Vendor Management in Freight Forwarding Companies - Research Proposal Example

Vendor management in freight forwarding companies Outline of Chapters Introduction 2. Research question 3. Research objectives 4. Relevant literature 5 Discussion on the issues 6. Findings and analysis 7. Conclusion. 8. Recommendation Vendor Management in Freight Forwarding Companies Introduction: Freight forwarding involves the transfer of goods along cross border, national and international routes, to reach pre-determined destinations. It is an intermediary facilitative service between importers and exporters. Freight forwarders take up the responsibility for transfer of goods and utilities between the client and various transport destinations. The transportation of goods, services and utilities between international destinations involves complex legal requirements. A freight forwarding service takes up the duty of meeting all of these legal requirements with relative professional ease. Thus the clients are obviated from the rigours and tension associated with movement of goods to various destinations around the globe. Research Question: The research topic for the study is cost reduction through multi-vendor approach in freight forwarding companies. It is study analysis of cost reduction strategies and whether the multiple-vendor approach is applicable for the cost reduction. The research question is whether the multiple vendor system in freight forwarding companies is effective and the challenges faced by the system. Research Objectives: This research focuses on identifying different aspects of vendor management in freight forwarding companies. This research has the following objectives: 1. To provide a detailed overview of different aspects of multi-vendor approach in freight forwarding industry. 2. To find out the effectiveness of vendor management in freight forwarding companies. 3. To give suggestions for cost reduction strategies in freight forwarding companies. Research Purpose: This research on vendor management in freight forwarding companies is aimed at getting a clear understanding about vendor management and its implication on freight forwarding companies. Literature review: Vendor management: In the function of establishing the goals the vendor managers are required to utilise their prospect to achieve the goals by means of the third party companies. In selecting the vendors they have to keep maximum care while selecting the vendors who should be capable of achieving optimum operational results. In managing vendors, their performances have to be monitored on a periodical basis and adequate feedbacks have to be provided to develop vendors. The operational performance of vendor has to be consistent with statistical standards. As an outsourcing relationship management, selection of efficient drivers is crucial for effective performance.. “Most outsourcing contracts are priced by vendors in a way that even if the vendor paid the maximum non-performance penalties they are likely to be still profitable. So the conundrum that vendor managers face is how to influence profitable vendors to meet performance objectives, when reaching these levels is likely to be less profitable in the near term.” (Tony 2007). The freight forwarding industry is one of the booming industry sectors in supply chain management. With the development of technology driven supply chain management, growth in manufacturing sector, booming retail sector etc, has fuelled the growth in the industry. Multinationals are sending their product and services even to remote areas of the world. However, it is possible that even a sudden change in economy will affect the economy. (Global freight forwarding 2008). “The freight forwarding industry is highly fragmented, competitive and has traditionally relied upon paper transactions. Heightened customer demands require freight forwarders to create an infrastructure that truly supports collaborative commerce over the internet and across the supply chain. This includes deploying the best enabling technologies, providing comprehensive products and services and establishing value-added partnerships that close the gap on currently unmet requirements.” (Transportation and logistics: freight forwarders 2007). Cohesion between Vendor and Freight forwarding providers: If the materials move thorough ocean, as per the customs Border Protection’s 24 Hour Rule, vendors must supply shipment information to company’s freight forwarders. If any fault does occur, it will lead to charging penalties up to $50,000. The exporter will have clear guidelines about vendor management and the vendor is supposed to follow the procedure. The company will provide the information related to the freight forwarders and the information relating to the material to the vendors. Then the vendor will make clearance about the material type, quantity, number of containers required etc. The freight forwarder will make arrangement after they got all these information from the vendor. Then freight forwarder will find out the appropriate and most economical carriers based on this information. Once the carrier is ready for the shipment, the freight forwarder will contact the vendor and inform about the shipment. The vendor has to keep all the data regarding the shipment to avoid additional charges from freight forwarder. There will be multiple vendors for the companies, and the freight forwarder is responsible for consolidating those multiple vendor orders. Challenges relating to vendor management in freight forwarding companies: Increasing security requirements is one of the major challenges in the freight forwarding business. In order to sustain the customers and business partners, companies are required to assure security to the cargos and for this the contribution from vendors is essential. Cost reduction is another major challenge that influences the profitable operations of the companies in the industry. In order to achieve cost reduction, advanced technology is required to be implemented by the companies for the integration of the processes. The maintenance of the processes on a timely and cost effective manner is mandatory for achieving success in the business. (Import freight forwarder challenges 2001). Logistics business needs cost reduction for sustaining the customers. To reduce the transportation costs, selection of economy vendors are essential. In order to improve the operational efficiency cost reduction is a prominent factor of the business. It is a