The Importance of Measuring

Philippines Logistics Performance

Ruth Banomyong (PhD)

World Bank/IFC Consultant
ruth@banomyong.com

PhilExport GMM
September 2017
 Outline
Outline
• Why is it important to understand logistics performance?
• Methodology & Data Collection
• Respondents characteristics & freight flows
• Philippines logistics cost/sales
• By sector
• By region
• Philippines logistics performance
• By sector
• By region
• Logistics strategy development
• Outsourcing and LSP capability
• Logistics human resource
• Summary and way forward…
 Why is it important to understand logistics
performance?
• Logistics is a key opportunity to improve profitability and
firms’ competitive performance.
• Obtaining industrial sectors’ logistics performance is
necessary for country to improve overall logistics
capability.
• Logistics costs increase with decreasing logistics
performance.
• Most of this increase comes from lower reliability and the need to
increase inventory (“other costs”)
• However, “cost” cannot be the only logistics performance
dimension
 Methodology & Data Collection
• A questionnaire was developed based upon existing
questionnaires developed by the World Bank for assessing
industrial logistics performance
• The DTI supported the data collection and key-in process
• Data was collected in workshop format in key locations
across the country in collaboration with main professional
organizations in the country (i.e PhilExport)
• Most respondents were SMEs

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 Data Collection

Location No. Period

Manila 32 Feb/March 2017
Clark, Pampanga 18 March 22, 2017
Batangas 10 April 4, 2017
Cebu 13 April 20, 2017
Iloilo 14 April 20, 2017
Davao 8 April 25, 2017
Tagaytay (Laguna and Cavite) 45 April 28, 2017
Cagayan De Oro 15 May 11, 2017
General Santos 4 May 16, 2017
TOTAL 159 respondents

5
Location of respondents

• The main respondents are

from Manila and Laguna
• Other respondents are
scattered across the
country

6
 Products & Markets

Main Manufactured Products Main Markets

7
Import flows

8
Export flows

9
 Logistics cost/sales

Cost/Sales Philippines Vietnam Indonesia Thailand

Transport 10.71% 7.04% 8.81% 5.57%
Warehousing
5.20% 3.78% 3.45% 2.49%
Inventory carrying 8.78% 4% 7.19% 2.04%
Logistics
administration 2.47% 1.48% 1.95% 1.01%

Logistics Cost/Sales
27.16% 16.3% 21.40% 11.11%
 Logistics cost/sales by sector
Sector Philippine Vietnam Indonesia Thailand
Automotive 23.08% 33.55% 16.84% 14.75%

Chemical 43.30% 27.14% 27.01% 10.09%

products
Construction 16.44% 28.60% 35.13% 10.46%
materials
Electronics 13.57% 4.40% 34.43% 12.14%

Food 32.72% 17.60% 20.97% 10.32%

Furniture & 18.07% NA 45.32% 11.44%

Decors
Jewelry 16.87% NA 20.47% NA
Textile & 20.35% 14.30% 16.01% 8.55%
Garment
 Transport Cost Comparison by Sector
Transport and cargo Philippines Vietnam Indonesia Thailand
handling cost (incl.
transport packaging)
Automotive 6.67% 8.00% 4.35% 7.11%

Chemical products 11.90% 9.00% 11.08% 5.30%

Construction materials 7.54% 15.00% 11.54% 4.95%

Electronics 4.93% 3.00% 12.98% 4.84%

Food 13.74% 14.00% 9.04% 5.03%

Furniture & Decors 5.71% NA 8.50% 6.21%

Jewelry 6.75% NA 9.33% NA

Textile & Garments 10.75% 3.00% 6.20% 3.89%

12
 Warehouse Cost Comparison by Sector
Warehousing (cost of Philippines Vietnam Indonesia Thailand
running own
warehouse or buying
the service)
Automotive 6.00% 1.00% 1.77% 4.37%

Chemical products 7.46% 6.00% 3.42% 1.73%

Construction materials 4.66% 5.00% 3.83% 2.46%

Electronics 4.00% 1.00% 10.83% 4.36%

Food 5.55% 1.00% 3.70% 2.28%

Furniture & Decors 5.43% NA 6.70% 2.18%

Jewelry 0.25% NA 2.60% NA

Textile & Garments 2.75% 1.00% 2.39% 1.88%

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 Inventory Cost Comparison by Sector
Inventory carrying cost Philippines Vietnam Indonesia Thailand
(incl. cost of capital tied
in inventory)
Automotive 8.31% 21.50% 9.19% 1.93%

Chemical products 20.00% 9.67% 10.05% 2.14%

Construction materials 2.74% 6.00% 16.57% 2.10%

Electronics 3.40% 0.00% 7.49% 1.84%

Food 10.45% 1.00% 6.32% 2.07%

Furniture & Decors 5.29% NA 26.00% 2.01%

Jewelry 8.33% NA 6.68% NA

Textile & Garments 5.00% 9.00% 5.96% 2.00%

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 Logistics cost/sales by region
Avg
Transport and cargo handling cost Luzon 7.78%
(incl. transport packaging) Visayas 9.40%
Mindanao 10.93%
Warehousing (cost of running own Luzon 3.94%
warehouse or buying the service) Visayas 3.80%
Mindanao 5.79%
Inventory carrying cost Luzon 4.17%
(incl. cost of capital tied in Visayas 9.60%
inventory) Mindanao 10.85%
Logistics administration Luzon 1.59%
(10% of above costs) Visayas 2.28%
Mindanao 2.76%
Total Logistics Cost/Sales Luzon 17.48%
Visayas 25.08%
Mindanao 30.32%
Logistics Performance issues

