Assessing the value of logistics

To reap the rewards of corporate innovation and performance in logistics, managers need to measure and sell the value they bring to customers. Value, once determined, must be sold, not only to buyers, but also to managers.

The literature mentions several value measurement methods, with varying degrees of sophistication, ranging from customer satisfaction to shareholder value, customer value added (CVA), total cost analysis, segment profitability analysis and segment profitability model.

While customer satisfaction and CAV can increase shareholder value creation, these measures do not generally establish a clear link in the evolution of customer or supplier value. Other measures, such as total cost analysis, are focused on determining value in financial terms, and capture only part of the value created by logistics.

One of the problems facing logistics professionals is that logistics is seen as a cost to be reduced. Segment profitability analysis and the strategic profit model are more comprehensive measures of the impact of logistics, but they apply to the evaluation of historical performance, without incorporating two elements – risk and time – that count towards the creation of shareholder value.

This article presents the different methods of measuring value, with the advantages and disadvantages of each, and the various ways of selling value when it is recognized.