Chinese industrial logistics alliance market
and operations strategy research
—— for the Pax Group’s integration and strategic transformation plan
Master thesis, Msc BA specialization Operations & Supply Chains University of Groningen, Faculty of Economics and Business
Student number: 1938797 Yanqun Wu
1st Supervisor/ University: Drs. J. Drupsteen
Acknowledgements:
First of all, I want to thank my supervisor Mr. Drupsteen, PHD of University of Groningen. Without his great supports and guidance on theoretical methodology, this paper would not be complete succeed. His useful advices guided me to do a good research in a scientific way.
I also want to take this opportunity to thank Dr. G.C. (Gwenny) Ruël, the second supervisor of my thesis. Her advices in the final stage are very valuable.
Great thanks for my company supervisor Mr. Plantinga. Thank you for giving this opportunity of research project to me. During this project in Pax Beheer B.V., I got many helps from your side and learned a lot. Meanwhile, I would like to thank all my dear colleagues in headquarter of Pax Beheer B.V. Your kindly helps during my project these days really warmed me.
Finally, I want to thank for my great parents and best friend Chen. Though, they are far from here in China. Special thank for your all great care and supports these years. Groningen, September 2009
Abstract:
In the last decades, China’s booming economy has greatly benefited from globalization and trade liberalization. China has found a niche as the world's manufacturing centre and it is playing a crucial role in a growing number of global supply chains. Under such environment, this research aims at give operations strategy suggestion to Pax Group for entering potential Chinese logistics alliance market. The survey study of the case of non-retail group in Pax Group and in-depth interview research method is used to investigate the current resources of non-retail group in Pax Group and Chinese market requirements for international transportation and local logistics requirements. The current resources is firstly analyzed from resource-based view (RBV) and four aspects of operations strategy resources which are capacity, supply network, process technology and organization& development in the context of logistic service industry. The in-depth interview with Chinese freight forwarders leads to market requirement of Chinese international transport and domestic logistics systems as perceived by Chinese freight forwarders. The reconciliation process is analyzed by important-performance matrix to indicate the gap between current resources and market requirements of future Chinese logistics alliance market and priority of improving points. Based on the result of reconciliation process, the corresponding suggestions are given. The findings show that transit time, reliability and freight rate are the three most important competitive factors perceived by interviewees. Upgrading current service technology platform, strategic alliance with Chinese local 3PL as well as increasing interaction between upstream supplier/manufacture and non-retail group etc. is the main measures to satisfy the inbound market requirements for Pax Group.
Abbreviations:
BOHAI: Bohai Bay Region
CMR: Contract for the International Carriage of Goods by Road FDI: Foreign Direct Investment
GDP: Gross Domestic Product
ICT: Information and Communications Technology JIT: Just-In-Time
LSP: Logistics Service Provider M&A: Merge& Acquisition MANU: Manufacturer
MNC: Multinational Corporation
OEM: Original Equipment Manufacturer ODM: Own Designing & Manufacturing OBM: Own Branding & Manufacturing OS: Operations Strategy
PRD: Pearl River Delta RBV: Resource-based View R&D: Research& Design RMB: Renminbi
ROI: Return of Investment SOE: State-Owned Enterprise SOM: Supplier of Manufacturer SOR: Supplier of Raw Material 4PL: Fourth Party Logistics
TEU: Twenty-Foot Equivalent Unit
TPL (3PL): Third-party Logistics Provider 2PL: Second Party Logistics
Table of content
ACKNOWLEDGEMENTS:...2
ABSTRACT:...3
ABBREVIATIONS: ...4
CHAPTER 1: INTRODUCTION ...7
CHAPTER 2 ORGANIZATION OVERVIEW ...9
2.1COMPANY OVERVIEW...9
2.2COMPANY STRUCTURE...10
2.3CUSTOMER TYPE OF NON-RETAIL GROUP...12
2.4LOGISTICS SUPPLY CHAIN STRUCTURE...14
CHAPTER 3 RESEARCH METHOD& LITERATURE REVIEW...15
3.1INTRODUCTION...15
3.2PROBLEM STATEMENT&CONCEPTUAL MODEL...15
3.2.1 Problem Statement...15
3.2.2 Conceptual Model ...17
3.3RESEARCH QUESTIONS...18
3.4RESEARCH METHOD&LITERATURE REVIEW...19
3.4.1 Research Scope...19
3.4.2 Research Method...20
3.4.3 Literature Review ...21
3.4.4 Data Reference and Resources ...27
CHAPTER 4 CURRENT LOGISTICS ALLIANCE ANALYSIS...28
4.1MACRO FACTOR...28
4.1.1 Business Strategy...28
4.1.2 Market Positioning ...30
4.2MEDIAN FACTOR...32
4.2.1 The general resources ...32
4.2.2 Outsourcing level (Capacity)...35
4.2.3 Supply network ...36
4.2.4 Service Technology (Process Technology) ...38
4.25 Organization& Development ...39
