1. DEVELOPPING A LOGISTICS PERFORMANCE ASSESSMENT TOOL FOR SMEs: A Closer Look at Logistics Costs…
Ruth Banomyong
Centre for Logistics Research
Thammasat University, Thailand

2. Agenda Background Framework Development Methodology Findings
Some Comments...
A closer look at logistics costs...

3. 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 friendly.

4. 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.

5. 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.

6. 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

7. Framework: Performance Measurement Dimensions
Source
Effectiveness
Efficiency
Productivity
Profitability
Equity
Adaptability
Rossenbloom (1983) 
Magreth and Hardy (1987)
Stern and El Ansary (1996)
Coelho, Easingwood,
and Coelho (2003)
American Marketing Association (2005)

8. Reliability Dimension
Framework Development
9 Logistics Activities
Time Dimension
Cost Dimension
Reliability Dimension
Framework for Logistics Performance Indicators

10. Logistics Activities Development Framework
Logistics Activity
Cost KPIs
Time KPIs
Reliability KPIs
Customer service & support
Customer service cost/sale
Average order cycle time
Delivery in Full & on Time
Demand forecasting & planning
Forecasting & planning cost/sale
Average forecast period
Forecast Accuracy
Purchasing & Procurement
Procurement cost/sale
Average procurement cycle time
Supplier in Full & on Time
Inventory management
Inventory cost/sale
Average inventory days
Out of Stock rate
Order processing & logistics communications
Order processing cost/sale
Average order processing cycle time
Order accuracy rate
Material handling & packaging
Value of damaged goods/sale
Average material handling & packaging time
Damage rate
Transportation
Transport cost/sale
Average delivery cycle time
Facilities site selection, warehousing & storage
Facility cost/sale
Average inventory cycle time
Inventory Accuracy
Return goods handling & reverse logistics
Return goods value/sale
Average cycle time for customer return
Rate of returned goods

11. 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.

12. 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.

13. Findings
The data collected was compared with an existing logistics and supply chain benchmarking database
The logistics performance out put based on the 3 performance dimensions are illustrated in the following slides…

14. Cost KPIs = Group Average Top Thai company W O R L D C A S
Performance
Customer service
cost per sale
Procurement
Info processing
Disadvantage
Parity
Advantage W O R L D C A S
Transportation
Warehousing
Forecasting cost
per sale
Inv holding cost
Value damage
Returned goods
> 10 % 1 –
< 5 . - 8 3 =
Group Average
Top Thai company

15. Time KPIs = ‡Group Average Top Thai Company W O R L D C S Performance
Avg order cycle
time
Avg procurement
cycle time
Avg order processing
Disadvantage
Parity
Advantage
Avg delivery
Avg inventory
Avg forecast
period
day
Avg material
handling and
packaging cycle time
Avg cycle time for
customer return
> 10
days 7 –
< 18 13 2 1 3 6 hr
hours N . A 40 d W O R L D C S =
‡Group Average
Top Thai Company

16. Reliability KPIs = ‡Group Average Top Thai Company W O R L D C A S
Performance
DIFOT (
CS and Support )
< 80 % - 95
Disadvantage
Parity
Advantage W O R L D C A S
Supplier In Full and On
Time Rate
Order Accuracy
Rate
Transportation
Inventory Accuracy
Forecast Accuracy
Inventory Out of
Stock Rate
Damage Rate
Rate of Returned
Goods
> 90 98 – 99 60 2 10 1 5 . =
‡Group Average
Top Thai Company

17. 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…

18. 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 process.

19. 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 performance? An example.

20. Logistics costs relationship

21. Ratio of selected export logistics cost (FOB) in ASEAN
Industry
Sourcing Cost
Inventory Holding Cost
Warehouse Costs
Transport Cost
Export Process Cost
Total Export Logistics Cost
Food
0.3%
0.2%
0.5% 2% 5%
Textiles 4% 6% 3%
17%
Wood
11%
24%
Auto 1%
16%
Electrical goods
10%
Average cost
2.5%
1.4%
1.7%
4.8%
14.4%
Source: (USAID, 2006)

22. Export Logistics costs component / Total Logistics costs
Procurement
Inventory 13 % 4 %
Export
Warehousing 45 % 7 %
Transport 31 %

23. Macro Logistics Costs Framework

24. National Logistics Cost Framework

25. Thailand Logistics Costs/GDP
Source: Ruth Banomyong (2007)

26. Some Future trends... Macro Logistics cost is increasing
Transport cost
Inventory carrying cost
Thammasat Annual Logistics Index (3rd quarter)

27. The C2C cycle in the supply chain: Thai shrimp export to the US

28. C2C definitions
Source
Definition
Stewart (1995)
A composite metric describing the average days required to turn a dollar invested in raw material into a dollar collected from a customer
Moss and Stine (1993)
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 al. (1998)
MDM (2000)
Schilling (1996)
Soenen (1993)
Inventory days of supply + accounts receivable – accounts payable
Source: Farris II and Hutchison (2001)

29. C2C time (days) in the US Best-in-class Median
Computers and electronics 25
106
Consumer packaged goods 45 88
Defense and industrial 17 70
Pharmaceuticals and chemicals 59
Telecommunications 46
127
Source: MDM (2000))

30. The shrimp export supply chain

31. Summary of C2C Thai shrimp suppliers Thai exporter US importer
Customers
Cash-to-cash cycle
+ 108 days
+ 120 days
- 50 days
+ 18 days

32. Thank you for your attention
Questions
&
Answers