• Reliability is the most

important logistics
performance dimension
• The symptoms of low
reliability is high logistics
cost
• Manufacturers consider
that reliability of the
logistics system in the
Philippines need to be
improved

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 Overall Logistics Performance
Mean

KPIs
Philippines Vietnam Indonesia Thailand

Delivery In Full On Time

89.62% 90.99% 81.92% 87.84%
Damage rate
3.70% 2.18% 2.01% 4.16%
Cash Conversion Cycle
(C2C) days 21.77 20.29 19.00 NA
Customer Complaint Rate
5.97% 6.65% 6.61% 2.64%
Forecasts Accuracy
80.15% 75.53% 81.68% 84.40%
Ratio of Returns
5.15% 2.26% 3.55% 3.58%

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Sector Comparison vs other ASEAN countries

DIFOT Philippines Vietnam Indonesia Thailand

Automotive 97.18% 98.00% 83.75% 82.45%

Chemical products 85.71% 100.00% 81.17% 87.57%

Construction materials 81.44% 75.00% 95.58% 86.36%
Electronics 88.05% 80.00% 95.32% 85.36%
Food 88.02% 100% 91.14% 89.41%
Furniture & Decors 96.30% NA 90.22% 86.09%
Jewelry 99.60% NA 89.64% NA

Textile & Garments 91.55% 80.00% 93.75% 90.66%

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Sector Comparison vs other ASEAN countries

Damage rate Philippines Vietnam Indonesia Thailand

Automotive 0.28% 0.22% 3.91% 4.31%

Chemical products 2.13% 3.50% 3.23% 3.95%

Construction materials 2.76% 7.50% 1.56% 4.00%

Electronics 2.29% 0.08% 2.10% 4.24%

Food 5.06% NA 2.19% 4.07%

Furniture & Decors 3.26% NA 3.07% 4.48%

Jewelry 2.29% NA 0.88% NA

Textile & Garments 5.21% 0.50% 4.94% 4.41%

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Sector Comparison vs other ASEAN countries

C2C (days) Philippines Vietnam Indonesia

Automotive 0.38 22.40 22.42

Chemical products 21.15 33.33 26.00

Construction materials 25.94 4.00 9.10

Electronics 21.71 28.00 27.33

Food 22.10 34.00 17.00

Furniture & Decors 14.50 NA 25.60

Jewelry 38.83 NA 45.00

Textile & Garments 24.55 26.50 32.00

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Sector Comparison vs other ASEAN countries
Complaint rate Philippines Vietnam Indonesia Thailand
Automotive 1.95% 3.21% 8.45% 2.79%

Chemical products 5.79% 9.00% 11.82% 2.71%

Construction materials 5.28% 10.00% 3.56% 2.68%

Electronics 9.38% 5.00% 2.70% 2.66%

Food 6.48% 5.00% 3.85% 2.72%

Furniture & Decors 4.31% NA 6.00% 2.55%

Jewelry 3.75% NA 1.51% NA

Textile & Garments 8.62% 7.50% 8.78% 2.51%

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Sector Comparison vs other ASEAN countries
Forecast Accuracy Philippines Vietnam Indonesia Thailand
Automotive 87.07% 74.00% 89.50% 82.20%

Chemical products 85.55% 55.00% 83.70% 85.70%

Construction materials 76.87% 87.50% 90.89% 80.90%

Electronics 75.71% 70.00% 85.00% 82.80%

Food 80.61% 85.00% 88.31% 86.70%

Furniture & Decors 80.00% NA 83.13% 82.00%

Jewelry 88.60% NA 87.33% NA

Textile & Garments 70.91% 87.50% 82.78% 87.90%

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Sector Comparison vs other ASEAN countries
Return Philippines Vietnam Indonesia Thailand
Automotive 1.71% 1.40% 5.89% 4.21%

