Knowledge and Assessment of Logistics Cost Trade-offs: a Study with Brazilian Professionals

Amaral, Juliana Ventura; Guerreiro, Reinaldo

doi:10.1590/S1519-70772014000200003

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ARTICLES • Rev. contab. finanç. 25 (65) • Aug 2014 • https://doi.org/10.1590/S1519-70772014000200003 copy

Knowledge and Assessment of Logistics Cost Trade-offs: a Study with Brazilian Professionals¹ * Article presented at the XXXVII Meeting of the Anpad (EnANPAD), Rio de Janeiro, Brazil, 2013 and 37th Annual Congress of the European Accounting Association, Tallinn, Estonia, 2014.

Authorship SCIMAGO INSTITUTIONS RANKINGS

The balance between costs incurred and the service provided to the customer depends on the identification and exploitation of logistics cost trade-offs. In this sense, the goal of the present study was to identify the extent to which Brazilian logistics professionals understand and assess cost trade-offs. To this end, a questionnaire based on the theoretical framework was administered to a sample of 73 professionals at commercial and industrial companies that were included on the list of the largest Brazilian enterprises in the 'Melhores and Maiores' (Best and Biggest) edition of Exame Magazine. The questionnaire's reliability was ascertained using Cronbach's Alpha (90.8%), and the data thus gathered were quantitatively analyzed through descriptive statistics and the non-parametric Mann-Whitney test. The results showed that most logistics professionals know that there are trade-offs but lack a broad understanding of the concept, especially with respect to the relationship between trade-offs and total cost. Nonetheless, the knowledge that logistics have an impact on economic-financial performance appeared to be widespread for most of the sample, particularly among experienced professionals. The results also revealed that although trade-off assessments are emphasized when designing and redesigning logistics processes and networks, these assessments are still limited in regard to the formulation of specific projects. The non-use of cost simulators and lack of adequate cost information were identified as factors related to the limited assessment of trade-offs. These findings are important because they demonstrate that a company's controllership can help logistics professionals to reverse this situation of non-assessment of trade-offs and to strive for the optimization of economic results.

Logistics; Total Cost; Logistics Costs; Logistics cost trade-offs

Logistics solution (action)	Effect on customer service (reaction)	Effect on transportation (reaction)	Effect on inventory (reaction)	Effect on warehousing (reaction)
Centralization	Products located far from customers	Lowers the inbound transportation cost but increases the outbound transportation cost	Reduces the need for safety stocks	Reduces facilities costs
Decentralization	Products located close to the customers	Increases the inbound transportation cost but lowers the outbound transportation cost	Increases the need for safety stocks	Increases warehouse costs due to the duplication of specialized personnel, equipment and facilities
Use of air mode	Provides timely responses	Higher cost	Reduces inventory due to shorter replenishment cycles and shorter transit times	Increases the number of handlings due to the large number of deliveries
Use of rail mode	Provides less timely responses	Lower cost	Increases inventory due to longer replenishment cycles and transit times	Increases the number of handlings (products are normally not on pallets)

VARIABLE	QUESTION	SCALE EXTREMES	REFERENCES
(1)	Is it a widespread notion in your company that, due to the existence of cost trade-offs, an increase in the cost of one logistics activity may be compensated by increased revenue (originating from a better level of customer service) or by reduced cost in some other logistics activity, and vice-versa?	5= Notion is very widespread	Lambert & Armitage (1979)Lambert, D. M., & Armitage, H. M. (1979). Distribution costs: the challenge: the key to managing the physical distribution function is total cost analysis, rather than haphazard stabs at cutting specific costs. Management Accounting (pre-1986), 60(11), 33-45.
(2a)	Is it a widespread notion in your company that the reduction of individual costs may increase rather than reduce total logistics costs?	5= Notion is very widespread	Lambert & Armitage (1979)Lambert, D. M., & Armitage, H. M. (1979). Distribution costs: the challenge: the key to managing the physical distribution function is total cost analysis, rather than haphazard stabs at cutting specific costs. Management Accounting (pre-1986), 60(11), 33-45.
(2b)	Is it a widespread notion in your company that the total logistics cost is determined by cost trade-offs?	1= Notion is not widespread	Lambert & Armitage (1979)Lambert, D. M., & Armitage, H. M. (1979). Distribution costs: the challenge: the key to managing the physical distribution function is total cost analysis, rather than haphazard stabs at cutting specific costs. Management Accounting (pre-1986), 60(11), 33-45.
(3)	Is it a widespread notion in your company that logistics have an impact on the company's economic-financial performance?	1= Notion is not widespread	Christopher & Ryals (1999)Christopher, M., & Ryals, L. (1999). Supply chain strategy: its impact on shareholder value. The International Journal of Logistics Management, 10(1), 1-10.; Presutti & Mawhinney (2007)Presutti, W. D., & Mawhinney, J. R. (2007). The supply chain-finance link. Supply Chain Management Review, 11(6), 32-38.

