Efficiency Measures of Logistics Sector in Aizawl City, Mizoram: An Empirical Evidence

 

Dr. Lalhriatpuii

Associate Professor and Head, Department of Economics, Mizoram University,

Tanhril-796009, Aizawl, Mizoram

 

ABSTRACT:

Due to the differences in resource endowments and production capabilities of different regions, goods that people want to consume cannot always be produced where people want to consume them. Or these goods may not be accessible when people want to consume them. Efficiency measures the level to which logistics sectors utilise available resources. Efficiency is particularly important for logistics sector as the main purpose of their effort is to reduce time and cost of moving products from manufacturers to consumers using available infrastructures. The core components of key indicators of logistics sector in Aizawl City, Mizoram were analysed, such as cost efficiency, ease of obtaining official clearances, ease of payment, ease of reimbursement, infrastructure, use of information technology and innovations. The respondents then rank their logistics providers on the above parameters from 1 to 5; 1 being very low and 5 being very high. To measure the overall performance of logistics sector, product heads (industry-wise) were also selected in order to include wide and varied logistics provider. The product heads selected were clothing items, consumption goods and confectionaries, consumer durables, electronics, hardware items, medicine, raw materials for industries including semi finished products, vegetables, fish and meat, vehicles, spare parts and machineries. Sample size of 45 respondents was selected for this survey, 5 respondents for each item head or industry. And the results were then analyzed using mathematical tools like mean, average, percentage, etc. which was finally used to analyse the efficiency of logistics sector in Aizawl city, Mizoram.

 

 

 

INTRODUCTION:

Due to the differences in resource endowments and production capabilities of different regions, goods that people want to consume cannot always be produced where people want to consume them. Or these goods may not be accessible when people want to consume them. Food and other commodities are only available in abundance at certain times of the year.

Lack of transportation and storage facilities had always hamper early people to consume what they want where and when they want.

 

 

The word logistics was first used in military organisations. Military forces have always been very effective in maintaining inventories, supply and delivery of goods. The term later finds usage beyond military organisations and now logistics management is often used synonymous to supply chain management in business world as well as literature¹.

 

Lambert et al. (1998)² identified major logistics activities such as Customer service, traffic and transportation, warehousing and storage, plant and warehouse site selection, inventory management, order processing, logistics communications, procurement, materials handling, packaging, demand forecasting etc.

 

AREA OF THE STUDY:

Aizawl City is the state capital of Mizoram. It is home to 293,416 persons according to 2011 census³. The city is connected with the national transport network by the National Highway 54, and it is connected to all parts of the state by road linkage. It is the centre of administration, trade and business hub for the rest of the state. As per the Census 2011, the literacy rate of the state is 91.33 percent which is the 3rd highest in the country. The road network is the major and cheapest mode of transportation and communication in Mizoram. Besides connecting cities towns and villages within the state, everyday good numbers of people commute via the road network to Silchar, Guwahati, Dimapur, etc for trading purposes. Majority of the goods consumed in Mizoram are transported from or through these neighbouring trade hubs through road transport. Majority of all trades in goods and equipments as well as services within the state are carried out through Aizawl either physically or on papers⁴. It can thus be said that a study on the efficiency of sectors of business activities in Aizawl city to a large extent will be representative of the performance in the state.

 

OBJECTIVES OF THE STUDY:

1.      To examine the overall performance of the logistics sector using efficiency and measure in Aizawl city.

2.      To examine the cost efficiency and the condition of infrastructure of logistic sector within the study area.

3.      To study whether there is any significant relationship between the use of IT and innovations and performance of the logistic sector.

 

METHODOLOGY:

The research was done through structured questionnaire, asking respondents to provide qualitative information based on their experience is deemed suitable. It comprises of the following core components of key indicators of logistics performance.

·        Cost efficiency

·        Ease of obtaining official clearances

·        Ease of payment

·        Ease of reimbursement

·        Infrastructure

·        Use of information technology and innovations

 

The respondents then rank their logistics providers on the above indicators from 1 to 5; 1 being very low and 5 being very high.

