Global Logistics: Factors Affecting the Selection of a Logistics Company - Coursework Example

Global logistics Table of contents Introduction 2 2. Factors affecting the selection of a logistics company 2 3. Advantages of Jebel Ali as the regional distribution centre 6 4. Key Performance indicators measuring the performance of the logistics 7 company 5. Conclusion 10 Introduction Outsourcing logistic operations to third parties is a concept which is necessary to survive in an era of cut throat competition. Normally these decisions are taken to increase cost effectiveness and decrease responsibility so the firm can concentrate on its core competencies. Multiple factors affect the selection of the Third party logistics firm and these along with the location and the measurement of performance will be discussed Discuss what factors you would take into consideration when selecting a logistics company to be shortlisted for providing these services. The global business environment is extremely competitive and therefore management and mitigation of risk often requires delegation of authority and outsourcing. Third party logistics are often used for global supply chain executions. The reason why the Japanese company needs to outsource logistics is to reduce the cost, improve distribution service and concentration on its core competencies. The company strategy largely determines how formulation, evaluation and execution of third party logistics will take place. (John E Mello) Factors that primarily effect third party logistics outsourcing are cost and quality of service provided. Since the company requires multiple services, the first thing this company will consider is the ability of the logistics provider to provide all these services efficiently. The company will look at the logistics providers resources because the services required here go beyond typical storage and distribution and also include assembling and receiving orders. To satisfy all these needs, the third party logistics should have the technical expertise and the manpower besides a transportation system and storage place. The first step in outsourcing will be the research and evaluation of all service providers. The company will analyze service providers and look at their experience. The company should have meaningful experience and a clear track record without being involved in any deceptive activities or maintaining low standards of service. Any such findings will immediately disregard that 3PL company as it will risk damaging the company reputation. The service provider who has prior experience of custom clearance activities, storage, assembly and distribution of electronics will be given the top priority. The second thing to consider is the cost and the added value outsourcing will be bringing to the company. Price is a major factor as the reduction of cost and responsibility is what the company is looking for. Therefore the company will choose from companies which provide their services well within the going market rate but not below that without compromising on quality. A research survey done in 2003 shows that pricing was the primary factor in determining whom to outsource services to. (Hoilland). This is so because all service providers are now expected to execute their services flawlessly and tough competition only allows those 3PL suppliers to survive who deliver at the lowest cost. The third major factor is the willingness of the logistics company to completely take or partially share the risk associated with distribution and outsourcing. Another crucial factor is the location of the third party logistics provider. This is an easy decision for the company as it has already decided that the location has to be Dubai. Thus is can narrow down its selection from all companies in Dubai. Even then a preferred service provider will have access to multiple cities and will be functional in multiple cities particularly the GCC countries. This eases and improves functioning of both the service provider and the company. The company will also strongly consider and prefer service providers who need the least level of training and monitoring. Since assembly of electronics requires expertise, the firm will either chose a company who has the technical expertise and the technological edge to assemble them or is willing to invest in learning itself. This is necessary as training a third party logistics can be expensive and time consuming and the effort is futile if the 3PL chooses not to work with the company once the contract expires. Besides that reliability and on time performance of the service provider will also be considered. This can be evaluated from the service provider history. This factor is important because logistics is a very time bound activity. A slight disruption in the schedule by the service provider can result in a serious blow to the company. Since the Japanese will have its own information and data system, it will prefer to do business with a service provider whose system is either the same or compatible with the system of the firm. This will allow the firm to be informed about the location and the condition of their inventory. System compatibilities of information technologies provide a distinct competitive advantage to the firm as they can regulate their supply accordingly and therefore a compatible third party logistics supplier will be selected. Online logistics communication will also determine whether to select the company or not. Two other obvious factors which will be considered when selecting the logistics provider will be the acquaintance of the service provider with international laws and prior experience and availability of specialized means of transport for transporting electronics. The company should also possess specialized warehouses for storing electronics as electronics are more fragile than other goods. These factors will be considered as the products will be shipped from three different locations and trade laws for all three regions will be different regarding custom duties and clearance, the 3PL should be well versed with both the local laws and the laws of the exporting nations. It should also be well acquainted in dealing with the changing nature of international laws and should own management expertise in dealing with problems if any arise. Since electronics are extremely vulnerable to damage especially if they are kept in close proximity of water, the service provider should possess special transportation means and storage facilities. Other factors are having enough resources to store and transport the goods and provision of dual transportation. The company needs to transport the goods from the port to the warehouse, store and assemble the goods there and then transport them further to where they are required. Thus adequate availability of transportation should be ensured to prevent delays in transportation. The company should also have access to multiple means of transportation as transportation is required by both land and sea. Thus besides owning trucks, the company should have the means to either own or hire a ship. Though this freight forwarding service is available with most logistics suppliers, only the most efficient one will be chosen. The logistics companys size and spread will be taken into consideration as the procurement size is large and frequent and very distributed, the logistics company should have access and capabilities in all those markets. Its technical knowledge, resources, prior experience, quality of service, reliability and communication systems will also be considered when selecting it to outsource logistic operations. 