MARIT. POL. MOMT., JANUARY-MARCH 2004 Taylor & Francis vot. 31, No. 1, 47-67 eee A logistics and supply chain management approach to port performance measurement KHALID BICHOU and RICHARD GRAY* Centre for International Shipping and Logistics, Faculty of Social Science and Business, University of Plymouth, Plymouth PL48AA, Devon, UK Although there is widespread recognition of the potential of ports as logistics ‘centres, widely accepted performance measurements for such centres have yet Lo be developed. The essence of logistics and supply chain management is an inte- zgrative approach to the interaction of different processes and functions within @ firm extended to a network of organizations for the purpose of cost reduction and customer satisfaction [I]. The logistics approach often adopts @ cost trade-off ‘analysis between functions, processes and even supply chains [2]. This approach could be beneficial to port efficiency by directing port strategy towards relevant value-added logistics activities. This paper seeks to show that through conceptual- izing ports from a logistics and supply chain management approach, itis possible to suggest a relevant framework of port performance. A proposed framework is tested in a survey of port managers and other international experts 1. Introduction Measures of port efficiency or performance indicators use a diverse range of techniques for assessment and analysis, but although many analytical tools and instruments exist, a problem arises when one tries to apply them to a range of ports and terminals. Ports are very dissimilar and even within a single port the current or potential activities can be broad in scope and nature, so that the choice of an appropriate tool of analysis is difficult, Organizational dissimilarity constitutes a serious limitation to enquiry, not only concerning what to measure but also how to measure, Furthermore, the concept of efficiency is vague und proves difficult to apply in a typical port organization extending across production, trading and service industries. Ports are complex and multipart organizations in which institutions and functions often intersect at various levels. This paper distinguishes between logistics, trade and supply channels, The interaction among these three channels makes it difficult to identify which institutions are (or could be) performing what functions in the port system. The logistics channel consists primarily of specialists that facilitate the efficient progress of cargo through a supply chain (e.g. shipping lines, freight forwarders). Both the trade channel and supply chain are associated with ownership of goods moving through a system of interacting organizations, with the difference that the trade channel is normally perceived to be at the level of the sector or * Author for correspondence. e-mail: rgray(@plymouth.ac.uk Mavitne Poley & Mauagenent !SSN 0308-8839 prinyISSN 1464-5254 online (9 2004 Taylor & Fi hsv tandi'co.uk/journals ‘ON! To. 1os0/030K485037000174454 nis Lid48 K. Bichou and R. Gray industry (€. the oil trade) and the supply chain at the level of the firm. It is impor- tant to make this distinction because, although there are industry-wide conventions based on fuctors such as the nature of the product or the structure of the industry, it is also true that individual companies have their own corporate culture based on a variety of factors. Industry-wide conventions are often associated with regulation, enforcing standards, reducing uncertainty, information exchange, supporting mutual interests, or developing a common identity [3]. Traditionally, bulk maritime trans- port tends to be analysed by trade (crude oil, iron ore, fertilizers, etc.) and even smaller consignments are merged into a ‘trade’ category traditionally called ‘general cargo’. Industry- or trade-wide markets have existed for centuries. For example, the origins of the London Metal Exchange can be traced back to 1571 [4] and the Baltic Exchange was founded about 250 years ago [5]. More modern developments attempt to enhance the supply chain performance of individual members at the trade channel level making use of developments in e-commerce. For example, since 2000, major car manufacturers have combined efforts to form a single global business-to-business supplier exchange working with manufacturers, suppliers and industry trade groups to ensure supply chain efficiency (6). Nevertheless, much literature on supply chains is oriented at the level of the firm [7]. A supply chain is defined as a set of firms that pass materials forward [8]; an alignment of firms that brings goods or services to market [9]; or a network of organizations that, through upstream and downstream linkages, produce value in delivering products or services to the ultimate consumer [10]. The emphasis on the level of the firm means that the term ‘supply chain management’ is frequently used, although it is difficult to find a universally agreed definition because it has emerged from a number of disciplines [1-12]. Indeed, the terminology has not yet stabilized and alternative expressions such as network souscing, supply pipeline management, value chain management, and value stream management are also used [13]. Products or services can move through or along networks, channels, chains, pipelines or streams. Ports have an important role to play in the integration of all three types of channel. There are many organizations occupied (or potentially occupied) with logistics and supply chain integration within and around ports, mainly in the role of logistics channel facilitators (ocean carriers, land-based carriers, port operators, freight forwarders, port agents, ete.), but also as public institutions such as Customs authorities. This paper seeks to adopt an approach that incorporates within a valid framework of analysis existing measures of port performance and efficiency, the association of ports with logistics and supply chain management, and appropriate measures of logistics and supply chain management efficiency. 