PERFORMANCE INDICATORS IN LOGISTICS SERVICE PROVISION AND

WAREHOUSE MANAGEMENT A LITERATURE REVIEW AND

FRAMEWORK
Elfriede Krauth*, Hans Moonen*, Viara Popova**, Martijn Schut**

* RSM Erasmus Universiteit, Department of Management of Technology and Innovation, PO Box

1738, 3000 DR, Rotterdam, The Netherlands; {ekrauth, hmoonen}@rsm.nl
** Department of Computer Science, Faculty of Sciences Vrije Universiteit Amsterdam, De
Boelelaan 1081a, 1081 HV, Amsterdam, The Netherlands; {popova, schut}@few.vu.nl
***Authors are ranked alfabetically

ABSTRACT
With the ever increasing focus on cost reduction, product leadership and customer intimacy, the need
for Supply Chain Management practices rises across many industries. Over the last two decades
Logistics Service Providers have become important players in many chains and industries. New
challenges arise due to the emergence of technologies. Data and information can be found anywhere,
however, to make the proper decisions we need to have an insight in how decisions should be made,
and what is important for the company and what not. In order to do so we sollicited the Key
Performance Indicator (KPI) literature -focussing on the areas of general management, supply chain
management, logistics service provision and warehousing. In our earlier work we proposed a KPI
framework that we here revisit and validate in the Warehousing domain through the means of expert
interviews.

Keywords: Performance Measurement, Logistics Service Provision, Warehouse Management

INTRODUCTION
The increasing importance of efficiency and a focus on core competencies opened up many business
opportunities for logistics service providers (Christopher, 1998). Customers increasingly expect shorter
delivery times and more accurate services. As a result control of logistics service providers increases in
complexity. Performance indicators can support the management of complex systems. The increasing
use of information and communication technology also in small and medium sized companies
facilitates data collection on a broader scale and could lead to more extensive performance
measurement (Melnyk et al., 2004). This literature study constitutes the fundament of a broader
research, in which we examine performance measurement of logistics service providers. With this
literature review we want to answer the questions: What performance indicators for logistics service
providers are proposed in literature?And how does industry rate the usefulness of found performance
indicators?

In order to find the performance indicators for logistics service providers, we conducted a literature
review in several fields: literature on performance measurement in general, literature on logistics and

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supply chain management, and literature especially undertaken in logistics service provision industry
and warehouse management. Based on this literature review and our experience in industry we
established a framework of performance indicators and empirically evaluated its usefullness. We end
with conclusions and further research directions. This work is based on previous research (Krauth et
al., 2005a, Krauth et al., 2005b). We extend our earlier work for performance indicators for warehouse
management. This is reflected in the literature review, the list of key performance indicators and we
also empirically validated our findings with an expert in logistics service provision including
warehousing.

LOGISTICS SERVICE PROVIDERS - DEFINITION

We follow the approach of Krauth et al. (2004) to describe and classify different forms of logistics
service providers. Third party logistics providers (3PL) are typically addressed in the context of long-
term outsourcing of logistics activities by a manufacturer (Sink et al., 1996; Razzaque, 1998). Carriers
and shippers are labels for providers and buyers of transportion (Gibson et al., 2002). Freight
forwarders are referred to as international trade specialists, offering a variety of services to facilitate the
movement of international shipments (Murphy et al., 1992; Murphy and Daley, 2001). Shipping lines
and shipping companies are conducting activities of transport and can be further distinguished into e.g.
ocean freight shipping liners or ocean liner shipping (Durvusula et al., 2002; Fusillo, 2003). We define
logistics service providers as companies, which perform logistics activities of a customer either
completely or only in part (Delfmann et al., 2003; Lai, 2004). These functions can include traditional
activities such as transporting, warehousing, packaging, etc. but also less conventional activities as
those related to custom clearance, billing as well as tracking and tracing.

