Discuss the Importance of Performance Measurement and Management in Business Logistics



Discuss the Importance of Performance Measurement and Management in Business Logistics

Introduction

Supply-chain management (SCM) refers to the management of materials, information, and funds across the entire supply-chain, from suppliers through manufacturing and distribution, to the final consumer. It also includes after-sales service and reverse-product flows such as handling customer returns, recycling of packaging and discarded products. In contrast to multi-echelon inventory management, which coordinates inventories at multiple locations of a single firm, or traditional logistics management, SCM involves coordination of information, materials, and financial flows among multiple firms (Cohen, Agrawal and Agrawal, 2006). This paper discusses the importance of performance measurement and management in business logistics in a concise way.

Discussion

Today, the forces of globalization and technology are further changing supply-chains. In many cases, the supply-chains are literally disintegrating in a physical sense. Product designers, marketers, and manufacturers that were previously located in a single facility are now spread over several continents in organizations with different cultures, languages, and business objectives. For example, not long ago, apparel brands such as Levi's did it all—operating their own U.S. production plants along with their core design and marketing activities. In the past few years, the company has shuttered the sewing plants that once dotted the southeastern United States and outsourced much of that production and even design (Cohen, Agrawal and Agrawal, 2006). The same transition is also true for many other products, from PCs to lawn mowers. Ten years ago, Hewlett-Packard designed and manufactured PCs for regional markets in Europe and the United States. Now, designers, marketers, and assemblers are scattered across different geographies and firms.

These changes have brought new risks and challenges. Long-standing challenges, such as short product lives and uncertain demand, have become even more vexing. In some cases, the technologies and approaches for enhancing supply-chain competitiveness have been the subject corporate and public debate: supply-chain complexity leading to new risks of disruption; supply-chain efficiency generating complaints of price discrimination; low-cost sourcing creating job migration (Johnson, 2006). Lean supply-chains reduce inventory cost but are more susceptible to such shocks as natural disasters or global pandemics; technologies that enable sophisticated pricing improve supply-chain efficiency but leave some customers crying foul; and outsourcing creates global winners and losers as shifting jobs leave some without work.

Discuss the Importance of Performance Measurement and Management in Business Logistics

Metrics and incentives refer to the measurement of both engineering and organizational processes and the related economic motivations. Because metrics are fundamental to business management, there are many reading materials outside of the supply-chain literature, including accounting texts. Several recent articles concentrate on the link between performance measurement and supply-chain improvement.

Successfully managing supply-chains requires several metrics. For example, firms often track service measures such as item-order fill rates, order-to-delivery cycle time, and order defects (wrong item shipped). On the other hand, we also must measure the costs of providing the customer service—for example, the inventory holdings or transportation costs. In addition to these tactical measures, firms need a general way ...