The Management of Business Logistics - Research Paper Example

The Management Of Business Logistics 1. BACKGROUND As figures reveal, the last 25 years have witnessed a phenomenal growth rate of more than 200% in world trading. This growth rate of global trade, relative to the global economy is completely owed to the practice of globalization of manufacturing and the financial opportunity revealed by Asian Countries like China and India. With the increase in interconnectedness due to better communication and transport facilities across the globe, the world economy has been able to diversify its investment and finance options to much higher levels. A significant factor responsible for the thriving world trade and economic boost up is the emergence of the maritime logistics and systems. Indispensable to the marine sector, companies have been managing efficient transportation through ports, for example, the trade encompassing the Asia Pacific region for island countries like Japan, Taiwan, Australia and New Zealand has accounted for 46 % of the total maritime logistics trade. Some of these nations are solely dependent upon maritime logistics, for example, 99.8% of foreign trading of Japan relies on maritime logistics while Hong kong acquires the second spot, transporting 87% of its international trading cargo by sea. Initially Logistics was synonymous with transportation and distribution of services and goods. However, in the recent times, with the materialization of effective supply chain and network distribution concepts, integration of Logistics with supply chain systems has surfaced the scene. Logistics is defined as “the time-related positioning of resources”. A good logistics supply chain would include the right resources in the right place, at the right time, right quality/quantity and at the right cost. It basically deals with the planning, implementation, and controlling of product flow and storage from the production phase till the final delivery to the consumers. Port management policies, economy, and technological developments are some of the most important and critical factors behind the success of maritime logistics sector. During the late 60’s, the replacement of break bulk with containers brought about a revolution in the maritime logistics. Other factors that have contributed in the development of maritime logistics are efficient and larger use of vessels, better port technology and technological advances in marine navigation and management. Moreover, the privatization in ports and maritime logistics management services during the late eighties, accompanied with national interests in view with the GATS trading agreement formed the backbone of a strong maritime logistics system. In addition, the rising terrorism and security threats have prompted the logistics companies to introduce secure maritime logistics and port management. Establishing areas of future benefits, vision for long term maritime logistics planning, introducing new technologies, business models and regulations that oblige change within the sector are a part of a better performing logistics system. The aim of the paper is to identify the four critical factors for success of the maritime logistics sector in terms of business methods and novel technology methods and practices that play an important part in enhancing the performance of the sector. Also, the paper discusses these critical success factors to the competitive advantage of two maritime companies and further recommends efficient practices for business and customer profits. 2. CRITICAL SUCCESS FACTORS This section states the three critical factors that are responsible for the success of the maritime logistics sector. They are – A. Effective supply chain management strategies B. Knowledge management integrated with modern IT methods, and C. Efficient Forecasting and Warehousing. In addition, the fourth factor which is normally being overlooked by small scale maritime logistics companies is the issue of Reverse Logistics. In the case of the shipping industry, which consists of a multifaceted and an intricate system of numerous supply chains, it becomes quite significant that each of these supply chains generate and add value to the entire system. Application of the above mentioned critical success factors to the maritime logistics sector would definitely ensure logistics companies to obtain higher business advantage and cost effectiveness. The paybacks that are achieved through a leveraged logistics approach integrated along with effective scm methods can boost end customer satisfaction, decrease inventory activities, and reduced workforce for the company. However, the capacity of a system to perform and achieve substantial competitive advantage relies upon the level of synchronization between the logistics management and teamwork that any system can maintain along its supply chain, (Stadtler and Kilger, 2004). The various activities that can be enhanced with the assistance of an efficient logistics management system are as follows: • Packaging and goods labeling, • Faster Inventory Management • Receipt and check out of cargo • Tracking goods along the supply chain • Reverse logistics These would help to focus on company’s core competencies, achieve better operational levels, expansion of services, and achieving economies of scale. 2.1 Supply chain management Supply chain management has received large acknowledgment within the industry in current years. This requirement of supply chain management is primarily due to the swelling end user demands for better quality and timely delivery of their products and services. Supply chain activities are primarily associated to the optimal assimilation of a range of activities and steering of information. Pioneering SCM approach accompanied with major overhauling of communication strategies between the company and client have given way to an effective SCM performance, (Stadtler and Kilger, 2004). The basic aims and activities that were encompassed within a supply chain by a logistics company’s management are resource collection, procurement, warehousing, transport management activities, co-ordination with partners, suppliers and most importantly – the customers. This paper will further study what are the various types of SCM techniques that can be aimed to at the maritime logistics sector to increase its output efficiency, lower the product cycle time, and inventories. The paper will also study the Bullwhip effect, which is generally encountered in a long logistics chain. Further, recommendations on how to avoid the Bullwhip effect within the maritime logistics will also be given in detail. 