Explain Internal Performance Measurement

Internal Performance Measurement

Internal performance measurement basically focuses on the comparing of activities and processes to previous operations and/or goals. For example a firm may compare the customer service with last year’s performance as well as this year’s goals or target. Logistics performance measures are classified into the following categories.

Cost The most direct reflection of logistics performance is the actual cost incurred
to accomplish specific operating objectives. Logistics cost performance is normally measured in terms of total amount of rupees spent, or terms of percentage of sales, or in terms of cost per unit volume etc.

Customer Service The measures of internal performance are designed evaluate ability of a firm  to evaluate ability of a firm to satisfy its customers. Common customer service measures are done with the help of customer surveys, obtaining cusf8mpr feedback, obtaining feedback from the company’s sales force, evaluating the extent of stock outs, etc.

Productivity Measures           Productivity is a relationship (usually a ratio or an index) between output (goods and/or services) produced and quantities of inputs (resources) utilized by the system to produced that output. If a company has a logistical system, which clearly identifies and measures output as well as inputs, the calculation of productivity is quite routine for the company. At the same time, however, the calculation of productivity can be difficult  in following cases:

(1)   When both the outputs and inputs are difficult to measure for a given period of time

(2)   The input as well as the output “mix” keeps on changing

(3)   Data regarding inputs and outputs are difficult to obtain.

Conceptually there are three basic productivity measures.

If all the inputs and all the outputs are over a given period of time are included in the calculation of the value of productivity, we get what is called as total factor static productivity ratio. The ratio is considered static because it is based on only one measurement, i.e., figures pertaining to one period of time only.

If outputs and inputs in a system compare static productivity ratios from one period to another period. We get what called a dynamic productivity index.

For example                 (Outputs for 1994) – (inputs for 1994)

(Outputs for 1990) – (inputs for 1990)

The third measure of productivity is the surrogate productivity measure. This includes factors that are not directly included in the formula for the calculation of the productivity ratio, but are highly correlated with productivity. Some of these factors that definitely influence productivity are customer satisfaction, quality of the product, efficiency of the personnel, profits of the firm, etc. Many logistics manager take the help of these factors to make the understanding and interpretation of productivity more realistic and practical.

Asset Management It focuses on the utilization of capital investments in various facilities and equipments. It also includes working capital utilized for purchasing inventory. The investments are basically done to achieve the logistics goals fixed by the company.

Asset measurement is important because logistics,, equipments and inventory can represent a substantial segment of the firths assets. Measure adopted for asset management focus on the return on the investment generated by liquid assets (such as inventory turnover) and fixed assets. The performance measures adopted for asset management are inventory carrying cost, inventory levels (in terms of number of days of supply), obsolete inventory return on net assets, etc.

Quality            Measures relating to quality are specially process oriented evaluation. They are designed to determine the effectiveness of series of activities rather than an individual activity. Quality, however is difficult to measure. The logistics performance measure includes the following frequency of damage, damage quantified in terms of rupees, number of returns from customers,, cost of goods returned, etc.

Delivery of, perfect order is the ultimate measure of quality in logistic operations. Perfect order measures whether an order proceeds smoothly through every step with regard to order entry, credit clearance, inventory availability, accurate picking, on time delivery, correct invoicing and payment without deductions.

Perfect order represents ideal performance. A perfect order should meet the following standers

1. Complete delivery of all items requested.
2. Delivery to customers request date, say with maximum one days tolerance.
3. Complete and accurate documentation supporting the order, including the packing slip, bill of lading.
4. Perfect condition of the product that is faultlessly installed, correct configuration, customer ready with no damage.

Today some companies have reported achieving about 55% of the perfect order but many companies have reported achieving only 20% of the perfect order. This shows that achieving the target of a perfect order is extremely difficult.