Logistics Performance Measurement in Thailand Ruth Banomyong (PhD) Centre for Logistics Research Thammasat University email@example.com
Agenda 1. Introduction 2. Research Objectives 3. Literature Review 4. Logistics Performance Measurement Framework 5. Thailand’s Logistics Performance Results 6. Comparing against the WB’s Logistics Performance Index 7. Summary The author would like to acknowledge the presentation done by Ojala & Lorrentz on May 12, 2011 entitled “Towards an improved methodology inlogistics cost and performance measurement through the LPIO network” in the literature review
Introduction• Since 2001, Thailand has recognised logistics development as a national priority.• A national logistics development policy has been approved for the period 2006- 2010.• The NESDB is currently reviewing the existing plan and is developing the new plan for the next 5 years.
Thailand Logistics Development Strategy (2006-2010) 16% 13% Vision To establish a world-class logistics system to support Thailand(2005) (2010) as Indochina’s trade and investment center1.5 1 To enhance trade facilitation with an aim to increase cost efficiency and customer responsiveness of businesses, and also reliability and security of their logistics process) Objective 2 To create economic value from the logistics and other supporting industries 17.3 6 1 2 3 4 5 New Trade Strategic Business Lanes and Logistics Service Trade Facilitation Capacity Agenda Logistics Logistics Internationalizati Enhancement Building Improvement Network on Optimization7.2 Implementation 1. Aim at the world-class technology and skills. 6 2. Focus primarily on strategic industries. Principles 3. Any change management must be customer oriented.
Introduction• The Thai Ministry of Industry is responsible for the strategic agenda on “Business Logistics Improvement”.• The logistics bureau at the Department of Primary Industries and Mines at the Thai Ministry of Industry has the mission to support and develop industrial logistic system in Thailand.• In collaboration with Thammasat University, a study was conducted to assess logistics performance of Thai firms in 2010.
Research Objectives1. To Develop an Assessment Framework for Firms’ Logistics Performance2. To assess industries based on the ISIC code3. To establish a logistics performance database4. To disseminate logistics performance scores to stakeholders5. To improve Thailand’s logistics performance based on benchmarking methodology
Literature Review: Logistics concepts are not statistical units• Firm level (survey) data vs. macro level statistics• Linkage to National Accounts data only implicit• Self-reported costs often subjective – Aggregation may also lead to ”double counting” – One respondent from a very large firm often misleading – SME data important to get a balanced pictureIn short: severe knowledge gaps exist especially on the concept of logistics costs
Main types of logistics study/survey• Statistics-based studies applying models – Econometric – Other modelling approaches• Case study-based approaches• Surveys using questionnaires – Comprehensive themes – Single-theme surveys
However, severe knowledge gaps onlogistics performance indicators & costs• Lack of uniform methods & terminology• Very few cross-country studies made, thus little comparative data exists across – Countries – Industries• Comparisons across studies problematic
Examples of statistics-based logistics studies• Annual State of Logistics Report U.S 1989 • Bowersox, Rodrigues, Calantone & Closs, Stank 1999, 2002, 2005• South Africa State of Logistics Survey 2003 • Svensk Makrologistik (Sweden) 2008 • Radelet and Sachs 1998• Lee & Hausmann (World Bank background note) 2005
World Bank case studies on national logistics costs in Low-Income countries• Arvis: Sub-Saharan and North Africa 2003• Ojala: Moldova, Albania, Ukraine, Central Asia 2003• Naula: Central Asia 2007
Examples of surveys using questionnaires• ELA & A.T. Kearney 1987 5• Master of Logistics 1990 10+• Finland State of Logistics 1991 6• German Logistics Association BVL 1995 10+• State of Logistics: The Canadian Report 200X 3-4• Norwegian Logistics barometer 2003 4• SCI Logistics barometer Germany 2000s 3+• ASLOG LEtat de lart de la logistique française 2005/2006 2+• McKinsey Global Supply Chains 2006 & 2008 2• LogOn Baltic Logistics Survey 2007 1• World Bank Logistics Performance Index 2007 2• Swiss Logistics market, St. Gallen University 2009 3
Logistics is an important source of competitive advantage for large and medium-sized manufacturing and trading firms Logistics has an impact on… Customer service level Logistics has an impact on… Impact on profitabilityLogistics is … Source of competitive advantage Logistics is … Top management priority 0% 20 % 40 % 60 % 80 % 100 % Strongly disagree Disagree Neither agree nor disagree Agree Strongly agreen=329; Finland State of Logistics 2009, available at: www.mintc.fi
How high are logistics costs for manufacturing and trading firms?Reviewing some recent survey results:• No universal definition exists on firm or macro levels, therefore conceptions inevitable vary• Translation and educational issues are also prevalent in cross-cultural studies
Logistics cost indicators in the Baltic Sea Region in 2007, % of sales, N = 574 Manufacturing Wholesale & retail tradeSource: Ojala et al.; LogOn Baltic Master Report 3:2007, www.logonbaltic.info
Logistics Costs as a % of GDP in Brazil 12.1% 11.5% 11.6% 0.4% 0.4% 0.4%100% 0.6% 0.6% 0.7%90% Administration Administrativo80% 3.6% 3.7% 3.5% Warehousing Armazenagem70%60% Inventory Estoque50%40% Transportation Transporte 7.5% 6.8% 6.9%30%20%10% 0% Source: 2004 2006 2008 ILOS Institute
…but using costs as % of product value provides a very different picture Logistics Costs as Percentage of Product Value, 2004Based on Guasch and Kogan (2006) ; graph from Guerrero et al. 2010
The challenges of measuring logistics performance on a national level: Scarce empirical evidence No generally followed methods No uniform terminology Limited or no comparability!!!
