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Overview of Performance Management form a Logistics Perspective

BASIC PRINCIPLES OF LOGISTICS PERFORMANCE MEASURES

(BPLLMB1)

Assignment Memorandum

A. Instructions
1. Please read the question carefully before answering.
2. Answer response should be in the form of a report.
3. This assignment assesses the concepts and practical application of the concepts in practice.
4. Specific case study related examples are required. There is no definitive answer set; marks will
be allocated in terms of accuracy and relevancy of application in the context of the question.
5. Extracts are taken from the original source document to create a business case. You are
expected to access the full annual report when answering questions to this assignment.
6. Include the Assignment Assessment sheet as page 1 of the Assignment response.

B. Assignment Questions

Business Case: ABC Aviation Holdings

Extracts of the Business

ABC Aviation Holdings, a global aviation services company with airlines based in Europe, South Africa and Asia,
is a world leader in ACMI airline operations serving major cargo and passenger airlines. ABC have joint
venture and associate airlines DCE in South Africa and FG in Thailand. The group also includes several
leasing entities.
ABC Aviation Holdings operates cargo services for the world’s leading express parcel integrators and online
retailers. Group airlines also operate scheduled and charter passenger services under its own airline
brands on domestic, international, and intercontinental routes in Europe, Asia, the Middle East, North
America and Africa.
ABC has a global team of 3,000 people of 51 nationalities. The Group has a fleet of 130 aircraft that includes 7
aircraft types ranging from the turbo prop ATR 72 to the Boeing 747. ASL’s agreement with Boeing for 30
firm slots and 10 options for Boeing 737-800BCF ‘Boeing Converted Freighters’, will see the entry into
service of the twentieth aircraft later this year.
In 2021 ABC’s airlines operated 93,181 flights. The airlines carried 3,900,000 passengers and 111 000 tonnes
cargo carried on flights that totalled 177,474 hours. Overall reliability across the Group fleet was 98.04%.

ABC provides the following services

 Passenger, Cargo, Leasing, and Airline Services

Key metrics worth noting

 R10 billion total annual revenue, 20% Nett profit  31 684 million seat kilometres completed with 0 safety incidents
 130 aircraft  111 000 tonnes cargo carried
 18 domestic destinations completed  11 million meals prepared annually by Air Chefs
 25 regional destinations completed  300 523 air-frame maintenance man-hours for the year
 3,900,000 passengers carried annually  On Time performance – 87%
 75 percent passenger load factor  Baggage Handling pilferage rate per 1000 bags – 0.2
 R700 million inventory recorded in the balance sheet  Dispatch reliability – 98.04%
 Customer Satisfaction Efficiency score – 76%  The routes turnaround times improved by 20%
 Inventory loss adjustments ended at 27%  Clean Safety audits and 100% compliance OHS act requirements
Instructions
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Overview of Performance Management form a Logistics Perspective

Compile a report to the Board addressing the following aspects in implementing a performance
management system to drive performance at ABC Aviation Holdings. Use the outline below to structure
your report and all examples provided need to be relevant to the airline industry.

1. Understanding the business (40 marks)

a. Explain what performance management is and how can ASL benefit from implementing performance
management in the organisation. Provide also, the relevant example in each type of benefit. (20)
b. Advice the board on the differences between integration and collaboration and what are the benefits
of integrating and collaborating with their suppliers. (15)
c. Having learnt your course in Logistics Performance Measures, please identify and describe five (5)
types of wastes applicable for this airline business and illustrate your understanding through relevant
airline industry examples. (5)

2. Analysing the current performance of this business (20 marks)

a. List and briefly describe the various classes of performance measures to the board members of ABC
airline. (10)
b. Allocate the key metrics given in the case study to the relevant classes of performance measures
and comment on the performance of ABC using all the relevant KPI metric aligned to the measures
identified in Question 2a above. (10).

3. Planning for improvement (10 marks)

a. Having learnt that the Gartner model illustrates the impact of supply chain in the organisation’s
performance, you are required to Illustrate to the Board members of ABC Aviation Group on how
supply chain performance can impact the profitability of ABC Aviation Group by managing the
below mentioned areas. (10)

4. Conclusion (10 marks)

a. Provide five (5) reasons as to why should ABC use process reference models to measure the airline’s
performance .

