Performance Measures of Logistics

Introduction More of reliance upon traditional cost accounting procedures to provide an often unreliable insight into profitability. Managers are now starting to question. The accounting frameworks still used by the majority of companies. Traditional accounting methods are quite unsuited for analyzing the profitability of customers and markets since they were originally devised to measure product costs.

Because logistics management is a flow- oriented concept with the objective of integrating resources across a pipeline which extends from suppliers to final customers, it is desirable to have a means whereby costs and performance of that pipeline flow can be assessed. Probably one of the main reasons that the adoption of an integrated approach to logistics and distribution management has proved so difficult for many companies is the lack of appropriate cost information. The need for manage total distribution activity as a complete system. Effects of Trade-offs are assessed in two ways: From the point of view of their impact on total costs . Their impact on sales revenue.

Example- it may be possible to trade-off cost in such a way that total costs increase, yet because of the better service now being offered, sales revenue .

Concept of total cost analysis Many problems at the operational level in logistics management. Because of the impacts of specific decisions , both direct and indirect are not taken into account throughout the system. Changes in policy. Changes in production schedules. Fluctuations in finished stock aviability which affect the customer service. Problems associated with identifying the total system impact on distribution policies.

Stages in the order-to-collection cycle. Order placement and communication Order entry Credit check Documentation Order picking Delivery Invoicing and collection

Principles of logistics costing

Appropriate logistics-oriented costing system is primary on the focus. Requirement of the ability to focus upon the output of the distribution system. In essence of provision of customer service. And to identify unique costs associated with output. The system should mirror the materials flows. Capable of identifying the costs that results from customer service in the market place. Second principle is that it should be capable of enabling separate cost and revenue analyses to made by customer type and by market segment or distribution channel.

These requires “output” orientation to costing. First define desired outputs of the logistics system and then seek to identify the costs associated with providing those costs associated with providing those outputs. Mission-customer service goals to be achieved by the systems. This is depicted in diagrammatic representation.

LOGISTICS AND THE BOTTOM LINE Greater awareness amongst managers of the financial dimension of decision making. The bottom line has become the driving force which, perhaps determines the direction of the company. This led to a limiting, and potentially dangerous, focus on the short term. Hence we find that investment in brands, in R& D. Just as powerful an influence on decision making and management horizons in cash flows. The another dimension to decision making is resoure utilization and specifically the use of fixed and working capital.

The pressure in the most organization improves the productivity of capital. ROI = Profit/ Capital employed. This ratio can be further be expanded:- ROI = Profit/ Sales * Sales / capital employed