2.2 Knowledge management and IT The continuously changing form of IT within every business sector has made it extremely significant for the companies to promote their workers to adapt to the changing environment and maintain continuous learning of new advancements. The competitive market of maritime logistics, requires an effective knowledge management system to be adopted by companies so that they are able to thrive in the market for a longer period of time. With the steep rise in the customer demands and product quality, effective management of resources and information, and competitive pricing of services / products is of utmost importance. The maritime logistics requires detailed information at every step – customer details, location to where the cargo has to be shipped, product details, etc. other than these set of information that is required, there are many other associated activities like co-ordination of product order receipts, warehousing document management, selecting transport carriers, shipment and distribution of the product to customers and a complex invoicing system to receive payments. In order to carry out these tasks in an accurate and efficient manner, it is important that to provide the logistics industry with an accurate knowledge management system, data sharing data allocation and data back up systems all of which ensure the optimal results. The presence of a KM system and information sharing and distribution strategy not only helps to augment the easy flow of information but also reduces manpower hours for the company in maintaining records. The main aim of using KM systems is to capture, arrange and retrieve useful information from within an existing supply chain network, where the information may be stored in a variety of patterns and forms. Among other tasks, KM systems assist in a continuous learning processes, following information division networks, teamwork linking knowledge centers within the supply chain, etc. Increasing company sales, setting up a fast and accurate information distribution system, and efficient logistics service development model, higher cross department communication and data interchange are the aspects where a knowledge management system is applied. The major achievements of applying knowledge management systems integrated with modern IT solutions are the increase in speed of task execution and savings. The various IT applications integrated with Knowledge management systems will be studied in detail. 2.3 Forecasting and Warehousing The significance of forecasting techniques in any supply chain involved in business operation cannot be understated. Forecasting guides the company managers in effective distribution of its resources, (empty shipping containers in this case), which further assists in setting targets and integrating operational management with the product supply chain. Errors within the forecasting can cause mis-allocations of the resources which finally impacts the delivery and schedule of logistics chain thereby affecting the customer services. Forecasting data sharing across any supply chain is an important activity for proactively aligning capacity and managing supply. Integration of information technology in forecasting methods have provided unlimited planning scope for accurate forecasting of shipment schedules and demand of containers, (D.Simchi, 1997). Consolidating the future demand of containers, supply of cargo based on forecasting of demand helps in informed and timely decision making and just in time procurement strategy. Accompanying the forecasting process closely, is the warehousing procedure, which comprises of activities like storage of shipping goods, notification of goods that are to be supplied from the warehouse to the logistics company. This process generally includes a number of activities like referencing documents, picking, packing, physical goods issue in warehouse, loading, goods issue, advising advanced shipping notifications to business partners and, obtaining a proof-of-delivery from the receiving business partner. Now a days, cross docking is emerging as an option for small logistics companies, who in order to save costs, bypass warehousing procedures completely, thereby eliminating storage costs, (Kok and Grave, 20002). Also proper implementation of latest IT methods to further enhance warehousing productivity and reduce costs / manpower will also be discussed in detail in the subsequent sections. 