2. Background literature 2.1. Port pecformance and efficiency UNCTAD [14] suggests two categories of port performance indicators: macro performance indicators quantifying aggregate port impacts on economic activity, and micro performance indicators evaluating input/output ratio measurements of port operations. In this paper, we focus on the micro level. Various references, particularly UNCTAD monographs, provide a range of port indicators by ratio. type and category of operation [see, for example, 1518]. There are many ways of measuring port efficiency or productivity, although reducible to three broad categories: physical indicators, factor productivityA logistics and supply chain management approach 49 indicators, and economic and financial indicators [19]. Physical indicators generally refer to time measures and are mainly concerned with the ship (e.g. ship turnaround time, ship waiting time, berth occupaney rate, working time at berth). Sometimes, co-ordination with land modes of transport is measured, e.g. cargo dwell time or the time elapsed between cargo being unloaded from a ship until it leaves the port. Factor productivity indicators also tend to focus on the maritime side of the port, for example to measure both labour and capital required to load or unload goods from a ship. Similarly, economic and financial indicators are usually related to the sea access; for example, operating surplus or total income and expenditure related to gross registered tonnes (GRT) or net registered tonnes (NRT), or charge per twenty foot equivalent unit (TEU). Port impacts on the economy are sometimes measured to assess the economic and social impacts of a seaport on its respective hinterland or foreland. The results may be provided in port statistics, e.g. the port of Rotterdam [20] or by research institutes such as ISEMAR in France [21]. The traditional port measures focus on sea access rather than land-side connec- tions, and there is a need for better measurement of land-side efficiency. For example, on ast Coast North America (ECNA) port productivity has been stagnat- ing, particularly in the context of land-side operations [22]. Many ports, particularly those in urban areas, have inadequate land-side connections. Land-side efficiency also needs to be addressed when ways are sought to expand port capacity [23]. Port capacity is difficult to measure or even to define. It is, nevertheless, likely to be easier for a port to make better use of existing capacity rather than subsidize new transport infrastructure [24]. A logisties and supply chain approach may achieve better use of port capacity. Port activities are usually measured by cargo output or through production functions. In the first case, the assessment of efficiency is based either on the contribution of a single factor productivity to port throughput such as output per worker [25] or output per wharf [26], or on the measurement of total cargo handling productivity (27-28], where performance evaluation equates port opera tions to the production function [29-30]. Much empirical research falls under this category and seeks to compare actual output to optimum output using the frontier method [31] Frontier models have assessed port efficiency both within a single country [32] and across different countries [33]. Recent models propose or use data envelopment analysis (DEA) to evaluate port efficiency [34-37]. A detailed review of such tech- niques for measuring port efficiency is provided by [38]. Such techniques do not always provide consistent results. For example, Cullinane et af, [39] suggest that the size of a port or a terminal is positively correlated with its efficiency, whereas Coto-Millin et al. [40] found that larger ports are more likely to be economically inefficient. Such apparently cont and that the complex structural organization of ports is a major obstacle to con- ducting valid port performance measurement and comparison. Another limitation of the frontier model literature is that it has focused mainly on container terminals. In fact, this is a common denominator for much of the literature on port efficiency and performance measurement. Some approaches look at ports as business organizations with performance ‘measurement based on profits. For instance, Léonard [41] analyses port performance and comparison from a value-added perspective. “Value-added’ in this context is defined as the difference between port revenues and port costs, and varies according50 K. Bichou and R. Gray to ship and cargo types. An index adjustment with coefficients for each ship/cargo type is produced. Despite its originality, Léonard’s model limits port activity to quay-side operations (i, ship services and cargo handling) neglecting other port- related activities. It also assumes that all ports undertake the same pricing and marketing strategy based on a universal estimation of ship/cargo-type value. The techniques and methods mentioned above largely ignore aspects of logistics and supply chain integration relevant to a port's role and potential in the modern international trading system. Conceptual and organizational differences explain the variety of measures, but also underline the difficulty and complexity of port perfor- mance measurement and comparison. As long as there is no unanimously accepted approach to the roles and functions of ports, the subject of what and how to measure will remain debatable. 2.2. Review of port literature relevant to logistics and supply chain management In the port and shipping literature, few authors have addressed the issue of logistics and supply chain management within ports and across their network of organi- zations, and many published works adopt a fragmented approach to port operations. Although current literature recognizes the role of ports as integral components of distribution systems, many studies disaggregate total port operations and focus on single or a few clements of port activity. Literature on port logistics has only developed over the last two decades or so, for example by UNCTAD through a series of monographs on port management and operations, or the World Bank’s ‘Port Reform Tool Kit’ describing recent trends in port management and suggesting a framework for port reform and development. UNCTAD defines ‘third generation’ ports as those offering value-added services (e.g. warehousing, packaging) in addition to cargo handling, and ‘fourth generation’ ports as those that are separated geographically but with common operators or administration, such as by global multi-port companies [42]. In an effort to assess the logistics potential of ports, Harding and Juhel [43] distinguish between general logistics services (GLS) and value-added activities or logistics (VAL), with the latter being a common feature of containerised and general cargo. They highlight the increasing role of ports as ‘distriparks’ or dedicated