Regarding warehousing activities one can distinguish dedicated and public warehouses. Dedicated
warehouses are typically based on a long term contract and are built in cooperation with the shipper.
This allows to organize processes and design information systems, such that they smoothly integrate
with the shipper. The level of automation is very high, allowing an efficient handling of goods (e.g. bus
systems). The logistics service provider might even act as a call center for the shipper. Public
warehouses on the other hand, serve on average around five customers. The warehouse is developed
independently from the customers of the logistics service provider. The relationship can often be
characterised as short term, level of process integration and automation are significantly lower than in
dedicated warehousing. The relationship of a logistics service provider with his client can also be
distinguished according to whether an open book or closed book approach is taken. In closed book
arrangements the price is negotiated on a yearly basis and typically does not change during that time. In
an open book environment on the other hand, the logistics service provider and his customer examine
every month the cost situation. If it turns out that e.g. late shipper notifications led to an increase in
costs, the price can be adapted accordingly.

LITERATURE REVIEW PERFORMANCE MEASUREMENT

We review the literature starting from general management perspective and then zooming in to supply
chain management, logistics service provision as a special case of a supply chain and finally warehouse
management as a specific activity within logistics service provision.

General management
Three purposes of metrics can be identified as (Melnyk et al., 2004): control, communication and
improvement. According to Melnyk et al. (2004) literature has until now mainly focused on the use of

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metrics, but less on generating metrics and putting them into execution. They mention several reasons
for an increased interest in performance measurement: (1) ever changing and ever increasing demands
of customers, (2) the moving focus from internal operations to a chain of collaborating companies (3)
decreasing product life cycles, (4) increased amount of data (not necessarily data quality) and (5)
growing number of options a company can choose from. Metrics need to move from static
measurement to a more proactive style. Metrics will contribute to creating competitive advantages if
they also allow on the spot recognizing of business oppurtunities as well as business threats.

The balanced scorecard is a framework that measures a companys performance in an integrated

manner. It provides a formalized mechanism to achieve a balance between non-financial and financial
results across short-term and long-term horizons and is based on the notion that companies have to aim
at a true integration of marketing, production, purchasing, sales and logistics (Brewer and Speh, 2000).
The balanced scorecard distinguishes four main perspectives (Kaplan et al., 1992): customer, internal,
financial, and innovation & learning. The customer perspective deals with how the company performs
from an external standpoint. Kleijnen and Smits (2003) propose the use of the balanced scorecard in
order to deal with multiple performance metrics in SCM. Knemeyer et al. (2003) examined the
perspective of a logistics service providers customer. If the customer perceives that the logistic service
provider focuses on the interaction between the companies and is concerned with winning and keeping
the customer, the relationship can be strengthened. Stank et al. (2003) conducted a survey, which
addressed a logistics service providers performance and how it related to market, customer satisfaction
and loyalty. The model distinguishes between three different kinds of performances: relational
performance, operational performance and cost performance.

The internal business perspective translates the customer perspective into what the company must do in
order to meet its customers expectations. Continuous change is required. For a logistics service
provider these innovations can mean to change business strategies such as a change from short to long
distance transport, adding additional activities, new countries, new modes of transport, new
communication systems such as RFID or WebServices (Chapman, et al. 2003, Lemoine and Dagnaes.,
2003). Financial performance indicators measure whether the companys strategy, implementation, and
execution are contributing to bottom-line improvement.

Performance measurement in supply chain management

Supply chains can typically be categorized into either efficient or responsive supply chains (Fisher,
1997). Christopher and Towill (2002) make a similar distinction into lean and agile. Logistics service
providers must be aligned with the supply chain they serve; measuring flexibility, efficiency and
responsibility levels is a first step. Weber (2002) is using a hierarchical model to measure supply chain
agility. The SCOR model further provides insight into metrics and indicators of supply chains (SCOR -
Supply Chain Council, 2003; Stewart, 1995) However, the SCOR model was originally developed for
manufacturing processes and therefore it might not be directly applicable to logistics service provision
(Lai et al. 2004).

