Inside the Supply Chain: Performance Measurement

Despite the boom and bust of e-commerce companies in the late 1990s, it's an accepted fact that the Internet has steadily grown and matured as a platform for the conveyance and processing of information. In the logistics realm, the Internet is the basic building block of the hosted Web services that lie at the heart of product offerings of dozens of logistics technology companies.

Yet along with the embrace of the Internet and technologies built around it has been a less-noticed but enriching byproduct: performance measurements, or in industry shorthand, metrics. If there is one area in which logistics-technology companies have significantly pushed back the envelope, it's to accomplish the monumentally difficult task of capturing in a single database current information on the whereabouts and status of cargo and its documentation. For the past two years Log-Net Inc., the logistics-technology company, has presented an award to the ocean carrier that is most prompt and accurate about submitting status information on containers into its system.

But it's what the data reveals about supply-chain performance and, more specifically, how the data can be used once it's captured, that makes it valuable in the first place. And by all indications, shippers are making the most of it. Information-hungry logistics managers are feasting on the newfound availability of performance measurements of all kinds, and are looking for new ways to make even better use of the data and to apply performance standards that can be measured using that data on a worldwide basis.

"There's been a quantum increase in the amount of metrics in use today versus two years ago," said John Motley, president and chief executive of Log-Net. "They are not only looking for more metrics and putting them to use, they want them more frequently."

There are literally hundreds of metrics in use today, from on-time arrival of vessels and cargo at destination, to the time it takes cargo to clear customs once it's arrived at the seaport or airport. Other metrics measure the productivity of cross-dock operations in which ocean containers are stripped and the cargo reloaded into domestic equipment. Others delve into the timeliness of document delivery, detention and demurrage charges on late equipment, refused bookings and availability of equipment at origin points.

There's really no limit. The point is that the successful capturing of data has opened a window into the most minute details of the supply chain that previously were out of view to even the most sophisticated shipper organization. The result, many say, is a wealth of opportunity to identify problems, monitor and improve the performance of vendors - increasingly in real time - and ultimately the bar on a company's overall supply chain.

Some say the significance goes even further. One reason for the growing interest in metrics is that for many companies, within such details lie the most valuable keys to savings, because companies no longer can count on declining freight rates to lower their supply-chain costs.

"Shippers have secured savings from freight rate reductions, and increasingly the belief is that the savings will come from the supply chain, not from further rate reductions," said Michael Andaloro, vice president of operations at Philadelphia based forwarder and logistics provider BDP International.

The use of metrics in logistics has evolved significantly to where it stands today. BDP's experience offers a case study in that evolution. In the early 1990s, the company used metrics mostly for internal purposes, to keep an eye on its own performance.

"We would measure ourselves along a series of internally focused metrics" such as timeliness of bookings, presentation of the bill of lading to the ocean carrier and distribution of documents, Andaloro said. "They were very internally focused. It was a way of giving our management evidence that we were performing against a set of standards."

Although BDP occasionally shared that data with key customers to show how it was performing, the situation soon changed. Customers started asking the company to provide more performance-measurement data, and not just about BDP, but about ocean carriers and other service providers, as well about the shippers themselves, Andaloro said.

A case in point about shipper performance would involve the data being generated by the shippers' enterprise, or ERP, system. BDP is able to help a company that uses, for example, an SAP system, to determine how closely inventory junctures as captured by the system dovetail with the actual movement of inventory through the company's supply chain. How well the final goods released by the ERP system matches up with the actual release of inventory out of a plant is something BDP is able to help a customer measure, Andaloro said.

Another phenomenon has emerged out of the growing availability of metrics. As major corporations globalize their operations, metrics give them an opportunity to impose uniform service standards irrespective of whether the service is provided in New York, Jeddah or Shanghai. "The market is telling us more and more that it wants global metrics," Andaloro said.

"Say a 3PL is very automated at its Los Angeles facility," Motley said. "The (Log-Net) system doesn't differentiate, so the shipper imposes the standards of LA on Bangladesh, and Bangladesh will be measured just as aggressively. The biggest change is that when people set a metric, it's applied worldwide."

One of the most important uses of metrics is to identify and then correct problem areas in a supply chain. "We're finding the ability to see variance and manage variance in a supply chain, is crucial," said Gary Franz, director of corporate communications for Internet carrier portal and supply-chain technology firm GT Nexus.

He gave the example of a shipper using five ocean carriers to ship containers from Asia to the U.S., whose end-to-end transit time ranges from 25 to 34 days depending on the carrier. If one carrier has an average of 30 days, but its performance varies five days either way, yet another carrier's delivery dates vary only 3.5 days, "the shipper wants to know why that is happening," Franz said. "What the customer might find out is, there is nothing wrong with the carrier's performance at all, but there is with the supplier hitting his ship window in Asia. Those are the types of things we're able to measure with our system."

The growing importance of data in logistics is changing the industry. Andaloro said companies such as BDP differentiate their service in part on the data it is able to provide customers, and that, in turn, changes the types of people the company seeks to recruit. The best candidates are IT- and data-savvy, he said. "We have individuals on staff who are Six Sigma black belts and green belts, who get involved in analyzing the data from BDP's IT tools."