Assignment Questions
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Overview of Performance Management form a Logistics Perspective

C. Assignment Evaluation Sheet

Subject: Performance Management from a Logistics Perspective

Topic: Assignment

Student number: ________________________________

Student name: ________________________________

Lecturer: Samuel Kgarimetsa

A Presentation Marks
1 Layout, presentation and structure of report 10
2 Additional research done 10
Total 20

B Content Marks
Theoretical accuracy, understanding Application in context and used appropriate examples is
key
1 Understanding the Business 40
Analysing the current performance of the
2 20
business
3 Planning for Improvement 10
4 Conclusion 10

Total 80

Total 100

Assignment Evaluation Sheet

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Overview of Performance Management form a Logistics Perspective

Memorandum

1. Understanding the business

a. Explain what performance management is and how can ASL benefit from implementing performance
management in the organisation. Provide also, the relevant example in each type of benefit. (20)

Students to answer this question along this framework and provide any relevant examples to demonstrate
application

From a management perspective, performance measurement provides the necessary information for
management feedback for decision makers and process managers. (2 marks for this theory).

For Example: management can compare scheduled departure time and compare that with actual flight
departure times to decide around the resources/number of support employees required to prepare flights for
departure. (2 marks for applicable example).

Benefits of performance management that ASL can benefit from (8 marks allocated for the theory, 8 marks
allocated for relevant examples for each type to demonstrate application of the theory)

• Better understanding of customer value

Alignment internal and partners
Optimal development of competitive products
• Higher level of goal achievement
Visible and mapped processes
Visible measurements
• Communication and Management Tool
Ensure strategic focus
Ensure alignment
• Reducing poor management Decisions
Proper analysis
Objective measurements
Implementation of a transparent improvement plan
• Create platform for consensus
Strategy, design, operations
• More focused reduction in waste and supply chain optimisation
• Strategies and activity alignment to customer requirements and market trends
• Creates a quality and improvement culture for continuous improvement and optimisation
processes

b. Advice the board on the differences between integration and collaboration and what the benefits are
of been integrated and collaborate with suppliers. (15)

Integration is the alignment and interlinking of business processes and embodies various communication
channels and linkages within a supply network. Collaboration is a relationship between supply chain partners
developed over a period. (2 marks allocated for both the two theory concepts)

For example: ASL has the airline online booking system integrated with the flights schedules, and ASL
collaborate with ports for landing and facilities support at various countries in which ASL does business (any
other industry specific examples accepted) (3 marks allocated for both the two theory concepts and two relevant
industry examples)

Benefits of integration and collaboration (5 marks allocated for this theory, and 5 marks allocated for any
relevant airline industry examples to demonstrate application of theory)

 Sharing of key information timeously for timeous decision making that results in positive
business results
 Ability to react as a value chain to changes in the business environment
 Internal efficiencies are achieved and members in the value chain can anticipate the required
performance levels
Assignment Evaluation Sheet
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Overview of Performance Management form a Logistics Perspective

 Collaboration across the networks allows better risk management

 The value chain is demand driven resulting in a profitable chain

c. Having learnt your course in Logistics Performance Measures, please identify and describe five (5)
types of wastes applicable for this airline business and illustrate your understanding through
relevant airline industry examples. (5)

Amongst others, the following are the waste types and examples that could be identified by the students for ASL
(any other relevant examples accepted as well).

 Waiting
Example: High maintenance hours that could require flights to stand/wait at the workshop to be
completed with lost opportunity to fly. In the case study, 300 523 air-frame maintenance man-
hours for the year. (any other relevant examples accepted)

 Transportation and/or Motion

Example: There could be unnecessary movements of people and luggage’s: The departure control
processes are done at various stations instead of centralised one point requiring people and
luggage’s to be moved across various places. (any other relevant examples accepted)

 Extra processing (more work or high quality than is required by customer)

Example: The wrapping of bags is additional work that is not necessarily required by a client. All
that clients want is the security that their items are secured and not necessarily that their baggage
must be wrapped. The wrapping comes with additional costs that need to be passed on to the
clients. Ideally, clients would have required that the environment and spirit of no theft at work be
maintained always.

 Over production
Example: There could be excess capacity of aircrafts resulting in excess inventory/seat in every
trip. The aircraft not always running at full capacity (75 percent passenger load factor in the case
study) indicating that either the schedule requires improvement or there is a mismatch between
the size of an aircraft and the number of passengers procuring a seat at that time.

 Inventory
Example: Spares stored at the workshop, reflected in the balance sheet. There is a substantial
amount of R700 million as inventory in the balance sheet. By implication, there is money tied up
as inventory which could be used for something else.

2. Analysing the current performance of this business (20)

a. List and briefly describe the various classes of performance measures to the board members of ABC airline.
(10)
b. Allocate the key metrics given in the case study to the relevant classes of performance measures and
comment on the performance of ABC using all the measures identified in Question 2a above. (10)

Students obtain 2 marks for listing all the 4 measures , 8 marks for brief description. 10 marks for allocating the
correct KPI into the correct class and commentary

2.1 Quality Indicators

The following quality indicators at SAA are observed:

 ABC operation On Time performance – 87%

o Example- ABC can make investment in technology to better understand the uncontrollable factors
to enable a promise to clients about the time that is close to reality. Such investments will allow
ABC to meet and improve on the time promised.