Variable	Question	Extremes of scale	References
(1a)	When designing logistics solutions (of various breadths), do you conduct analyses of total logistics costs versus level of customer service, i.e., are total costs simulated relative to the different levels of service that could be offered?	5=They are broadly conducted	Christopher (1987)Christopher, M. (1987). Assessing the costs of logistics service. Cranfield School of Management Working Paper, SWP 61/87.
(1a)		1=They are not conducted
(1b)	Have your company's logistics network and/or logistics macroprocesses (inbound logistics, plant logistics, outbound logistics) been the object of studies to improve the level of customer service at the lowest possible cost?	5=They have been broadly studied	Christopher (1987)Christopher, M. (1987). Assessing the costs of logistics service. Cranfield School of Management Working Paper, SWP 61/87.; Gopal & Cypress (1993)Gopal, C., & Cypress, H. (1993). Integrated distribution management: competing on customer service, time, and cost. Homewood: Irwin.
(1b)		1=They have not been studied
(2)	When designing logistics solutions (of various breadths), are the most relevant cost trade-offs identified and analyzed?	5= They are fully identified	Lambert & Armitage (1979)Lambert, D. M., & Armitage, H. M. (1979). Distribution costs: the challenge: the key to managing the physical distribution function is total cost analysis, rather than haphazard stabs at cutting specific costs. Management Accounting (pre-1986), 60(11), 33-45.; Faria, Bio, & Robles (2004)Faria, A. C., Bio, S. R., & Robles, L. T. (2004). Custos logísticos: discussão sob uma ótica diferenciada. Anais do Congresso Brasileiro de Custos, Porto Seguro, BA, Brasil, 11.
(2)		1= They are not identified
(3a)	When designing logistics solutions (of various breadths), do you conduct simulations and analyses of the economic-financial impacts that result from different levels of service?	5= They are broadly conducted	LeKashman & Stolle (1965)LeKashman, R., & Stolle, J. F. (1965). The total cost approach to distribution. Business Horizons, 8(1), 33-46.; Mak & Shen (2010)Mak, H. Y., & Shen, Z. J. M. (2010). Integrated supply chain design models. Wiley Encyclopedia of Operations Research and Management Science, DOI 10.1002/9780470400531.eorms0414, 01-15. https://doi.org/10.1002/9780470400531.eo...
(3a)		1= They are not conducted
(3b)	When designing logistics solutions (of various breadths), do you conduct simulations and analyses of the economic-financial impacts of the most relevant cost trade-offs?	5= They are broadly conducted	LeKashman & Stolle (1965)LeKashman, R., & Stolle, J. F. (1965). The total cost approach to distribution. Business Horizons, 8(1), 33-46.; Mak & Shen (2010)Mak, H. Y., & Shen, Z. J. M. (2010). Integrated supply chain design models. Wiley Encyclopedia of Operations Research and Management Science, DOI 10.1002/9780470400531.eorms0414, 01-15. https://doi.org/10.1002/9780470400531.eo...
(3b)		1= They are not conducted
(4)	Are assessments of total costs of the logistics processes and network relative to the level of customer service systematically and routinely conducted?	5= They are broadly conducted	LeKashman & Stolle (1965)LeKashman, R., & Stolle, J. F. (1965). The total cost approach to distribution. Business Horizons, 8(1), 33-46.; Chow (2008)Chow, G. (2008). Getting back to basics. Canadian Transportation Logistics, 111(10), 40.
(4)		1= They are not conducted
(5a)	Is the selected logistics solution necessarily the one that optimizes the company's economic-financial performance?	5= It is necessarily so	LeKashman & Stolle (1965)LeKashman, R., & Stolle, J. F. (1965). The total cost approach to distribution. Business Horizons, 8(1), 33-46.; Faria (2003)Faria, A. C. (2003). Custos logísticos:uma abordagem na adequação das informações de controladoria à gestão da logística empresarial. Tese de doutorado, Faculdade de Economia, Administração e Contabilidade, Programa de Pós-Graduação em Ciências Contábeis, São Paulo, SP, Brasil.; Faria & Costa (2005)Faria, A. C., & Costa, M. F. G. (2005). Gestão de custos logísticos. São Paulo: Atlas.
(5a)		1= It is not necessarily so
(5b)	Are the costs of the logistics network and/or macroprocesses in your company already optimized, i.e., do you operate at the lowest total cost possible while providing customers the targeted level of service?	5= The costs are optimized	LeKashman & Stolle (1965)LeKashman, R., & Stolle, J. F. (1965). The total cost approach to distribution. Business Horizons, 8(1), 33-46.; Faria (2003)Faria, A. C. (2003). Custos logísticos:uma abordagem na adequação das informações de controladoria à gestão da logística empresarial. Tese de doutorado, Faculdade de Economia, Administração e Contabilidade, Programa de Pós-Graduação em Ciências Contábeis, São Paulo, SP, Brasil.; Faria & Costa (2005)Faria, A. C., & Costa, M. F. G. (2005). Gestão de custos logísticos. São Paulo: Atlas.
(5b)		1= The costs are not optimized

