CHAPTER 12: COST AND PERFORMANCE MONITORING

CHAPTER 12:      COST AND PERFORMANCE MONITORING

INTRODUCTION

Recent advances in information technology have focused attention on the importance of good information system to support logistics and distribution activities. This requirement for information has always existed, nut the computer has enable the development of more sophisticated means of data storage, processing and presentation. A typical framework illustrating the planning and control cycle. This framework emphasizes the cyclical nature of the planning and control process:

1.       Where are we now?

2.       Identify the objectives of the distribution process

3.       The process that include the development of appropriate strategic and operational plans

4.       Need for monitor and control procedures

WHY MONITOR?

To establish an effective system for cost and performance monitoring and control to ensure the strategy always on track. Typical aims might be:

1.       To enable the achievement of current and future business objective

2.       To facilitate the effective provision of logistics services

3.       To enable the efficient operation of logistics resources

4.       To support the planning and control of an operation

5.       To provide measures that focus on the real outputs of 6the business

DIFFERENT APROACHES TO COST AND PERFORMANCE MONITORING

A number of different approaches feo developing a monitoring and control system were outlined. These included:

1.       The balance scorecard

2.       The SCOR model (supply chain operations reference model)

3.       Integrated supply chain

4.       An operational approaches

WHAT TO MEASURE AGAINTS?

Several different means of identifying suitable goals were:

1.       Measuring cost and performance against historical data

2.       Measuring against a budget plan

3.       Developing physical or engineered standard

4.       Benchmarking against ‘best practice’

The major factors related to these alternatives were discussed, together with the relative advantages and disadvantages of the different approaches. Finally, an operational planning and control system was described, with the emphasis on the need to identify and measure what deviations had occurred and why they had occurred. This should specifically consider changes in:

1.       Levels of activity

2.       Efficiency or performance

3.       Price or cost

GOOD PRACTICE

 A number of key areas of goof practice were considered. These were deemed essential in developing the detail of an effective monitoring and control system. Most of the main principles associated with an effective system are based on sound common sense. They can be used to provide distinct guidelines for the development of an approaches new control system as well as to help identify reasons why an existing system is not functioning satisfactorily. They include:

1.       Accuracy

2.       Validity/completeness

3.       Hierarchy of needs

4.       Targeting of the correct audience

5.       User ownership

6.       Reactivity to changes in business activity

7.       Timeliness

8.       Ease of maintenance

9.       Cost-effectiveness

The element of good practice that come under the category of content have almost all been covered in previous sections, and they are as follows:

1.       The need for clear cost categories, with careful identification of fixed and variable costs

2.       The use of flexible budgeting

3.       The use of variance analysis

4.       The clarification of controllable and non-controllable element

5.       The use of reference points against which the monitored elements can be measured, these might include:

·         Budget

·         Forecast

·         Trends

·         Targets

·         Comparative league tables

The final aspect of good practice concerns the type of output of the system produce. This is the information on which any form of action is based. It has already been emphasized that this information must be relevant and useful. The major output-characteristics are:

1.       Reports can vary. They may be summary, exception, and detailed

2.       Reports should be made to a standard format

3.       Data should be presented in whatever means is most appropriate to the eventual use of the data

Different types of data output are as follows:

1.       Trend data

2.       Comparative data

3.       Indices

4.       Ratio

5.       Graphs

Five key areas for measurement were identified:

1.       Volume

2.       Efficiency

3.       Cost-effectiveness

4.       Quality

5.       Stability

LOGISTICS AUDIT

A periodic examination of the status of logistics activities. Audit information is used to establish new reference points against which reports are generated and to correct errors that can result from the performance of certain logistics activities due to misinformation.

TOTAL FUNCTION AUDIT

The purpose of the total function audit is to investigate how logistics function is managed wholly. This is carried out through an evaluation of all personnel, the organization structure and the overall network design. Substantial changes in demand may indicate the need for strategy revision. These changes are changes in demand, customers service, product characteristics, logistics costs and pricing policies.

INVENTORY AUDIT

Inventory audits are essential in inventory systems. A typical inventory control system makes adjustments to inventory record due the demand depletions, replenishments, returns to plant and product obsolescence. Disparities due to theft, customer returns, damages goods and errors in various inventory reports. From time to time requires physical count of inventories. Adjustments are then made to inventory records to provide more accurate tracking of inventory levels.

FREIGHT BILL AUDITS

It is quite common for the incurring extra expenses due to freight bill. Error in rates, product description, weights and routing are among the ways that errors may creep into billing. It requires checking on freight billing.

OTHER AUDITS & BENCHMARKING TO OTHER FIRMS

Other audits can be carried out on irregular basis such as warehouse space utilization, customers service levels, transportation fleet utilization and inventory policy performance. Benchmarking is carried out for comparison, but with caution.

REPORTS

Various types of reports are routinely produced internally such as stock status reports, warehouse and truck fleet utilization reports and warehouse and transportation cost reports. Ro achieve overall logistics function control, reports on cost service statements, productivity report and graphic performance chart will benefit the control exercise very much.