Transcript A Closer Look at Logistics Costs…

DEVELOPPING A LOGISTICS
PERFORMANCE ASSESSMENT TOOL
FOR SMEs:
A Closer Look at Logistics Costs…
Ruth Banomyong
Centre for Logistics Research
Thammasat University, Thailand
1
Agenda
• Background
•
•
•
•
•
Framework Development
Methodology
Findings
Some Comments...
A closer look at logistics costs...
2
Background
• Logistics management is recognised as a
key opportunity to improve profitability and
firms’ competitive performance (Lambert
et al., 1998).
• However, It is important for firms to be
able to assess their own logistics
performance as a starting reference.
• Current assessment tools are not user
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friendly.
Background
• The purpose of this presentation is to
introduce a logistics performance
assessment tool (LPAT).
• The objective of the LPAT is to measure
the performance of a firm’s key logistics
activities under different performance
dimensions.
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Background
• The literature on the subject of performance measurement
in logistics had common theme (Bowersox et al., 1989;
Byrne & Markham 1991; Keebler et al,. 1999; Griffis et al.,
2004):
– Most firms do not comprehensively measure logistics performance,
– Even the best performing firms fail to realise their productivity and
service potential available from logistics performance
measurement, and;
– Logistics competency will increasingly be viewed as a competitive
differentiator and a key strategic resource for the firm.
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Framework: 9 Key Logistics Activities
•
•
•
•
•
•
•
•
•
Order processing & Logistics communications
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
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Framework: Performance Measurement Dimensions
Source
Effectiveness
Efficiency

Stern and El Ansary
(1996)





Coelho, Easingwood,
and Coelho (2003)



American Marketing
Association (2005)


Rossenbloom (1983)
Magreth and Hardy
(1987)
Productivity
Profitability
Equity
Adaptability




