In logistics, both costs and value play a significant role in performance management. Managers should understand the total costs and the total value and the difference between them because it is one of the major business challenges (Ruffa, 2008). The value in logistics refers to the customer’s evaluation of the benefits obtained for the cost paid for logistics services. In the global food industry, for example, the items that would have value for customers include the time of delivery, picking accuracy, and inventory management. The food industry often deals with perishable goods, which means that the quality and value of goods decreases significantly with time (Biuki et al., 2020). Therefore, if a logistics company can provide the fastest way of transporting these goods, it offers much value to customers in the food industry.
Further, in this industry, shipments are often made based on forecasts, and the accuracy of the delivered orders becomes of critical significance (Myerson, 2012). Finally, inventory management has a value for customers because when inventory levels increase, so do the inventory carrying costs (Goldsby & Martichenko, 2005). However, in the food industry, increased inventory levels not only lead to rising costs of storing unsold inventory but also increases the risk of product deterioration, which leads to additional losses.
Managers in the food industry might utilize the identified value items of logistics functions to develop the performance measures of their business. According to Trent (2008), basing performance measures on the value of logistics functions is important because it helps align performance with lean objectives and convey the correct message about what is important for the business. The first performance measure in the food industry could be “conformance to customer-driven delivery dates” (Trent, 2008, p. 131). This measure corresponds to the value item of on-time delivery and would measure on-time delivery at the location of the customer. Another performance measure in the food industry could be picking accuracy that would ensure that the orders shipped to customers contain the right goods. Finally, the provide customers in the food industry with the value of inventory management, the performance measure of inventory cycle count accuracy could be applied (Hannon, 2004). This measure might decrease inventory inaccuracy, thus reducing the time of inventory management and avoiding the loss of production.
References
Biuki, M., Kazemi, A., & Alinezhad, A. (2020). An integrated location-routing-inventory model for sustainable design of a perishable products supply chain network. Journal of Cleaner Production, 260, 120842. Web.
Goldsby, T. J., & Martichenko, R. (2005). Lean Six Sigma logistics: Strategic development to operational success. J. Ross Publishing. Web.
Hannon, D. (2004). Tracking total logistics value from the inside out. Purchasing, 133(16), 1-3. Web.
Myerson, P. (2012). Lean supply chain & logistics management. McGraw-Hill.
Ruffa, S. A. (2008). Going lean: How the best companies apply lean manufacturing principles to shatter uncertainty, drive innovation, and maximize profits. AMACOM. Web.
Trent, R. J. (2008). End-to-end lean management: A guide to complete supply chain improvement. J. Ross Publishing. Web.