CHAPTER 5 POTENTIAL LOGISTICS ALLIANCE ANALYSIS ...40
5.1CHINESE LOGISTICS INDUSTRY...40
5.2GEOGRAPHICAL SCOPE OF LOGISTICS ALLIANCE...43
5.3CHINESE LOGISTICS ALLIANCE...45
CHAPTER 6 RECONCILIATION PROCESS ...50
CHAPTER 7 RECOMMENDATIONS ...53
APPENDIX 1 SUBSIDIARY OVERVIEW...60
APPENDIX 2 PAX GROUP 2008-2009 TURNOVER OVERVIEW (UNIT: EURO) ...61
APPENDIX 3 MAIN CUSTOMERS IN INDUSTRIAL RANGE...62
APPENDIX 4 RESOURCING BUNDLING STRATEGY AND COMPETITIVE ADVANTAGE63 APPENDIX 5 VULNERABILITY OF SUPPLY NETWORK...65
APPENDIX 6 MAIN ECONOMIC ZONES IN CHINA...67
APPENDIX 7 DISTRIBUTION OF FOREIGN LOGISTICS FIRMS ACROSS CHINESE CITIES ...68
APPENDIX 8 INDUSTRIAL CLUSTER OF YRD AND PRD ON PROVINCE LEVEL ...70
APPENDIX 9 COMPARISON OF YRD AND PRD...72
APPENDIX 10 NINE-POINT IMPORTANCE SCALE AND PERFORMANCE SCALE ...80
Chapter 1: Introduction
Since the launch of China’s economic reform in 1979, "Made in China" has spread around the world and China has gradually become "global manufacturing center". It cannot be denied that the emerging pattern of export-led industrialization in China, namely low and diminishing per-unit value added in production and the heavy reliance on foreign direct investment brings to China fast growth in foreign-exchange reserves and generate a lot of jobs. From the perspective of international division of labour, this low value added phenomenon is an inevitable outcome from the ongoing process of production fragmentation and the expansion of cross-border production networks (Sung, 2007). It is evident that China’s exports are increasingly dominated by low value-added processing exports of foreign affiliates (Sung, 2007), consumers have got used to the ‘Made in China’ label that invariably comes with their new computers and TVs. Yet, deep down they may suspect that there isn’t much about the core creative and engineering processes that go into the design of these products (Engineering & Technology, 2009). But this phenomenon will decline as China builds up its market economy. Since 2004, China has amended its treatment of foreign investments to attract higher-quality foreign investment and upgrade processing exports in order to transform itself from original equipment manufacturing (OEM), through original design manufacturing (ODM) to own brand manufacturing (OBM). According to a new ARC Advisory Group study, the worldwide market for production machinery automation is expected to grow at a compounded annual growth rate of 3.4% over the next five years from 2009. The market was $18.0 billion in 2008 and is forecast to be more than $21.2 billion in 2013 (Plant Engineering, 2009). In the context of Chinese economics transformation and fast growing machinery automation production market, although the majority share of production is consumer goods currently, as Chinese manufacturing firms attempt to move away from a cost leadership strategy, manufacturing industry will transform from low-cost consumer goods production to high-tech non-consumer industry goods production, e.g. automated equipment production. As a result, the Chinese manufacturing industry in the non-consumer production field will certainly rise and move to high-tech and professional direction to satisfy higher level customers' requirements, e.g. European consumer goods manufacturer.
expertise is forcing domestic service providers to catch up technologically (Traffic World, May 9, 2005). However, the national culture constrains their efforts, it is essential to build partnership with Chinese logistics providers in order to best navigate the intricacies of local regulations and environment. The logistics alliances - formal or informal relationships with Chinese manufacturers and their offshore customers is also an important issue for foreign logistics providers' business expansion and development in China. In summary, on one hand, with the fast developing of Chinese logistics industry, the cooperation merger between foreign 3PL providers and Chinese local 3PL providers will be a trend in the next few years (Daguang Zhang, 2003). On the other hand, an increasing number of companies are outsourcing their logistics activities to third-party logistics (3PL) firms so that they can concentrate on their core competencies the emergency of 3PL outsourcing in developing countries, such as China, India, and Mexico, have seen the emergence of 3PL outsourcing trend (Wang et al. 2006), in particular, the outsourcing of non-consumer production market is promising in the future.
manufacturer in industrial field and their European manufacturer customers which includes indirect consumers - European suppliers of manufacturer and direct consumers - European manufacturer of consumer goods). The "logistics route" is showed in Figure 1.
Figure 1 Inbound Logistics
The objectives of this research are to find the possible of logistics alliance areas and indicate operations strategy decisions to build logistics alliance with Chinese suppliers on strategic level based on the current operation strategy.
