Most organizations are restless. Markets and competitors change, competitiveness is increasing and in some cases the results worsen without being very clear whether it is due to structural or conjunctural problems. Faced with this situation, organizations are in a moment of searching for solutions and many of them can be found in the logistics area.
In our usual consulting work we find sectors or companies that traditionally come from having large margins due to product / business innovation or the lack of competitors and who currently say:
In this article, we will start from a simplified model of the logistics chain that is represented through the following figure in which we delete the part of product development and processes to simplify:
And to analyze the model, the following questions should be asked in each of the areas:
Obviously, these questions have subjective answers, so it is essential to use a series of quantifiable parameters that allow answering this series of questions in an objective way.
In other words, a series of indicators are needed by which the logistics chain can be managed in each of its elements, identifying and eliminating everything that does not add value to customers.
This is the moment when the concept of a logistic scorecard appears as a set of indicators and goals aligned with the strategy, the strategic objectives and the company's comprehensive scorecard.
Logistics dashboard
For the construction of the logistics scorecard, a set of measurable examples are described below that allow identifying the inefficiencies for each of the different areas into which the logistics chain has previously been divided.
This set of measurable items must be customized for each specific case depending on the profile of the sector and the company, but they can serve as a first approximation for the development of a logistics scorecard.
For practical purposes it is very important to highlight the importance of having knowledge and experience in two areas:
The exact definition of the indicator, taking into account the specific cases of each company and defining each indicator according to the specific needs.
The importance of having the data source perfectly verified for each indicator, since the lack of clarity of the data sources can be a serious problem in a scorecard project.
Procurement / suppliers
Is the supply area effective and efficient and are the relations management with suppliers correct ?. To answer this question, there are a series of indicators that allow detecting inefficiencies in the relationship with suppliers and in the management of purchases / supplies. As an example of indicators, the following can be defined:
Rotation of the inventory of raw materials. This measurable allows to detect inefficiencies of management and coordination between purchases and production.
Stock breaks of raw materials.
Supplier quality of service. It measures the quality of our suppliers, evaluated with the specific parameters for each case based on the critical elements.
Compliance with supplier deliveries. It is used to analyze supplier compliance with dates as well as the impact of these compliance / non-compliance on customer service.
Cost of raw materials on sale price. It is used to analyze the costs associated with raw materials and their impact on the company's turnover.
Manufacturing
Do we manufacture efficiently and effectively? In manufacturing companies, an important part of the costs and efficiency in the service are concentrated in this area, which is why its correct measurement and control is very important. As an example of indicators, the following can be defined:
- Efficiency level. Through this measurable, the levels of Availability, Productivity and quality of both the plant and the different equipment are controlled, detecting possible bottlenecks and showing their problems. Manufactured according to Program. Quality of programming in units produced, sequence and type. Changes in the manufacturing program generate a large quantity of product in progress and a large number of logistical inefficiencies. Product right the first time. Percentage of units that successfully complete a process the first time and that is fully related to the rest of the process. Execution time.It is the time from when the raw material is unloaded until the finished product is shipped. Obviously, this measurable is directly proportional to customer service, which is also influenced by the level of inventory. If this measurable is reduced, inventories can be reduced, which in turn becomes less material handling and storage.
Product in progress (WIP - Work in process).
Total cost (standard or deviations). Total cost of manufactured products.
Storage, transport and distribution
Is the post-production chain adequately managed in terms of warehouses, transport and distribution? To answer this question, there are a series of indicators that allow detecting inefficiencies in these areas.
These measures can vary substantially depending on the type of distribution used in each specific case, and it will be more variable than the other indicators due to the different cases that can be found.
As an example of indicators, the following can be defined:
- Warehouse cost on sales. This measurable indicates the cost of warehouse / warehouse management and its impact on turnover. Warehouse productivity measured as volume moved per person or per unit of time and that allows us to know the use and profitability of resources in the warehouse. Rotation of the finished product inventory. This measurable allows to detect an inefficient coordination of the distribution and production areas. Order management cost, which supports the management of costs based on activity and which is used to make decisions such as the minimum order size, for example. real and theoretical, it allows to measure the quality of the management of information related to inventory. Percentage of losses, as an element to assess the effects of excessive stocks. Assessment of quality in transport,valued according to the critical parameters of each specific case. Cost versus budgeted cost of transport (extra cost). This measurable allows us to know the correct management -from the economic point of view- of. Transport Cost versus budgeted cost of distribution (extra cost). This measurable allows us to know the correct management -from the economic point of view- of the distribution. Compliance with customer deliveries (delivery performance), serves to analyze the quality of customer service.This measurable allows us to know the correct management -from the economic point of view- of the distribution. Compliance with customer deliveries (delivery performance), serves to analyze the quality of customer service.This measurable allows us to know the correct management -from the economic point of view- of the distribution. Compliance with customer deliveries (delivery performance), serves to analyze the quality of customer service.
After having defined the indicators, it is very important - and surely the most complex part - the definition of objectives and / or goals for each indicator, that is, the definition of the associated numerical value as objective for each indicator, as well as the definition procedures, review, responsibility and distribution, for each of them.
Likewise, in any dashboard project it is interesting to carry out a benchmarking study with companies in the same sector or other sectors from which interesting conclusions can be drawn.
In conclusion, it could be said that there is a wide margin, within logistics management, to delve into the adequacy of those processes that do not provide added value to the client, and thus place the company in a situation of greater competitiveness.
But, for this, it is essential to have a tool such as the logistic scorecard, which, in addition to identifying possible problems, will allow defining a clear objective of improvement.
