referred to as total landed cost, is the sum of costs related to performance and administration of each of these areas of work Unfortunately, recent research suggests that few organizations have the ability to actually capture the information required to measure total cost. This occurs because different organizations may have different orientations toward which of the areas identified above actually constitute integrated logistics, or because of the lack of readily available data. Nevertheless, at senior management levels of responsibility this total cost should be monitored closely. It is also important to monitor cost data for each of the individual function so that appropriate diagnosis and control can take place. The functional cost data may be further fine-tuned and measured for individual activities such as order picking and order loading in the warehouse function.
It is also common to monitor and report cost data as a percentage of sales or as a cost per unit of volume. For example, transportation cost is frequently expensed as a percentage of dollar sales volume and as the number of dollars spent per order delivered. Warehouse cost may also be reported as a percentage of sales and cost of individual activities reported such as the picking cost per item or loading cost per order. Such measures, when compared to historical levels or performance standards, provide critical information regarding the potential need to take corrective action. When considering the number of different specific logistics, ranging from entering an order to picking an item to unloading a delivery vehicle and the number of different ways in which volume can be measured, ranging from sales dollars to number of orders to pounds of product , a rather lengthy list of possible cost metric could be generated. The key is for logistics executives to identify the most appropriate metrics for their organization and consistently apply them over time to control and direct the the activities.
Table 16.1 also shows other measures that require measurement of logistics cost, such as direct product profitability, customer profitability, and cost of service failures. In fact, most firms recognize the importance of these measures but currently lack the information necessary to accurately assess these costs. Accurate measurement in these critical dimensions requires a level of sophistication in accounting data that has just recently become available. Activity-based costing is discussed later in this chapter as a means to more accurately assess the cost related directly to customers and products.
Customer Service
In Chapter 3, the elements of basic customer service were identified as availability, operational performance, and service reliability. An effective basic service platform requires specific metrics for assessing performance in each dimension.
Availability is typically reflected by and organizations fill rate. It is critical to note, however, that fill rate may be measured in a variety of ways
Clearly, the order fill rate, also known as orders shipped complete, is the most stringent measure of a firms performance relative to product availability. In this metric and order