As I mentioned in my last post profitability, structural, productivity and quality oriented ratios are common objectives in logistic strategies. In order to control logistics activities performance indicators need to report all relevant information to show trends and developments. Within a balanced scorecard logistics management has the opportunity to match strategic objectives and KPIs. This is the first and most important step before implementing a balanced scorecard. If management just focuses on "easy to measure" KPIs which are not connected to the logistics strategy a balanced scorecard just hides key problems. Furthermore, taken actions to improve the wrong KPIs have no positive impact on the strategic goals. In consequence time and effort are wasted.
A logistics balanced scorecard provides the linkage between strategic goals and the performance measurement system to control the fulfilment of defined strategic objectives. Logistic objectives are divided in four perspectives as defined in a common balanced scorecard.
CustomerImprove customer satisfaction KPI: Deliverability > 95%
Internal processesRealize lean processes throughout the companyKPI: Return on inventory < 10%
Learning & GrowthDevelop and train employees in logistics department KPI: Time for order processing per order < 3 hours
FinanceImprove logistics profitabilityKPI: Average logistics cost per goods manufactured < 5% of total cost per goods manufactured
Metrics or KPI reports have to be built in categories dependent on the receiver. Senior management is interested in highly aggregated indicators like days of inventory meanwhile operational management is more focused on detailed statistics like picks per day. In general relational figures are more valuable than absolute figures. As an example the total amount of picks per days doesn't tell you anything about the logistics process behind this figure whereas the logistics cost per order provides a clear productivity statement. It's pretty obvious, the linkage between KPIs and strategy is essential. Therefor the balanced scorecard can be a helpful management tool. But to be honest, how many companies actually use logistics balanced scorecards? ... There is a long way to go...
A logistics balanced scorecard provides the linkage between strategic goals and the performance measurement system to control the fulfilment of defined strategic objectives. Logistic objectives are divided in four perspectives as defined in a common balanced scorecard. CustomerImprove customer satisfaction KPI: Deliverability > 95%
Internal processesRealize lean processes throughout the companyKPI: Return on inventory < 10%
Learning & GrowthDevelop and train employees in logistics department KPI: Time for order processing per order < 3 hours
FinanceImprove logistics profitabilityKPI: Average logistics cost per goods manufactured < 5% of total cost per goods manufactured
Metrics or KPI reports have to be built in categories dependent on the receiver. Senior management is interested in highly aggregated indicators like days of inventory meanwhile operational management is more focused on detailed statistics like picks per day. In general relational figures are more valuable than absolute figures. As an example the total amount of picks per days doesn't tell you anything about the logistics process behind this figure whereas the logistics cost per order provides a clear productivity statement. It's pretty obvious, the linkage between KPIs and strategy is essential. Therefor the balanced scorecard can be a helpful management tool. But to be honest, how many companies actually use logistics balanced scorecards? ... There is a long way to go...