The research question for this thesis is listed below:
Which operations strategy decisions should be adopted by Pax Group to make industrial logistics alliance with Chinese suppliers?
Several sub research questions and conceptual mode will be raised in Chapter 3 and will be answered and explained in detail in chapters. The research will adopt case study method. The research will be split into two parts. One part is mainly focus on current logistics alliance chain and operation strategy within Pax Group. The second part is inbound logistics part, which is based on the macro analysis of Chinese manufacturing industry and machinery industry to ensure future logistics alliance scope. The evaluation of two parts will also be included through benefits and risks analysis. The combination of two parts with one SWOT analysis will be followed by conclusion and operation strategy suggestions.
Chapter 2 Organization Overview
2.1 Company overview
Pax Group has held 88 years. Since 1923, it developed from a family owned transportation organization into a logistics service provider. The current graphical business range includes Benelux and France districts. Now the company has nearly 400 employees including operational level employees such as mechanics, drivers; middle level employees like planners, managers of different subsidiaries and top management level includes development managers, two general operation managers and general director. The average annual turnover achieves 82 million Euros. It is an asset-based logistics company. The business scope stretches across transport, logistics and special transport. All divisions offer a variety of transportation: road transport, warehousing, storage and transshipment, integrated logistics, special transport and complete company removals. The three different division areas provide different
Chinese customers
(Supplier of manufacturer in industrial field) European customers
(Direct& indirect consumer)
services:
¾ Transport: Fine-meshed distribution Benelux, storage and transshipment, container trucking, road transport and transport in Europe, connections with water- and railways.
¾ Logistics: Food and non-food warehousing，management of streams of goods, assembly, value-added activities (VAL), repacking and packing, display manufacturing, settling customs formalities complete logistic packages.
¾ Special Transport: Company removals, assembly and disassembly of machinery, displacements and lifting activities, heavy transport, special transport, worldwide project cargo.
By using the mission, vision and core value Pax Group tries to create a company in which employees share the same goals. The mission statement of Pax Group is:
'Handling transport streams in a logical way.'
'Pax Group pursues a perfect internal communication, direct contact, and close collaboration to offer suitable solutions for all your logistic problems.'
The core value of Pax Group defines the way to do business and the way to behave. Pax Group places importance on collaboration, service and quality. In Pax philosophy logistics means so much more than just transportation. Pax invest in permanent development of knowledge, innovation, and the support of processes in order to achieve their motto reads: Coordination in motion.
2.2 Company structure
Figure 2 Organization Chart
We can see from the above figure that whole company is a flat organization. This kind of organization reduces the layers of management. The communication and information transmission is quite easy and highly efficient within network. The general director, two retail& non-retail operation managers and 7 subsidiaries' managers constitute the whole group. The director check the financial indicator one time per 4 weeks and the 80% of the financial report is steady, while the remaining 20% part which belong to unstable part needs to be investigated deeply by the problem-solving group constitutes by two operation managers and seven subsidiaries' managers to give proper suggestions to improve the deficiency. If the improvement plan is approved by general director, the implementation is fulfilled by the workers on operational level. The development manager responsible for system and IT development work to ensure the inter-network work smoothly. The ICT facilities provide information needed at any desired moment between different business parties. It ensures the company's high service level and quick responsiveness. The red dotted line indicates that the research will be deployed in non-retail group.
An overview of the group, division, specialization, location and category is displayed in Appendix 1.
An overview of the turnover of 2008 and 2009 per subsidiary is displayed in Appendix 2.
Integrated Logistics. The reason is that steel transportation is main business of Nabek and KPB, the single business structure and fixed customers make them suffered more than other sub-companies in the wake of financial crisis. In the future, the KPB and Nabek probably will be merged into root company – Pax B.I.S in order to eliminate their unbalanced business distribution and force them to explore more customer source. Pax Integrated Logistics is acquired by Pax Group for only one-year time, and it is now transferring from retail 3PL to non-retail 3PL according to the request of industrial logistics plan. Therefore, it is not surprise that the turnover of this sub company is also decrease. Currently P.I.L doesn’t have enough experience to deal with the non-retail group’s logistics issues, originally it serves for retail group, so it needs some time to learn from Pax’s 4PL partners who have experience in non-retail logistics, especially industrial logistics field. In a word, now Pax Group is really in the process of transformation and it still needs time to make each subsidiary in non-retail group to position and develop their new roles in the whole inbound logistics plan. 2.3 Customer Type of Non-retail Group
The customer types can be categorized into two groups:
¾ 1PL: A first-party logistics provider (1PL) is a firm or an individual that needs to have cargo, freight, goods, produce or merchandise transported from a point A to a point B. The term first-party logistics provider stands both for the cargo sender and for the cargo receiver (Source from KAP Freight solution website).
