Case Title:

Logistics Sector Development Potential of World’s Oil Exporters

By Olli-Pekka Hilmola

SUMMARY OF THE ARTICLE

This research paper is focused of the evaluation on the performance of the

different oil companies all over the world in terms of measuring logistics performance,

supply chain management, benchmarking strategies and import/ export transactions. Oil

exporters have been identified as having problems in the friendliness and performance

of their logistics sector, particularly in general cargo group. The purpose of this research

is to identify, through proposed data envelopment analysis (DEA) models, those oil

exporters with most potential to develop (who have resources for this through their

economic prosperity). Benchmarks of improvement are not only identified among top oil

exporters, but also from larger group of emerging countries.

It was concluded that logistics performance and competence, particularly in

general cargo group, is one of the key enabling factors for increased diversification in

import-export performance, and should be the primary development objective in

prosperous oil economies. In this research work, it was able to identify those oil exporter

countries, which are having in relative terms higher performance in proposed DEA

model as compared to the World Bank’s LPI rank – potentially indicating with the

difference that there is more advanced and prospering economy as what the logistics
environment performance would suggest. Therefore, it would be vital for these countries

to benchmark logistics sector practices from other more advancing oil exporter

countries, or emerging economies. In this research work, it identified that, particularly

from inside of oil exporter group lower performing countries could benchmark general

cargo logistics from Malaysia (or even Canada based on BCC performance). Within

emerging economies, it also identified number of different countries in this regard, and

of course, China within logistics branch is exemplary to benchmark. Of course, India,

Philippines, Thailand and South Africa are also viable alternatives for logistics sector

benchmarking activities. Interestingly, as an additional empirical outcome of this

research work, it was able to show that emerging economies in general are much better

in their general cargo logistics as what their level of prosperity would grant.

Through this research, the future researchers might be able to understand fully

the importance of benchmarking the performance of the company against higher-

performing key players in the market. The proper handling of imported and exported

goods and proper management of logistics and materials tend to improve the

company’s performance as a whole.

Philippines, being considered one of the fast developing countries, and being

engaged in oil production, might use this research paper for further improve the

performance of the oil companies, particularly those considered big key players in the

market.
 A. What were the underlying issues or major ideas and concepts presented in

the paper? Explain.

The following are the issues, major ideas and concepts presented in the paper:

Benchmarking. It is the process of improving performance by continuously

identifying, understanding, and adapting outstanding practices and processes found

inside and outside an organization (company, public organization, University, College,

etc.). Benchmarking of business processes is usually done with top performing

companies in other industry sectors. This is feasible because many business processes

are essentially the same from sector to sector. Benchmarking is focused on the

improvement of any given business process by exploiting the best practices rather than

merely measuring the best performance. Best practices are the cause of best

performance. Companies studying best practices have the greatest opportunity for

gaining a strategic, operational, and financial advantage. ECU defines benchmarking as

a continuous and systematic process of comparing products, services, processes and

outcomes with other organizations or exemplars, for the purpose of improving outcomes

by identifying, adapting and implementing best practice approaches (Edith Cowan

University, 2011).

Data Envelopment Analysis. It is a nonparametric method in operations

research and economics for the estimation of production frontiers. It is used to

empirically measure productive efficiency of decision making units (or DMUs). Data

Envelopment Analysis (DEA) is a very powerful service management and benchmarking

technique originally developed by Charnes, Cooper and Rhodes (1978) to evaluate

nonprofit and public sector organizations. It was introduced to assess the relative effi-

ciency of organizational units with multiple inputs to produce multiple outputs. The aut-

hors of DEA defined the efficiency of the unit under evaluation as the ratio of the sum of

its weight outputs to the sum of its weight inputs. Recently, the Data Envelopment

Analysis method is becoming popular for assessing the relative efficiency of business

entities. DEA is a technique of mathematical programming that enables the determina-

tion of a unit’s efficiency based on its inputs and outputs, and compares it to other units

involved in the analysis. The DEA can be described as data-oriented as it effects perfor-

mance evaluations and other inferences directly from the observed data and with mini-

mal assumptions. The efficiency of a Decision Making Unit (DMU) is measured relative

to all other DMUs with the simple restriction that all DMUs lay on or below the extreme

frontier. DEA is a non-parametric method as it does not require any assumption about

functional form (e.g. a regression equation, a production function, etc.). It is a methodo-

logy directed at the frontier rather than at central tendencies. While statistical procedu-

res are based on central tendencies, DEA is a process of extremities. DEA analyzes

each DMU separately and calculates a maximum performance measure for each unit.

DEA has become one of the most popular fields in operations research, with applica-

tions involving a wide range of context (Thanassoulis, 2001).

Logistics. . It is the planning, execution, and control of the procurement,

movement, and stationing of personnel, material, and other resources to achieve the

objectives of a campaign, plan, project, or strategy. It may be defined as the

management of inventory in motion and at rest. Logistics management is the 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 customer's

requirements

Sector/ Firm Performance. It is seen that authors use many different

performance measures. Delivery time, quality consistency, productivity, sales costs,

production time, delivery security, service quality, flexibility, market share, customer

loyalty, activity, efficiency and conformance to standards are some of the performance

measures that have been used in academic studies (Aziz et al., 2010; Green Jr. et al.,

2006; Flynn et al., 1996; Morgan et al., 2002; Morgan et al., 2009; Sin et al., 2002).

