Measuring and Selling the Value of Logistics

TLDR

Logistics value is frequently assessed only through cost metrics, yet the literature proposes a spectrum of measures—from customer satisfaction to shareholder value—that often omit links to customer or supplier benefits and fail to incorporate risk and time‑value considerations. The study seeks to quantify this value and effectively communicate it to both customers and top management.

Abstract

In order to receive adequate rewards for the firm's innovations and performance in logistics, managers have to measure and sell the value that is being provided to customers. Value, once determined, must be sold to customers and also to top management within the firm. There are several value metrics mentioned in the literature, ranging in financial sophistication from customer satisfaction to shareholder value including: customer satisfaction, customer value‐added (CVA), total cost analysis, segment profitability analysis, strategic profit model and shareholder value. While customer satisfaction and CVA may lead to the achievement of higher shareholder value, the specific connection to changes in value for the customer or the supplier are typically not made. The other measures focus on the measurement of value in financial terms. However, financial measurements such as total cost analysis only capture part of the value created by logistics. One of the problems faced by logistics professionals over the years is that logistics has been viewed simply as a cost that needs to be reduced. Segment profitability analysis and the strategic profit model are more complete measures of the impact of logistics, but they are used to evaluate historical performance and lack measures of risk and the time value of money that are included in shareholder value.