Logistics management is a crucial part of any manufacturing or trading organization’s success rate; the basic essence of logistics management is to organize the movement of goods and services from one place to another by different means of transport such as sea, rail, air or road. For an organization that requires its products to be transported or shipped to another location or a country, logistics costs play a crucial role in the balance sheet. This case deals with the importance of adding logistics costs in the profitability reports of organizations and their products and the reason why it is difficult to obtain logistics data in many firms.
Infrastructure freeze threatens logistics
It is important to create an effective logistics management plan in order to maintain rising costs and rising pressures on the economy. One of the best examples of this is kingdom of Thailand, which has been trying very hard to cut its logistic costs. Thailand plans to cut its logistic cost by 2% of the share of its GDP by the end of 2016. But according to the insiders, this would only be possible once plans for infrastructure development take shape. As per the current estimates, around 82% of the goods in Thailand are transported via road, followed by water (9.5%), coastal marine (5.7%), and rail (2.2%) and air (.02%). The current logistics cost is around 15% of the total GDP of the country. Thailand now plans to reduce it to around 13% of its total GDP costs.
Logistics Performance Index and Thailand
Logistics Performance Index is an international benchmarking tool that helps countries indentify the challenges, opportunities and risks that they face in trade logistics, and what measures they can take to improve their performance. LPI takes into account the logistics of more than 160 countries. It consists of both qualitative and quantitative data. LPI provides qualitative and quantitative assessment of a country which includes detailed information on performance time, core logistics processes and cost data. According to the 2012 LPI index, Thailand ranked 38th in the world, which was far behind its competitors such as Singapore and Hong Kong. One of the reasons of this poor showing was the country’s sluggish development of its essential transport systems.
Importance of adding logistics costs
As seen from the above, it is very important for achieving a good LPI ranking that all the quantitative data are readily available. Logistics costs are the most important part of the quantitative data, and if it is not available, it leads to an incomplete assessment of an organization’s logistics performance. Another scenario can be a miscalculation of logistics costs. If it’s inflated, it leads to unnecessary cost pressures on any company, which indirectly affects the overall logistics cost of the concerned nation. If the logistics costs are deflated, they would result in severe logistics backlogs, transportation delays, employee unrest and other related issues. It is therefore very important to add proper logistics costs to the profitability reports of the organization.
Why it is difficult to obtain logistics data in many firms?
As seen from the above article on Thailand, the biggest challenge to obtain logistics data for any firm or a country is the lack of proper infrastructure development of that particular country. When there is no proper infrastructure, it become very difficult to predict and calculate the logistics data related to operations, costs, and shipment. Also, poor infrastructure means possibilities of several logistic disruptions such as transportation delays, breakdowns, strikes, cost inflations and sudden increase in haulage charges. In Thailand, several government and private companies have initiated their own plans to cut logistic costs and some government infrastructure projects are going ahead in spite of some cuts in the capital spending.
In today’s fast moving business world, it is extremely important that proper infrastructure facilities are provided for logistics and distribution purpose. The idea is to accurately predict the logistic costs, try and reduce them and include them in the balance sheet of an organization or the country.
Bangkok Post (2014) Infrastructure free threatens logistics. Retrieved April 19, 2014 from www.bangkokpost.com
The World Bank (2014) Logistics Performance Index. Retrieved April 19, 2014 from lpi.worldbank.org/about