Framework Development
Framework
for Logistics
Performance
Indicators
Logistics Activities Development Framework
Logistics Activity
Customer service &
support
Demand forecasting &
planning
Purchasing &
Procurement
Inventory management
Cost KPIs
Customer service
cost/sale
Forecasting &
planning cost/sale
Procurement
cost/sale
Inventory cost/sale
Order processing &
logistics
communications
Material handling &
packaging
Order processing
cost/sale
Value of damaged
goods/sale
Transportation
Transport cost/sale
Facilities site selection,
warehousing & storage
Return goods handling
& reverse logistics
Facility cost/sale
Return goods
value/sale
Time KPIs
Reliability KPIs
Average order cycle
Delivery in Full
time
& on Time
Average forecast
Forecast
period
Accuracy
Average procurement Supplier in Full
cycle time
& on Time
Average inventory
Out of Stock
days
rate
Average order
Order accuracy
processing cycle time
rate
Damage rate
Average material
handling & packaging
time
Average delivery
Delivery in Full
cycle time
& on Time
Average inventory
Inventory
cycle time
Accuracy
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Average cycle time Rate of returned
for customer return
goods
Methodology
• A questionnaire was developed based on the
logistics activities performance framework.
• 25 SMEs respondents were selected to answer
the questionnaire while one Thai multinational
was also requested to answer the assessment
questionnaire.
• The 25 SMEs were composed of firms in the
automotive sector, electronic, jewelry, furniture,
and rubber industry.
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Methodology
• Respondents understood data
requirement well. However only 2 were
able to fill the whole questionnaire.
• Cost data was the most difficult to
complete. Respondents with ISO have
more available data.
• Data provided by Thai MNE could serve
as a reference point.
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Findings
• The data collected was compared with an
existing logistics and supply chain
benchmarking database
http://www.benchmarkingsuccess.com
• The logistics performance out put based
on the 3 performance dimensions are
illustrated in the following slides…
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Cost KPIs
Performance
Customer service
cost per sale
> 5%
0 .5 - 5 %
< 0 .5 %
Procurement
cost per sale
> 5%
0 .5 - 5 %
< 0.5 %
Info processing
cost per sale
< 0.5 %
0 .5 – 5 %
> 5%
Transportation
cost per sale
> 10 %
Warehousing
cost per sale
> 8%
0 .5 - 8 %
Forecasting cost
per sale
> 5%
0 .5 - 5 %
Inv holding cost
per sale
> 5%
Value damage
per sale
> 3%
Returned goods
cost per sale
> 3%
Disadvantage
= Group Average
1 –
10 %
0 .5 - 5 %
0 .1 – 3 %
< 1%
< 0 .5 %
< 0 .5 %
< 0 .5 %
< 0 .1 %
0 .5 - 3 %
< 0.5 %
Parity
Advantage
=•
Top Thai company
W
O
R
L
D
C
L
A
S
S
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Time KPIs
Performance
Avg order cycle
time
> 10 days
7 – 10 days
Avg procurement
cycle time
> 18 days
13 – 18 days
> 2 days
1 – 2 days
Avg delivery
cycle time
> 3 days
1 – 3 days
Avg inventory
cycle time
> 2 days
6 hr – 2 days
Avg order processing
cycle time
Avg forecast
period
N .A .
Avg inventory
day
> 40 days
Avg material
handling and
packaging cycle time
> 7 days
Avg cycle time for
customer return
> 3 days
Disadvantage
=‡
Group Average
N .A .
10 – 40 d
1 – 7 days
1 – 3 days
Parity
< 7 days
< 13 days
< 1 days
< 1 days
< 6 hours
N .A .
< 10 days
< 1 days
W
O
R
L
D
C
L
A
S
S
< 1 days
Advantage
= Top Thai Company
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Reliability
KPIs
Performance
DIFOT
( CS and Support
< 80 %
)
Supplier In Full and
On - Time Rate
< 80 %
Order Accuracy
Rate
DIFOT
( Transportation
< 90 %
)
< 80 %
80 - 95 %
80 - 95 %
> 95 %
90 - 98 %
> 98 %
80
> 95 %
90
- 95 %
–
99 %
Inventory Accuracy
< 90 %
Forecast Accuracy
Rate
< 60 %
60 - 90 %
Inventory Out of
Stock Rate
> 10 %
2 - 10 %
> 5%
1 - 5%
Damage Rate
Rate of Returned
Goods
> 5%
Disadvantage
=‡
Group Average
> 95 %
0 .1 – 5 %
Parity
> 99 %
> 90 %
< 2%
< 1%
W
O
R
L
D
C
L
A
S
S
< 0 .1 %
Advantage
=•
Top Thai Company
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Some Comments...
• The LPAT tool could still be further
simplified to make data collection easier.
• Key logistics activities are not equal in
importance
• Further refinement of the logistics activities
performance framework is needed…
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Some Comments...
• The objective would be to identify maybe
not more than 2 or 3 key logistics KPIs per
performance dimension that could
illustrate firms’ overall logistics
performance.
• A composite performance metrics is
currently under consideration.
• The development of this tool is an ongoing
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process.
A Closer Look at Logistics Cost...
• Difficult to identify all logistics activity cost.
• ABC can support the identification of cost of
each logistics costing. However, difficult to
implement.
• Logistics cost ratio per sales is the most
common indicator...
• National Logistics cost?
• C2C metric to reflect supply chain
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performance? An example.
Logistics costs relationship
Place/customer service level
Ø
Ø
Ø
customer service
parts and service support
return goods handling
Transportation costs
Inventory carrying costs
Ø
Ø
Ø
inventory management
packaging
reverse logistics
traffic and transportation
Ø
Ø
warehousing and storage
plant and warehouse site
selection
Warehousing costs
Lot quantity costs
Ø
Ø
Ø
material handling
procurement
Order processing and information costs
Ø
Ø
Ø
order processing
logistics communications
demand forecasting/planning
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Ratio of selected export logistics cost (FOB)
in ASEAN
Total
Inventory
Export Export
Sourcing Holding Warehouse Transport Process Logistics
Cost
Cost
Costs
Cost
Cost
Cost
Industry
Food
0.3%
0.2%
0.5%
2%
2%
5%
Textiles
4%
2%
2%
6%
3%
17%
Wood
3%
3%
2%
5%
11%
24%
Auto
2%
1%
2%
5%
6%
16%
Electrical
goods
3%
1%
2%
2%
2%
10%
Average
cost
2.5%
1.4%
1.7%
4%
4.8%
14.4%
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Source: (USAID, 2006)
Export Logistics costs component / Total Logistics costs
Export
Procurement Inventory
13%
4%
Warehousing
45%
7%
Transport
31%
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Macro Logistics Costs Framework
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National Logistics Cost Framework
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Thailand Logistics Costs/GDP
Year
2000
2001
2002
2003
2004
2005
2006
2007p
Nominal
GDP
฿ BILLION
5221
5444
5770
6289
6974
7534
8289
8705
TRAN. CARRYING ADMIN. LOGISTICS LOGISTICS
AS A % AS A % AS A % COST AS A COST INDEX
OF GDP OF GDP OF GDP % OF GDP GDP 2000 BASE
9.5
10.3
2.0
21.8
100
9.2
9.4
1.9
20.5
95
7.8
8.8
1.7
18.3
86
7.6
7.5
1.5
16.6
79
7.1
6.9
1.4
15.4
75
10.3
7.3
1.8
19.4
90
13.1
9.0
2.2
24.3
111
13.2
9.2
2.2
24.6
112
Source: Ruth Banomyong (2007)
Some Future trends...
• Macro Logistics cost is increasing
– Transport cost
– Inventory carrying cost
• Thammasat Annual Logistics Index (3rd
quarter)
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The C2C cycle in the supply chain:
Thai shrimp export to the US
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C2C definitions
Source
Definition
Stewart (1995)
Moss and
(1993)
A composite metric describing the average days
required to turn a dollar invested in raw material into
a dollar collected from a customer
Stine Days between accounts payable and accounts
receivable
Gallinger (1997)
The cash conversion cycle measures the number of
days the firm’s operating cycle requires costly
financing to support it.
Lancaster et
(1998)
MDM (2000)
Schilling (1996)
Soenen (1993)
al. Inventory days of supply + accounts receivable –
accounts payable
Source: Farris II and Hutchison (2001)
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C2C time (days) in the US
Best-in-class
Median
Computers and electronics
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106
Consumer packaged goods
45
88
Defense and industrial
17
70
25
59
46
127
Pharmaceuticals
chemicals
Telecommunications
Source: MDM (2000))
and
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The shrimp export supply chain
Customer 1
Customer 2
Customer 3
US.
Importer
Thai
Exporter
Supplier 1
Supplier 2
Customers USA
Importer USA
Trader/ Exporter Thailand
Supplier 3
Suppliers Thailand
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Summary of C2C
Thai shrimp
suppliers
Cash-tocash
cycle
Thai
exporter
US
Customers
importer
+ 108 days + 120 days - 50 days + 18 days
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Thank you for your attention
Questions
&
Answers
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