The Right Measures
By Marisa Brown
In a field driven by precision and efficiency, logistics organizations are looking for the right measures to track their performance and identify opportunities for improvement. Key performance indicators (KPIs) for logistics processes are not unknown, but organizations must determine which of these measures are critical for their business. In addition, many organizations struggle with the challenge of ensuring widespread employee engagement and linking performance improvement for the organization with individual performance.
The first step for managing logistics measurement effectively is to identify measures that are strategically aligned and relevant.
Strategic alignment refers to how well measurements are linked to organizational objectives. Leading organizations use value stream analysis to cascade measures from strategic objectives by enlisting senior management or a centralized team to analyze the value stream and ensure the measures align with strategy.
When leading organizations adopt new initiatives or methods to track performance, they use macro measures to assess overall change efforts and use bottom-up measurements (e.g., tracking new behaviors) to pinpoint the root causes of any issues. Because change often affects norms and culture, it is important to incorporate the desired behaviors into employee performance evaluations and rewards.
Ensure Continued Relevancy
A key element of logistics measurement is re-evaluating the measures at regular intervals to determine if measures need to be removed or replaced to accommodate business changes. Evaluations can also consider whether the measurement program itself is efficient and providing value.
The second step in managing logistics performance is clearly communicating insights in a way that provides context for decision makers.
The impact of even the most appropriate measures can wane if decision makers have to search a cluttered dashboard for the information they need. Typically, ten measures or fewer are sufficient to include on a single dashboard.
Data for any measure needs context. Without context, an organization risks reacting too quickly to a shift in data and instituting unnecessary corrective measures.
Providing context means looking at performance over time. It also involves taking a broader look at external factors that affect the data. This context must be communicated to stakeholders in order to set expectations on what they are monitoring. This context ensures that the stakeholders are aware of what a shift in measures means, so they can take appropriate action if the issue persists.
Leading organizations use an array of communication channels and engagement tactics to build a performance culture and tap into the expertise of employees.
Provide leaders with the information and training they need to communicate to their direct reports and lead by example. This includes information on performance measures and how employees directly influence organizational goals.
Be deliberate about the purpose and target of communications. Not all information will be relevant to everyone within the organization, and over-communication can result in people ignoring important information.
Engage employees in the process. Organizations should use interactive communication tactics such as focus groups, social media, crowdsourcing, and employee-led training. These engagement approaches help create buy-in and tap into the expertise and ideas of employees.
Organizations should measure and monitor a balanced set of KPIs, including outcome/impact measures, for any given process in order to avoid solely focusing on one indicator to the detriment of others. Typical KPI categories include cost effectiveness, cycle time, process efficiency and staff productivity. Logistics organizations often separately track costs (e.g., personnel, systems and total costs) and processing cycle time for returns and reverse logistics.
Cost effectiveness includes the total cost to perform the entire logistics and warehousing process group, as well as each process: define logistics strategy, plan and manage inbound material flow, operate warehousing and operate outbound transportation.
Cycle time includes the dock-to-stock cycle time for supplier deliveries and the pick-to-ship cycle time for customer orders. Process efficiency measures include perfect order performance, order fill rate, inventory accuracy and the number of full-time employees for the entire process group and each process. Staff productivity measures include the number of annual sales orders filled per full-time employees that performs the warehousing process.
The key to picking the right logistics measures and establishing the foundation to achieve objectives effectively is to first identify measures that strategically align with organizational objectives. Next, clearly communicate insights with context for decision makers, and then engage employees in the process. Lastly, pick a balanced set of measures to evaluate logistics performance.
Marisa Brown is senior principal research lead of supply chain management for APQC.