 

To measure the overall performance of logistics sector, the following product heads (industry-wise) are selected in order to include wide and varied logistics providers.

They are:

 

clothing items, consumption goods and confectionaries, consumer durables, electronics, hardware items, medicine, raw materials for industries including semi finished products, vegetables, fish and meat, vehicles, spare parts and machineries.

 

Sample size of 45 respondents has been selected for this survey, 5 respondents for each item head or industry. And the results are then analyzed simple mathematical tools like mean, average, percentage, etc. which is finally used for preparing overall performance of logistics sector in Aizawl city.

 

LIMITATION OF THE STUDY:

This research work has certain limitations. Firstly, the study is done from the perspective of the consignees only. The ratings of the logistics providers like the suppliers and the carriers and forwarders are not taken which make it one-sided in aspect and render the results useless for inter-regional comparisons.

 

Secondly, time and cost data of incoming and outgoing cargo records, way bill records, custom clearances, etc are not obtained because of lack of accessible accurate data set to calculate the actual performance in terms of quantity and cost efficiency.

 

Efficiency Measures: Empirical Evidence:

Efficiency measures the level to which logistics sectors utilise available resources. Simply put, efficiency means doing things right. Efficiency is important in any kind of economic activity because it reduces time and cost of operation and increases utility of available resources at the same time. It can be said that efficiency is particularly important for logistics sector as the main purpose of their effort is to reduce time and cost of moving products from manufacturers to consumers using available infrastructures.

 

(a) Cost Efficiency:

Cost efficiency simply refers to whether using the current logistics provider is perceived to be efficient in terms of cost or not; or if other providers were to be hired, or when calculating the estimated cost of completing that operation. The respondents were asked to rank the cost of logistics of their items in overall from 1 to 5 where 1 stands for very costly, 2 stands for costly, 3 for average, 4 for cost efficient and 5 for very cost efficient. There were instances when the respondents were not fully confident how to give the ranking because they cannot estimate the cost of logistics for their items. This often happened where the respondents procure their goods from middlemen and active suppliers, in such situation they have little knowledge of the supply chain mechanism in terms of costs. On such occasions, the ranking criteria gets redefined as whether they are satisfied with the costs they pay for procuring the goods or could have any other suppliers could have done cheaper with reference to the level of competition among those. The ranking thus measures their satisfaction level. The ranking given by all the respondents across all the product groups is as given below.

 

Table 1: Cost Efficiency

Ratings (1)	Nos. of respondents (2)	Value (1×2)
1	3	3
2	13	26
3	16	48
4	9	36
5	4	20
Total	45	133
Average rating		2.95 out of 5

Source: Field Survey 2018

 

The data reveals the variation in the perceived cost of logistics in the surveyed area. On average, in ranking done on this matter to business men; who are often reluctant to give the extremities of the spectrum to their partners we get 3 respondents who gave the lowest ranking of 1 and 4 respondents who gave the ranking of 5 to their logistics providers. Out of 45 respondents 16 respondents rank the cost average which is also revealed in the overall average rating calculated score of 2.95 out of 5. But when we see that 16 (3+13) respondents ranked their logistics providers’ cost efficiency below average as compared to 13 (9+4) respondents who ranked their logistics providers above the average, we can partially conclude that majority of the respondents feels their logistics providers’ cost efficiency is below average assuming the respondents who responded with average ranking are not even slightly bend towards one or the other. Overall, Despite the prevailing high cost of transportation owing to extreme terrain and bad road conditions the cost efficiency of logistics sector in Aizawl city is ranked above average at 2.95 out of 5, because, for some sectors logistics cost is quite low as compared to others such that the overall cost balances out.

 

Sectoral or item-wise ranking of the performance of their particular logistics providers is depicted in the bar graph below.