continuous innovation process. The planning of processes involved in the freight forwarding in the most effective way will helps to reduce the cost involved in the process. Security is a major issue in the fright forwarding business. In order to ensure adequate security, the cost will be greatly increased. (Richardson 2003). Sourcing of components and raw materials at low cost requires reducing the length of the supply chain involved in the logistics processes. In the freight forwarding business various costs such as shipping, nesting, de nesting, inventory, warehousing, insurance etc are involved. The time requirements of the finishing of the supply chain is a factor that influence the operations cost. Thus for reducing the time factor in the supply chain process, appropriate vendor management strategies have to be adopted. Consolidation of multiple vendors in the optimum manner is essential for the cost effective functioning of the logistics companies. (Harrington 2009). Poor performance of vendors: Performance of vendors is an important factor that determines the successful operation of the freight forwarding business. Quality of the vendor performance is required to be assured by the freight forwarding business. The poor performance of vendors is an important problem that affects the profitable operation of freight forwarding business negatively. The superior vendor performance is depends on the continuous performance appraisal and adoption of improvement measures. Thus measurement of vendor performance is very critical for improving their cost effective performance. Most of the freight forwarding business is affected by the poor performance of vendors. Difficulties faced with selecting and evaluating vendors: Sourcing and selecting the right vendor is an important factor in freight forwarding business. Vendor core competency is the selection factor in much freight forwarding business. Some vendors are of specialised in nature and thus better performance can be expected from them in some areas. The area of specialisation is referred as core competency and by selecting such type of vendors, the greater performance can be ensured. Experience of the vendors is another crucial element in determining the performance level of the vendors. The lead time requirements for the vendor are capable of determining the effectiveness of vendors. An experienced vendor should be of efficient with lower lead time for product supply and thus cost effective performance can be ensured. The capacity of the vendors is also very important while entering in to contract with them. The term capacity includes human resource, equipments, and other infrastructural facilities that would make the vendor to fulfil the orders of the clients. The allocation of resources in the optimum manner determines the capability of the vendors. Customers always prefer high quality services at lower cost. The selection of cost effective vendors is an important problem faced by most of the freight forwarding companies. It is very difficult for evaluating the performance of the vendor due to the complexity of the vendor management process. Determination of selection criteria for the right vendors is also difficult in nature. The capability of the vendors cannot be measured on accurate basis. In these situations it is better to follow multi vendor strategy for the freight forwarding business. Inclusion of more than one vendor in the supply chain process is helpful for effective cost control. Cost management problems: “The most visible benefit of implementing vendor relationship management is cost savings. Without close management, an organization loses money in multiple ways over the lifecycle of a vendor relationship.” (Leingang 2008, p. 3). Vendors will charge an annual increase to the orders over the life of the contract. This will sometimes lead the exporting company to discontinue the vendor of this increasing cost. This will make an effect on the freight forwarding company also. Vendor relationship helps for good cost management by looking after the following areas. It helps to avoid a poor vendor who gives poor service and quality. From a good vendor it is easy to track the quantity and quality of the ordered item right from the point of dispatch to destination. Track the vendor billing and ensure accuracy and thereby we can reduce the cost. Good vendor management helps for better price negotiation. Some companies giving multiple orders for the same vendors. Thus a better relationship with the vendors helps to reduce the cost in this scenario. Quality of Service: A good vendor relationship management helps for better results and quality service and thus the firm can ensure business sustainability. The vendor selection will be based on the strategy and policy and long term sustainability of the firm. Benchmarking and performance appraisal will also help the vendors to provide the better service and what the company expected from them. Business values: “A comprehensive vendor relationship management solution helps you more effectively manage the interrelationships between your vendors and your internal and external customers.” (Leingang 2008, p. 6). It also helps for a comprehensive understanding about the business condition, thus helps to provide the business solution and to sharpen the business values. Risk Management: Since the logistic involves lots of risk, good vendor management become the tool for risk management. From the selection of vendors, there is lot of risk involved. In the risk management process through the monitoring, controlling activities the risk can be reduced in a big way. Cost reduction through multi-vendor approach: When a company using the service of multiple vendors, the cost can be reduced, since there will be chance for negotiation for the appropriate cost. Vendors will have stocks, thus company need not have any stock. Thus the cost on stock also can be reduced. Multi-vendor approach is done by many industries from the past decade itself. Heavy engineering industries, light engineering industry, automobile industries are some of the best users of the multi-vendor approach. But it will become a failure in small scale industries. Some companies considering vendors as their employees and thus there is a need for control. But vendors are only a part of the business system and it can be controlled only by the business environment. Whenever company find there is a need for cost reduction, they will find new vendors for the reduced cost. And