In the supply chain industry, logistics services providers face many factors beyond their control. From the availability of raw materials, to energy and fuel costs, to regulatory shifts and changing consumer demands, logistics professionals play an integral role in meeting these challenges head on—all while attempting to maintain a competitive edge in the business.
These forces churning behind the modern supply chain are the reason logistics performance (LPM) management is more important now than ever before. Yet, many logistics organizations fail to realize the productivity and service potential that comes with monitoring performance, even when research shows that doing so offers a foremost competitive differentiator.
With the advent of logistics technology, logistics leaders can easily gain insight into all areas of their business—and make the changes necessary to improve its effectiveness. But to do so, it’s important for logistics professionals to fully understand the process of performance management and why it’s so vital to the logistics chain.
What is Logistics Performance Management?
At its root, “logistics is about getting the right product, to the right customer, in the right quantity, in the right condition, at the right place, at the right time, and at the right costs,” otherwise known as the Seven R’s of Logistics, as coined by John J. Coyle.
Logistics performance management (LPM) is regular monitoring of every aspect of the logistics chain. This process includes collecting data surrounding all logistical activities including: inbound and outbound transportation, fleet management, warehousing, inventory management, materials handling, order fulfillment, supply and demand planning, 3PL management, logistics network design and others support services—essentially anything that has an impact on cost or performance.
Logistics professionals use logistics management as a way to identify and correct inefficiencies to improve business performance. By defining performance variables, identifying metrics and using clean, accurate data to leverage insight, logistics professionals can ensure they are on track to meet or exceed their business performance goals.
Barriers to Effective LPM
In theory, logistics performance management sounds easy enough: logistics professionals simply set their goals and track their improvements along the way. However, there are several factors that can impede a company’s progress.
In that way, it’s important for logistics leaders to be aware of these barriers, so they can take a proactive approach to LPM. A lax approach to LPM is truly a wasted opportunity.
1. Ineffective Strategy
Many companies set out to accomplish some lofty performance goals, only to fall short in the end when it becomes clear they were lacking one crucial component: a logistics performance strategy.
To create a logistics performance management strategy, a logistics leader must lay out the logistics performance process. Generally speaking, LPM relies on a consistent flow of events, according to the Centre for Transport & Logistics:
Once a company identifies an area of improvement, they must set a goal and a process to achieve that goal. The logistics activities a company chooses to monitor may be financial (cost and revenue), or non-financial (such as service and productivity), or both—and can also include both external and internal metrics.
For example, the percent of on-time deliveries of shipments by a carrier is an external metric. However, it relies on internal metrics such as on-time departure of delivery trucks, reliability of trucks, and percent of time on the road. Let’s imagine that truck breakdowns are causing delivery delays.
Using logistics performance management, a logistics leader could:
- Use the data to uncover the reason behind delivery delays (truck breakdowns).
- Meet with his team to reduce the number of carriers across all routes.
- Use past and current data to consolidate shipments, resulting in fewer trips.
- Measure and track cost-savings following these actions.
Obviously, an effective logistics performance management plan needs an experienced decision-maker to help decipher the information the data provides, so he or she can respond with real-time actions to improve business performance—which can only come with the combination of a sophisticated logistics management platform, and the collaboration of his or her team.
2. Performance Metrics Aren’t Clearly Defined
Unfortunately, your data is worthless if the right performance metrics aren’t put into place. A logistics professional must know what to measure, in order to track performance.
While there are literally countless metrics logistics professionals can turn to to measure performance, and these measurements will largely depend on the goals and size of your business, some examples of logistics performance measurements include:
- Total travel time
- Total orders in a period
- Total orders fulfilled
- Number of shipments within x hours of delivery time
- Cost of goods sold
- Average inventory investment
- Fixed costs (payroll, building, equipment)
- Variable costs (fuel, utilities)
- Overhead costs (insurance, taxes, heating, lighting)
- Service reliability
- Customer service complaints
- Cost per pound
- Total lane costs
- Accessorial charges
It’s important to understand which performance metrics specifically reflect the state of the goal area (it may be more than one), so you can take the appropriate actions to improve. Without these measures, it will be nearly impossible to reduce operating costs, drive revenue or enhance shareholder value.
A logistics performance management platform makes data readily available, and can be easily modified to align with your targeted performance metrics.
3. Lagging Logistics Technology
Technology changes on a nearly daily basis, and it can be difficult for even the most tech-savvy company to keep up. One of the biggest hurdles of performance management is having (or developing) the existing IT infrastructure required to support logistics software.
Add in the fact that the software doesn’t always integrate well enough with applications already in place, and it’s no wonder so many companies are hesitant to adopt a performance management strategy.
Not all logistics performance management applications are created equal. Some suffer from a terminal lack of customization abilities; others are incredibly flexible, but offer limited reporting capabilities. The best track the root causes and effects of logistical performance across all activities, functions, and departments of any given process.
The ability to get accurate information in real-time is a necessity. When a problem is identified, logistics professionals need to know in the moment, not the next time someone looks at a report. While most performance management software offers real-time capabilities, logistics leaders need to ensure it provides a high level of accuracy and integrity, so they can trust the data they see.
A logistics management team must ensure that its software can adapt to its company’s performance metrics definitions and KPIs. It should work from the top down to deliver the best performance indicators possible, and should be able to evaluate a single metric over multiple dimensions.
While it is true that developing a company’s IT capabilities to support and enhance the performance management process can be time consuming and expensive, the return on investment in terms of increased business, higher customer satisfaction, and lower operating costs will more than make up for it in the long run.
Take the Next Step
Performance management is a critical part of the logistics business, but it’s not without its hurdles. When logistics pros look at each stumbling block as an opportunity, it can only mean success for your company. Ready to take your business to the next level? Learn more about our logistics solutions.