 

 

Graph 1: Cost Efficiency

 

As shown in the bar graph medicine are procured at quite an efficient cost as shown by the sectoral overall rating of 4.8 out 5 in terms of cost efficiency. This may be due to the long and stable existed efficient supply mechanism prevailing in medicine logistics, as well as the nature of the item - which implies that a truck load of medicine is very high in value as compared to the bulky items in the comparison like hardware items, raw materials, vegetables etc. Respondents from which item groups rank their logistics providers in terms of costs at 2,2 and 2.4 out of 5 respectively. This variation in rankings explained in terms of bulkiness of the items is however not the main reason for the difference in cost efficiency. Products like electronics (ranked at 3.6), consumer durables (ranked at 3.2) and consumption goods and confectionaries (ranked at 3.6) enjoy fair logistics cost because the suppliers and the producing companies are in good terms of agreement with transporters and other necessary players. The fact that clothing retailers and distributors often have to travel themselves and the supply mechanisms of hardware, vegetables etc where there is often an intervention of middlemen cause these sectors rate their logistics performance relatively lower in terms of cost efficiency. As it turns out, there is a huge variation in the perceived cost of logistics among the respondents depending on the type of item, mode of business dealings and partnership and the people involved in the logistics sector of each item groups.

 

(b) Ease of Obtaining Official Clearances:

Official papers and clearances like way bill, form, customs clearances etc can be a hindrance to logistics efficiency. Stringent regulations and protocol on movement of goods may affect business activities. At the same time, too much leniency may promote black markets which can affect the economy adversely. Respondents were asked to rate the ease of clearing these regulatory processes from 1 to 5 where 1 represents very difficult and 5 represents very easy.

 

Table 2: Ease of Obtaining Official Clearances

Ratings (1)	Nos. of respondents (2)	Value (1×2)
1	0	0
2	4	8
3	10	30
4	18	72
5	13	65
Total	45	175
Average rating		3.89 out of 5

Source: Field Survey 2018

 

According to the field survey data, none of the respondents felt it very difficult to access official clearances and regulatory processes. Only 4 out of 45 gave a score of 2 and 10 respondents gave a ranking of 3. A whooping number of 13 respondents felt that it is very easy to get official regulatory clearances and 18 respondents gave the ranking of 4. On overall, official clearances for transportation of consignments are easy to get and applied for, as it is shown by the calculated average rating scored at 3.89 out of 5.

 

 

Graph 2: Ease of Obtaining Official Clearences

 

Analysis of the sectoral ratings given on ease of obtaining official clearances using the graph above shows that, medicine dealers in Aizawl city are unanimous on giving 5 out of 5. Respondents from all other item groups viz, clothing (3.4), consumption goods and confectionaries (4), consumer durables (4.4), electronics (4.4), hardware (3.8), raw materials (2.6), vegetables, fish and meat (4.4) and vehicles, parts and machineries (3) gave ranks above average. Dealers of vehicles, parts and machineries rank the current system of obtaining clearances at 3 out of 5. This in part accounts for the problems faced in importing second hand goods. There is also a load of paper works to be verified to import raw materials and clothing from other countries; which is reflected in their rating.

 

It can be concluded that, there are not many problems in obtaining official clearances for movement of goods for the logistics sector in Aizawl city apart from when special procedures needs to be applied for. For example, inter-state transactions of second-hand goods and in the case of imported items.

 

(c) Ease of Payment Process:

In today’s world payment is usually done safely and very easy through online banking and through banks. For certain goods, suppliers and agents themselves collect payment from the consignees at prefixed dates. This is reflected in the rating given as under.

 

 

 

Table 3: Ease of Payment Process

Ratings (1)	Nos. of respondents (2)	Value (1×2)
1	0	0
2	0	0
3	8	24
4	19	76
5	18	90
Total	45	190
Average rating		4.23 out of 5

Source: Field Survey 2018

 

In terms of ease of payment process, none of the respondents rank the current situation of logistics sector in Aizawl city below 3. 8 respondents gave a score of 3, 19 respondents gave a score of 4 and 18 respondents rate it 5 out of 5. The average rating of the logistics sector in Aizawl city with respect to ease of payment process stood at a very high score of 4.23 out of 5. From the analysis we can conclude that it is felt that there is not much difficulty in the method of payment for consignments along with safety of payment processes and time taken for the same.