Strong partnerships form the basis of supply chain management. Partnership evaluation criteria are
(Gunasekaran et al., 2001): level and degree of information sharing (Mason-Jones and Towill, 1997),
buyer-vendor cost saving initiatives (Thomas and Griffin, 1996), extent of mutual co-operation leading
to improved quality (Graham et. al., 1994), entity and stage at which supplier is involved (Toni et al.,
1994) and extent of mutual assistance in problem solving efforts (Maloni and Benton, 1997). However,
Kemppainen and Vepsaelaeinen (2003) suggest, that it is neither feasible nor profitable to have strong
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collaboration with all supply chain partners. Logistics service providers should select key customers
and focus on strengthening these relationships.

Another important point regarding supply chain management is the use of information systems
(Sanders and Premus, 2002). Information systems support the integration of inter-organizational
processes (Hammer, 2001). Ross (2002) shows that IT investment can have a positive impact on
market performance as a result of better coordination in the value chain. However, putting such a high
level of collaboration into practice is not easy. Both information quality and relationship commitment
play an important role (Moberg and Speh, 2002).

Performance measurement for logistics service provider

Logistics service providers offer services in a wide variety of areas (Sink et al. 1996) see Table 1:
transportation, warehousing, inventory management, order processing and value added services. Lieb
and Kendrick (2003) report that third party logistics service providers also offer services such as
contract manufacturing, assisting customers with purchasing and offering financial services (e.g.
insurances, real estate, et cetera). Engaging in e-commerce was perceived as the single most important
business opportunity for the surveyed companies. Logistics service providers are further trying to
expand their activities outside their home country (Lemoine and Dagnaes, 2003).

Table 1: Activities of logistics service providers (based on Sink et al, 1996)

Transportation
Warehousing
Inventory Management
Order processing
Information Systems
Value-added activities
Shipping, Forwarding, (De)consolidation, Contract delivery, Freight bill
payment / audit, Cross-Docking, Brokering
Storage, Receiving,(Re-) Assembly, Return goods,
Forecasting, Cocation analysis, Consulting
Order entry/fulfilment, Consignee management, Call centre
EDI, Routing/scheduling, Artificial Intelligence, Expert systems, Bar
coding, RFID, Web-based connectivity, Tracking and Tracing
Design and Recycling of packaging, marking/labelling, billing, call
center activities.

The literature has examined a variety of measures to measure general or specific performance of
logistics service providers regarding transport activities (Van Donselaar et al. 1998), timeliness and
accuracy (Bromley, 2001; Johnson, 2001), delivery performance (Stewart, 1995), personnel scheduling
and safety measures (Crum and Morrow, 2002; Mejza et al., 2003). See Fowkes et al. (2004) for a
discussion on how reliability and predictability is valued in industry. Mentzer and Konrad (1991)
define performance measures in five sub-areas of logistics: transportation, warehousing, inventory
control, order processing and logistics administration. Logistics service providers can also be
distinguished based on characteristics of customer relationships (Knemeyer et al., 2003), customer
satisfaction and loyalty (Stank et al., 2003). Findings of Lai et al. (2004) suggest that perceptions of
shippers and consignees differ. For a more in-depth examination of logistics service provision literature
we refer to (Krauth et al. 2005a, Krauth et al. 2005b).

Performance measurement of warehouse management

Faber et al. (2002) examine information systems for warehouse management. In their exploratory study
they examine complexity of warehouses and control structure. Complexity of warehouse management
is indicated among others by amount and heterogenity of handled products, the extent of overlap
between them, amount and type of technology as well as characteristics of associated processes. Their
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findings suggest that warehouses with a high daily amount of processed orderlines and amount of stock
keeping units will be best supported by customized software.