Logistics Management Defined “Logistics Management is that part of SupplyChain Management that plans, implements, and controls the efficient, effective forward andreverse flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customers requirements. ” Council of Supply Chain Management Professional(2004)
Key Logistics Activities• Logistics communication & order processing• Customer service & support• Demand forecasting & planning• Purchasing & Procurement• Material handling & packaging• Inventory Management• Transportation• Facilities site selection, warehousing & storage• Return goods handling and reverse logistics Source: Grant et al., 2006 20
KPI logistics assessment framework Logistic activities Cost Time ReliabilityCustomer service and Ratio of customer service Average order cycle time DIFOTsupport cost per salePurchasing and Ratio of procurement cost Average procurement cycle Supplier In Full andprocurement per sale time On-Time RateInformation Processing Ratio of information Average order processing Order Accuracy Rate processing cost per cycle time saleTransportation Ratio of transportation Average delivery cycle time DIFOT cost per saleWarehousing and site Ratio of warehousing cost Average inventory cycle time Inventory Accuracyselection per saleDemand planning and Ratio of forecasting cost Average forecast period Forecast Accuracy Rateforecasting per saleInventory management Ratio of inventory Average inventory day Inventory Out of Stock carrying cost per sale RateMaterial handling and Ratio of value damaged Average material handling Damage Ratepackaging per sale and packagingReversed Logistics Ratio of returned goods Average cycle time for Rate of Return Goods value per sale customer return
KPI Assessment Framework• However, not all KPIs are of equal importance.• 9 key KPIs can reflect overall logistics performance Cost Time Reliability Transport Order Cycle Delivery in Full Time & on Time Warehouse Delivery Cycle Forecast Time Accuracy Inventory Inventory days Return Rate
THAILAND’s Logistics Performance ResultsSelected Samples from 5 industries: Only best-in-class arechosen Industry No. of company Foods 48 Textiles 40 Electrical & Electronics 40 Automotives 32 Plastics 40 Total 200
THAILAND’s Logistics Performance Results2. Time dimension 40 35 30 25 20 15 10 5 - Average Order Cycle Time Average Delivery Cycle Time Average Inventory Day (Day) (Day) (Day) Foods 11 2 40 Textile 4 1 27 EE 6 2 27 Auto 29 1 26 Plastic 4 2 15
A proposed Composite Performance Index Cost Time Reliability Average Average Average Total Score Trans Order Delivery Forecast Returned Inv. cost WH cost Inventory DIFOT cost Cycle Cycle Accuracy Rate Day Time TimeFood Median 0.73% 1.73% 3.56% 11.00 2.10 39.50 91.15% 86.00% 4.00% Scale 4 3 3 3 3 3 3 3 3 3.11Textile Median 1.23% 1.23% 3.61% 4.44 1.29 27.00 88.00% 84.50% 2.13% Scale 4 3 3 3 3 3 3 3 3 3.11 EE Median 4.60% 0.94% 1.03% 6.44 1.67 26.50 91.50% 86.50% 2.04% 3.11 3.066 Scale 3 4 3 3 3 3 3 3 3 Auto Median 0.67% 1.41% 5.56% 28.50 1.23 26.00 88.50% 85.50% 2.26% Scale 3 3 3 3 3 3 3 3 3 3.00Plastic Median 1.87% 1.26% 4.84% 3.98 2.10 15.00 88.50% 94.00% 1.93% Scale 3 3 3 3 3 3 3 3 3 3.00
Comparing against the WB’s LPI Thailand (LPI) 2007 2010 Score 3.31 3.29 Rank 31 35Note:• Different time period so comparison not adequate• Thailand’s own volatile internal political situation must have increased negative perceptions (i.e. Yellow vs. Red)
Comparing against the WB’s LP• A follow up was conducted based on WB’s LPI survey.• The idea was to explore how Thai manufacturers perceived logistics performance in Thailand.• The same 200 respondents provided the answers.
Comparing against the WB’s LP 200 Samples: 3.45 (26th) 34
Some observations…• Perception is derived from manufacturers not from external service providers• In-depth understanding of the Thai context• Infrastructure, Customs, Logistics Quality and Compliance seems less problematic• Similarities for timeliness, track & trace