In this research, 1PL customers delegate manufacturer (MANU), supplier of raw material (SOR) and supplier of manufacturer (SOM), these are customers and are eligible for vertical alliances. Manufacturer needs moving their facilities and fixed assets to another place or changes the layout of the whole factory etc. This factory's products can be used by end customers, such as dairy products. Raw material supplier’s products are raw material, such as steel pipe. Pax helps them to transport their products to other manufacturer who needs these raw materials to reprocess or produce other products. Supplier of manufacturer is supplier who supplies facilities or equipments to manufacturer. The supplier needs move their finished or semi-manufactured products to manufacturer site which requires special transportation and a series of loading& unloading and assembly work etc. This kind of customers’ products belongs to industrial products, such as drill equipment.
¾ A fourth-party logistics provider (4PL) is an independent, singularly accountable, non-asset based integrator who will assemble the resources, capabilities and technology of its own organization and other organizations, including 3PLs, to design, build and run comprehensive supply chain solutions for clients (Source from KAP Freight solution website).
technical total solutions for manufacturer and big global 4PL. Usually service companies cover the entire chain from professional consultancy and solution design to project implementation, process management and service maintenance. Pax responsible for part of transportation and simple dismantle and assembly work during the implementation of project designed by these service companies. Pax helps big global 4PL to do some parts of their jobs, for example choose consolidation point and take charge of some distribution works in one big project. This kind of customers is also studying source of industrial logistics for P.I.L.
The current main customers of Pax Group in industrial range are depicted in Appendix 3.
In order to clarify the following supply chain structure, it is also essential to define 2PL and 3PL:
¾ A second-party logistics provider (2PL) is an asset-based carrier, which actually owns the means of transportation. Typical 2PLs would be shipping lines which own, lease or charter their ships; airlines which own, lease or charter their planes and truck companies which own or lease their trucks (KAP Solution).
¾ A third-party logistics provider (3PL) provides outsourced or ‘third party’ logistics services to companies for part or sometimes all of their supply chain management function (KAP Solution).
In this research, 2PL/3PL can be divided into two categories: internal 2PL/3PL and external 2PL/3PL. The first category means 2PL (Pax D.T, Nabek, KPB) and 3PL (Pax P.I.L) in non-retail group. Although Pax B.I.S has some 3PL’s components, but it still belongs to trucking company, thus it is located between 2PL and 3PL. The external 2PL/3PL means partners who already make horizontal logistics alliance with non-retail group and competitors who maybe eligible for horizontal logistics alliances with non-retail group.
launched in Pax B.I.S.
2.4 Logistics Supply Chain structure
The supply chain structure of non-retail group in Pax Group is showed below in Figure 3.
4PL
(Big 4PL&Service Company Customer) External 3PL(Partners&Competitors)
Internal 3PL(Pax P.I.L)
External 2PL(Partners&Competitor) Internal 2PL(Pax D.T,Nabek,KPB)
T r a n s p o r t a t i o n W a r e h o u s e & T r a n s p o r t a i o n M P r o d u c t i o n ( R e ) P r o d u c t i o n 1PL (SOR&SOM Customers) 1PL (MANU&SOM Customers) V e r t i c a l L o g i s t i c s A l l i a n c e H o r i z o n t a l L o g i s t i c s A l l i a n c e Pax B.I.S W a r e h o u s e & T r a n s p o r t a i o n M
Figure 3 Logistics Supply Chain Structure of Non-retail Group
We can see from above logistics supply chain that, the upstream of supply chain is made by 4PL and production company (1PL). The warehousing and transportation are operated by internal and external 2PL and 3PL. As described before, the external 2PL and 3PL includes partners and competitors. The internal 2PL and 3PL are subsidiaries of non-retail group. Pax B.I.S is a special group because it is not a simple transportation company, it also provides project service and refers to some transportation management. Thus it not only has transportation asset but also possess some components of 3PL. The downstream of supply chain is also made up by 1PL customers, but these producers or manufacturers are different from 1PL customers in upstream, they reproduce the production of 1PL in upstream.
Now, we see this supply chain more detail and apply it to non-retail group. The customer of non-retail group is made up by 4PL including big 4PL global companies and service company and part of 1PL customers SOR and SOM. The downstream of supply chain is made up by 1PL including only SOM and MANU customers. Non-retail group acts as a physical link between upstream customers (suppliers) and downstream customers. They constitute vertical logistics alliance chain. We can see from the above graph that the function of non-retail group is to optimize the holistic supply chain.
