Logistics Professor on Trends, Corona, KPIs

How has the logistics industry coped with the pandemic? How can road and rail succeed in growing together even more? Why is cloud technology supported by the right key figures the most important future trend? Logistics Professor Dr. Peter Holm answers these questions in a Collenda interview. One principle remains timeless in logistics: timing is everything.

Corona is the dominant topic in the economy, how did the transport and logistics industry get through the crisis?

Prof. Holm When there was no more toilet paper in March 2020 after global supply chains were disrupted, we all realized that logistics is one of the systemically important industries. No one expected that some consumers would buy the supermarkets out of stock. And toilet paper wasn’t the only commodity in short supply. One problem at the beginning of the pandemic was that worldwide air freight capacity was down by about 50%. Scheduled air traffic was at a standstill, and passenger planes usually also carry so-called “belly freight”. However, many logistics companies quickly got to grips with this problem during the lockdown. Lufthansa, for example, converted its passenger aircraft and extended the rows of seats to transport freight. It is important – also for the future – for logistics companies and production sites to build resilience. This can be done by tapping into new revenue streams and improving flexibility.

Is the roughest part over?

Prof. Holm Not yet. The collapse of the supply chains has resulted, among other things, in an extreme shortage of semiconductors, since the major production sites for semiconductors are in Asia. VW, for example, could have built 100,000 more cars with a sufficient supply of semiconductors. Added to this are incidents such as the blockade of the Suez Canal by the container ship “Ever Given” and the current consequences of the partial closure of the port of Yantian/Shenzen. Tens of thousands of containers are currently not being loaded and the resulting congestion is paralyzing all world trade.  The majority of all goods are transported by sea. At the same time, freight rates on the route from Shanghai to Europe have increased fivefold from approx. 1500 $ to 10,000 $ (1 container) during the Corona crisis. In addition to the increased freight rates, the worldwide shortage of containers should be mentioned as a further point, which means that it cannot be assumed that the worst will be over in the short term.

Important KPIs in receivables management

  • Days Sales Outstanding (DSO) – The days sales outstanding is the number of days that elapse from the time an invoice is issued until payment is received in the supplier’s bank account or cash register.
  • Collector Effective Index (CEI) – The CEI is used to measure the success of employees in recovering funds from creditors. The percentage of total volume recovered is measured. The metric allows for slightly higher accuracy than the DSO measurement.
  • Right Party Contacts rate (RPC) – RPC is an outbound call metric that examines how well companies connect with the “right” person. It is the best measure of the overall effectiveness of outreach efforts and the quality of the contact database.
  • Promise to Pay (PTP) – The PTP describes the percentage of calls that result in a promise to pay. This agreement includes such things as the amount of outstanding debt, the terms under which the money will be repaid, the interest rate, and the consequences if the money is not repaid on time.
  • Profit per Account (PPA) – PPA is a metric that measures the average revenue generated by each account in collections. Relatively low values usually indicate inefficient processes.
  • Recovery Rate (RR) – Describes the percentage of the debt recovered. Its counterpart is the so-called write-off rate.
  • Cost to collect (CTC) – The CTC is a performance indicator that measures efficiency and productivity.

Speaking of resilience, how is the industry readjusting and what trends are on the agenda?

Prof. Holm The big issues in logistics are digitization and climate change. There are major innovations in the development of trucks or aircraft, for example. Lufthansa, for example, is working on a CO2-neutral aircraft. In the wake of the current pandemic as well as increased uncertainties, the goal must be to increase the resilience or responsiveness of supply chains and to make even greater use of the possibilities of digitalization (cloud and Iot solutions) in this regard.

There is much discussion about the interconnection of road, rail and water. How can we succeed in better connecting these flows?

Prof. Holm Basically, we can talk about three major traffic flows in Germany. First, there is freight transport by truck. It accounts for about three quarters of the total volume. In second place is rail transport with about 17-20 %, followed by sea freight with its container transports and inland waterway transport. The goal of politics is undoubtedly to get more goods onto the railways, and this can only be done in cooperation. To achieve this, digital interfaces are necessary, as is a corresponding infrastructure. For example, loading stations will be built closer and closer to production sites in the future. And then there’s also the Truck2Train alliance, for example, which also wants to make it possible for small and medium-sized companies to connect to rail.

What does that mean for the choice of software?

Prof. Holm The software must guarantee a link to suppliers and customers. Data management is of course easier to implement with cloud-based software. That is clearly the trend. Transparency is important because processes are becoming increasingly complex. At the same time, it is also becoming increasingly difficult to generate this transparency. Also in view of the fact that the level of digitization in logistics SMEs is still low, many systems are outdated.

What does that mean for supply chains?

Prof. Holm Nowadays, in the context of just-in-time deliveries, it is increasingly important to know exactly what is needed when to produce what. Many car manufacturers, for example, no longer have any warehousing at all, and the cycle time is becoming ever tighter. This requires perfect systems that can process real-time data. In addition, there are risks that have to be continuously kept in view: Extreme weather events, cyber risks, an IT infrastructure failure. In order to calculate the probability of occurrence for such risks, corresponding KPIs are of course important,

What other KPIs are particularly important in logistics?

Prof. Holm The demand on logistics KPIs is high because they always have to reflect several dimensions. To answer this question, I would form four upper categories:

KPIs Global supply chains/customer perspective: e.g. customer satisfaction, response time, etc.
KPIs Operations/Processes: e.g. lead times, project turnaround time, etc.
KPIs purchasing: e.g. compliance rate, lead time, return on investment (ROI)
KPIs Finance: e.g. working capital, EBIT margin


About the interview partner

Prof. Dr. Peter Holm is Vice Dean at the Department of Economics at the Provadis School of International Management and Technology. There he teaches the subjects logistics, supply chain management. His special areas of interest include digitalization, sustainability and logistics supply chain management.

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