Ing Andrea CampagnaIng. Andrea Campagna

Logistics Performance Metrics

2009

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QuestionsQ

• What are logistics metrics?• What are logistics metrics?• Why to measure?• How can metrics be classified?• Which metrics are commonly used?• Which metrics are commonly used?• How to develop metrics?• How to measure?

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Logistics metricsg

• Measure the performance of various logistics • Measure the performance of various logistics functions (internal and external)

• Focus on time, quality, availability, cost, profit and reliabilityp y

• May be financial (cost and revenue) or non financial (service and productivity)non-financial (service and productivity)

• Include the critical success factors for all levels of the business

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Why to measure logistics performance?y g p

• To reduce operating costsTo reduce operating costs– Measuring operating costs helps identify whether and

where to make operational changes to control expenses d d f f d and identifies areas for improved asset management

• To drive revenue growth– To attract and retain valuable customers, the price/value

of products offered can be enhanced through cost reductions and service improvements in logistics activitiesreductions and service improvements in logistics activities

• To enhance shareholder value– The returns on shareholder investments and the market The returns on shareholder investments and the market

value of the firm are impacted by the performance of firm logistics

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The context of logistics metricsg

MEASURESMEASURESACTIONSACTIONS

DECISIONSDECISIONSDECISIONSDECISIONS

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Classification of logistics metricsgLogistics Metrics

ExternalInternal

• Internal metrics measure • External metrics reflect the the performance of the system or the internal

f h l

expectations of the organization by external

components of the logistics system (production plant, warehouses transportation

entities (customers, stockmarkets, government, third-party agencies)warehouses, transportation

equipment)third-party agencies)

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Example of metricsp

• Internal metrics• Internal metrics

time travel totaltime travel loaded

nutilizatiotruck =time travel total

full in delivered ordersof number shipments complete =

period a in orders totalshipments complete =

• External metrics

shipments No totaltimedelivery promisedof 4h withinshipments No

yreliabilit service±

=

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Internal metrics drive the external

• For example the % of on-time deliveries of • For example, the % of on-time deliveries of shipments by a carrier is an external metric.

• However it is driven by internal metrics:– on time departure of delivery trucks, p y ,– reliability of trucks,

% of time on road – % of time on road, – etc.

• External metrics are tipically financially and service oriented

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service oriented

Strategic and operational levelg p

• Metrics are strategic and operational Metrics are strategic and operational depending on the focus and level of detail

Strategic metrics focus on overall system-level – Strategic metrics focus on overall system-level performance

– Operational metrics focus on unit-level or – Operational metrics focus on unit-level or machine-level performance

• Example• Example– “% of travel time with full load” can be measured

regarding the entire fleet (Strategic) or the single regarding the entire fleet (Strategic) or the single vehicle (Operational)

I b th t i b th 9

• In both cases metrics can be the same

Analysis of commonly used metricsy y

Logistics Metrics

ExternalInternal

System-level Function-level Customers Government Investors

FinancialNon-Financial

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Internal/System-level metricsy

Example of metrics at system-level They can Example of metrics at system level. They can be divided into

• FinancialFinancial– Inventory turnover ratio

• Non-financialNon financial– % of demand met

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Financial: inventory turnover ratioy

• Useful to evaluate the speed of movement of • Useful to evaluate the speed of movement of goods through a company. It determines the n mber of times in entor is t rned o er number of times inventory is turned over during the year.

sold goodsof costratioturnover inventory =

investmentinventory averageratioturnover inventory =

Higher ratio is better!12

• Higher ratio is better!