2) Discuss what would be the benefits of locating the regional distribution centre in Jebel Ali Free Zone.? Jafza or Jebel Ali Free Zone is the largest and the fastest growing free zone in the world. The advantages of using this free zone as the regional distribution centre will be similar to those of all free zones. The added advantage will be its crucial position which is exactly where a distribution centre is needed. Its close proximity to the port with proper infrastructure will allow easy transportation to the required places. The Jebel Ali port is the worlds largest man made harbor and is strategically located between two large cargo transport zones which are the port and the airport. The port has access to ISO certified container and cargo operations. (Emirates free zone). Specialized unloading and storage facilities are also available for companies in the free zone. Therefore electronics can be handled carefully as required. Both the port and the airport have large freight transferring capacities and therefore receiving and transportation of these electric goods to and from Dubai will be considerably eased. Besides that it brings in a huge number of financial advantages.(Seaton) Multiple incentives are provided to companies operating in these free zones. The biggest advantage is no imposition of duty in the zone. No duties are exposed on the import and the export of goods and there are absolutely no restrictions on the movement of capital. Since it is a mixture of a port with added infrastructure, this place is an ideal place for warehousing and further distribution. Full foreign ownership is allowed unlike many other gulf countries. Full repatriation of capital and profits is also enabled and there are no corporate or income taxes levied. This will aid in cost reduction and revenue and profit increment and thus the company will meet its targets easily and quickly. Abundant and cheap energy supply is also an added advantage which makes operations feasible and cost effective. Furthermore delays caused by energy and power outbreaks are prevented. Besides that it is one of the few places in the GCC where there is no need to involve local companies or sponsors in business. Therefore if a foreign distribution firm intends to manage 3PLs for the Japanese company it can freely do so without any restrictions. Another advantage is that the setup for the distribution company will be very simple as trade laws are minimal in this zone. 3) Specify 6 KPIs you might use to measure the efficiency of operations from the point of receiving the goods at the port of entry in the UAE to the point of delivery to the distributor. For each KPI The main essence of business is to generate profits and cash by investing in assets and capabilities. Thus change in revenue and profits will be the first key indicator. This will also be the financial KPI. The second KPI will be the cost per piece (Alan Rushton). Since logistic companies are employed for cost effectiveness, the cost per piece should drop if the logistic company is doing its job effectively. The third indicator will be the cash flow. Efficient logistics is employed to increase cash flow by spending less money and time on inventory. The fourth indicator will be the stock turn over that is the number of days it takes the company to supply the complete stock. The quality of service will also be demonstrated by the number of days from order to delivery. This is the Turn Around time (TAT). (Deep) The fifth indicator will be a measure of timeliness which will be indicated by commitment to schedule. And lastly the sixth KPI to be used will be the customer KPI which will be a measurement of customer satisfaction. a) Explain how it will be calculated. Change in revenue can be calculated by a change in Return on assets or return on investments. The data can be generated from the companys balance sheet in its financial statements. The formula for these measures is The cost per piece will be calculated by the total cost of goods of the same kind divided by the number of pieces of each. Cash flow can be obtained from the income statement of the company. . Stock turn or turn-around time is the number of times the company has sold its stock during one year. It is calculated by cost of goods sold divided by stock. The timeliness of the logistics company can be found out by finding the percentage of deliveries that are late. This can be found by late deliveries divided by total deliveries multiplied by 100. Customer KPI will be found out from customer reviews. Since it is the customers measure of satisfaction, it will be found by unsatisfied customers divided by total customers. b) How each might help you identify a problem in the supply chain. A sudden decrease on in the return on assets or return on investments clearly indicates that the logistics company is not being very cost effective. A decrease in revenue will indicate that the main purpose of the company that is to generate and increase profits is not being achieved and the supply chain is defective. The cost per piece should be maintained to an upper limit or should decrease by using the logistics company. If this is not the case, that means that transportation and warehousing of the goods is not being done at the optimal level. If cost targets are set too high then customer service will be seriously affected as shipments will be delayed. (C Donald) An increase in the stock turnover will indicate that the supply chain is effective and a decrease will indicate that the supply chain is inefficient. Cash flow should increase because transportation and distribution should get faster with the employment of 3PLs. Late deliveries also clearly indicate that the supply chain is not effective. 3PLs should maintain a regular schedule and deliver goods in a timely fashion, thus not to harm the repute of the company. Assessment of customer complaints will also reveal the performance of the supply chain. If the customer complain of damaged goods which can be a result of inadequate handling then the logistics company is responsible. Similarly if the supply is not regular then the customers will also complain. Stock holding targets if set too low will disable customer service attainment and the number of orders received over time will fall. The higher the stock turnover, the better as money will be tied up for lesser time in stock. The length of turn-around time should decrease if transportation, assembly and warehousing are efficiently being done. c) What action will you take to resolve the problem highlighted The first step would be to monitor the 3PL more regularly and strictly. Inventory levels and conditions should be observed by the company itself. If a certain problem can be handled by adequate training, than training should be deployed to resolve the problem. It should be monitored that adequate utilization of transport vehicles and warehouses is being done. If not, than that should be implemented. Continuous self assessment and monitoring should result in beneficial results but if the problem does not resolve over a period of time, then the logistics supplies should be changed in favor of a more efficient or cheaper one, whatever is required. Conclusion Thus factors affecting the selection of the logistics company vary from cost to the service they provide. The location of Jebel Ali free zone is ideal for the regional distribution centre as it is located in the heart of the GCC and the normal duties imposed will be evaded. Lastly multiple indicators can be used to measure the performance of the logistics company and amongst them cost, revenue, time frame and customer satisfaction are important. References Alan Rushton, Steve Walker. International logistics and supply chain outsourcing: from local to global. Kogan Page publishers, 2007. C Donald, J Waters. Global logistics and distribution planning: strategies for management. Kogan page publishers, 2003. Deep, Jan M. Logistics outsourcing relationships: measurements, antecedents, and effects of logistics outsourcing performance. 2007. Emirates free zone. 30 December 2010 . Hoilland, Joel. "Selection Factors in Logistics Outsourcing – A View from Third-par ty." Strategic outsourcing (2004): 71-72. John E Mello, Theodore P Stank, Terry L Esper. "A Model of Logistics." Transportational Journal (2008). Seaton, Daniel. Advantages of doing business in the UAE free zones . 30 December 2010 . Read More