areas for both GLS and VAL. They also point out the future of inland logistics centres or dry ports (e.g. inland container depots) for logistics operations that do not need to be carried out in the seaport area. Much of the literature advocating the future of ports as logistics centres highlights their nodal role in the changing patterns of maritime and intermodal transport (c.g, hub and spoke systems), but overlooks logistics integration of the various activi- ties performed within the port organization itself, Most published articles address separately different aspects of port management (cost-analysis, marketing, strategic planning, etc.) without incorporating them into an integrated logistics framework of customer service, total costs or trade-off analysis. For instance, the question of the total cost that a cargo bears throughout different port operations up to the final customer or user does not appear to have been discussed in the academic literature, The same applies to competitive benchmarking between the management of seaports and that of other entities with similar operational features, e.g. airports or regional distribution centres [44, 45], For some [46-47], this fragmented approach is mainly due to the complex organizational structure and management of ports, although recent port privatiza-A logistics and supply chain management approach St tion schemes may have made it relatively easier to apply an integrative logistics approach to port operations, Fleming and Baird [48] consider that the lack of a competitive community spirit’ among different port actors (¢.g. customs authorities) is largely behind the difficulty of managing activities from a logistics perspective. ‘The complex organizational structure of ports has always been a central issue in most aspects of port management, and probably constitutes the major obstacle to the development of a comprehensive conceptual framework of port logistics management. Supply chain management extends the principle of logistics integration to all companies in the supply chain through strategic partnerships and co-operation arrangements [49]. Some regard the next challenge of supply chain management is to manage ‘pliant flows’ so as to ensure that all parts of the chain ‘oscillate together’ in an holistic fashion [50]. In similar vein, others stress the need for ‘agile’ supply chains in order to survive in a rapidly changing global environment [51]. Paixao and Marlow advocate the application of ‘agility’ to the port environment, proposing that ports should be proactive rather than reactive along supply chains in a modern Blobalized world economy [52] In general, only two concepts that can be associated with supply chain integration in the context of ports, namely intermodalism and organizational integration, appear to have captured widespread attention in the academic community. The word ‘intermodalism’ is usually associated with the inter-links between different transport modes and nodes, not only as a technology but also as an interorganizational process. Thus, there is a call for a framework of systems thinking and process integration for intermodalism [53], and for organizational integration and partner- ship prior to achieving an effective intermodal system [54]. As far as seaports are concerned, most studies associate intermodal development with aspects of container port management [55-36]. Morash and Clinton studied the role of intermodal capabilities in international supply chains through a comparative analysis of the USA, Japan, Korea and Australia [57]. Their survey shows that in a deregulated and global environment, the contribution of the intermodal function in international supply chains takes on more importance in countries where organizational efficiency and co-operation is highly achieved. Organizational co-ordination is of paramount importance to any successful intermodal planning and management [58]. For shipping and port businesses, highly competitive logistics channels are required to compete against other forms of intermodal transport such as landbridges. Developments in patterns of sea-borne trade (e.g. round-the-world trips, triangular routes, hub and spoke systems) are typical examples of partnership arrangements that are beneficial to all members in the intermodal chain. In the context of organizational integration, we are in an era of substantial restructuring of the logistics channel [59]. Typical examples include carrier's owner- ship andJor management of ports or terminals, freight forwarding agencies, logistics providers, and even IT and e-commerce companies [50-61]. Sometimes it may be difficult for members of the international logistics channel to integrate. For instance, integration between shipping lines and ports is difficult to implement if both parties try to optimize the use of their respective assets (ships versus berths and warehouses) by transferring costs to each other. Other types of international logistics channel conflict may be between freight forwarders and shipping lines or between freight forwarders and ports. Taylor and Jackson [62] rank ocean carriers as the most dominant in the current organization of international logistics channels for container52 K. Bichou and R. Gray and intermodal transport, whereas logistics channels of bulk commodities are more likely to be controlled by shippers or their agents. Ports rarely control logistics channels although they are key institutions in international shipping and logistics. Some may argue that the emergence of ‘global port operators’ (GPOs) is an effort by ports to control logistics channels, but GPOs often have other business interests, including as shipping lines. In any case, the nature of ports as non-movable assets facing the growing number of footloose arrangements (both from shippers and shipping lines) does not encourage a close collaboration nor a long-term partnership among channel members in the port and shipping industry. Nevertheless, ports could be more proactive in the supply chain (63], and, despite channel conflict, ports should be seen as key elements in value-driven chain systems, contributing to supply chains through the creation of competitive advantage and value-added delivery [64]. Robinson’s {65] model of the port value chain, albeit limited only to the logistics channel, depicts various flows and relationships in a typical port organization. They range from completely fragmented systems of shipping line, shipping agent, customs agent, stevedore, freight forwarder, inland transport, etc. to a fully functionally integrated system controlled by ‘mega-carriers’. 