2.4 Reverse logistics With more than 22% of the total cargo containers being empty at the sea at all times, maintaining cost efficiency has become a challenge for logistics companies. Given the fact that equipment and repositioning costs contributes on average about 20-25% in the total cost balance sheet of a container shipping line, the efficient management of empty containers is one of the competitive factors in supply chains. The reasons behind the empty containers are either that the products do not work properly or they are not needed now. In the first condition, this happens due to the products not being able to pass a quality test, and is required to move back into the production status for check up. While the second case can have many instances like end of the product life etc.. The aim of a container is to protect the damage to the product during transportation along with optimizing transportation quality by optimizing area and transfer / delivery of goods. Therefore, the container works as a versatile parcel contrivance assisting well organized cargo transport, (D.Simchi, 1997). These containers, also known as distribution items, go back and forward as part of their supply chain function. In the context of the reverse logistics theory, these containers are also known as functional returns. The main driver for the companies to get into Reverse logistics of empty containers is economics of reusing a container for many shipments. Other drivers are environmental responsibility and Corporate Social Responsibility of the maritime logistics companies. Container fleet management is believed to be a significant trading for the profitability of the maritime logistics companies. Moe rover, the container leasing companies have to continuously focus on efficient repositioning of containers from a low demand spot to high demand requirements. Container fleet management as a part of reverse logistics (capacity, location and re-positioning of containers to meet cost efficiency) within the maritime sector is one of the fundamentals to the success of the industry, (Stadtler and Kilger, 2004). The existing strategies that are employed for reverse logistics of empty containers and those which can be utilized by the case study companies to maximize profits will be studied in detail in the following sections. 3.0 ANALYSIS OF THE PROBLEM With a number of new market players, which include both small and large logistic companies, the two companies under study in this paper Company 123, and Company 456, are facing stiff competition. Both these companies have a strong international presence world wide, each organization having a strength of approx. 5000 employees. However, Company 123 has recorded a dip in its profits for the last financial year and at the same time, showing no signs of recovery in its newly established markets. At the same time, the foremost competitor of the company, Company 456 seems to be making better profit margins than the last year. The management of 123 has been asked to present a report regarding the shortcomings and reasons of current slack in business of the company, subsequently also presenting a report on what are the factors driving the growth pattern for 456. The managers soon found a number of reasons for the poor performance of the company and identified some marketing mix strategies, for the company management to enforce in order to outgrow its competitors, (D.Simchi, 1997). Most of the reasons were due to the ineffective and poor implementation of the critical success factors listed above. Here is a detailed report on the recommendations put forward by the managers of 123. 4.0 APPLICATION OF TECHNIQUES 4.1 SCM Maritime Logistics and Bullwhip Effect Due to the various uncertainties that encompass a supply chain, more often the results are uncertain, which leads to augmented inventory, and inaccurate client demand patterns. Even a small change variability in the demand may tend to produce large disparities within a chain causing huge swing supply chain fluctuations. This change in the demand while moving in the upward direction within the chain is termed as Bullwhip effect. Moreover, inefficient stock keeping, unnecessary time delays, and unplanned ordering schedules are some of the common reason of bullwhip effect within the logistics sector. The primary action that needs to be taken to avoid the Bullwhip effect is the possibility of customer demand forecasting to the preciseness. Real time client orders within the demand driven supply chain should be aimed at by the managers. This real time order tracking is known as the Kanban concept, (Stadtler and Kilger, 2004). This actual visible demand from the market / customers will help the company to queue shipments to the various store distribution centers on time. This way a precise but accurate inventory will help the company to cut costs, meet the customer demands on time and generate more profits from the supply chain. A strong hold of modern IT techniques and their suitable application, knowledge sharing techniques and an effective corporate attitude with a close focus on real time customer demands and variation will help the Company 123 to avoid the Bullwhip effect. Here are some techniques to avoid Bullwhip effect. • Batching Process – within the maritime logistics, sector, the companies need to realize that in the event of large orders, there is bound to be a larger variance. If the company 123, follows a batching process,where in smaller batching procedure for shipping goods is followed, the order costs gets cut down, transport costs gets economized and sales benefits gets increased, (D.Simchi, 1997). • Shortage gaming – most often when the supplies are short, the supplier tends to order a number of times. This unlimited ordering event can be stopped to some extent by dipping the order size elasticity and implementing capacity reservations. • Forecasting imprecision – faster access to accurate demand and supply information from systems like the (POS) Point of sale systems and Vendor Managed Inventory (VMI) can be used by the managers at 123 to stay away from overstated demand forecasts. • Collaborative Planning and Replenishment (CPFR) – This method assists the managers to easily implement IT techniques within the existing supply chain and its partners that are involved with the company, (Dutta, 2007). Integration of IT with the supply chain helps to reduce the amongst the various supply chain partners involved with the company. This helps to access better information about the actual client demand, easy and real forecasting of inventories, through enhanced cooperation in the planning area. Other methods that can be used to decrease the uncertainty and variation and improve time lags in a supply chain are Just in Time replenishment (JIT), Strategic partnership, and enhanced information sharing techniques. 