in retail industry because Pax P.I.L joined the non-retail group for only 1 year, it hasn’t transformed from retail 3PL to non-retail 3PL yet. Litter cooperation happens between external 3PL and internal 3PL. Internal 2PL in non-retail group are asset-owned trucking companies except Nabek which rent trucks from spot market. Besides that, other types of partners are also needed. For example, the strategic partners of Pax B.I.S including packing company and cranes partners who provide lifting cranes for trucks for internal 2PL. Thus the cooperation within internal 2PL and between internal 2PL and external 2PL constitute horizontal logistics alliance chain. There are two main flow of non-retail group’s business. The first flow start from 4PL who serves for its customer 1PL. 4PL assign parts of their logistics works to Pax P.I.L if the task refers international cross-border transport outsider the Benelux. P.I.L will responsible for the international complete logistic service package to settle customs formalities concerning import, export and transit properly. If the transportation task is not in Benelux, Pax P.I.L has to make horizontal logistics alliance with external 2PL. If the tasks are in Benelux, then the sub-tasks are distributed to Pax B.I.S and internal 2PL. According to attribution and requirements of task, Pax B.I.S and internal 2PL can be chosen to execute the task. External 2PL is also needed when non-retail group’s trucks are incapable of the customers’ transport requirements. Therefore, it has to rely on 2PL partners to use their different types of trucks to provide services. The second flow is launched by 1PL customers SOR and SOM, they serve for MANU or SOM. This flow is used for describe the transportation business within Benelux. Non-retail group provides service to transport upstream 1PL (SOR&SOM) customers’ products to downstream 1PL (SOM&MANU). According to attribution and requirements of task, Pax B.I.S and internal 2PL can be chosen to execute the task. Chapter 3 Research Method& Literature Review
3.1 Introduction
First of all the initial motive for this research has been explained briefly in the introduction part. The problem statement and conceptual model will be presented in section 3.2. In section 3.3 the research question is formulated. The research scope and method will be depicted in section 3.4; the literature review is also included in this section to introduce the theories and analytical tools used in this research. In the end, section 3.5 describes the research design and structure of thesis.
3.2 Problem Statement& Conceptual Model
3.2.1 Problem Statement
be used to describe Pax Group's logistics alliance procedures. The three phases of logistics alliance gives a clear set of procedures enable Pax Group to focus on the right path.
Macro influencing
factor Median influencing factor Micro influencing factor
Figure 4 Pax Group Logistics Business Model, Bagchi's model (1998)
The graph shows the main phases applied in Pax Group. In the first phase there is growing awareness of the needs for a radical change in the management of the logistics function. The awareness is triggered by a strong desire to be more competitive, or thrust upon an organization by marketplace forces, or may be influenced by the offerings of a service provider (Bachi 1998). The Pax Group has established a strong network which has stable customer source and good relationships. The network helps Pax Group to gain market intelligence, and provides Pax Group more chances to gain downstream information from customers. The awareness of vertical logistics alliance between Pax Group and customers is mainly triggered by strong desire of outsourcing logistics activities of customers. The outsourced logistics can be implemented more efficient by Pax Group compared with being implemented by customers themselves. In the second and third phases, the user and provider cooperate to develop, manage, and improve the services. Phase 2 consists of preparation and planning for the alliance. Phase 3 includes managing the process. During phase 3, there is an adjustment feed-back loop to phase 2, in some cases feedback to phase 1. At the end of phase 3, one or both of the parties may want to exit, and the alliance is terminated (Bachi 1998).
The three phases are affected by different factors, the first phase is affected by macro factor, which is more related with business environment and market positioning. The last two phases are affected by median and micro factors such as operational and managerial activities. Based on the logistics alliance market analysis in the first phase, Pax Group can revise corresponding operation strategy and performance measurement in second and third phase to satisfy customer requirements.
divided into current logistics alliance part and inbound logistics part. The current logistics alliance covers three phases of Bagchi’s model. We will briefly introduce macro factor and pay more attention to median factor in this part. The micro factor will not be discussed in this paper due to this research is explored on strategic level. However, the inbound logistics part is now in the first phase at present. Thus the analysis covers macro factors. The proper geographical scope of inbound logistics alliance will be fixed through macro factor analysis. In order to get the new operations strategy, the median factors will also be analyzed to check the requirements of current Chinese logistics alliance within fixed logistics alliance areas, the forms of horizontal logistics alliance between non-retail group and local LSPs will also be mentioned. 3.2.2 Conceptual Model
Macro Environment Influence (Business strategy and market positioning}
Chinese Logistics Alliance Market Requirements Environment Analysis (Including logsitics market,competition and geographical scope}
Operatoin resources
General Resources (physical resource, information resource
human resource, knowledge resource, relational resource) Scale of Logistics service Service Technology Supply network Organization& Development
Reconciliation Process
Service Quality
(Transit time and damage rate) Operations Efficiency (freight rate and supply chain disruption costs) Reliability
Figure 5 Conceptual Model
strategy to fit with service users. This research is solely focusing on analyzing operations strategy need to be adjusted by non-retail group. So how to integrate and utilize the current limited resources to meet the requirements of users is realized by reconciliation process. It is used as an effective way to find the gap between current operation resources and potential market requirements.