2.3. Review of relevant logistics and supply chain measurements Many techniques of logistics measurement adopt ratio instruments of financial reporting and productive efficiency. For instance, logistics performance is assessed through productivity and utilization measurement [66], or by applying the DEA model to international channel productivity [67]. Most of the available logistics ‘measurements correspond to a firm’s intemal functions and processes. For example, a report by the European Logistics Association [68] arranges logistics performance measurements into eight groups, but does not organize them into an integrative and comprehensive framework. Measurement techniques that have gained recognition from logistics professionals include activity-based costing (ABC) and total cost analysis (TCA). The former proposes an evaluation of the costs of a firm’s activities based on the actual resources and time consumed to perform them [69], whereas the latter proposes a trade-off analysis among different internal functions to minimize the total cost [70], while at the same time maintaining customer satisfaction [71] ‘The use of TCA is extended to external logistics performance by integrating various flows and processes in the supply chain [72], In the area of supply chain management, the academic literature has been less successful in providing valid tools for performance measurement [73], and most performance measurements have been initiated by practitioners or consultants rather than through academic research. Exceptions include Kaplan and Norton [74] who combine several dimensions of performance measurement. They provide a linear cause-and-effect model claimed to serve both measurement and man- agement objectives. The Supply-Chain Operations Reference (SCOR) initiative undertaken by the Supply-Chain Council (SCC) attempts to integrate process re- engineering, benchmarking, and process measurements into a cross-functional framework [75]. Holmberg’s model [76] proposes a conceptual framework of per- formance analysis throughout a systems approach to supply chain measurement. Process benchmarking is a technique that proposes the collaboration of all members in the supply chain for the purpose of process comparison and per- formance analysis [77-78]. Institutions at the trade channel level can play a valuableA logistics and supply chain management approach 53 and neutral role in benchmarking. Any valid performance model, within a logistics and supply chain management context, should integrate different measures of internal activities and link them to measurement activities of other entities in the supply chain [79]. 3. Towards a logistics and supply chain approach for ports From the above discussion, it appears that there may be a methodological difficulty in linking supply chain performance measurements to ports. Traditional port management is often typified by institutional fragmentation and conflict with other members of the logistics channel, whereas the supply chain management philosophy advocates process integration and partnership. A systemic approach to Port performance is required. The systems approach should allow a neutral and objective perception of a problem’s definition and investigation, and particularly helps in overcoming the obstacles of channel identification and conflicting stand- points. However, despite successive attempts to apply the systems approach to operational problems in shipping and ports (e.g. (80-82)), very few would claim to apply the concept of systems thinking to the whole port organization [83] The role of ports exceeds the simple function of services to ships and cargo. Apart from their role as the traditional sca/land interface, ports are a good location for value-added logistics, in which members of different channels can meet and interact. Thus, the port system not only serves as an integral component of the transport system, but is also a major sub-system of the broader production and logistics systems, Perceived from an integrated logistics, trade and supply channel approach, ports can claim further roles and dimensions, From a logistics standpoint, the port i & very important node since it serves as an intermodal/multimodal transport inter~ section and operates as a logistics centre for the flows of goods (cargo) and people (passengers). From a trade channel perspective, the port is a key location where channel control and ownership can be identified and trading take place. The port not only links outside flows and processes but also creates patterns and processes of its own. At this level, ports are one of the very few networking sites that can bring together various members of the supply chain. This new approach, illustrated in figure 1, extends the traditional port system to an ‘integrated channel management system’ where the port stands as a key location linking different flows and channels with their members Figure | represents the current and potential interactions of the three classes of channels with a port and assumes the existence of four flows or processes (physical fiows of goods and cargo, capital flows, payment flows and information flows) common to all commercial cargo ports. In figure | the integrated port management system refers to the aggregate management of (he ‘port community’ regardless of the specific details of port ownership and organization. Often, the port authority fits perfectly in this role (for service and tool ports), but with current trends in landlord organizational structure the port authority may be more concerned with property and estate development than goods transfer or cargo-flows management, Following recent strategies of vertical integration by carriers (e.g. into terminal leasing and ownership), shipowners are sometimes associated with port management. Shippers are also sometimes perceived as shipowners (industrial or bareboat shipping) and even as port managers (dedicated oil or car terminals). In these cases, alll such institutional types are part of the integrated port management system. Other external members influence the port system without being an integral part of it, e.g. business34 K. Bichou and R. Gray External world Integrated port system Resource locaton Port davaopment ‘anid strategie planning ort manager ‘Current interactions: