Any performance measurement system shall have the following objectives:
Monitoring. Monitoring focuses on reporting on the current status of the operations. For example, a financial monitoring system will report to the management the total funds outgo and inflow on a particular day. Similarly, the monitoring system for marketing will report on the total orders booked, orders cancelled and the orders completed. The information may be monitored on a daily, weekly or monthly basis, depending on the volumes and the criticality. In the case of logistics, the monitoring system reports on the cost break-up across the various logistical activities such as warehousing, transportation, packaging, material handling and so on. It also indicates the service level parameters such as delivery status, transit damages, wrong dispatches and so forth.
Controlling. Control measures compare the actual performance with the set standard or objectives. They report deviations from the set goals. For example, the control system will report on the current order fill rate in the warehouse as 60 per cent and indicate a deviation of 40 per cent from the set standard of 100 per cent, so that corrective action can be initiated for inventory replenishment.
Similarly, a percentage increase in product damages during handling will prompt the management to change the logistical packaging or go in for mechanized product handling instead of the manual that is currently in practice. Decrease in warehouse productivity is a cause that will help to improve on the storage layout, material handling methods and product unitization.
Directing. The objective of the performance measurement system is to motivate the individual in the system to enhance individual performance, resulting in improvement in the overall system performance. The performance measure system will help the management to evolve an incentive scheme for the operating people who cross the targeted productivity level. For example, the warehousing workforce engaged in material handling may be motivated through rewards to cross the targeted tonnage of goods dispatches within a particular time frame. Alternatively, the incentive scheme may be worked out on the basis of a reduction in wrong dispatches or errors in the dispatch documents in the current year compared to the previous year.
Source: Sople V.V (2013), Logistics Management, Pearson Education India; Third edition.