival. “How do you know where you are going if you don’t know where you are?”
Once measured, step back, and re-prioritize. Then re-measure, re-analyze, re-implement, re-publicize and re-measure. Include customer surveys to help you understand what it is they see as acceptable performance and then measure to it. Your understanding is not what’s important – it’s their definition that matters. Always include input from staff, and from suppliers.
Define your goals and objectives at a corporate level. Empower all of those involved in the process. Use the “right” metrics, on a “regular” basis to allow for continuous improvement. Make your metrics meaningful, attainable and frequent. Publicize your progress. Augment systems that will bring on positive change. Promote continuous improvement through continued measurement.
Most importantly, never stop knowing where you are.