LOGISTICS PERFORMANCE MEASUREMENT AND THE WORLD CLASS LOGISTICS MODEL – PART 2

This is the second part of the article published in the previous issue of this journal. On that occasion, we presented a set of metrics that should be considered when planning the measurement of logistics performance. According to the World Class Logistics model, the performance measures employed by world-class companies pertain to four areas: customer service/quality, cost, productivity, and asset management.

As important as having a set of indicators that cover different dimensions, the “Logistics Competency Model” developed by the Michigan Group in the World Class Logistics survey suggests that the “measurement of logistics performance” competency consists of three skills or perspectives for measuring performance. The measurement perspective refers to how a company identifies and defines performance indicators: functional or activity assessment, process or system assessment, and benchmarking. Other authors who expanded the theme, such as Holmberg (2000), include the perspective that encompasses the supply chain as a whole.

Finally, the model draws attention to some operational and management aspects necessary for successful measurement of logistics performance, and proposes that the effective use of a measurement system requires: (1) the support of an information system , (2) the use of a dynamic indicator monitoring system, which includes the need to periodically review the indices used, adding new ones and removing obsolete ones, and (3) the effective use of the results obtained, the which really means using the results of the monitored performance indicators to take effective improvement actions when necessary.

This article will then address the issue of measurement perspectives and the operational and management aspects of the logistics performance measurement system.

1. MEASUREMENT PERSPECTIVES

1.1 Functional or Activity Perspective

Functional indicators assess the efficiency and effectiveness of tasks. They are a prerequisite for managing and controlling logistics performance and provide managers with information to identify problems and the basis for continuous improvement. Functional assessment involves several different operational areas. Indicators such as asset utilization, costs, customer service, productivity and quality are critical to logistics performance and require multidimensional evaluation. The Michigan group identified in the “World Class Logistics” survey that world-class companies pay more attention to functional assessment than organizations in general. This ability to better evaluate activities provides them with better quality information compared to that obtained by their competitors. For the authors, this makes them capable of making decisions more adequately (CLM, 1995).

However, in general, they do not evaluate the performance of the complete process in terms of customer satisfaction (BOWERSOX and CLOSS, 2001). The exclusive use of functional measures is criticized by some authors who claim that this type of approach would be co-responsible, along with the functional organizational structure, for the little or no integration existing between the acquisition area and the manufacturing and logistics areas, since that makes the management of the logistics process difficult and suboptimizes it when seeking functional optimization.

1.2 Process Perspective

The concept of process encompasses the idea of ​​a series of connected elements, which form a whole, and show properties of the set that are preferred in relation to those of the individual parts that compose it (HOLMBERG, 2000). From this perspective, a company can be seen as a series of functionally organized subsystems that interact with each other to achieve common goals and minimize internal contradictions.

In general, performance measurements consider the performance of the parts and not the properties of the system as a whole, which makes it impossible to analyze trade-offs inherent to logistical activities. The process approach accepts that there is an interrelationship between the parts of the whole, such that an action that affects one of the parts will affect the whole. Emphasis is given to the integrated effort to reach a joint objective and attention is directed to the interaction of all parts of the system.

The adoption of a process perspective in measuring logistics performance is advocated by researchers from Michigan who state that “true delivery of value to customers occurs only through the integrated performance of many functional departments (both internal and external to the company)”. For researchers, the recognition that an integrated approach is necessary to provide value to customers expands the focus from measuring specific activities to the development of measurement systems that evaluate the performance of the entire supply chain (CLM, 1995 ).

1.3 Benchmarking

According to Bagchi (1996), the more relevant role that logistics has been assuming in organizations makes managers seek new ways to achieve excellence; benchmarking actions can be included in this context. Benchmarking can be defined as “a continuous and systematic process to evaluate products, services and work processes of organizations recognized as representing the best practices, with the purpose of organizational improvement” (SPENDOLINI, 1992).

According to Eccles (1991), the practice of “looking outside” provided by benchmarking brings some benefits. First, it makes people aware of best practices and changes their perspectives on what is possible to do internally. In addition, benchmarking acts against the complacency of performance evaluation that uses previous performance as a comparison, which generates a false perception of security.

Carrying out a benchmarking process involves: identifying the area of ​​the company with potential for gains from benchmarking, forming a team, preferably cross-functional, determining the metrics and approach that will be used in the benchmarking process, identifying partners and, finally, the analysis of the results, followed by the adaptation and planning of the implementation of the necessary improvements (CLM, 1995).

There are several types of benchmarking. The activity can range from transactional measures to strategic measures, it can be done only between two companies that regularly exchange information or even be practiced between a group of partner companies from the same sector or from different sectors. Considering the relationship between the benchmarking participants, the process can take place with other divisions of the company, with competitors, or with companies belonging to other segments.

1. a) Internal benchmarking

According to Spendolini (1992), internal benchmarking is usually practiced by companies that operate in different segments and geographic regions. The objective is to identify the organization's performance standards and disseminate best practices. In this process, it is assumed that there are differences in work processes in the organization, and that those adopted in one part of the company may be more effective than those practiced by others.

That author warns, however, that internal benchmarking is not a substitute for generic and competitive benchmarking activities, as the information collected internally may represent a limited focus of the investigated issue, or present a biased view of the subject.

1. b) Competitive benchmarking

It involves identifying products, services and work processes of an organization's direct competitors. The goal is to identify specific information about competitors and compare it to that of the organization. Its usefulness would be to position products, services and work processes of an organization in relation to the market.

This type of benchmarking, as well as that carried out between companies from different sectors, makes it possible to perceive what level of performance is really possible and what are the gaps between a company's performance and potential performance.

Another advantage of competitive benchmarking is the fact that the similarity between companies allows the best practices found to be applied with relative ease.