T Capital ‘Trade channels (ee (cerca providers) Information flows Logistes channels (shipowners, Intermediaries, tandslao fe transport J Figure 1. Interactions of channels in an integrated port management system. associations, public regulators, trade unions and financial institutions. Actors and operators within the port community system (stevedores, multimodal transport operators, logistics providers, etc.) are sub-members of the port management system, and not part of the external world Figure 2 links different components throughout a chain of influence and relation- ships. The upper part of the model shows external drivers of change and associates them to management concepts of logistics (internal integration) and supply chain management (external integration) within the context of an integrated port manage- ment system. The lower part of the model depicts core management disciplines, both operational and strategic, and traces their contribution to performance management systems. Note the links between logistics and operations on the one hand, and supply chain management and strategy on the other hand. ‘The key performance indicators (KPI) for ports form the focal point of the model and integrate both the port management system and the performance management system, Since the objective of our investigation is to propose a valid framework of port efficiency and performance management, a combination of the two components should constitute the central issue of analysis. The next stage is to develop a model of port performance measurement as an interim stage on the way to developing a working KPI model for ports (see figure 3).A logistics and supply chain management approach 55 ¥ Pors as logistics cant ‘Developments of production — ; ‘manufacturing and Evolutions in global | sistaution production and rade | ‘management systems channes | a Total costs ‘Siuctural changes in “rade-off analysis Inlemationalfoaisics Channel managementand | | Modem inventory f inter-firm process: systems Intermodalism i integration Gustomer service Vertical integration ' Outsourcing : + Logistics patterns ot | | ‘Extesnal integration maritime transport i ‘Supply chain mgt Tntemal integration | ‘Strategie KPI model for ports ‘management Valu to the | Performance janagement system ‘customer raanagerment ey (Operational management - (Operational productivity Figure 2. Influences on a key performance indicator (KP!) model for ports. 4. Methodology 4.1. Action research The methodology adopted for this study works within the action research paradigm, Action research is a process suitable where change is the main research subject, and the researcher participates in the change process. It requires a close relationship and collaboration between practitioners and researchers, made possible in the research described in this paper when one of the authors undertook a short-term appointment with the World Bank. Action research is most suitable for technique development or theory building, but is less suitable for hypothesis testing [84]. Its advantage over traditional survey approaches is that the latter tend to be past-oriented or ‘snap- shots’ [85], whereas action research is a forward-looking process with implications beyond the immediate project. Action research is undertaken by using an appropri- ate intervention technique analogous to experimentation [86]. The technique used in this approach is to present port managers and other experts with a model of port performance for examination and assessment by them, leading to an improved model, This technique is supported by # questionnaire of port managers focusing on performance indicators. 4.2. Exploratory investigation into feasibility of port performance model As an exploratory investigation, individuals with different types of expertise related to ports were approached to comment on the relevance and feasibility of the56 K. Bichou and R. Gray Logistics 1. Design intornal logistics process 2. Curent performance Current sequence of por operation Poriormance = Prof and acivities (ship-ype and cargo-ype) Performance A 4. Performance B 3. Improversent of intemal procs TCAWADIcustomer ‘Aggregate — petformance SUPPLY CHAIN [ & Design supply chan procoss 6. Current performance By cargo: logistics channel Performance By trade: rade channe! | outputpreit By cusiomerssupplirs: supply L chain _ ‘Supaly chain management 7. ldently competive | 8. Process aenchmarking _ channels 8. Colaboration and garnership Within the port market 7 Within the port industry Beyond tho port sector = ¥ aa | 11. New 10. New channe ertormance | organization Perfomance D Figure 3. Interim model of port performance measurement (see also Appendix). proposed model, shown in figure 3 with covering notes (see appendix). The partici- pants consisted of three panels of experts, namely: Poris Panel (1). 45 employees drawn from a sample of 60 ports world-wide, of which 35 ports have completed projects financed by the World Bank. Continents or regions represented by the sample were: for World Bank financed ports (Africa, Asia, Central and Latin America, Europe); for other respondent ports (Australasia, Europe, Asia, North America). Jaternational Institution Panel (2). Fourteen employees of international institutions (mainly World Bank Group) drawn from a sample of seventeen originating from eleven countries. Academics and Consultants Panel (3). Fourteen academics and other experts: drawn from a sample of seventeen academics, three consultancy firms, and three independent (freelance) consultants originating from eleven countries. ‘The nature and limitations of the research inquiry shaped the size of each panel of experts. The number of qualified participants, especially in the academic and con- sultant panel, is very limited world-wide and budget consiraints did not allow the enlargement of group members to more than 100 or so participants. Out of 57 ports that have completed projects financed by the World Bank Group (WBG) betweenA logistics and supply chain management approach 37 ‘Table 1. Number and percentage of responses by each panel of experts. Number of Number of Responses as Panels of experts participants responses__pereentage Ports financed by the WBG 38 31 89 Other sampled ports 25 14 56 Total Panel 1 0 45 75 World Bank staff and consultants B 12 2 IMO expert 1 1 100 UNCTAD experts 2 I EY OECD expert 0 0 Total Panel 2 "7 4 82 Academics 7 12 a Consultants 6 2 3 Total Panel 3 2 4 6 Grand Total B B 1985 and 2000, 35 ports were contacted. 