Non-financial: % of demand met

• It is an indicator of the operational • It is an indicator of the operational capabilities of a company

demand totalfulfilled orders

met demandof % =demand total

• Reasons for low % can be poor forecasting, insufficient capacity, low inventory levels, p y, y ,poor quality and unreliable production and distribution system

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distribution system

Internal/Function-level metrics

Example of metrics related to the main Example of metrics related to the main logistics functions in the supply chain

• TransportationTransportation• Warehousing• Production• Maintenance• Maintenance• Vendor selection

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Transportation: transit time variabilityp y

• Non-financial metric that captures the • Non financial metric that captures the variation in transit time (TTV)

• Indicates the reliability of the transportation function

TT Minimum- TTMaximumTVT =

TTAverageTVT =

• Less variability in transit time helps customers plan the work more efficiently

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plan the work more efficiently

Warehousing: operating cost per unitg p g p

• Financial measure of the cost-effectiveness of • Financial measure of the cost effectiveness of operating a warehouse; depends on warehousesi e and thro ghp tsize and throughput

• Fixed cost (increases with size)( )– Building, equipment, fixed payroll

Variable cost (increases with loads processed)• Variable cost (increases with loads processed)– Contract manpower, variable utilities, fuel

• Overhead cost– Heating lighting insurance taxes

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Heating, lighting, insurance, taxes

Production: defectives

• Defectives not fixable have to be scrapped • Defectives not fixable have to be scrapped, bringing down the production rate

• The unit cost of production increases – cost of repair + cost of labor + cost of materialp

• The related metric is:

repaired be cannot that unitsof number rejects %

produced unitsof number totalrejects % =

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Maintenance: mean time to repairp

• The average active maintenance time rt• The average active maintenance time to perform corrective maintenance

t

• It depends on the type and frequency of failures

∑ tf

∑∑= jjr

t

tft

∑ jt

j type failureof frequency f

j type failurerepair to time averaget

j type failureof frequency f

j

j

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j type failurerepair to time averagetj

Vendor selection: % of good partsg p

• Measure of the reliability of the supply in • Measure of the reliability of the supply in terms of the quality of the delivered parts

defectives -supply totalt g df %

quantitysupply totalpp y

parts goodof % =

• If not 100% it leads to shortage of parts and • If not 100% it leads to shortage of parts and additional costs (reverse logistics)

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External/Customers

• Customer service has 3 dimensions• Customer service has 3 dimensions– Quality (Number of good parts sold, % of

hi t d li d ti )shipments delivered on time,…)– Time (Leadtime)– Cost (unit cost of providing a service)

• Metrics• Metrics– Service reliability

C l i– Customer complaints

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External/Government

• Governments tend to measure industry Governments tend to measure industry performance based on

Number of new jobs created– Number of new jobs created– Revenues from taxes

N i f t t d l t– New infrastructures development– Impact on other industries

• They also evaluate negative aspects such as– Pollution– Congestion– Crimes

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Crimes

External/Investors

• View in monetary terms of the company • View in monetary terms of the company performances

• Metrics

earnings retainedsharesof number

earnings retainedshareper earnings =

debts totalleverage financial =

assets totalleverage financial =

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How to design the metrics?g

1 Define the system that has to be measured 1. Define the system that has to be measured and its components

2. Determine the functional requirements or expectations of the systemp y

3. Identify metrics that can quantitatively measure the functional requirementsmeasure the functional requirements

Make sure to understand the relationship between metrics!

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between metrics!

Issues in logistics metricsg

• Simple and easy to understand in terms of Simple and easy to understand in terms of measuring, calculating and interpreting

• Measurement units• Measurement units• Data availability• Reporting on measures (charts or graph, trend

analysis)y )• Quality of measures (perceived accuracy,

actionability and internal comparability and actionability, and internal comparability and compatibility )Understanding the drivers of the performance

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• Understanding the drivers of the performance

How to measure the metrics?

• Manually• Manually– Data collection by means of paper forms– Time measurement of logistics processes– Financial documents analysisy

• AutomatedInformation System (ERP DB analysis)– Information System (ERP, DB analysis)

– Communication Technology (Tracking&Tracing)– Dedicated software (“Cockpit” of Key Performance

Indicators, KPI)

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