Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

1.4 Performance Indicators and Performance Measurement

Intended learning outcomes: Present the basics of the measurement, meaning, and practical applicability of logistics performance indicators. Describe performance indicators in the target areas of quality, costs, delivery, and flexibility. Produce an overview on performance indicators of the primary entrepreneurial objective.



A performance indicator or performance criterion is the specific characteristic to be measured for estimating performance. 
A performance measurement system collects, measures, and compares a measure to a standard for a specific performance indicator. 
A performance measure, or performance measurement, is the actual value measured for the indicator ([APIC16]).

Appropriate performance indicators are meant to show the degree to which entrepreneurial objectives (see Figure 1.3.1.1) are fulfilled or not fulfilled.

Logistics performance indicators analyze the effect of logistics on entre­preneurial objectives in the four target areas of quality, costs, delivery, and flexibility.

Descriptions of logistics performance indicators can be found in [OdLa93] or [Foga09], Chapter 5, and in the following. Whenever possible, a logistics performance indicator will give direct indication of fulfillment of one of the individual objectives within a target area. A performance indicator relates to a logistics object and thus becomes an attribute of that object — and sometimes it becomes a logistics object in its own right.

Global measures measure the overall performance of a company or supply chain (such as cash flow, throughput, utilization, inventory). 
Local measures relate to a single resource or process and usually have a small influence on global measures (i.e., volume discount on an item, lead time for stock entries, utilization of a storage location).

In the following, we introduce a balanced set of global measures from a logistics perspective. This balance is one of the requirements of the balanced scorecard, an approach that pointed out the one-sidedness of performance indicators in the financial sector, which (too) often only refer to the company’s primary entrepreneurial objective of return (see [KaNo92] and Section 1.3.2). A systematical derivation of the balanced set of performance indicators from the company’s strategy can be found in [Schn07]. Together with indicators from other areas of the firm, such as finance, marketing, and R&D, the logistics indicators form a complete set of measurements of performance, and thus a basis for improving company performance.



Course section 1.4: Subsections and their intended learning outcomes



Course 1: Sections and their intended learning outcomes

  • Course 1 – Logistics, Operations, and Supply Chain Management

    Intended learning outcomes: Describe basic definitions, issues, and challenges. Identify business partners and business objects. Explain strategies in the entrepreneurial context. Disclose how performance is measured.

  • 1.1 Basic Definitions, Issues, and Challenges

    Intended learning outcomes: Produce an overview on terms of the working environment and of business life. Explain service orientation in the classical industry, product orientation in the service industry, and the industrial product-service system. Disclose the product life cycle, the synchronization of supply and demand, and the role of inventories. Produce an overview on supply chain management, the role of planning and control as well as the SCOR model.

  • 1.2 Business Objects

    Intended learning outcomes: Present business-partner, and order-related business objects in detail. Explain product-related, process-related, and resource-related business objects. Produce an overview on rough-cut business objects.

  • 1.3 Strategies in the Entrepreneurial Context

    Intended learning outcomes: Differentiate between various entrepreneurial objectives in a company and in a supply chain. Explain resolving conflicting entrepreneurial objectives. Describe the customer order penetration point (OPP) and the coordination with product and process design. Produce an overview on the target area flexibility: investments in enabling organizations, processes, basic technologies, and technologies toward personalized production.

  • 1.4 Performance Indicators and Performance Measurement

    Intended learning outcomes: Present the basics of the measurement, meaning, and practical applicability of logistics performance indicators. Describe performance indicators in the target areas of quality, costs, delivery, and flexibility. Produce an overview on performance indicators of the primary entrepreneurial objective.

  • 1.5 Summary

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  • 1.6 Keywords

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  • 1.7 Scenarios and Exercises

    Intended learning outcomes: Describe improvements in meeting entrepreneurial objectives. Differentiate between entrepreneurial objectives and the ROI. Assessing the Economic Value Added (EVA) of Supply Chain Initiatives. Derive rough-cut business objects from detailed business objects.

  • 1.8 References

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