Performance Management in the Transportation and Logistics Industry

Improved performance management is critical for transportation and logistics players caught between rising costs and higher expectations from customers.

Manufacturers, distributors and third-party logistics players need more up-to-date, detailed and shareable information to meet today's competitive requirements. While most organizations have data on a summary level about logistics costs (which typically range between seven and 12% of sales) they often lack the detail needed to identify issues and analyze high-cost line items. Real-time information flow helps shrink cycle times and improve an organization's response to changes and exceptions. Service providers also need to quickly spot and respond to shifts in market demands, and to identify and resolve the reasons behind declining market share and revenue. Finally, many customers want data about key metrics from upstream and downstream partners.

Framework for Performance Management

All performance management systems have three fundamental ingredients:

• Metrics: Up-to-the-minute snapshots of the key performance indicators (KPIs) in a personalized, Web-based dashboard to enable fast, proactive decisions and organizational agility.
• Business intelligence: Enterprise software designed to track, understand and manage information enables decision makers to manage by exception, stay informed with alerts and drill into data to examine the root cause of business conditions.
• Methodology: A systematic and sustainable means of tracking, measuring and improving business performance, applied top-down throughout the enterprise.

A high-level architecture (below) can help identify the specific technology platforms, as well as the key processes required to implement such a system for the specific requirements of the logistics industry.

For an integrated LPM implementation, it is critical to have organizational alignment with a strongly communicated mission statement and an understanding of how individual contributions can meet corporate goals.

Cognizant's Value Creation Framework helps logistics players achieve the four key objectives of efficiency, effectiveness, virtualization and innovation. Applying this framework to the transportation and logistics domain uncovers key areas for business transformation that enhance revenue, reduce costs, improve capital utilization and increase quality and productivity.

Based on our experience, best practices include:

Selecting the right metrics: Care must be taken while selecting the metrics and KPIs to reflect the key drivers of business value. All operational KPIs should translate to monetary top and bottom-line revenue, based on corporate standards universally defined and agreed upon by all stakeholders.

Creating a detailed metrics framework: Linking metrics in a framework that transcends individual business units avoids metrics that work at cross-purposes by optimizing only individual efficiencies. Selected KPIs must cascade from top management to individual metrics, to help ensure everyone is working to deliver maximum value to the organization. Measurements should also be defined in context with upper and lower limits, internal or external benchmarks and/or previous trends.

Designing a robust solution: A well-designed front end helps users quickly identify and share information. An intuitive flow for drill-downs and dimensional analysis helps save time and effort and eliminates the need for most analyses. A robust back-end extract, transform and load (ETL) layer leads to consistent and more accurate results by eliminating disparate sources of data. A flexible data model with placeholders for additional elements ensures the solution can be changed as needed. Implementation should be carried out in phases, targeting modules that can provide quick wins as well as critical areas offering the largest scope for improvement.

Leveraging the solution: Along with adequate training in the performance management solution, BI-based decision making can improve efficiency and effectiveness. Periodic monitoring for deviations is aided with the help of root cause analysis of frequently occurring issues. Alerts and e-mails can proactively inform users about issues without the need to log in and view the reports. Capabilities to view single metrics across multiple dimensions can help in dissecting issues. Finally, top management should communicate the goals and objectives of the solution to all employees.

A robust performance management solution helps provide better visibility into operations, leading to improved efficiency, better decision making and improved service to customers amid changing business conditions.

Read the complete white paper Performance Management in the Transportation and Logistics Industry (PDF), and learn more about Cognizant's services for the logistics industry and Cognizant's proprietary Logistics Performance Manager.