Moberg and Speh (2004) study the process of selecting logistics service providers in order to outsource
warehousing. Their empirical evidence is based on a survey in the US to customers of logistics service
providers that offer warehousing activities. According to their findings, the most important indicators
for chosing a particular logistics service provider are related to responding to service requests, general
management and ethical issues. Criteria that seem to be less important are the risk affinity of logistics
service providers, information technology, company size and coverage.

Colson and Dorigo (2004) present a software tool which allows to select public warehouses. Their
extensive list of decision criteria includes: storage surface and volume, dangerous items, possibility for
temperature control, separation of storage areas, control for temperature humidity, ventilation, offices
on site, geographical distance to highway connection, train, waterways, certification (ISO 9001/9002,
SQAS, HACCP), opening hours, assistance with customs, use of technology such as RFID/Barcoding,
modem connection, handling equipment (electric, gas and diesel/petrol forklifts) number and
characteristics of docks.

Also personel of warehousing departments has been addressed in literature (Autry and Daugherty,
2003). They studied the fit between the warehouse and its employess, worker satisfaction and how
warehousing employees cope with stress.

Rogers et al. (1996) examined whether the use of information technology affects performance of
warehouses. They conducted a survey including both public and dedicated warehouses. Their findings
suggest that the use of information technology is related to several positive outcomes, such as
improvement of quality, cycle times might be reduced as well as an increase in productivity. The
Fraunhofer Institut for Materialfluss und Logistik examined a wide range of warehouse management
systems (Fraunhofer Institut fr Materialfluss und Logistik, 2005). They use more than 2500 criteria to
examine whether a warehouse management system fits to the respective company. They assess among
others indicators such as: product range, user environment and system characteristics, basic functions
such as order processing, inventory management, means of transport and typology of storage.

OUR FRAMEWORK
The literature overview presented in the previous section supports the view that a new framework for
performance indicators can be beneficial in the area of logistics service provision. For further
explanation of our framework we refer to earlier studies (Krauth et al., 2005a, Krauth et al., 2005b).
Based on the literature review we classify performance indicators according to the perspective of
different stakeholders: manager, employee, customer and society. We further refine the managerial
perspective into: effectiveness, efficiency, satisfaction as well as IT & innovation. We compiled a list
of more than 130 key performance indicators, which we classified in our framework (Table 2).
Indicators which are marked with an Asterisk (*) are especially relevant for warehousing operations.

FRAMEWORK EVALUATION
In order to evaluate the framework developed we went through several steps. First we consulted an
industry expert in order to cross-validate our model with feedback from industry. In the next step we
visited the planning department of a logistics service provider, to see whether we could actually find
proof for the validity of our framework in their daily operations. In the third step we conducted an
5
interview with an expert of warehouses and focused on the customer perspective of logistics service
providers. We briefly describe the evaluation for the first two evaluation steps and cover the third in
more detail in Section 6.

