In Search of the Perfect Order

How do you measure logistics quality? Unfortunately, there is no industry standard. In fact, there are so many different measures that many managers have given up trying to measure and compare their logistics quality with those in other operations. The issue is so complex that universities around the country have entire research projects devoted to identifying the right set of logistics quality indicators. Instead of throwing up our hands, let’s focus on an aspect of logistics quality that we can measure - logistics accuracy.

According to the American Heritage Dictionary, accurate means deviating only slightly or within acceptable limits from a standard. (Accuracy is the quality or state of being accurate.) Logistics encompasses customer service, inventory planning, manufacturing and procurement, transportation, and warehousing. Defining the right measurement focus, defining the right standard, and defining the acceptable limits of deviation from the standard for an integrated set of activities as broad as logistics is not simple work.

Let’s consider each issue in turn. First, the right measurement focus. The link and common deliverable of customer service, inventory planning, manufacturing and procurement, transportation, and warehousing is an order. Logistics exists to fill orders. Second, the standard. The standard has to be perfection, otherwise the pursuit of the standard will not yield the order of magnitude improvements needed in all areas of logistics. The focus - an order - the standard - perfection. Alas, the perfect order. The perfect order is logistically perfect meaning it was:

• perfectly entered (the entry is exactly what the customer wants) by the means (telephone, direct entry) the customer desired in a single entry,

• perfectly fillable with the exact quantity of each item available for delivery within the customer-specified delivery window,

• perfectly picked with the correct quantities of the correct items,

• perfectly packaged with the customer-designated packaging & labelling,

• perfectly shipped without damage,

• perfectly delivered in the customer-designated time window and to the customer-designated location,

• perfectly communicated with order status reports available 24 hours a day,

• perfectly billed with on-time payment, and

• perfectly documented with customer-specified documentation means including paper, fax, EDI, and/or Internet.

Suppose each of these nine logistics activities were performed correctly 95% of the time. Then nearly 40% of the orders would be imperfect. If each of these activities was performed correctly 99% of the time, 10% of the orders would be imperfect. If each of these activities were performed correctly 99.95% of the time, then 0.5% of the orders would be imperfect.

To get an idea of your own performance, take your average performance across the nine activities listed above. Now, multiply that percentage times itself nine times. The answer is a ballpark estimate of your percentage of perfect orders.

There are many lessons in this little exercise. First, you may not even track performance in the nine activities described above. It is difficult to improve something that you don’t measure. Second, you may not recognize the interdependence of these activities. They all contribute to the ultimate logistics objective of filling a customer order. Revenues flow from filling customer orders. An integrated view and assessment of these activities is one step on the path to world- class logistics. Third, you may not believe how low the number is. Though there is not a published industry standard for perfect order performance, most companies fill 50% or less of their orders perfectly. If you want to know why your customers always seem dissatisfied, here’s the reason.

Unfortunately, very little data exists on perfect order performance. Admittedly it is difficult since there are so many parties involved in perfect order performance including suppliers, manufacturers, wholesalers, inventory planners, carriers, third- party logistics companies, etc.. But, that is the point. To deliver a perfect order requires integrated and coordinated performance by and across all these parties. World-class logistics requires this same degree of integration and coordination. The first step to improving something is to measure it. Do you measure perfect order performance? If so, what is your performance? If not, why not?