organizations

On my previous post, I discussed the major key performance indicators that any business model follows:  Service, Quality and Cost.  But I never translated them into the details of the operation as it applies to my friend’s coming distribution and logistics company.  I’ll discuss it now.

Service:  For the business model outlined already, this is how he needs to deliver his products to his customers.  To get it to them in the least amount of time, in the most efficient and effective manner.  Should he deliver using his own vehicles or out source?  If, for example, he follows the rolling store model (you know, those trucks that sell to sari-sari stores?) he has to have routes planned for each truck sales team and a fixed schedule plus forecasting the demand so as not to deviate from the set schedule.

Quality:  This shouldn’t be too hard to figure out.  He needs to ensure that his trucks and the products he sells are presentable, without damages or defects.  Which simply means he has to take care of the storage side of things and ensure the products are clean and stored properly, according the specifications.  Refrigerated, if he’s selling confectioneries or some other temperature sensitive product.  And his vehicles, well maintained.

Cost:  For costs, well, that will all depend.  The cost of the products he sells would most likely be dictated on him by his clients so there’s not much he can do about it.  What he can do, however, is go back to the scenario in the Service portion to control his costs.  He can do that by ensuring the timeliness and predictability of his vehicles route-cycle time and schedule.  For example, UPS has a program for certain cities that lets their vehicles avoid as many left turns as possible to lower down the cost of delivering their parcels to customers.  He can also choose to load the selling truck teams with the products most applicable to a certain route to maximize earnings.

Of course, to realize all this he will need information.  Lots and lots of information.  He can buy the information outright from certain government agencies or build up his own database or obtain it from his clients.  To build his own database, he’ll need a good software package, but, since I’m not being paid to endorse any specific product, all I can promise is help him review the software package he intends to buy.

Some time last week an old friend got in touch with me.  He was putting up a business closely related to our family’s old one, distribution and logistics.  He needed advice on which performance indicators to set up for his business so that it will match those of his clients.

The 3 major performance indicators of any business, I pointed out to him, are:  Service, Quality, and Cost.  These 3 are the really big ones and are applicable to almost all businesses or enterprise.  If you think these won’t apply to your business, think again.  Chances are that they do.

I explained to my friend that with these 3 performance indicators, he has to learn to strike a balance for he will never get all 3 right.  The very best he can do is 2 out of 3.  Yes.  Nobody ever gets 3 out of 3.  Nobody.  He was puzzled.  He didn’t think he had to sacrifice one for the other 2.

I went on to tell him that there is no need to sacrifice anything.  That he can always strive for a balance of all 3 metrics and still get it right but that his company will end up somewhat mediocre with nothing standing out.  I left it to him to decide which 2 of the 3 he wants to get high scores on.