3.3 Research Questions
Pax Group wants to expand its logistics alliance with Chinese customers - suppliers of manufacturer in industrial field to handle their outsourced logistics activities. The main reasons are listed below.
1) The rapid expansion of Chinese manufacturing industry and upgrading trend will provide more opportunities in industrial logistics field.
2) Utilizing the current Pax Group’s European network advantage to gain wider geographic coverage and control of major traffic flows through the creation of efficient logistics chains.
3) Improving operating margins and spreading costs and risks through business expansion to new market.
The research question for this thesis is listed below:
Which operations strategy decisions should be adopted by Pax Group to make industrial logistics alliance with Chinese suppliers?
The research question can be spilt to several sub-research questions:
1) What’s position of non-retail group in current logistics alliance market? (Chapter4) 2) What resources support the current logistics alliance? (Chapter 4)
3) What are the suitable areas for inbound logistics alliance? (Chapter 5)
4) What are the requirements and forms of Chinese vertical and horizontal logistics alliance? (Chapter 5)
5) How to reconcile resources of current logistics alliance with market requirements of potential inbound logistics alliance? (Chapter 6)
The above research questions will be answered separately in the later chapters of the thesis.
geographical scope of logistics alliance for non-retail group in China, the suitable areas for inbound logistics alliance will be ensured and analyzed in detail through macro analysis in Chapter 5 to answer the third sub-question. The new operations strategy must based on the current Chinese market requirements, thus the requirements inbound vertical logistics alliance and forms of horizontal logistics alliance are introduced after the macro analysis. Then the fourth sub-question can be answered accordingly. The fifth sub-question will be answer in Chapter 6 to make reconciliation according to the resource analysis in Chapter 4 and market requirements in Chapter 5, the suggestions and conclusions is showed in Chapter 7. The research design linked to chapters is showed below.
Introduction + Organization Review Chapter 1 - 2
Research Question& Method + Literature review
Chapter 3
Current Logistics Alliance Analysis Chapter 4
Potential Logistics Alliance Analysis Chapter 5
Recociliatio Process Chapter 6
Recommendations& Conclusion Chapter 7-8
Figure 6 Research design related to different chapter
3.4 Research Method& Literature Review
3.4.1 Research Scope
Current Logistics Alliance Analysis
Potential Logistics Alliance Analysis
Area European industrial logistics alliance market
Chinese industrial logistics alliance market
Scope Macro to Median Macro to Median
Data Internal data / Interview / Internet
External data / Interview / international journey /
Internet Topic Logistics alliance of
non-retail group Inbound logistics alliance Macro factor
--Business strategy --Market positioning
--Chinese logistics industry --Geographical scope of inbound logistics alliance Median factor --Scale of logistics service --Supply network --Service technology --Organization& development --Logistics alliance requirements --Horizontal logistics alliance form Content Reconciliation Process
Table 1 Distinguish between current and potential logistics alliance chain analysis
3.4.2 Research Method
only one – non-retail group in Pax Group. Besides that, the survey for Chinese logistics alliance market is also used to gain market requirements of Chinese market. Moreover, this research design a new methodology to transform operation strategy matrix (Slack and Lewis, 2002) from manufacturing context to service context in order to apply it on the survey of Pax Group. For example, some performance objectives have been redefined to fit for logistics service industry.
In this research, we have five different subsidiaries in non-retail group. Due to time constraint, it is not possible to explore each subsidiary very deeply. But these subsidiaries provide enough information sources to get the conclusion. The research involves both quantitative and qualitative elements, where repeat visits to collect quantitative and qualitative data are involved. In addition, the use of tape recording during the interviews can contribute towards reduction of observer bias, especially if the evidence is presented verbatim rather than summarized (Voss, 2002).
Given the infancy nature of Chinese logistics industry and fast growth of the logistics industry in the YRD and PRD regions, official statistics are non-existing or at best outdated and inaccurate. Besides that, there is no reliable census of economic activity it is difficult to implement a traditional sampling strategy. Under such environment, the sampling approach used in this research was to conduct in-depth interviews with a group of companies that specialized in freight forwarder to see the Chinese logistics and transportation system from the view of third party. Due to the time constraints, there are total 29 managers from YRD and PRD participate the survey, all interviews are completed through telephone. All discussions are concentrating on the service quality objective consists of transit time and damage rate factors, operations efficiency objective consists of freight rate and supply chain disruption related costs factors and reliability objective reflected by contingency plan. Moreover, the managers in non-retail group are also interviewed in order to get the operation’s performance of above each competitive factor when comparing with Chinese competitors to position the performance scale in importance-performance matrix, the results of interview is contained in the analysis of reconciliation process in Chapter 6, the importance scale of each competitive factor is analyzed in Chapter 5 according to the result of in-depth interview. The appendix 10 shows the nine-point importance scale of each competitive factor (Slack, 1994) which is used for interviewing the managers in non-retail group. The literature review is given below.