25 other ports were also approached to reflect a wider variety of organizational, operational and managerial features of ports. ‘A combination of interviews and questionnaires were prepared for each panel of experts, consisting of: © An on-line questionnaire was designed exclusively for port managers in order to investigate theit perception of logistics concepts and processes. In some cases, surveys were conducted and administered over the telephone. ¢ A model (see figure 3) was examined and assessed by all participants. @ Extensive telephone and face-to-face open interviews were used to contact Panels 2 and 3. for Both open-ended and closed questions were used depending on the type of mation required. The high response rate (73%) is attributable to the careful selection of partici- pants showing a direct interest in the subject of inquiry, and in particular to the established contact base through the WBG. Repeated telephone calls and emails helped to raise the response rate. The varying degrees of association of 43 partici- pants (59%) with the WBG could constitute bias, but it was considered acceptable given the wide range of ports, countries and types of expertise represented by the participants 5. Analysis and results 5.1. Questionnaire responses and analysis The questionnaire investigated current techniques of port performance measure- ment, The 45 respondent ports confirmed the regular use of combined indicators for both internal and external performance evaluation. As shown in table 2, financial measures are the most commonly used, closely followed by throughput measures for internal performance, whereas productivity and economic-impact indicators become more prominent for external comparison with other ports. Most ports were not satisfied with the current indicators (see table 3). However, when asked about logistics techniques for performance measurement58 K. Bichou and R. Gray ble 2. Respondents? cumulative ranking of performance indieators by frequency of use. Internal Exieral Cumulative performance comparison responses Number of % of Number of % of Combined % of , ‘mentions total mentions: total mentions —_ grand total Financial indicators aa 383 35 23279 31 ; 315 Throughput indicators 37 m2 43 309 80 Productivity indicators 4 209 % 252 059 23.2 Economic-impact 7 64 5 i302 12.6 indicators, Others 3 26 1 07 4 16 Total us 100 139100 254 100 Table 3. Satisfaction with current performance indicators. Replies % Very satistied| 3 nd Satisied 3 67 Neither one nor the o: B 289 Dissatisfied 16 35.6 Very dissatisfied & 178 Total 45 100 Table 4, Use of logistics techniques for performance ‘Measurement and management. Replies % 2 44 Often 7 156 Sometimes ui 244 Very few times 15 333 Never 10 222 Total 45 100 and management over half of the ports replied that they use them very seldom or never (see table 4). Although responses may reflect a lack of interest in logistics operations and management, an alternative explanation may be the difficulty in understanding or applying logistics concepts and measurement techniques. Respondents were also surveyed about aspects of channel relationships and co-operation, being asked to recognize and rank their customers/suppliers out of seven categories of organizations in order of importance. The cumulative score (high = most important) of rankings shows shipping lines as most important, but closely followed by freight forwarders and NVOCCs, shippers, inland transport providers and port operators (sce table 5).A logistics and supply chain management approach 59 Table 5. A rating seale analysis of participants’ main customers and suppliers. ‘Type of customer Cumulative ranking score Cumulative ranking score supplier (numbers) 3) Shipping tines 254 20.1 Freight forwarders and NVOCCs 236 18.7 Shippers 235 186 Tnland transport providers 202 16.0 Port operators, 198 15.7 General public 33 66 Others (e.g. public authorities) 2 41 Total count 1260 100 The fact that shipping lines do not dominate in the rankings suggests a sirategic commitment of ports as a group to diversify their client portfolio, and be less reliant on the decisions of shipping lines. This was confirmed by 63% of respondents regarding themselves in competition with their suppliers (mainly shipping lines and freight forwarders), and many consider this competition to focus on the cost/ price and sometimes the marketing of port services. Furthermore, other ports (almost 21%) claim to act in conflict with their major suppliers and customers. In this context, ports expressed their concern about the current practices by shipping lines and freight forwarders who may suddenly change the port of call or operation sometimes without notice. Ports take a particular interest in the recent mergers and acquisitions in the shipping and port industry, and the resulting footloose operations. Nonetheless, the majority of ports (85%) expressed their interest in collaborating with other logistics channel members and developing current co-operation arrangements (e.g. information sharing through EDI) to a more advanced partnership to the benefit of all participants. 5.2. Comments by expert panels on model validity Figure 3 and the appendix [87] present a model applying logistics and supply chain management concepts to port performance measurement. The model was sent to and discussed with different participants to assess its validity and feasibility within the context of port operations and management, Responses varied in many aspects although all considered the model valid as a “first initiative’ that looks at port efficiency from the perspective of logistics and supply chain management. The follow- ing sections present and analyse the responses by each of the three expert panels, 5.2.1. Panel 1: Ports. Almost all respondent ports have measured efficiency in a way similar to that of Performance A in the model. However, about half (53%) mentioned the problems of accountability and process continuity in performance control and management. Members of the port community still disagree on which actor or operator should bear the responsibility and authority to collect data, mea- sure and assess the overall port performance. Some ports do not know where their logistics process (or activity sequencing) starts and particularly where it ends, simply because many activities are at the interface between the port area and the outside world (e.g. industrial parks). For further stages of performance measurement (stages 3 to 11 in figure 3), most respondents approved of the logistics and supply chain management integration60 K. Bichou and R. Gray despite their unfamiliarity with concepts and techniques introduced in the model. 