 

As for item wise respondents’ rankings, logistics providers for medicine sector records the highest score for ease of payment process (4.8 out of 5), followed by logistics providers for electronics sector and vehicles, parts and machineries sector (both scoring 4.6 out of 5). Clothing sector, consumption and confectionaries sector, consumer durables sector and hardware sector rank their respective providers at 4.2 out of 5 followed by scores given to logistics providers for the supply of raw materials and vegetables, fish and meat into Aizawl city (3.6 out of 5).

 

Graph 3: Ease of Payment Process

 

(d) Ease of Reimbursements and Returns:

In case of deficiency and defective items supplied on paid transactions, the consignor has to take responsibility or hand over responsibility to the transporters. It largely depends upon the type of items and business relationships. The respondents were asked to rank their logistics providers on the ease of reimbursements in case of deficiency and returns in case of defective or inferior items and wrong consignments on a scale of 1 to 5, where 1 stands for very difficult and 5 stands for very easy.

 

Table 4: Ease of Reimbursements and Returns

Ratings (1)	Nos. of respondents (2)	Value (1×2)
1	6	6
2	13	26
3	16	48
4	10	40
5	0	0
Total	45	120
Average rating		2.67 out of 5

Source: Field Survey 2018

 

The survey result is formed into a table below which shows overall average ranking of respondents at 2.67 out of 5. 6 respondents rank their logistics providers 1 out of 5 in terms of ease of reimbursements and returns and 13 respondents gave a score of 2. 16 respondents gave a score of 3 and 10 respondents gave 4. None of the respondents from the surveyed area felt that it is very easy to get reimbursements and returns in case of deficiencies and defect of items from their logistics providers. This is ranked average at 2.67 out of 5. It may be more useful to analyse the following graph.

 

 

 

 

 

 

 

 

 

Graph 4: Reimbursements and Returns

 

Within the studied area, electronic items show the highest ratings with a score of 3.6 out of 5 since most of the products come with warranty in case of defects. Sectors where suppliers usually carry the goods themselves or where the retailers have formal contracts with logistics providers like vehicles and parts dealers also rate their logistics providers high in terms of ease of reimbursements and returns (whose logistics sector also scored on average 3.6 out of 5). Consumption goods and confectionaries (2.8), consumer durables (3.2), hardware (2.6) rate their logistics providers above average line. Perishable items like foods and those items that can be damaged with time like medicine and raw materials are ranked below average. When specialised vehicles are not provided, this ranking can be seen as causing big problem for the end user and is therefore rated only 1.2 for vegetables, fish and meat. In case of medicine, the absence of carrying and forwarding agent within the state is the main reason for the low rating of 2 out of 5 just below raw materials which is ranked 2.2. What can be concluded from this graphical representation is that logistics sectors are not up to the mark when in terms of ease of reimbursements and returns of items in case of defects and deficiencies. This finding is important because this is the core item of customer care norms.

 

(e) Infrastructure:

Logistics infrastructure includes roads, railways, waterways, air ways, vehicles, warehouse, on and off loading equipments, packaging system and equipments, communication facilities, etc. Infrastructure is the single most important factor that can influence cost of logistics and overall efficiency. Here, ratings are given from 1 (very bad) to 5 (very good).

Table 5: Infrastructure

Ratings (1)	Number of respondents (2)	Value (1×2)
1	6	6
2	17	34
3	14	42
4	8	34
5	0	0
Total	45	114
Average rating		2.53 out of 5

Source: Field Survey 2018

 

Overall ratings given by the respondents from different item pools stood at 2.53 out of 5. No respondents feel that logistics infrastructure in Aizawl city is very good, while 8 respondents out of 45 thinks that infrastructure condition in the surveyed area is satisfactory by giving a score of 4 out of 5. The bad road condition influenced the respondents’ answers as shown by the table. More than half of the total respondents, 23 to be exact, feel that logistics infrastructure in Aizawl city is indeed bad. While 14 respondents feel that it is average.