Variable	Question	Scale	References
Experience of logistics professional	Time working in logistics	1= Up to 2 years	Slone, Mentzer, & Dittmann (2007)Slone, R. E. , Mentzer, J. T., & Dittmann, J. P. (2007). Are you the weakest link in your company's supply chain? Harvard Business Review, 85(9), 116-127.; Myers et al. (2004)Myers, M. B., Griffith, D. A., Daugherty, P. J., & Lusch, R. F. (2004). Maximizing the human capital equation in logistics: education, experience, and skills., Journal of Business Logistics 25(1), 211-32.
		2= 3 to 5 years
		3= 6 to 10 years
		4= 11 to 15 years
		5= More than 16 years
Formal education of logistics professional	Degree of formal education	1= Secondary/vocational education
		2= Higher education
		3= Specialization/MBA
		4= Masters/PhD

Variable	Question	Extremes of scale	References
Use of cost simulators	When designing logistics solutions, do you use total cost simulators for logistics networks and/or total cost simulators for logistics projects?	1= Yes	Russell & Cooper (1992)Russell, R. M., & Cooper, M. C. (1992). Cost savings for inbound freight: the effects of quantity discounts and transport rate breaks on inbound freight consolidation strategies., International Journal of Physical Distribution & Logistics Management 22(9), 20-44.
Use of cost simulators		2= No
Adequacy of accounting information	Does the information received from controllership help to assess cost trade-offs as needed to measure total logistics costs?	5= They help very much	Lambert & Quinn (1981)Lambert, D. M., & Quinn, R. (1981). Increase profitability by managing the distribution function. Ivey Business Journal, 46(1), 56-64.; Tyndall & Busher (1985)Tyndall, G. R., & Busher, J. R. (1985). Improving the management of distribution with cost and financial information., Journal of Business Logistics 6(2), 1-18.; Faria (2003)Faria, A. C. (2003). Custos logísticos:uma abordagem na adequação das informações de controladoria à gestão da logística empresarial. Tese de doutorado, Faculdade de Economia, Administração e Contabilidade, Programa de Pós-Graduação em Ciências Contábeis, São Paulo, SP, Brasil.
Adequacy of accounting information	Does the information received from controllership help to design logistics solutions?	1= They do not help

Experience	Degree of formal education	Use of cost simulators	Adequacy of accounting information
Experienced (51): More than 5 years of experience with logistics	Higher degree of formal education(51): Graduate school	Use of cost simulators (42): Simulators are used	Receives adequate accounting information (22): Mean score above 3 for the questions regarding the adequacy of accounting information
Inexperienced (22): Up to 5 years of experience with logistics	Lower degree of formal education (22): Secondary, vocational and higher education	Non-use of cost simulators (31): Cost simulators are not used	Receives inadequate accounting information (20): Mean score below or equal to 3 for the questions regarding the adequacy of accounting information

Experience in logistics	%	Degree of formal education	%
More than 10 years	48%	Graduate degree	70%
From 3 to 10 years	42%	Higher Education	22%
Up to 2 years	10%	Secondary/Vocational Education	8%

Variable	Assigned scores levels
Variable	Weak or average (1, 2 or 3)	Strong (4 or 5)
(3) Knowledge of economic-financial impacts	23%	77%
(1) Knowledge of the existence of trade-offs	41%	59%
(2) Knowledge of the relationship between trade-offs and total cost (variable 2b)	52%	48%
(2) Knowledge of the relationship between trade-offs and total cost (variable 2a)	59%	41%

Variable	Assigned scores levels
Variable	Weak or average (1, 2 or 3)	Strong (4 or 5)
(1b) Assessment of the trade-off between level of service and total cost when designing logistics processes or networks	40%	60%
(4) Systematic assessment of the total costs of logistics processes or networks	40%	60%
(2) Assessment of relevant cost trade-offs	45%	55%
(3a) Assessment of the economic-financial impacts of the trade-off between level of service and total cost	47%	53%
(1a) Assessment of the trade-off between level of service and total cost in solutions for specific projects	48%	52%
(3b) Assessment of the economic-financial impacts of relevant cost trade-offs	49%	51%
(5b) Optimization of the total cost of logistics processes and/or networks	53%	47%
(5a) Selection of the solution that optimizes total cost	55%	45%