3.4.3 Literature Review
Resource-Based View (RBV)
The RBV recognizes that a firm is a collection of tangible and intangible resources (Collis, 1991). Thus in the context of LSPs, these resources can be tangible (e.g. equipment, plants, fleets, hardware), or intangible (e.g. organizational processes, skills, know-how, reputation), and will enable them to attain superior performance (Daugherty et al., 1996; Murphy and Poist, 2000) and to foster strategic partnerships with customer firms (Skjoett-Larsen, 1999). Such differential endowment of resources among firms is the ultimate determinant of strategic decisions. According to the research of Wong et al. (2009), this research identifies physical resources, information resources, human resources, knowledge resources, and relational resources as strategic logistics resources which constitute “resource possession” of non-retail group. The reason of utilizing RBV theory to analyze resources is that not only does it can distinguish the tangible resources such as physical resources but also intangible resources such as knowledge resources and information resources and relational resources, especially in dynamic and competitive business environments (Bettis and Hitt, 1995). The aim of using RBV to analyze general resources is to conclude the strengths and weaknesses of non-retail group thus serves as the basis for locating which strategic decisions areas need to be improved.
Operations Strategy
Within the OS literature, most authors define operations strategy as “a series of operation decisions serve for proper strategic positioning or aligning of operations capabilities which can significantly impact competitive strength and business performance of an organization.” (Anderson et al., 1989). It is customary to distinguish OS between content and process approaches. Schniederjans and Cao (2009) divide the operation strategy into two broad areas, content and process. Process strategy dealt with the actual formulation and implementation of the corporate, or macro strategy while content strategy referred to the choices, plans, and actions that make up the strategic direction. Slack& Lewis (2002) also emphasize that the overlap between the content and process may happen sometimes.
needs to be adjusted. In a general operations context, capacity is defined as “the maximum level of value-added activity over a period of time that the operation can achieve under normal conditions” (Slack and Lewis, 2001, p.114). For logistics service, capacity can refer to the highest level of service to which an LSP can provide in a given period. This dimension is renamed as scale of logistics service which can be provided to meet the customer requirements. This resource is described through outsourcing level of current customers. The supply network doesn’t need to change it definition because it can also be used in service sector. For process technology, as defined by Slack, Chambers and Johnston (2000), is “the machines, equipment and devices which help the operation transform materials and information and customers in order to add value and fulfill the operations strategic objectives”. In the context of logistics service, this aspect of operations resources could be labeled as service technology refers to the system platform and information technology which can help to transform information to guide transportation and add value to customer service. This service technology will be described through coordination& integration mechanism. The organization development is a decision area which addresses organizational structure, product and process development and managing product/service development resources. The logistics service has following features: 1) intangible service; 2) heterogeneous demands in five subsidiaries which result in challenges to offer flexibility to satisfy varied demands; 3) the consumption of service and production of service take place at the same time; 4) high degree participation of customers.
Logistics Outsourcing
Berglund, 1997). Hsiao et al. (2010) divides logistics outsourcing into four levels: transportation (level 1), packaging (level 2), transportation management (level 3), and distribution network management (level 4) based on the development of new services and the traditional distinction between execution and planning & control activities in Operations Management. Guo et al. (2010) categorize outsourcing structure into three levels which are Turnkey, Turnkey with integration and In house consignment in a three-tier supply chain consisting of an OEM, a CM and a supplier. The logistics outsourcing level is decided by different sets of capabilities and resources owned by different to a large extent. It requires considerable investments not only in physical facilities and equipment but also in logistics competence (Gadde, 2009). However, Selviaridis et al. (2010) consider a large part of logistics outsourcing present a rather static view of outsourcing, integration and cross-fertilization of theoretical perspectives could provide more robust explanations covering the outsourcing process (Selviaridis and Spring, 2007; Mahnke et al., 2005). It means that the dynamics of service exchange is, however, underplayed, it being assumed that the offering is defined at the outset of the process (Selviaridis et al., 2010). Mason et al. hold the same view, they found that the relationships between logistics outsourcing and firm performance are not the same for all firms. Rather, the performance effect of outsourcing is contingent on characteristics of the firm’s supply chain logistics environment. Actually, the results of the logistics outsourcing should be a mixed outcome. When a great number of different resources and activities combined in a logistics process, the need for effective coordination is obvious (Huiskonen, 2002). Huiskonen also points that in the logistics outsourcing relationship the coordination task is even more challenging, because two different organizations are involved in a boundary spanning value chain process. Through using efficient coordination mechanisms such as vertical and lateral coordination the service level can be guaranteed. This kind of coordination mechanism is also called vertical and horizontal logistics alliance by Carbone et al. (2005). In this research, the logistics outsourcing level of current and inbound logistics alliance are discussed and categorized in current and inbound logistics alliance part. The coordination mechanism raised by Huiskonen (2002) is also introduced according to the development process of non-retail group in current logistics alliance analysis to analyze service technology resource.