 

 

Graph 5: Infrastructure

 

Ratings of infrastructure of the logistics sector are usually low for items that are bulky and those that require road transport. The overall rating is also quite low at 2.53 reflecting the bad road conditions. For perishable food items, road conditions affecting the time taken for transit, lack of cold storage and warehouses are the main reasons for the lowest rating of 1.6. Items that are transported through airways and courier services and other items that are non perishable and plenty in supply are not affected as much and hence ratings given are a bit higher. Viewing the current situation of roads, bridges, railways, warehouses, storages and communication facilities, it can be said that the ratings given are fairly lenient.

 

(f) Use of Information Technology and Innovations

Another important factor in measuring efficiency of any business entity is the utilisation of information technology and innovations. In today’s world, information technology can be used to replace the traditional methods of paper works and manual labour, for advertising products and customer care and support. Innovations can also be used to raise the overall quality of work and work environment. The use of IT and innovation will certainly raise the delivery quality of the goods at the end user and thus increase customer satisfaction.

 

Table 6: Use of IT and Innovations

Ratings (1)	Nos. of respondents (2)	Value (1×2)
1	1	1
2	6	12
3	6	18
4	18	72
5	14	70
Total	45	173
Average rating		3.84 out of 5

Source: Field Survey 2018

 

32 respondents out of 45 rank the present utilization of IT and innovations by their respective logistics providers more than 3. At the extremes, only 1 respondent gave a ranking of 1and 14 respondents gave a ranking of 5 out of 5. Overall average rating stood at a high 3.84 out of 5.

According to our field survey, there has been tremendous development in the use of IT and innovations by the logistics sector except in the supply chain of vegetables, fish and meat; where modern techniques are not utilized up to mark - be it transporting, storing, processing, packaging etc. Rated 1.8 out of 5, there is a wide room for improvement. The logistics providers of consumption goods and confectionaries have also not yet use IT and innovations as compared to that of other items and are rated 2.6 out of 5. Other average sectoral ratings are usually high; clothing – 3.6, consumer durables – 4.2, electronics – 4.6, hardware – 4.4, medicine – 4.4, vehicles, parts and machineries – 4.8.

 

 

Graph 6: IT and Innovations

 

We can conclude from this data that, in terms of utilisation of IT and innovations, logistics providers are doing good by adopting the latest technology. The low rankings for this field were given where utilization of IT and innovation requires infrastructural improvements and improvement in material handling.

Overall Efficiency of Logistics Sectors:

Overall efficiency of the logistics sector can be represented in the form of graph as under to make it easy to judge what the areas are that need improvement to attain efficient logistics performance.

 

 

Graph 7: Overall Efficiency

 

Overall efficiency of logistics sector in Aizawl city is rated 3.35 out of 5. Infrastructure is ranked lowest among the efficiency indicators with a score of 2.53, followed by ease of reimbursements and returns (2.67). The overall average ranking of the rest in ascending order is; cost efficiency (2.95), use of IT and innovations (3.84), ease of obtaining official clearances (3.89) and ease of payment process (4.23).

 

Thus from the field survey, we can say that efficient performance of logistics service in Aizawl city is hindered most by the poor level of infrastructure and high cost of logistics services. Lack of reimbursements and returns provision in case of deficiencies and defects affects the satisfaction of end user of the items and customers ratings of the logistics sector.

 

RESULTS AND DISCUSSION:

·        Overall performance of Logistics sectors in Aizawl city is given a rating of 3.25 out of 5. Overall efficiency attributes of logistics sector is given ratings of 3.35.

