Logistics Performance Measurement in Thailand

Ruth Banomyong (PhD)

Centre for Logistics Research

Thammasat University

ruth@banomyong.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 in

logistics 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.

1.5

7.3

7.2

16%

(2005) 13%

(2010)

1

6

6

5 4 3 2 1

To establish a world-class logistics system to support Thailand as Indochina’s trade and investment center

Vision

Objective

1. Aim at the world-class technology and skills.

2. Focus primarily on strategic industries.

3. Any change management must be customer oriented.

Implementation

Principles

Strategic Agenda

Business Logistics

Improvement

New Trade Lanes and Logistics Network

Optimization

Logistics Service Internationalizati

on

Trade Facilitation Enhancement

Capacity Building

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)

2 To create economic value from the logistics and other supporting industries

Thailand Logistics Development Strategy (2006-2010)

• 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.

Introduction

1. To Develop an Assessment Framework for

Firms’ Logistics Performance

2. To assess industries based on the ISIC code

3. To establish a logistics performance database

4. To disseminate logistics performance scores to

stakeholders

5. To improve Thailand’s logistics performance based on benchmarking methodology

Research Objectives

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 picture

In 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 on

logistics 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 L'Etat de l'art 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

0 % 20 % 40 % 60 % 80 % 100 %

Top management priority

Source of competitive advantage

Impact on profitability

Customer service level

Strongly disagree Disagree Neither agree nor disagree Agree Strongly agree

Logistics has an impact on…

Logistics is …

Logistics has an impact on…

Logistics is …

n=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

Source: Ojala et al.; LogOn Baltic Master Report 3:2007, www.logonbaltic.info

Manufacturing Wholesale & retail trade

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2004 2006 2008

7.5% 6.8% 6.9%

3.6% 3.7% 3.5%

0.6% 0.6% 0.7% 0.4% 0.4% 0.4%

Administrativo

Armazenagem

Estoque

Transporte

11.5% 11.6% 12.1%

Source:

ILOS Institute

Logistics Costs as a % of GDP in Brazil

Administration

Warehousing

Inventory

Transportation

…but using costs as % of product value

provides a very different picture

Logistics Costs as Percentage of

Product Value, 2004

Based 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 is that part of Supply

Chain Management that plans, implements, and

controls the efficient, effective forward and

reverse 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)

Logistics Management Defined

20

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

Cost

dimension

Time

dimension

Reliability

dimension

9 Logistic

activities

27 KPIs

Conceptual Framework

Logistic activities Cost Time Reliability

Customer service and

support

Ratio of customer service

cost per sale

Average order cycle time DIFOT

Purchasing and

procurement

Ratio of procurement cost

per sale

Average procurement cycle

time

Supplier In Full and

On-Time Rate

Information Processing Ratio of information

processing cost per

sale

Average order processing

cycle time

Order Accuracy Rate

Transportation Ratio of transportation

cost per sale

Average delivery cycle time DIFOT

Warehousing and site

selection

Ratio of warehousing cost

per sale

Average inventory cycle time Inventory Accuracy

Demand planning and

forecasting

Ratio of forecasting cost

per sale

Average forecast period Forecast Accuracy Rate

Inventory management Ratio of inventory

carrying cost per sale

Average inventory day Inventory Out of Stock

Rate

Material handling and

packaging

Ratio of value damaged

per sale

Average material handling

and packaging

Damage Rate

Reversed Logistics Ratio of returned goods

value per sale

Average cycle time for

customer return

Rate of Return Goods

KPI logistics assessment framework

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 Time

Delivery in Full & on Time

Warehouse Delivery Cycle Time

Forecast Accuracy

Inventory Inventory days Return Rate

Industry No. of company

Foods 48

Textiles 40

Electrical & Electronics 40

Automotives 32

Plastics 40

Total 200

THAILAND’s Logistics Performance Results

Selected Samples from 5 industries: Only best-in-class are

chosen

200 Samples

THAILAND’s Logistics Performance Results

Industry comparison

1. Cost dimension

Foods Textiles EE Auto Plastic

Admin cost 0.6% 0.6% 0.7% 0.8% 0.8%

Trans cost 3.6% 3.6% 1.0% 5.6% 4.8%

WH cost 1.7% 1.2% 0.9% 1.4% 1.3%

Inv cost 0.7% 1.2% 4.6% 0.7% 1.9%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Logistics cost per Sales ratio

THAILAND’s Logistics Performance Results

2. Time dimension

- 5

10 15 20 25 30 35 40

Average Order Cycle Time(Day)

Average Delivery Cycle Time(Day)

Average Inventory Day (Day)

Foods 11 2 40

Textile 4 1 27

EE 6 2 27

Auto 29 1 26

Plastic 4 2 15

THAILAND’s Logistics Performance Results

3. Reliability dimension

78%80%82%84%86%88%90%92%94%

DIFOT Forecast accuracyFoods 91% 86%

Textile 88% 85%

EE 92% 87%

Auto 89% 86%

Plastic 89% 94%

THAILAND’s Logistics Performance Results

3. Reliability dimension

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

Return rate

4.00%

2.13% 2.04%2.26%

1.93%

Foods Textile EE Auto Plastic

THAILAND’s Logistics Performance Results

A proposed Composite Performance Index Cost Time Reliability

Total Score Inv. cost WH cost

Trans cost

Average Order Cycle Time

Average Delivery

Cycle Time

Average Inventory

Day DIFOT

Forecast Accuracy

Returned Rate

Food

Median 0.73% 1.73% 3.56% 11.00 2.10 39.50 91.15% 86.00% 4.00%

3.066

Scale 4 3 3 3 3 3 3 3 3 3.11 Textile 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%

Scale 3 4 3 3 3 3 3 3 3 3.11 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 3.00 Plastic

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

Note:

• Different time period so comparison not adequate

• Thailand’s own volatile internal political situation

must have increased negative perceptions (i.e. Yellow vs. Red)

Thailand (LPI) 2007 2010

Score 3.31 3.29

Rank 31 35

Comparing against the WB’s LPI

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.

33

Comparing against the WB’s LP

34

200 Samples: 3.45 (26th)

Comparing against the WB’s LP

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

2010 Indicators Score

World Bank LPI 3.29

200 Thai companies (perceptual)

3.45

200 Thai companies (composite index)

3.066

Summary

Future steps

• Weighting of dimensions to improve

composite index

• Expand coverage to 12 industrial sectors

• Sample to cover 500 firms

• Finalise database…

Thank you for your attention

Comments & Questions are welcomed…