On Logistics Costs and Competitiveness
Professor Lauri OjalaTurku School of Economics (TSE), Finland
PREM Trade Logistics and Facilitation Day ”Show, Tell and Learn”
The World Bank, May 6, 2010
Top concerns of logistics users and providers in recent logistics surveys*
Key concerns are the usual suspects:
– Cost reductions
– Improving customer service
It has also become more challenging to manage
– Increasingly complex Supply Chains
– Increasing risk for Supply Chain disruption
– Stricter safety, security and environmental regulations
– ”Time to Market” & ”Time to Customer” for traders
*)e.g. McKinsey 2008, German Logistics Association 2008, Finnish surveys in 2006 & 2009
Prof. Lauri Ojala, World Bank PREM Day, May 6, 2010 2
Yet logistics is an important source of competitive advantage for traders
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 animpact on…
Logistics is …
Logistics has animpact on…
Logistics is …
Source: Finland State of Logistics 2009, available at: www.mintc.fiProf. Lauri Ojala, World Bank PREM Day, May 6, 2010 3
329 large and medium-sizedFinnish manufacturing and
trading firms in 2009
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
Prof. Lauri Ojala, World Bank PREM Day, May 6, 2010 4
However, severe knowledge gaps on logistics performance indicators & costs
• Lack of comparable methods & terminology
• Very few cross-country studies made, thus littlecomparative data exists across
– countries
– industries
• Cost comparisons between studies problematic
Prof. Lauri Ojala, World Bank PREM Day, May 6, 2010 5
Logistics costs 5-10 %-point higher in self-reported than in statistics-based studies
Logistics costs neither accounting nor statistical units
Self-reporting subjective; aggregation may lead to ”double counting” across sectors and supply chains
Statistics cover national transport and storage cost; self-reported data on international supply chains
Prof. Lauri Ojala, World Bank PREM Day, May 6, 2010 6
In short: substantial knowledge gaps exist especiallywhen assessing logistics costs
Breakdown of logistics costs of tradersin a developed country
4,1 %5,5 %
2,7 %
2,8 %
3,1 %
3,2 %1,5 %
0,9 %0,9 %0,8 %0,7 %1,1 %
0 %
2 %
4 %
6 %
8 %
10 %
12 %
14 %
16 %
2005 2008
Other logistics costs
Transport packing costs
Logistics administration costs
Inventory carrying costs
Warehousing costs
Transportation costs
Survey data from1,291 firms
Manufacturing and trading firms, weighted by industry and firm size according to national statistics
Prof. Lauri Ojala, World Bank PREM Day, May 6, 2010 7
Source: Finland State of Logistics 2009, available at: www.mintc.fi
14.2 %13.1 %
Logi
stic
sco
sts
as %
of
sale
s
0
5
10
15
20
25
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Finland ** ELA/ AT. Kearney** U.S. State of Logistics* Sweden*
State of logisticsSouth Africa*
BVL Germany; Manufacturing***
China; Tao (2009) *
A wide spread of logistics cost levelsreported in selected studies
Prof. Lauri Ojala, World Bank PREM Day, May 6, 2010 8
Logistics costs as % of GDP *; Sales **; Total costs *** Tajikistan 2005*Moldova 2005*
Ukraine 2007*
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Despite method applied, costs seem to decrease till end-90s, and rise after that
Finland ** ELA/ AT. Kearney** U.S. State of Logistics* Sweden*
State of logisticsSouth Africa*
BVL Germany; Manufacturing***
China; Tao (2009) *
Logistics costs indexed; 2008 = 100
Prof. Lauri Ojala, World Bank PREM Day, May 6, 2010 9
Logistics costs as % of GDP *; Sales **; Total costs ***
Poorcountriespenalised
both ways:high costs
&very lowservicequality
U.S
.
Mex
ico
Tajik
ista
n
Examples by LPI
Prof. Lauri Ojala, World Bank PREM Day, May 6, 2010 10
Source: Logistics Performance Index 2007, available at: www.worldbank.org/lpi
Taking stock of existing knowledge
Providing tools suitable for Middle & Low Income countries• Questionnaire-based surveys
• Statistics-based studies
• Modelling approaches
• Other approaches, e.g. Logistics Performance Index (LPI) surveys
Workshop at The World Bank on May 7, 2010 with an aim to set up an international network of expertise
Helping to share comparable scales and interpretations for logistics cost and performance indicators
” Fahrenheit Kelvin oCelsius ”
Prof. Lauri Ojala, World Bank PREM Day, May 6, 2010 11
Next steps: World Bank & TSE initiativeon Logistics Cost & Performance analysis
Thank you for your attention!
Prof. Lauri Ojala, World Bank PREM Day, May 6, 2010 12