this type of practices still continues in the freight forwarding industry also. “Neither the management nor the employees seem to understand that the Freight Forwarder who comes in with a mouth watering offer this year is bound to come up with a new cost structure when he becomes the authorized Freight Forwarder across the Corporations global supplier/partner base.” (Sundar). It is better for the freight forwarding companies to adopt multiple vendors for the supply chain process. Methodology: The methodology adopted for this research is survey method. Both qualitative and quantitative survey models are used for this study. In qualitative survey model, interview with mangers are adopted for finding out the managers opinion about the vendor management system in their organisation. In quantitative survey model, data collection method is based on specially prepared survey questionnaires focusing on different client groups of the freight forwarding companies. As a part of the qualitative research model adopted for the study, managers’ questionnaires are specially prepared for conducting structured interviews with the managers for collecting detailed information regarding their policies and strategies in the vendor management system. Managers Questionnaires are prepared on structured basis with the object of getting an overview about the effectiveness of vendor management system in meeting their organisational goals. The attitude of companies towards the multiple vendor management system has to be identified through this questionnaire. The strategies and methods applied by the companies in their supply chain management are also collected through the interview with different managerial personnel in the freight forwarding industry. As a part of the quantitative survey model, field survey is conducted among the different client groups in the freight forwarding business. For this purpose, separate questionnaires are prepared discussing on the reliability and efficiency of the services provided by their freight forwarding companies. The data is collected form 30 different clients of in the freight forwarding industry. In the qualitative survey model, interviews are conducted with 10 managerial personnel, functioning in different freight forwarding companies. The interview is mainly focused on different aspects of vendor management in the freight forwarding companies. (See Appendix for Pro forma Questionnaire used for the interview with managers) Types of vendors in freight forwarding business: In the freight forwarding business, there involves different types of vendors. They are described below: 1. Transporters: In the freight forwarding business, multimodal transport contracts are involved. Most prominent transportation system in the freight forwarding business is shipping lines as it involves least cost for the fright forwarding compared to other systems such as air freight and land way freight. The selection of the transporters offering the less cosy and highly reliable service is an important factor that determines the operational efficiency of freight forwarding companies. 2. Packagers: Networks of packagers are involved in the freight forwarding business. The companies involved in the business have to contract with packagers for the safety logistics of the freight. The quality and efficiency of packagers are highly important in achieving cost effectiveness in the freight forwarding business. In order to assure the quality freight forwarding services to customers, companies have to adopt the services of most efficient and cost effective packagers. 3. Shipping lines: A major part of the international logistics is mainly carried out through the shipping lines. In the freight forwarding business, companies have to adopt the services of ship liners for the movement of goods. The shipping lines offering freight forwarding are of wide range and the selection of the optimum shipping line ensuring cost effective quality service with minimum customer brokerage is a serious challenge to the freight forwarding companies. Data Analysis: In the qualitative survey model, the variables used for the analysis are the operational performance of the freight forwarding companies in relation to their profitability and multiple vendor management systems. Challenges faced by the freight forwarding companies in effective vendor management are focused through this study. The selection of effective and efficient vendors, appraisal of the performance of the vendors and the improvement policies are analysed through the qualitative survey conducted among the managers. In the quantitative survey model, the variables involved are the operational performance analysis of the freight forwarding companies. Expected outcomes from the research: The expected outcome from the analysis of the performance variable of the company is its degree of effectiveness in attaining the cost reduction targets by way of selection of cost effective vendors and adoption of multiple vendor system. It is expecting that, through the analysis of the data from the managers’ interview, the actual position of the vendor management system in the freight forwarding companies and the major challenges involved in vendor management should be revealed. Identification of challenges relating to selection and performance appraisal of vendors by the companies should be helpful for providing adequate recommendations or corrective measures. The data analysis should reveal the effectiveness of selection criteria adopted by the companies with regard to vendors. The effectiveness of multiple vendor system in the cost reduction process also should be revealed through this analysis. 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Freight forwarder company name: 2. Number of years providing freight forwarding services: 3. The operational area of the company 4. The major services provided by the company? 5. How long have you working in the company? 6. What is the vendor management strategy of the company? 7. Whether the company have multiple vendor management system? 8. The strategies of the company for selection and appraisal of vendors. 9. Whether the company is vigilant in selecting efficient vendors? 10. Is the company has specific criteria for vendor selection? 11. Is the company adopts appraisal of the operational performance of vendors? 12. What are the specifications in contractual agreement with vendors? 13. Is the vendors are supportive for cost reduction of the company? Read More