 Customer Satisfaction Efficiency score – 76%

o Example- ABC can work more to identify where the gaps exist by engaging with customers to
determine the root causes of scoring less than 100%.

Assignment Evaluation Sheet

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Overview of Performance Management form a Logistics Perspective

 Baggage Handling pilferage rate per 1000 bags – 0.2

o Example - ABC is doing very well in this regard and must maintain the good performance. What
could be more beneficiary to clients could be a reimbursement programme through an insurance
cover on the baggage.

 Dispatch reliability – 98.04%

o Example - ABC seem to be dispatching the aircrafts reliably over the period of measure.

 Safety
o Example - ABC has indicated a good safety record and have achieved 100% safe operating
environment i.e., 31 684 million seat kilometres completed with 0 safety incidents

Or

Example - Clean Safety audits and 100% compliance OHS act requirements means that the
business has good safety controls to assure clients with a safe journey

2.2 Time indicators

 ABC operation On Time performance – 87%

o Example -ABC can invest in technology to better understand the uncontrollable factors to promise
the clients the time that is close to reality. Such investments will allow ABC to meet and improve
on the time promised.

 The routes turnaround times improved by 20%

o Example -ABC can invest in technology to better understand the uncontrollable factors to
promise the clients the time that is close to reality. Such investments will allow ABC to meet and
improve on the time promised.

2.3 Cost / Financial indicators

 R10 billion total annual revenue, with a 20% Nett profit.

o Example - The annual report indicates that ABC generated R10 billion total annual revenue, with
a 20% Nett profit. The business is making a profit. Continuous cost review in their operations
and measures such as running profitable routes and ensuring that efficiencies are created in
their operations could help to sustain the profitability of the business.

 Inventory loss adjustments ended at 27%

o Example - The annual report indicates that ABC generated a loss in inventory. Continuous
process review in their operations and measures such as training and process enhancements
could help improve current process

2.4 Productivity indicators

The following key productivity metrics are observed in the report:

 130 aircraft

o 18 domestic destinations completed

o 25 regional destinations completed
o 3,900,000 passengers carried annually

These aircrafts were productive and carried for Example -

o 31 684 million seat kilometres completed

o 111 000 tonnes cargo carried
o 111 000 tonnes cargo carried

Assignment Evaluation Sheet

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Overview of Performance Management form a Logistics Perspective

3. Planning for improvement

a. Having learnt that the Gartner model illustrates the impact of supply chain in the organisation’s
performance, you are required to Illustrate to the Board members of ABC Aviation Group on how supply
chain performance can impact the profitability of ABC Aviation Group by managing the below mentioned
areas. (10)
i. Inventory
ii. Procurement costs
iii. Warehouse costs
iv. Supply variability
v. Demand variability

Gartner model illustrates the impact of supply chain in the organisation performance.

Students to answer along these lines (any other relevant examples accepted )

 Inventory
o As a result of well managed inventory, reduction in warehousing costs is achieved, resulting in
reduced total costs and improved profitability

 Procurement costs
o Reduced negotiated procurement cost allowing improved cash position that can be used to
reduced total cost, and the improved profitability

 Warehouse costs
o Well managed costs related to the warehouse materials used to support the airline, results in
reduced total costs, resulting in improved profitability

 Supply variability
o Improved conformance to lead times result in less inventory, reducing warehousing cost,
resulting in reduced total costs and improved profitability

 Demand variability
o Improved forecasting accuracy of airline tickets results in adequate planning for aircraft
schedule, which improves flight seat availability, resulting in improved customer service,
resulting in improved available seats and cargo carried, resulting in improved turnover that
results in improved profitability.

Assignment Evaluation Sheet

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Overview of Performance Management form a Logistics Perspective

4. Conclusion (10 marks)

a. Provide 5 reasons as to why should ABC use process reference models to measure the airline’s
performance .

Students to provide these reasons (and any other relevant examples)

The benefits of using process reference model are as follows:

1. The reference model provides a standard descriptions and definitions of management processes as a
reference to process completeness and design considerations.
2. Provide standard metrics to measure process performance within an organisation across various
business units as well as external to the organisation.
3. Assist with the benchmarking process to align definitions to measurements.
4. Provides a knowledge base of management practices that produce best-in-class performance as a
reference without the need to consult expensive external consulting houses.
5. Ensure standard alignment to features and functionality in terms of enablement of processes

Assignment Evaluation Sheet

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Compiled by Samuel Kgarimetsa Assignment - 2019