Table 2 - Performance indicators for logistics service provision

Internal perspective - Management point of view
Effectiveness
Revenue
Profit margins
Capacity utilization
Km per day
Labour productivity
Price
Turnover per km
Number of deliveries
Benefit per delivery
Trips per period
Perfect order fulfilment
*Storage surface
*Storage volume
*Storage racks
*Number and characteristics
of docks
Efficiency
Total distribution cost
Labour utilization
Overhead percentage
Overtime hours
% Absent employees
Salaries and benefits
Controllable expenses
Non-controllable expenses
Customer service costs
Order management costs
Inventories
Number of trucks in use
Total delivery costs
*Pallets per hour
Satisfaction
Attrition of drivers
Morale, motivation of
personnel
IT and innovation
Information system costs
Up-to-date performance
information availability
Utilization of IT equipment
IT training costs
Internal perspective Employees point of view
Km per trip
Working conditions
External perspective Customers point of view
Transportation price
Insurance price
Primary services price
Goods safety
Product variety
Response time
*Opening hours
*On site offices
External perspective Societys point of view:
Level of CO2 emission
Society satisfaction
Wasting resources
Recycling level
Employees satisfaction
Disaster risk
Total number of orders
Number of customers
Number of new customers
Number of regular customers
Number of profitable customers
Continuous improvement, rate
Product range
Plan fulfilment
Total loading capacity (for trucks)
On-time delivery performance
*Product variety
*Amount of products*
*Seperation of storage areas
*Handling equipment (electric, gas and
diesel/petrol forklifts)
*Ventilation control
Average fuel use per km
Average delivery re-planning time
Marketing costs
Failure costs
Prevention costs
Appraisal/Inspection costs
% of failed orders
% of realized km out of planned km
Performance measurements costs
Human resource costs
Variable asset costs
Fixed asset costs
Information system costs
On-time delivery performance
Number of customer complains
Overall customer satisfaction
Number of new products in the range
% of information exchange through IT
% of employees with IT training
Availability of IT equipment
Use of RFID/Barcoding
Weight to (un)load per labour hour
Transparency for a customer
Possible types of communication
Available types of goods insurance
Order size flexibility
Timeliness of goods delivery
*Duration pickup until information is
updated inventory information is
available to shipper
Solid particles emission
Taxes to the national treasury
Participation in charitable actions
Reputation of a company
Road maintenance costs
Number of available work places
Long term plans availability / development
Market share width
Number of markets that have been penetrated
Successful contacts % of successful deals out of the initial
offers
Effectiveness of distribution planning schedule
% of orders scheduled to customer request
% of supplier contracts negotiated meeting target terms and
conditions for quality, delivery, flexibility and cost
Competitive advantage
Certification (ISO 9001/9002, SQAS, HACCP)
*Dangerous item storage possibilities
*Temperature control
*Distance to highway
*Distance to train
*Distance to waterway connection
Overhead/management/administrative costs
Quality of delivery documentation per truck/driver
Effectiveness of delivery invoice methods
% orders / lines received with correct shipping documents
% product transferred without transaction errors
Item/Product/Grade changeover time
Order management costs
Supply chain finance costs
Total supply chain costs
Total time in repair (for trucks)
Ratio of realized orders vs. requested orders
Average delivery planning time
*Pallets/ m2
% of orders scheduled to customer request
Overall employees satisfaction
Overall society satisfaction
% of information management assets used / production
assets
% of invoice receipts and payments generated via EDI
Average time for new products development
Average costs for new product development
Salaries and benefits
Services variety
Order configuration flexibility
Possibility to change order details
Additional services price (priority transportation)
Contact points (number of people to contact)
*Assistance with customs
Competition level among similar companies
Care for animals/children around
Use of innovation technologies
Development of innovation technologies
Cooperation with other companies

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During our expert interview we received feedback regarding different aspects of our framework. Our
framework includes a broad range of indicators, reflecting the different aspects that have to be taken
into account for decision making within logistics service providers. The expert further mentioned that
advantages of our framework are that we do not solely measure costs and the broad range of given
indicators. The advantage of the framework is that it could easily be translated into a software system
to support coordination in logistics service provision. For a more in-depth description of the first
evaluation we refer to (Krauth et al., 2005a).

The second phase of evaluation consists in a comparison of our framework with industry visits with the
planning team of the container unit of a Netherlands based medium sized logistics service provider.
The manual assignment uses simple heuristics such as total amount of empty kilometres. Also
performance indicators from the satisfaction dimension are used. The planners ensure that truck drivers
are assigned routes they are content with. In general planners do use a set of performance indicators for
their planning, however they are poorly documented. For a more detailed description of our second
evaluation see (Krauth et al., 2005b).

