Cognizant White Paper Maximizing Supply Chain Performance in the Transportation and Logistics Industry Executive Summary consists of a set of integrated, closed-loop, analytic processes, supported by technology, Managing transportation and logistics has been a addressing financial as well as operational data. critical focus area for manufacturers, distributors It enables a business to define, measure and and third-party logistics players in their pursuit of manage its performance against strategic goals. developing a lean, agile and efficient customer- Performance management has a few aliases, oriented supply chain. Among the biggest such as corporate performance management challenges these players face today is (CPM), business performance management maintaining the delicate balance of increased (BPM), enterprise performance management material and transportation costs against the (EPM), etc. But simply put, it is a strategic expectations of improved service levels approach to improving business performance. mandated by customers. To achieve this end, many industry players are collaborating with their key customers and vendors to improve their Performance vs. Complexity on Efficiency processes and systems and provide better service quality, reduce costs and improve visibility. To gain full advantage of such collaborative initiatives, building an efficient and effective supply chain intelligence infrastructure is a must. To achieve better customer service at reduced costs, organizations are increasingly adopting the two levers of process improvement and tech- nological breakthroughs in track-and-trace, e Efficiency improved control systems and IT innovations such as cloud platforms. To fully realize the ben- erformanc efits from these initiatives and move toward an P era of continuous improvement in their opera- tions, organizations will also need to realign their Supply Chain Complexity logistics performance measurement strategies. Complexity=f(Customers, Geography, Suppliers, Carriers, Shipments…) Performance management is a methodology to Performance=f(Productivity, Accuracy, Response Time) optimize the execution of business strategy. It Figure 1 white paper Need for Performance Management of While most organizations have cost data at a Logistics Operations summary level, access to details are often found lacking. Drill-down data at lower levels is You Can’t Manage What You Can’t Measure required for identifying issues and for conduct- In spite of the increased focus on logistics by ing analysis on high-cost line items. Consistent most companies, the gap is widening between and credible data is required for organizations logistics cost leaders and laggards. Logistics to be able to make informed decisions. leaders are unlocking the value of the enterprise I Increasing emphasis on execution excellence across the value chain. Some of the key trends in the supply chain influencing logistics decisions are as follows: Speed is of the essence in the new order of supply chain management. Real-time flow of I Organizational focus on managing logistics information aids in shrinking costs cycle times and improving Today’s demanding The total cost of logistics for a typical compa- the response to changes and 1 customers require not just ny is 7% to 12% of sales and is growing due to exceptions. Service providers increasing supply chain complexities. Thus, have to be quick to spot the fulfilment of requirements, there is an increased focus from corporate shift in market demands and but also cooperation and management on controlling and managing change their focus to rapidly alignment with their service this cost. Logistics costs typically follow eco- growing regions. At the same partners for mutual benefit nomic cycles. During times of growth, the time, identifying issues in available capacity becomes constrained, and stable markets and resolving and revenue growth. rates rise. When recession hits, rates fall due them before competitors to competition among service providers to uti- take away share is of paramount importance. lize the surplus capacity. Managing capacity Declining market share and revenue could be and utilization is often a tightrope walk for due to multiple factors, the identification of most service providers and proves to be a dif- which can turn out to be nightmare without ferentiating factor for most companies. having the mechanisms in place to capture and analyze the data. Logistics as Differentiator One Size Doesn’t Fit All Companies are increasingly looking at logistics The measurement of logistics operational for improving customer experience and for metrics varies widely from one company differentiation. Meeting service level to another. For example, in a survey of 247 agreements is a basic requirement for moving respondents conducted by Supply Chain from customer satisfaction to customer delight. Digest, only 40% said their primary Today’s demanding customers require not just measure of logistics costs is percent of fulfillment of requirements, but also cooperation sales. The other responses were split and alignment with their service partners for among measuring logistics costs as mutual benefit and revenue growth. absolute costs, as a cost per unit of weight Sharing data with upstream and downstream (hundred weights, kilograms, etc.), cost partners and aligning the key metrics across the per unit measure (case, unit) and activity- value chain are among the steps companies based costing as the primary measure. have taken in this direction. Industry leaders With such wide variation in measurement prefer to partner with logistics service providers of the basic metrics, it is no wonder that that are adept at moving in step with them. the logistics measurement used by one Measuring performance has gradually moved organization may not be suitable for from an internal focus on strategic objectives, to another. Even within the same industry, measuring performance across the value chain where processes might be similar, to include the upstream and downstream markedly different methods of measuring partners. In addition, the need to benchmark metrics exist. against industry leaders is forcing companies to look beyond home-grown solutions. white paper 2 Limitations of Current Performance Framework for Performance Management System Management Is This You? It’s All About the Process In a survey conducted by InformationWeek in All performance management systems have 2008, 91% of transportation and logistics three fundamental ingredients: companies deployed BI tools extensively. I Metrics: Up-to-the-minute snapshots of the However, only 46% of them expected to deliver key performance indicators (KPIs) in a per- better business intelligence to more employees, sonalized, Web-based dashboard to enable more quickly, in that year. The gap between fast, proactive decisions and organizational deployment and realization of benefits from the agility. same is very evident. Some operators are still I Business intelligence: Enterprise software dependent on outdated legacy applications designed to track, understand and manage and/or Excel-based tracking of metrics. Multiple information. BI enables decision makers to and independent applications such as WMS, manage by exception, stay informed with TMS, OMS, etc. are being used to deliver alerts and drill into data to examine the root analytics and generate reports. cause of business conditions. Due to these limitations, logistics planners do I Methodology: A systematic and sustainable not have a single view of the logistics chain and means of tracking, measuring and improving are not able to standardize reports for business performance, applied top-down comparison and dissemination. In addition, throughout the enterprise. third-party vendors and other service providers Our Logistics Performance Management (LPM) provide information in their own formats, framework helps organizations improve leading to inefficiencies and loss of productivity operational effectiveness by measuring the in consolidating and assimilating information right metrics in a timely manner. For an within the organization. Some of the current integrated LPM implementation, it is critical to systems and applications and their limitations have organizational alignment with a strongly are listed in Figure 2. communicated mission statement and an Current Offerings Limitations Home-grown solutions I Rudimentary tracking mechanisms I Excel-based reporting Service provider solutions I Narrow focus areas I Carrier tracking system for real-time location of shipments I Limited visibility I Cargo portals for booking and tracking visibility I Disparate metrics and KPIs for each solution, many of I EDI vendors which are not aligned with corporate objectives. I Supplier portals Application-based reporting tools I Limited reporting capabilities I Transportation management system I Silo-based approach to reporting I Fleet management system I Lack of flexibility and unable to customize I Few features I Varies from vendor to vendor Commercial visibility solutions I Small vendors I No coverage for entire logistics value chain On-demand visibility solutions I Higher running costs I Loss of data control EPM/BI/DW offerings from market-leading vendors I Single-vendor limitation I Lack of flexibility to utilize best-of-breed solutions Figure 2 3 white paper I Selecting the right metrics: Care must be Unifying the On-Boarding Process taken while selecting the metrics and KPIs to reflect the key drivers of business value. This helps move