QUESTION 3- SCARLETT- YASILAND LOGISTICS
Company background and objectives
Scarlett- Yasiland Logistics (Scarlett) is a logistics support business, which operates a fleet of lorries to deliver packages of goods on behalf of its customers within the country of Yasiland. Scarlett collects packages from its customers' manufacturing sites or from the customers' port of importation and delivers to the final user of the goods. The lorries are run and maintained from a set of depots spread throughout Yasiland.
The overall objective of Scarlett is to maximise shareholder wealth. The delivery business in Yasiland is dominated by two international companies and one other domestic business and profit margins are extremely tight. The market is saturated by these large operators and a number of smaller operators. The cost base of Scarlett is dominated by staff and fuel, with fuel prices being highly volatile in the last few years.
In order to improve performance measurement and management at Scarlett, the Chief Financial Officer (CFO) plans to use the balanced scorecard (BSC). However, she has been pulled away from this project in order to deal with an issue with refinancing the business's principal lending facility.
The CFO has already identified some suitable metrics but needs you, as her assistant, to complete her work and address any potential questions which might arise when she makes her presentation on the BSC to the board. The CFO has completed the identification of metrics for three of the perspectives (Appendix 1) but has yet to complete the work on the metrics for the customer perspective. This should be done using the data given in Appendix 2.
Reward management issues
Additionally, two issues have arisen in the reward management system at Scarlett, one in relation to senior management and the other for operational managers. Currently, senior management gets a fixed salary supplemented by an annual bonus awarded by the board. Shareholders have been complaining that these bonuses are not suitable. The operational managers also get bonuses based on their performance as assessed by their management superiors. The operational managers are unhappy with the system. In order to address this, it has been suggested that they should be involved in bonus target setting as otherwise there is a sense of demotivation from such a system. The CFO wants an evaluation of this system of rewards in light of the introduction of the BSC and best practice.
a. Discuss how Scarlett’s success in the customer perspective may impact on the metrics given in the financial perspective.
b. Recommend, with justification, and calculate a suitable performance metric for each customer perspective success factor. Comment on the problems of using customer complaints to measure whether packages are delivered safely and on time.
c. Advise Scarlett on the reward management issues outlined by the CFO.
(Total = 25 marks)
(How do we appear to our shareholders?)
Return on capital employed Profit margin
(How do we appear to our customers?) Success factors:
Ability to meet customers' transport needs
Ability to deliver packages quickly
Ability to deliver packages on time
Ability to deliver packages safely
Internal process perspective
(What business processes must excel?)
Time taken to load and unload
Lorry capacity utilisation
Learning and growth perspective
(How do we sustain and improve our ability to grow?)
Leadership competence (qualitative judgement)
Training days per employee
The process: A customer makes a transport request for a package to be collected and delivered to a given destination. The customer is supplied with a time window in which the delivery will occur. Packages are then loaded onto lorries and delivered according to a route specified by the depot's routing manager.
|Total number of customer transport requests
|Total number of packages transported
|Total number of lorry journeys
|Total package kilometres
|Total package minutes
|Number of delivery complaints from customers:
|from damaged packages
|from late delivery (outside agreed time window)
- All figures are for the last financial year.
- A package kilometre is defined as a kilometre travelled by one package.
- A package minute is defined as a minute spent in transit by one package.