Measuring logistics costs and performance

Today s turbulent business environment has produced an ever greater awareness amongst managers of the financial dimension of decision making. The bottom line has become the driving force which, perhaps erroneously, determines the direction of the company. In some cases this has led to a limiting, and potentially dangerous, focus on the short term. Hence we find that investment in brands, in R D and in capacity may well be curtailed if there is no prospect of an immediate payback. 

Just as powerful an influence on decision making and management horizons is cash flow. Strong positive cash flow has become as much a desired goal of management as profit. 

The third financial dimension to decision making is resource utilisation and specifically the use of fixed and working capital. The pressure in most organisations is to improve the productivity of capital - to make the assets sweat. In this regard it is usual to utilise the concept of return on investment (ROI). Return on investment is the ratio between the net profit and the capital that was employed to produce that profit, thus  

As well as its impact on operating income (revenue iess costs) iogistics can affect the baiance sheet of the business in a number of ways, in today s financiaiiy chai-ienging business environment improving the shape of the baiance sheet through better use of assets and resources has become a priority. 

By examining each element of the balance sheet in turn it will be seen how logistics variables can influence its final shape. 

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Particularly relevant to the supply chain management function, their model for logistical performance measurement (Figure 8.3) assesses each process horizontally in terms of time, quality, and cost, and vertically at each phase of the process ... 

Consider a donor with available funds R that it is considering allocating between two NGOs based on their relative performance. Assume that performance is measured by the quickness of an NGO s delivery of supplies to the disaster site. Assume that the ith NGO achieves a delivery time of ti for a unit standard load, charges the donor a fee a, per unit dollar of funds received, and incurs a logistics cost of, per unit standard load, per unit time. Assume that donor s utility from the relief operations is inversely proportional to the delivery time. 

As a third category production-related performance measures reflect the monetary cashflow resulting from production operations. This includes costs for raw and auxiliary material consumption, labour costs of operators, opportunity costs for tied capital, and revenues due to sales of final and intermediate chemicals. A configuration of the network s logistical system affects the production system by providing prerequisites for normal production operations. I.e. a configuration assures that raw materials are available and that final and intermediate chemicals can be stored and delivered to customers. In this simulation study, these effects result in the availability or storability of intermediate chemicals. If material is unavailable or not storable (e.g. due to fully utilized. stock capacities), a disturbance of the production processes results such that plants have to reduce their production outcome or shut down. An appropriate measure to account for production disturbances is to measure the gap between planned and realized production for all plants associated to the considered... 

In the past it was usually deemed to be sufficient simply to measure internal performance. In other words, the focus was on things such as productivity, utilisation, cost per activity and so on. Whilst it is clearly important that such things continue to be measured and controlled it also has to be recognised that such measures only have meaning when they are compared against a relevant metric or benchmark. What should be the metric that is used in assessing logistics and supply chain performance ... 

Besides conceptual contributions about supply chain performance measurement configurations and the operationalisation of value drivers, academic efforts have generated methodic-instrumental quantification attempts. Wildemann (2004), for example, presents a tool that allows the assessment of logistical performance and costs within the supply chain. Based on a benchmark of over 500 companies the tool identifies potential which can be raised by SCM. In doing so, he uses an estimation... 

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