1. c) Functional/generic benchmarking

Organizations with logistical similarity do not necessarily belong to the same sector of activity. There are companies with similar characteristics with regard to logistics (number of SKUs, order profiles, performance criteria, operational scales), from different sectors, which can exchange comparative information on the metrics used. (FRAZELLE, 2002). Functional/generic benchmarking aims to identify best practices in any type of organization that has a reputation for excellence in a specific area.

The perspective of selection and comparison of indicators through benchmarking presents some problems. In the case of competitive benchmarking, there may be internal barriers caused by the perception that the competitor is unreliable and difficulty in obtaining some information from competitors. In the case of functional/generic benchmarking, an important point is that companies must be aware of the existing differences between their performance objectives and those of their benchmarking partners, as this can influence the evaluation. There is also the difficulty of getting the target companies to cooperate, or even to make the required data available in a comprehensible way and within the necessary time frame.

1.4 Supply Chain Measures

In addition to the perspectives addressed, world-class companies are concerned with measuring the performance of the supply chain (CLM, 1995). The supply chain is the integrated process, in which the raw material is processed, transformed into a final product and distributed to consumers. It is formed basically by the links: suppliers, processing, distribution and customers, each one of these constituted by a series of installations. The greater the number of links and the number of installations, the greater the complexity of the chain.

According to Holmberg (2000), interest in supply chain management has been growing rapidly among companies around the world due to competitive pressures and the belief that working cooperatively can create advantages. This type of management can be characterized by control based on integration and networking between functional, geographic and organizational interfaces, defined by Ojala (2000) as the integration of key processes from input suppliers to end product users.

For supply chain management to be more effective, performance measures must be used that have an integrated perspective, are compatible and consistent with the functions of the company and the other firms that are part of the chain (BOWERSOX and CLOSS, 2001).

In pursuit of gains from improved supply chain performance, world-class logistics companies have developed chain performance measures related to costs, customer service, and quality. The use of measures of cash cycle time (cash-to-cash cycle) and total stock in the supply chain are two examples (CLM, 1995).

Remko (1998) suggests that measuring the supply chain comprises three steps: defining the extent of the chain, developing new measures and benchmarks based on these, and developing tools that assess the trade-offs of measuring the chain and ensure the executives' commitment to process improvement.

Despite the interest in the subject, several authors claim that more research is needed, especially in relation to the barriers that exist in the implementation of indicators that evaluate the supply chain. According to Lambert and Pohlen (2001), there is still no evidence of the significant use of supply chain performance measures; for the authors, the measures identified as supply chain performance metrics are actually used internally.

Concluding this presentation on measurement perspectives, we want to make it clear that there are several perspectives for selecting and measuring logistic indicators. All have advantages, disadvantages, facilities and difficulties of implementation. Bowersox and Closs (2001) argue that measurement perspectives are not mutually exclusive. For them, the perspective employed can vary from a strictly functional approach to an exclusively systemic approach depending on the case. Figure 1 seeks to illustrate this observation by considering the possibility of overlapping perspectives.

2. OPERATIONAL AND MANAGEMENT ASPECTS IN THE USE OF LOGISTICS INDICATORS

Whatever the measurement perspective or perspectives used, the simple selection of indicators and their measurement are not enough for a measurement system to be effective in improving the logistics performance of a company. The support of an information system, the use of a dynamic system and the effective use of the results obtained are essential for success in measuring logistics performance.

2.1 Need for support from an information system

Information technology has played a key role in the performance measurement revolution. It made data capture, analysis and review easier, simplified performance measurement system management and information maintenance. Although measurement systems can be implemented without the support of an information system, it is likely that if this occurs, their scope and the ability of managers to exploit it will be less than one that uses an information system as support.

A good information system needs to support area managers, be able to transfer data from collection points to the appropriate level of management, provide accurate, useful, reliable and user-friendly information, and take into account strategy and environmental factors. related to the business as well as the structure of the organization, its processes, functions and relationships. It also needs to connect the logistics functions internally with each other and with other functions such as production and marketing.

2.2 Need for a dynamic performance measurement system

Good indicators don't stay good forever. In order for strategy and performance measures to be aligned, and the measurement system to remain integrated, efficient and effective over time, it is necessary that the indicators employed be systematically reviewed and that the system be dynamic. For Kennerley and Neely (2003), the ability to continuously monitor is an important success factor.

2.3 The effective use of measures and corrective actions for deviations

The final step in implementing a performance indicator system is continuous monitoring of the output. One of the keys to continuous improvement is the constant monitoring process that identifies variations and takes corrective action to eliminate the causes of variations and prevent them from occurring again.

3. SUMMARY AND FINAL CONSIDERATIONS

Everyone who follows the evolution of logistics activities around the world is often impressed with the significant investments that companies have been making to qualify their logistics area to face competitive challenges.

Despite moving reasonable amounts, the allocation of many resources for the development of logistics activities does not necessarily mean obtaining competitive advantages; these are achieved when the use of available resources enables companies to offer services superior to those of their customers. To assess how the available resources are being used and whether their use enables the company to offer superior services, a performance measurement system is needed, the only way to verify whether the logistics operations are reaching the desired service goals.

In these two articles, we sought to address the issue of measuring logistic performance. Together they suggested a huge set of indicators, the way or ways in which a company can identify and select the most appropriate indicators, and presented three operational aspects that must be considered in effectively managing the use of indicators. The two articles were written with the results of research by the Michigan Group in mind that include measuring logistics performance as one of the four competencies necessary for world-class logistics performance.

BIBLIOGRAPHY

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Authors: Maria Fernanda Hijjar, Marina Helena Gervásio and Kleber Figueiredo