Chemical products 5.27% 2.50% 5.91% 2.36%

Construction materials 2.53% 4.00 1.25% 3.98%

Electronics 3.31% 2.50% 0.80% 3.19%

Food 7.37% 2.50% 3.44% 3.00%

Furniture & Decors 4.58% NA 6.50% 4.50%

Jewelry 3.20% NA 0.83% NA

Textile & Garments 3.81% 5.00% 5.42% 2.66%

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 Logistics Performance by regions
Average
Average Order Cycle Luzon 29.15
Time (days) 27.76
Visayas
Mindanao 14.83
Transportation Lead Luzon 10.94
Time (days) Visayas 19.16
Mindanao 11.65
Delivery In Full On Luzon 90.76
Time (%) Visayas 83.81
Mindanao 86.46
Damage rate (%) Luzon 3.10
Visayas 5.46
Mindanao 3.96
 Logistics Performance by regions
Average
Cash Conversion Cycle Luzon 21.93
(C2C) (days) Visayas 23.60
Mindanao 13.45
Customer Complaint Luzon 5.65
Rate (%) Visayas 8.64
Mindanao 4.46
Forecasts Accuracy (%) Luzon 79.88
Visayas 82.18
Mindanao 80.00
Ratio of Returns (%) Luzon 4.90
Visayas 4.67
Mindanao 7.56
 Philippines International LPI vs. WB LPI
International logistics LPI 2016 Score/5
a) The effectiveness of Customs and other authorities in
2.61 3.23
customs services
b) The quality of transport and telecommunications
2.55 3.34
infrastructure
c) The quality of port infrastructure 2.55 3.30
d) The quality of airport infrastructure 2.55 3.34
e) The quality of road infrastructure 2.55 3.19
f) The availability of logistics infrastructure (i.e. warehouse,
2.55 3.58
distribution centres, etc.)
g) The availability of reliable transport services 3.01 3.66
h) The quality of logistics services and competence of
2.70 3.73
service providers
i) Possibility to track and trace shipments 2.86 3.67
j) The probability of shipments arriving at the promised time 3.35 3.49
Average 2.86 3.45
 Philippines International LPI vs. WB LPI
Score/5
International logistics Luzon Visayas Mindanao
LPI 2016

a) The effectiveness of Customs and other 2.61 3.33 3.04 3.11

authorities in customs services
b) The quality of transport and 2.55 3.33 3.36 3.42
telecommunications infrastructure
c) The quality of port infrastructure 2.55 3.24 3.56 3.35
d) The quality of airport infrastructure 2.55 3.28 3.56 3.35
e) The quality of road infrastructure 2.55 3.15 3.24 3.35
f) The availability of logistics infrastructure (i.e. 2.55 3.64 3.43 3.55
warehouse, distribution centres, etc.)
g) The availability of reliable transport services 3.01 3.64 3.76 3.70
h) The quality of logistics services and 2.70 3.76 3.80 3.55
competence of service providers
i) Possibility to track and trace shipments 2.86 3.77 3.36 3.70
j) The probability of shipments arriving at the 3.35 3.62 3.20 3.35
promised time
Average 2.86 3.48 3.43 3.44

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 Philippines Domestic LPI vs. WB LPI
Domestic logistics LPI 2016 Score/5
a) The quality of transport and telecommunications
2.61 3.23
infrastructure
b) The quality of port infrastructure 2.55 3.14
c) The quality of airport infrastructure 2.55 3.39
d) The quality of road infrastructure 2.55 3.02
e) The availability of logistics infrastructure (i.e.
2.55 3.39
warehouse, distribution centres, etc.)
f) The availability of domestic shipping services 2.55 3.41
g) The availability of reliable transport services 3.01 3.47
h) The quality of domestic shipping services 2.70 3.47
i) The Quality of logistics services and competence of
2.70 3.57
service providers
j) Possibility to track and trace shipments 2.86 3.37
k) The probability of shipments arriving at the promised
3.35 3.26
time
Average 2.86 3.34
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Philippines Domestic LPI vs. WB LPI

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 Developing Logistics Strategy
Documented logistics plan Strategy development

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 Logistics outsourcing

Most outsourced activities are:

Domestic transport
Domestic freight forwarding
International transport
Customs brokerage
Most in-house activities are:
Warehouse
Inventory management
Logistics IT system
Value-added services
In-house Outsource
Indonesia 51% 49%
Vietnam 32% 68%
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 Outsourced LSP activities & revenue
Most outsourced logistics activities Revenue generation
Logistics Service Level Agreements (SLAs)

• It is interesting to note that

not all providers are under
SLAs.
• More than 1/3 of
outsourcing is done with
no SLAs.
• Only 1/5 respondents have
SLAs with all their service
providers.

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Most common performance issues

• Customs process is
considered the most
problematic issue for
LSPs

• However, congestions
and weather issues
are also key issues

• Need to address issue

related to delays in
receiving cargo
 Summary
• Logistics cost/sales is higher than in other ASEAN
countries
• Large variations by regions and sectors in terms of
performance and cost
• Reliability is the dominant logistics performance
issue
• Outsourcing still focused on traditional logistics
activities
• Overall logistics performance is perceived higher
than the WB’s LPI score and ranking

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 Way forward…
• Create awareness related to the importance of a well
developed logistics plan
• Conduct supply chain studies on best/worse performing
sectors
• Conduct logistics corridor studies to identify waste in the
system
• Professionalise the logistics industry and its human
resources. Ever changing job requirements
• Establish “peer groups” to share logistics best practices
• Support more logistics outsourcing with LSP quality
assurance scheme
• Need to harmonise domestics logistics with international
logistic standards
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 Way forward…

The focus needs to be on assuring the reliability and

the removal of uncertainties in the logistics system in
the Philippines….

If reliability improve, then…

• Manufacturers/LSPs can design and plan more
optimized logistics systems and be more competitive
• Logistics costs can be reduced
• Focus can then move to time based competition

37