Expert interview on customer perspective of warehousing

We conducted an interview (~ one hour) with an expert from industry, who has over 15 years of
experience in warehouse management, of both dedicated as well as public warehouse. He has designed
dedicated warehouses for well-known international companies in the sector of fast moving commodity
goods. In these sectors warehousing does play a crucial role. Delivery has to be fast and reliable since
stock outs are often lost sales. At the same time the price has to be on a highly competitive level. In our
interview we focused mainly on the customer perspective of our framework. The first comment was
that the framework is very extensive, There is hardly anything else that you could measure. However,
from the perspective of the customer only three performance indicators do really matter: costs,
performance and flexibility (to accommodate increases and decreases in the flow of goods). Costs are
measure as costs per stored unit. Performance is measured as On-Time and In-Full (OTIF) and the
expected OTIF level might be as high as 99,5 %. The fact that the shipper is only interested in these
three performance measures is related to the reasons why manufacturers outsource in the first place: (1)
decrease costs, (2) logistics service provider is specialist and can bundle (different clients, attracting
return orders) (3) the tariff agreements are sometimes more attractive for logistics service industry than
e.g. automotive industry, (4) less management attention needed.

If the client would know that much about logistics service provision [to compile such a long list of
performance indicators] the client could conduct the respective activities without assistance. However,
the list of performance indicators can be very useful for open book relationships. In an open book
relationship the logistics service provider has to justify an increase in costs.

Performance indicators that are important in the routine work for logistics service providers are those
concerned with personnel. Labor costs can be as high as 60%. Since environmental friendliness
becomes more and more important for manufacturing companies, also logistics service providers have
to start measuring them. Clients could also ask for handling of dangerous goods. The performance
indicator of marketing costs does not apply to logistics service provider; there are typically no
marketing activities to speak of. Pallets per hour are an example of performance indicators that are
difficult to measure. The amount of pallets can be obtained from the warehouse management system.

7
The respective time it took to handle the pallets is captured in the personnel system. Finding the data,
and calculating respective performance indicators is usually done with spreadsheets and can be a very
time consuming process.

CONCLUSION
In this paper we build upon our earlier work on performance measurement and control in logistics
service provinding. We focussed especially on the logistical sub-domain of warehousing / warehouse
management which is different from the transportation focus we had in our earlier work.

The paper starts with a description of key literature, and introduces our framework that clusters the
different streams in performance measurement. It is a generic classification, which could be used,
together with an in-depth company analysis as a basis to map one companys specific operations. Our
analysis showed that it is not only capable of mapping transportation firms, but also is suitable in the
related LSP function of warehousing. Note that the list as such might be an interesting element in
company analysis. It helps in structuring thoughts and although it is not complete simply because
such lists can never be complete it is quite extensive. Based on our empirical validation we suggest
that our list of key performance indicators could be an instrument to let industry executives rethink
their operations, and let them move away from a sole focus on cost minimization. Not surpisingly,
there is a trend in the industry towards the utilization of more performance criteria in daily operations,
and more strategic behaviour.

For the nearby future we consider several directions to extend our framework. From a theoretical
perspective we are interested in how separate indicators relate and interact with oneanother. Emprically
we plan to research how applicable the framework and list of (130+) indicators is in practice, and how
this could be used as a (management) instrument. What performance indicators need to be given to
local decision making units in order to achieve companys wide goals such as profit, customer
satisfaction or flexibility? Is it beneficial to give different and maybe contradictory sets of performance
indicators to different departments within the logistics service provider? Last but not least, we perceive
this work as a first step within our larger effort towards the design and definition of a new inter-
organizational information system for planning and implementation of logistical service provision. We
consider an agent-based architecture, in which the agents steer their decisions based upon the proper
decision criteria that should come from the proper performance indicators.

ACKNOWLEDGEMENTS
This work is part of DEAL (Distributed Engine for Advanced Logistics) supported as project
EETK01141 under the Dutch government funded EET programme. For this particular paper we are
very grateful for the contributions of Jan T. Verschoor.

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