Calculating Logistics Costs
APPENDIX
APPENDIX. CALCULATING NATIONAL LOGISTICS COSTS
Logistics costs are an important factor affecting the competitiveness of both firms and nations. Firms can enhance their market competitiveness by reducing their logistics costs, thus lowering the total costs of goods and services. Greater market competitiveness of a nation’s firms can then give rise to greater national industrial competitiveness on a global scale. Total logistics cost analysis is the key to managing the logistics function. It is important that management consider the total of all logistics costs. Controls should be instituted to minimize the total costs of logistics rather than to minimize the cost of each component. However, determining which component of logistics costs to reduce can be problematic, since there is a trade-off between cost components. In fact, attempts to reduce the cost of individual logistics activities in isolation may even lead to greater total logistics costs. Thus, at the level of the firm, attempts should be made to integrate the logistics system so as to minimize total logistics costs.
From the perspective of government policy, however, effective cost reduction in the national logistics system can be accomplished only by identifying individual components.
Consequently, the calculation of individual logistics cost components has been critical to nations in their efforts to make appropriate policy decisions.
In this appendix, the concept of logistics costs is first defined. This is then followed by an overview of the national logistics methodologies of the U.S. and the Republic of Korea.
A.
The concept of logistics costs
Logistics consists of activities that facilitate the movement of goods from supply to demand. As many such activities require the use of ports, port authorities have taken a particular interest in the various port activities involved in logistics.
Performance indicators of logistics activities measure the performance of
APPENDIX. CALCULATING NATIONAL LOGISTICS COSTS
Logistics costs are an important factor affecting the competitiveness of both firms and nations. Firms can enhance their market competitiveness by reducing their logistics costs, thus lowering the total costs of goods and services. Greater market competitiveness of a nation’s firms can then give rise to greater national industrial competitiveness on a global scale. Total logistics cost analysis is the key to managing the logistics function. It is important that management consider the total of all logistics costs. Controls should be instituted to minimize the total costs of logistics rather than to minimize the cost of each component. However, determining which component of logistics costs to reduce can be problematic, since there is a trade-off between cost components. In fact, attempts to reduce the cost of individual logistics activities in isolation may even lead to greater total logistics costs. Thus, at the level of the firm, attempts should be made to integrate the logistics system so as to minimize total logistics costs.
From the perspective of government policy, however, effective cost reduction in the national logistics system can be accomplished only by identifying individual components.
Consequently, the calculation of individual logistics cost components has been critical to nations in their efforts to make appropriate policy decisions.
In this appendix, the concept of logistics costs is first defined. This is then followed by an overview of the national logistics methodologies of the U.S. and the Republic of Korea.
A.
The concept of logistics costs
Logistics consists of activities that facilitate the movement of goods from supply to demand. As many such activities require the use of ports, port authorities have taken a particular interest in the various port activities involved in logistics.
Performance indicators of logistics activities measure the performance of