4.2 Knowledge management This section will study the different applications of Knowledge management systems within the logistics management for the company 123. This section presents the effects of KM approach and its subsequent effect on the business environment. 1. Fast information exchange system – A fast and efficient KM system will offer a strong support to the company. In order to fully utilize the logistics chain efficiency, a synchronization between the information systems and subsequently pin down any inefficiency in the system. 2. Business Process Supervision – disposition of intelligent information for effective logistics chain requires automated processes, exemption observing, and data reporting. Computerization of interdepartmental services within company 123 will lessen the KM errors caused due to the human interference. Dynamic process alteration, for optimization of quickly varying variables, will offer better knowledge management and supply chain integration, (Dutta, 2007). 3. Non-Disruptive Assimilation – in case, when the company 123, aspires to expand its supply chain and establish new business ports, it is quite possible that the existing system may tend to show some resistance. In view of this, non disruptive assimilation process would help to integrate new supply chains with new sets of knowledge. In the case of 123 company, utilization of data ports, knowledge connectors, and other data assimilation methods can be used. 4. Complex Event Processing- Supply chain events if treated single handedly, one at a time, may do not offer much risk, but when these events are put together in a supply chain they may pose larger hindrances. Complex event processing offers the capacity of performing realistic decision making without waiting for the successive scheduling sequence. This decision making about the events even before their actual real time occurrence is called complex event processing. 5. Data Capture and forecasting Capability - With the help of KPI’s and result cards, the company managers can very easily assess the risks that are present to the business. Control panels, inventory information screens, weekly transportation and delivery schedule charts and merchandise sheets are some of the examples of techniques that will help the company to better forecast events and properly schedule supply chain activities (D.Simchi, 1997). Forecasting and Warehousing In this section, I make an attempt to integrate some latest industry concepts and management solutions to the benefit of forecasting and warehousing concerns for the company 123. These management theories have been employed by and large by Company 456 to gain a large percentage of business advantage. However these business solutions were not directly stated to be as solutions for forecasting and warehousing by the management of 456, but regular management solutions. After a deep study and understanding of the company’s approach, the managers at 123 clearly understood that these solutions both directly and indirectly aimed to resolve the forecasting and warehousing problems in the long term. Quick response systems (QR) – both the companies under study have been under a threat from low cost logistics carrier companies, and therefore, are forced under the prevailing market conditions to explore new methods and technology. The quick response system is one of these initiatives. The system allows the company to offer a range of logistics services at better quality and cheaper rates. The basic concept of QR systems is to maintain a strong relationship between all the supply chain elements and react as per market conditions only, thereby reducing process lags. QR assists in assessing real time demands of the market and decreasing the inventory levels and the forecasting errors. Fast Fashion Concept – As the name specifies, this concept had originated in the the fashion industry, in order to gain more profit. The concept helps the logistics management to shorten lead times by significant value. Fast fashion concept relates to increasing efficiency within the retail supply and demand chain. Keeping lesser inventories and practically no replenishment along with variety services are the basic concepts behind fast fashion concept. Another latest strategy of fast fashion concept is that of seasonal forecasting business, (Dutta, 2007). The company 123 can utilize the concept of seasonal business where in the cargo volumes are more due to occasions and festivals like Christmas. The company may take low orders and perform with fast turn around times to make more profits during seasonal business. Lean process oriented supply chain -- Leanness is described as a process where in the efficiency of a (logistics) supply chain is increased by decreasing the un-useful activities, time lags, provide quick replenishment and meet service / product delivery schedules within a shorter time span. A lean approach to logistics can be achieved with the help of employing various IT tools like bar coding, EDI, and product marking tools. Furthermore, lean approach also eliminates the unnecessary flow of information and helps in synchronizing transportation and logistic management. the short term prediction of customer demands with the help of point of sale systems helps in setting up a lean logistics management, (Dutta, 2007). The information from the Point of sale is delivered to the company headquarters several times each day and this information is used to queue shipments to various company ports and other distribution centers. De-coupling point approach – this technology can be used by the company to efficiently maintain its unfinished or un-packaged goods inventory and supply of these goods on demand. This approach offers high amount of flexibility to the ordering process and allows for smaller batching in the supply chain. The de-coupling approach offers reductions in transportation. a. Reverse Logistics In order to get back profits by implementing Reverse logistics for empty containers, company 123 