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

1.4.1 The Basics of the Measurement, Meaning, and Practical Applicability of Logistics Performance Indicators

Intended learning outcomes: Identify central problems in terms of the meaning and applicability of performance indicators in practice.

In actual practice, the measuring of logistics performance varies in difficulty and usually requires that certain aspects be counted. With the exception of local measures, it is generally not possible to assess these aspects without expending a lot of time and energy. In addition, integrating and compressing the local measures into global measures, covering several levels, for example, can be very problematic.

The following sums up central problems in terms of the meaning and practical applicability of performance indicators in the form of practical methods. The problems are typical of any quality measurement system and, in part, costing systems as well.

  • General performance indicators: Simple, measurable performance indicators are often so general and qualitative in meaning that no practical steps can be derived from them without making additional, nonquantitative, and implicit assumptions. An example of such a performance indicator is customer satisfaction.
  • Lack of comprehensive measurement methods: Simple, applicable performance indicators often cannot be measured directly. They require various, at times complica­ted or inexact measurements that are combined with nonmeasured, implicit methods to yield the desired indicator. A good example is flexibility potential.
  • Distortion of the processes: Each measurement affects the process being measured. The disturbance can be so great that the process would behave differently under nonmeasurement conditions.
  • Meaning of the performance indicators: The absolute value of a performance indicator has little meaning as such. Only repeated comparison of measurements of the same performance indicator over time can make the performance indicator an instrument of continual process improvement (CPI).
  • Comparability of performance indicators: Benchmarking with other companies, in the same supply chain, has meaning only if the competitor has used the same bases of measurement. In practice, it is common to find that companies use different reference objects, the objects to which certain performance indicators refer. An example is fill rate or customer service ratio (see Section 1.4.4). Fill rate can refer to either order positions or items; its measurement can be based on quantity units or value units. Before making comparisons, therefore, it is essential to know how another enterprise defines the performance indicator.

It makes sense to weigh the value of the potential application of the measurement against the time and effort required by the measurement. In practice, a few simply measured perform­ance indicators have proven worthwhile. Employees must then apply the measure­ment using a multitude of means that cannot be directly derived from the measurement.

Course section 1.4: Subsections and their intended learning outcomes

  • 1.4.4 Performance Indicators in the Target Area of Delivery

    Intended learning outcomes: Present performance indicator fill rate, also called customer service ratio, or OTIF (on-time and in-full). Identify the performance indicators delivery reliability rate, batch size or lot size, capacity utilization, value-added rate of lead time, variance in work content response time and order confirmation time.

  • 1.4.5 Performance Indicators in the Target Area of Flexibility

    Intended learning outcomes: Present the performance indicator bid proposal success rate, order success rate, breadth of qualifications, and temporal flexibility. Describe the SCOR indicators upside supply chain flexibility, upside supply chain adaptability, downside supply chain adaptability, and overall value at risk (VaR).

  • 1.4.6 Performance Indicators of the Primary Entrepreneurial Objective

    Intended learning outcomes: Present the performance indicator cash-to-cash cycle time and return on net assets (RONA).

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