In traditional performance measurement systems, five main performance criteria which

are deemed necessary for an enterprise to be successful in logistics activities are

specified. Specific measures from each main performance criterion are used in the

evaluation of logistics functions. The criteria and measures used in the evaluation are

as follows (Fawcett and Cooper, 1998): 1. Asset Management: Capacity use and

investment return. 2. Cost: Unit costs and transportation costs per unit. 3. Customer

Services: Average transfer time and variability of transfer time. 4. Productivity: Number

of deliveries per vehicle. 5. Quality: Damages occurring during transportation and

accuracy of documentation.
 Supply Chain Management. It is the oversight of materials, information, and

finances as they move in a process from supplier to manufacturer to wholesaler to

retailer to consumer. It involves coordinating and integrating these flows both within and

among companies. The Supply Chain Management integrates manufacturing

operations, purchasing, transportation, and physical distribution into a unified program.

Successful supply chain management, then, coordinates and integrates all of these

activities into a seamless process. It embraces and links all of the partners in the chain.

In addition to the departments within the organization, these partners include vendors,

carriers, third party companies, and information systems providers.

B. What were the findings of the paper? Explain.

The research used Data Envelopment Analysis (DEA) Models to identify those oil

exporters with most potential to develop. Findings show that major oil exporters are not

homogeneous group in their performance turning logisticscompetence on prosperity.

Actually, there could be one group of very low performance identified in general cargo

logistics performance as compared to the DEA models, and the other group with similar

or slightly above performance with general cargo handling. Those performing at the

lower end, and with most development potential, include such countries as Russia,

Venezuela, Algeria, Qatar, Azerbaijan and Turkmenistan (possibly also including Iran,

Kuwait and UAE). From the group of major oil exporters, these countries should learn

exceptional logistics competence from Malaysia and Canada. Furthermore, this

research shows that the emerging economies, particularly China, but also India as well
as Philippines, Thailand and South Africa are useful benchmarks to develop general

cargo logistics performance further.

C. What contributions does the paper make to the advancement of knowledge,

theory, and practice? Why?

The research contributes so much on the application of proper logistics and

supply chain management of the companies under the oil industry sector. Through the

use of Data Envelopment Analysis (DEA), which is often used to measure companies’

performance, oil companies among and across nations all over the world were able to

assess their performance and have given the chance to advance their knowledge and

practice to better off their management skills and applications. It is through

benchmarking that companies could be able to develop, adopt and adjust to the latest

trends in the logistics management and oil product exportations. Research work is

influential to study in respect to identifying which countries “lower performing oil

producers”, and which have potential in better developing their logistics sector (general

cargo). Among this, research also proposes benchmarks for these countries, not only

among oil exporters, but also from other emerging economies.

The research findings will give a unique and fresh perspective on the logistics

performance of oil exporters and emerging economies in general.

This study would be a guide for those companies, not only oil companies, all over

the world to improve their performance by applying some of the theories and concepts

presented in this research, such as but not limited to, benchmarking process, logistics
and supply chain management, just-in time principle, date envelopment analysis, export

marketing and overall firm performance.

D. What are the limitations of the paper? Explain.

Every research has its own limitations, since it could not cover all scopes of the

study. This research is not based on longitudinal data. It should be enlarged to take into

account earlier logistics performance index ratings from the WorldBank studies (year

2007). This is not only to verify the results, but also to highlight possible progress inthe

development of the logistics sector. Also, other global logistics performance ratings (e.g.

from infrastructure) should be taken into account, and DEA models be developed further

(often infrastructure drives other layers of performance).

E. Can the findings of the paper have a potential for future research in the

Philippine settings? Explain.

Yes. This research has a big potential for future research in the Philippines since

Philippines is also engaged in oil production and exporting/ importing cargoes of oil.

Though, Philippines is not that rich in oil production, it is still considered as one of the

fast developing countries. For further research, the researcher could develop DEA

measurement model asmore advanced, being at least two-staged model. In the current

efficiency evaluation model, this research was able to identify those countries, which are
having potential for improvement in logistics sector performance, but are not able to

identify what kind ofchanges countries would need to complete with respect of

supporting infrastructure.Idea would be to use pure logistics infrastructure comparisons

in the first layer of DEA model (e.g. using Porter and Schwab (2008) evaluation as an

information source), whichwould drive the performance of the current input level of DEA

measurement, and eventually these results would be turned as an output of economic

prosperity. With this type of setting, the researcher might be able to identify those areas

in infrastructure, which should have more attention in the logistics-performance

enhancement. Also, as afurther research, it would be interesting to compare earlier the

World Bank LPI surveyresults with respect year’s economic prosperity (year of 2007).

This would give anopportunity for longitudinal analyses, and being able to identify

countries being mostly improving during the recent years.

Since Philippines is a promising country, this study would help existing and future

oil companies to develop its operations, specifically in handling oil exportation, cargo

handling, logistics management and firm performance as a whole. This study would be

a guide for the Philippine companies, not only oil companies, to improve their

performance by applying some of the theories and concepts presented in this research,

such as but not limited to, benchmarking process, logistics and supply chain

management, just-in time principle, export marketing, and overall firm performance.

Thank you so much and God bless!!!