managers may look at using container substitution or selective pricing as a viable technique. This will be aimed at cutting down the empty container trading imbalances in longer sea routes, and subsequently cutting down costs. Another method that can be employed for reverse logistics is sharing containers with other companies. This method makes use of grey and free label containers, which can be interchanged within companies based on requirements. Another option is to resort to forecasting of client orders to the company. The potential freight figure will give a close estimate to the managers and assist them in empty container management. This can also be done with the help of online markets where customer order data can be made available and utilized for the purpose of reverse logistics, (Dutta, 2007). Moreover, with the advent of novel computational methods, empty cargo management can also be optimized. Concerns regarding issues like faster and effective decision-making process includes, among others: - The design of the depots where the empty containers are stored can bbe optimized for higher area efficiency; - Assigning the most economical and effective means of transport for repositioning of empty containers; - Forecasting the requirement of empty containers and their subsequent repositioning; - Determination of a reposition path for the containers between the inland and port terminals, keeping in mind the pick ups and delivery; - Maintaining operating costs of existing depots and setting up new depots for optimized operations. Added recommendation for reverse management of empty containers – 1. Harmonizing out trade with recycling inflow – trade imbalance is the main cause behind the requirement to reposition the empty containers within the shipping industry. However, this also provides for opportunity to maritime logistics companies to assure less imbalanced cargo trading. 2. Fold-able containers – a foldable or a collapsible container is a new concept lately, and it focuses on saving costs. The idea of foldable containers has already been applied and to the retail sector worldwide and has been successful to some extent (Dutta, 2007). 3. Information and communication technology – there exist many ICT’s that are useful for maritime logistics and reverse logistics in purpose. Auto ID techniques like bar coding, smart cards (for example – GSM card) Biometric methods (Fingerprint or eye recognition), RFID, and the latest Ultra Wideband techniques are examples of ICT that may assist in the collection of more useful data about the empty containers and help in better cargo transport and monitoring. COMPETITIVE ADVANTAGE FOR THE COMPANIES This section presents a list of advantages to the company as a result of following the above given suggestions on critical success factors for business growth and development. The company management in order to review the implementation of these suggestion, can appoint a reviewer. This reviewer will keep a check on whether the recommendations suggested by the management are being followed by the employees or not. The reviewer together with the company management can make periodic reviews with regards to the performance and quality of logistic services delivered by the company. The reviewer can also be motivated to compare other competitors and the techniques they employ to gain profits and build their customer base. These reviewers can also visit the port operation centers of the company without notice so that they can review the actual condition of implementation of rules and regulations. Later on, they can report the details to the management who can take actions as required. Here are some of the questions that can be reviewed by the company managers of 123 in order to assess the actual condition of the logistic operations. Q1. Do the customer of the company feels satisfied by the company’s services? Q2. Are the customer’s demands met in the most efficient manner possible? Q3. Are the resources of the company, including the employees, and other physical assets being utilized to the optimum limit and what are the causes of them being able to so (if in case)? Q4. Do the resources, employees (port management) and capacity of the company match up with the customer demands? Q5. What is the average of customer being attracted to retain company’s services each financial year? Q6. Do the clients return back after taking the services once? In not why? Q7. What is the information system that is being currently deployed by the management at the shipping centers? Q8. What is the information back up and storage capacity of the company? Q9. Is the company facing overcasting or undercosting for some activities like employee retention, customer facilities, shipping facilities etc.? Q10. What is the cost of new business additions and ventures? Direct paybacks, operational benefits and technical profits are some of the advantages that the company 123 can look forward to if they successfully are able to implement the recommendations given above. REFERENCES 1. H. Stadtler and C. Kilger: Supply Chain Management and Advanced Planning: Concepts, Models, Software and Case Studies, Indiana University Press, 2004, p. 25. 2. D. Simchi-Levi et al.: Designing and Managing the Supply Chain: Concepts, Strategies, and Test Studies, Harvard University Press, March-April 1997, pp. 105-116. 3. Dutta, K. et al., “Service failure and recovery strategies in the logistics sector”, International Journal of Contemporary Hospitality Management, Vol. 19, No. 5, 2007 4. A.G. de Kok and S.C. Graves (Editors): Supply Chain Management: Design, Coordination and Operation, Cambridge University Press, Cambridge, England, 2002. 5. Gronroos, C., „A service quality model and its marketing implications”, European Journal of Marketing, Vol. 18, No. 4, 1984 6. D.M. Lambert and J.R. Stock: Strategic Logistics Management J.J Coyle, E.J. Bardi and C.J. Langley: The Management of Business Logistics. Indiana University Press, 2002, p. 342 Read More