·        On the basis of respondents’ views and rankings, the overall performance of logistics sectors in Aizawl city fare well than was expected though there exist a number of fields where performance can be improved upon. Efficiency of the logistics sector attains a high score mainly due to the logistics providers’ efforts in maintaining good relations with their partners. It also shows their consciousness of the importance of customer care. (Objective No.1)

·        Despite the prevailing high cost of transportation owing to extreme terrain and bad road conditions the cost efficiency of logistics sector in Aizawl city is ranked above average at 2.95 out of 5, because, for some sectors logistics cost is quite low as compared to others such that the overall cost balances out. Also the analysis reveals that there is a huge variation in the perceived cost of logistics among the respondents depending on the type of item, mode of business dealings and partnership and the people involved in the logistics sector of each item groups. (Objective No.2)

·        There has been tremendous development in the use of IT and innovations by the logistics sector except in the supply chain of vegetables, fish and meat; where modern techniques are not utilized up to mark - be it transporting, storing, processing, packaging etc. Rated 1.8 out of 5, there is a wide room for improvement. The logistics providers of consumption goods and confectionaries have also not yet use IT and innovations as compared to that of other items and are rated 2.6 out of 5. On average, in terms of utilisation of IT and innovations, logistics providers are doing good by adopting the latest technology in communication, order processing, management, tracking capabilities, etc. The low rankings for this field were given where utilization of IT and innovation requires infrastructural improvements and improvement in material handling. (Objective No.3)

·        On overall, official clearances for transportation of consignments are easy to get and applied for, as it is shown by the calculated average rating scored at 3.89 out of 5. The efficiency brought by the attempts of the authorities to make transparent and efficient regulations may be the cause of the high rating. There is not much problem in obtaining official clearances for movement of goods for the logistics sector in Aizawl city apart from when special procedures needs to be applied for.

·        In terms of ease of payment process, none of the respondents rank the current situation of logistics sector in Aizawl city below 3. The average rating of the logistics sector in Aizawl city with respect to ease of payment process stood at a very high score of 4.23 out of 5. This shows that there is not much difficulty in the method of payment for consignments along with safety of payment processes and time taken for the same.

·        Logistics sectors are not up to the mark in terms of ease of reimbursements and returns of items in case of defects and deficiencies. Scoring an average rating of 2.67 out of 5, there is lack of integration among the players along the supply chain with respect to this service. This is the core item of customer care norms.

·        Ratings of infrastructure of the logistics sector are usually low for items that are bulky and those that require road transport. The overall rating is also quite low at 2.53 reflecting the bad road conditions. For perishable food items, road conditions affecting the time taken for transit, lack of cold storage and warehouses are the main reasons for the lowest rating of 1.6. Items that are transported through airways and courier services and other items that are non perishable and plenty in supply are not affected as much and hence ratings given are a bit higher. This shows that the poor level of logistics infrastructure remains the weak point of logistics sector in Aizawl city.

·         Infrastructure is ranked lowest among the efficiency indicators followed by ease of reimbursements and returns. The overall average ranking of the rest in ascending order is; cost efficiency, use of IT and innovations, ease of obtaining official clearances and ease of payment process.

 

CONCLUSION:

For the logistics sector in Aizawl city influence all other economic activities in the area, there is a need for all round improvement. At the same time a complete and holistic approach involving structural and institutional improvements will have to occur since logistics activities involve a wide array of activities. These improvements will be beneficial not only to those involved in the sector but to the economy of the region as a whole. The results is hoped to have some implications towards the conquest for performance improvement for efficiency, both from those who are actually involved in the logistics sector and from policy makers and concerned authorities in Mizoram in general and Aizawl City in particular.

 

REFERENCES:

1.       Tokar, T. Behavioural research in logistics and supply chain management. The International Journal of Logistics Management. 2010; 13(6): 30-41.

2.       Lambert, DM et.al. Fundamentals of logistics management. McGraw-Hill International Editions. 1998.

3.       Census of India. Mizoram. 2011.

4.       State Industrial Profile of Mizoram 2014-2015. Available from http://dcmsme.gov.in

 

 

 

 

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