Variable	Mann-Whitney Test (Experience - H₁)			Mann-Whitney Test (Formal Education - H₂)
Variable	p-value	Diff.?	p-value	Diff.?
(1) Knowledge of the existence of logistics cost trade-offs	0.467	No	0.548	No
(2) Knowledge of the relationship between trade-offs and total cost (variable 2b)	0.123	No	0.605	No
(2) Knowledge of the relationship between trade-offs and total cost (variable 2a)	0.985	No	0.837	No
(3) Knowledge of the economic-financial impacts	0.031	Yes	0.154	No

Variable	"Experienced"		"Inexperienced"
Variable	Weak or average (1, 2 ou 3)	Strong (4 ou 5)	Weak or average (1, 2 ou 3)	Strong (4 ou 5)
Knowledge of the economic-financial impacts	18%	82%	36%	64%

Variable	Mann-Whitney Test (H₃)			Frequency of scores for the groups
	Mann-Whitney Test (H₃)			"Use simulators"		"Does not use simulators"
	p-value	Diff.?	Weak or average (1, 2 or 3)	Strong (4 or 5)	Weak or average (1, 2 or 3)	Strong (4 or 5)
(1a) Assessment of the trade-off between level of service and total cost in solutions for specific projects	0.000	Yes	24%	76%	81%	19%
(3a) Assessment of the economic-financial impacts of trade-offs between level of service and total cost	0.000	Yes	24%	76%	77%	23%
(5a) Selection of the solution that optimizes total cost	0.000	Yes	19%	81%	68%	32%
(1b) Assessment of the trade-off between level of service and total cost in designing logistics processes and networks	0.001	Yes	21%	79%	65%	35%
(3b) Assessment of the economic-financial impacts of relevant cost trade-offs	0.001	Yes	36%	64%	68%	32%
(4) Systematic assessment of the total cost of logistics processes and networks	0.035	Yes	45%	55%	68%	32%
(5b) Optimization of the total cost of logistics processes and/or networks	0.036	Yes	45%	55%	65%	35%
(2) Assessment of relevant cost trade-offs	0.067	Yes	38%	62%	55%	45%

Variable	Mann-Whitney Test (H₄)		Frequency of scores for the groups
	Mann-Whitney Test (H₄)		"Adequate information"		"Inadequate information"
	p-value	Diff.?	Weak or average (1, 2 or 3)	Strong (4 or 5)	Weak or average (1, 2 or 3)	Strong (4 or 5)
(3a) Assessment of the economic-financial impacts of the trade-offs between level of service and total cost	0.029	Yes	23%	77%	55%	45%
(1b) Assessment of the trade-off between level of service and total cost in designing logistics processes and networks	0.030	Yes	18%	82%	40%	60%
(2) Assessment of relevant cost trade-offs	0.039	Yes	23%	77%	50%	50%
(1a) Assessment of the trade-off between level of service and total cost in solutions for specific projects	0.048	Yes	27%	73%	60%	40%
(4) Systematic assessment of the total cost of logistics processes and networks	0.095	Yes	27%	73%	40%	60%
(5a) Selection of the solution that optimizes total cost	0.309	No	-	-	-	-
(3b) Assessment of the economic-financial impacts of relevant cost trade-offs	0.482	No	-	-	-	-
(5b) Optimization of the total cost of logistics processes and/or networks	0.828	No	-	-	-	-

Universidade de São Paulo, Faculdade de Economia, Administração e Contabilidade, Departamento de Contabilidade e Atuária Av. Prof. Luciano Gualberto, 908 - prédio 3 - sala 118, 05508 - 010 São Paulo - SP - Brasil, Tel.: (55 11) 2648-6320, Tel.: (55 11) 2648-6321, Fax: (55 11) 3813-0120 - São Paulo - SP - Brazil
E-mail: recont@usp.br

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[1] Source: Adapted from Napolitano (1997).

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Knowledge and Assessment of Logistics Cost Trade-offs: a Study with Brazilian Professionals1 * Article presented at the XXXVII Meeting of the Anpad (EnANPAD), Rio de Janeiro, Brazil, 2013 and 37th Annual Congress of the European Accounting Association, Tallinn, Estonia, 2014.

Knowledge and Assessment of Logistics Cost Trade-offs: a Study with Brazilian Professionals¹ * Article presented at the XXXVII Meeting of the Anpad (EnANPAD), Rio de Janeiro, Brazil, 2013 and 37th Annual Congress of the European Accounting Association, Tallinn, Estonia, 2014.