31 ports (69%) considered that Performance B would be an improved measure of port performance. Of these, 18 ports already applied a variation on Performance B to one or several segments (cargo type, ship type, etc,) while the remaining 13 ports only approved the method without implementation, The continuous improvement of internal processes through total cost and trade-off analyses is of interest to ports, and many support the use of TCA as a tool for the measurement of port's aggregate efficiency, Even so, over 90% of replies in support emphasized the need for appropriate organizational structures or integration of the port community prior to implementation. With respect to channel organization (stages 6 to 11), 87% of respondent ports suggested major obstacles in successfully designing and managing their channels. Some ports attributed these limitations to the lack of reliable data and information while others explain such a problem by the complexity of channels and the confusion that surrounds their categorization. Many respondents admitted difficulty in under- standing the complex and changing logistics and trade channels, and that in most cases they do not participate in the design and management of channels. Nevertheless, nearly all ports appreciated the concept of channel organization and supported shared management with other channel members bused on long-term partnership arrangements. There were 102 citations of the word ‘partnership’ and related terms, Performance measurement through supply chain management was even more difficult to understand and apply. Most respondents could not compute quantita~ tively the overall channel output (performances C and D) nor had they been able to use and apply some of the proposed techniques of analysis such as process bench- marking. In their comments on the measurement of supply chain performance, 19 ports (42%) approved the method, 9 (20%) considered it impossible or too difficult to implement and 17 ports (38%) remained undecided about the validity and prac- ticability of the proposed techniques. Such a high proportion of undecided responses suggests that many ports are unfamiliar with the concepts and practices of channel organization and management. Subsequent informal communications with 25 ports (out of the 45 total port respondents) confirmed these results. There was substantial misunderstanding of the concepts or techniques of process management, channel output and bench- marking, In conclusion, it appears that most ports are already aware of their logistics Potential and try, although sometimes unsystematically, to apply logistics techniques for performance measurement and analysis. Nevertheless, they lack an understand- ing of supply chain management concepts and consequently an ability to apply the related techniques to identify, manage and assess channel output and performance. 5.2.2, Panel 2: International institutions. The procedure of data collection and analysis for the second panel was very demanding and time-consuming, conducted through extensive telephone and face-to-face interviews. The panel's responses suggest a general awareness of the potential for ports in the evolving global logistics climate. All respondents supported the application of a logistics and supply chain approach to port management and performance measurement. They pointed outA logistics and supply chain management approach 61 the need to generalize these concepts beyond container-related activities to all types of ships and cargo movement, All respondents considered the proposed technique for performance evaluation through internal process mapping (stages | to 4 of the model) particularly interest ing. They consider logistics activity sequencing and segmentation, if applied within the framework of the port system an innovative tool of analysis. This reflects a frequent criticism of conventional financial techniques, where, for example, the orig- inal cost and profit estimates of most World Bank Group port projects carried out between 1950-1990 were lower than expected. This is due to intense competition among contractors as well as inaccurate traffic forecasting. Such biased estimates could not measure real improvement in port efficiency. The proposed analytical framework has the advantage of computing the real performance by sequencing port operations (Performance A) and continuously improving them (Performance B). In this way, every project seeking to improve port organization and management can be assessed through the measurement of the real performance before and after the project’s implementation. Respondents, however, stressed the need to quantify further the proposed tools and instruments of performance measurement. In addition, respondents suggested training assistance and guidance such as IMO model courses and UNCTAD monographs prior to using, applying and generalizing any of the proposed techniques, The proposal to design, manage and improve supply chain processes in which ports are active members appealed to almost all participants (93%) with only one respondent questioning the relevance of the whole approach. The suggested tech- niques for channel efficiency measurement (performances C and D) would only be practicable with adequate information access and sharing among different channel members. Partnership and collaboration seem to be the key elements for the success of any performance improvement and channel management. Respondents stated the need to expand and develop current co-ordination arrangements between channel members in international shipping and logistics to a closer partnership aimed at reducing total distribution costs and increasing the efficiency of the integrated logistics system 5.2.3, Panel 3: Independent academics and consultants. ‘The response rate for this group was lower, with more than half of responses commenting on aspects other than those primarily requested, e.g. the model's design and presentation. Respondents largely (83%) supported the contents and objectives of the proposed model, but three key conditions prior to implementing or generalizing the proposed model emerged from this group. First, it is necessary to quantify the proposed techniques of performance mea- surement. In order to assess performances C and D itis essential to provide the port manager with quantifiable and visible ratios and formulae capable of designing, correlating and computing the contribution of both individual and aggregate chan- nel output. Second, respondents cast serious doubts on the usefulness and relevance of segmenting trade channel processes since the real contribution of seaports in international trade channels is not that obvious. Finally, the different coacepts, procedures and techniques introduced in the proposed model should be both further detailed and simplified. Port managers are not very familiar with logistics and supply chain concepts, nor ate they willing to apply them without a clear and detailed description. In this regard, some proposed changing the layout of the proposed62 K. Bichou and R, Gray model into cyclical diagrams with inter-related stages and procedures evolving around evaluation, implementation and re-evaluation. 6. Conclusions The research aims at conceptualizing the port system from the perspective of logistics and supply chain management, and suggesting a valid framework of efficiency mea- surement capable of reflecting the logistics scope of port operations and complement- ing, if not replacing, the conventional methods for port performance measurement and management biased towards sea access, By adopting a structured approach and methodology and involving a range of interest groups, the authors tried to ensure a valid and reliable inquiry given the time and cost constraints The results show a common interest in logistics and supply chain management concepts across the various panels of experts. Respondents from the port group showed a lack of familiarity with logistics and supply chain management concepts, especially those related to logistics integration, benchmarking and channel design, although there is common recognition of ports as key logistics and distribution centres. An important conclusion relates to channel control and management. Respondent ports mention the problems of information sharing and highlight the need for collaboration or partnership arrangements with other logistics channel members. This is in a context of an increasing rate of mergers and acquisitions favouring vertical integration, and a growth of footloose practices by shipping lines. Despite traditional conflict relationships between channel members in inter- national shipping and logistics, there is a need to expand the scope of the inquiry beyond seaports to other logistics channel members (e.g. shipping lines and freight forwarders) in order to investigate their perceptions and potential contribution to a shared management of international supply channels, Academics and consultants commonly expressed this view. Finally, a logistics and supply chain management approach to ports may prove of great benefit in underlining the strategic role and future potential of ports within the framework of international business in general. It can serve particularly as a valid analytical framework allowing an unbiased assessment of port performance measurement and management. The enquiry described in this paper stands as an initiative requiring further research and investigation. Acknowledgements Acknowledgements to the Ports and Logistics Division of the World Bank for their assistance in part of the empirical study described in this paper. Appendix Interim model of port performance measurement (Numbers I-11 refer to boxes in figure 3.) Logistics performance (J) Designing the internal logisti tions), By ship-type calling at the port and by cargo-type moving through the port. (2) Assessing current performance Performance A = Profit = Revenue — Cost process (sequence of port activities and operaA logisties and supply chain management approach 63 where Cost (C)=total cost [Capital, labour, time (expressed in cost/monetary unit), other expenses, ete,} Revenue (R) = revenue earned from a particular sequence: For cargo sequence: R= revenue from services to cargo (handling rates, ware- housing, consolidation, etc.); For ship sequence: R= revenue from services to ship (mooring, pilotage, whart dues, bunkers, ship repair, etc). (3) Improving internal process or activity sequencing through a combination of three logistics performance measurements: Total Cost Analysis (TCA): reduction of the total cost relative to the whole Process or sequencing, even if this may lead to an increase of individual costs of some operations/activities, Value-added (VAD): increasing profit by offering new services to ships and cargoes. Note that any revenue from a proposed service (value-added) should be higher than it costs. Customer service: implementation of TCA and VAD should always take into account the satisfaction of a certain level of customer service (as defined by the port). (4) Re-designing internal process and determining new performance Performance B= new performance (from new sequencing) ~ Performance A =new profit — former profit (as calculated in 1) Supply chain performance (5) Designing supply chain process (sequence of activities across and beyond the port): Identify logistics and supply channels By cargo (trade channel): origin and destination of a cargo-type that passes through the port By mode (logistics channel): patterns of a particular trade or maritime routeing that involves the port (hub/feeder, triangular, end-to-end, round-the- world, etc.) By customer/suppliers (supply channel): channels that involve the main customers/suppliers of the port. (6) Assess current channel performance Performance C= Port profit from each channel (1) Identify competitive channels Investigate other competitive channels (by cargo, logistics, and/or customer/ supplier}: Of other ports within the hinterland or the foreland (extent of the port market), Of other ports worldwide, Of other similar channels within the seaport industry (e.g. involving airports, regional distribution centres, ete.) (8) Process benchmarking Benchmarking: comparison with best-class processes, ie. channels as identified in (6) ly competitive64 K. Bichou and R. Gray (9) Investigate partnership arrangements. Collaborate with other channel members (e.g. shipowners, shippers, ete.) to optimize channel output. (10) Propose new process/channel organization in the light of process benchmarking and partnership arrangements. (11) Assess new channel performance. 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