Market Requirements
important. Lai et al. (2004) also put the transport logistics in the SCM context to discuss the supply chain performance (SCP) in transport logistics from both cost and service perspectives. This research capture three aspects of SCP in transport logistics, incorporating perspectives of both efficiency and effectiveness to address the performance requirements of various members of the supply chain in this industry; i.e., shippers, service providers and consignees. The three aspects of SCP in transport logistics include service effectiveness for shippers (SES), operations efficiency in providing the services (OE), and service effectiveness for consignees (SEC). SES and SEC are customer-facing measures and concerned with the reliability (REL) and responsiveness (RES) of a supply chain process performed for shippers and consignees, respectively. OE is concerned with the efficient use of resources in performing transport logistics services in two aspects: cost (COST) and assets (ASSET) (Lai et al., 2004). Krakovics et al. (2008) classified 19 indicators from the point of view of a 4PL firm to monitor the work of a 3PL. This research follows the rule: any system of performance measurement should include at least one indicator of efficiency, which is translated into measurement of resources; one indicator of customer service, which is achieved through product availability; and one indicator of adaptability to changes, which can be described by measurement of flexibility (Krakovics et al., 2008).
According to the above literature, we choose the common factors to constitute the dimensions of market requirements for Chinese logistics alliance service. Reliability can be applied in any context. In this research, it refers to the ability to meet the customer needs in service process (contingency plan) when the transportation is delayed by various reasons. Reliability reflects the adaptability to changes in the perspectives of service effectiveness to both shippers and consignees. Service quality refers to the quality of delivered goods (damage rate) and whether goods are delivered on time (transit time). Service quality reflects the customer service in the perspective of service effectiveness. Operations efficiency refers to efficient use of resources in performing transport logistics services. It reflects the efficiency of utilizing resources (freight rate and supply chain disruption costs).
Supply Chain Management (SCM)
should be managed within the context of optimizing the holistic supply chain system. The final suggestions are just based on this aim.
As a TPL, it can serves for more than one customer, it means it serve more than one supply chain and it acts as an interlocking gear in each supply chain. Therefore the central question is how to best manage relationships between supply chain players. This problem includes customers and service providers’ relationship and relationships between logistics service providers. Wong et al. (2009) take the relational resource as the explanatory factors for the competitive advantages of LSPs from resource-based view (RBV). In that article, relational resources are operationalised as the ability to build and maintain long-term working relationships with key suppliers and customers in such a way that the relationship is hard for other parties to easily replace. The example of horizontal alliance between KPN and Wincanton jointly compete with other competitors in the retail sector is cited by authors to emphasize that relational resources can also established via horizontal alliances. It is recognized by authors as an effective way to access to customers and a quick-win strategy to swiftly access to physical, information and knowledge resources with relatively low financial investment. Gibson et al. (2002) also raise the view of horizontal cooperation between LSPs can increase their ability to control costs and to reduce the costs of the supply chain. The buyer-provider interaction is emphasized by Gadde et al. (2009) in form of logistics outsourcing as an important mean of improving supply chain effectiveness. The main conclusion of the paper is that increasing interaction between buyer and provider would be beneficial to the outcome of outsourcing. It is evident that increasing of supply chain complexity and cooperation is caused by the development of TPL and customer’s logistics outsourcing requirements. This point is supported by a London conference report describes that supply chain management has developed strongly for three reasons: more international market, more discerning customer and more specializing business. Based on above literature, the supply network resource of current logistics alliance is analyzed from the relationship perspective. The proper horizontal cooperation form between LSPs is also analyzed according to the market requirements in inbound logistics alliance part.
efficiency of manufacturers’ global operations. Trappey et al. emphasize the synergistic effect of logistics hub which is used for handling the material flows and business hub which is used for dealing with information flow. However, supply chain integration also needs prerequisite. The results of Jayaram et al. (2010) indicate that the information integration appears to be an ‘assumed given’ or an order qualifier to ensure optimal firm performance outcomes. While relationship building is the most important enabling factor of supply chain integration, followed by 3PL performance evaluation criteria. Therefore, the information integration has become a prerequisite of supply chain integration. According to the above literature, the information resource are analyzed in current logistics alliance part, the integration mechanism is analyzed and serves as the other organic part of service technology resource.
In addition, the Hertz’s matrix is used to explain the strategic development of non-retail group. Hertz et al. (2003) classified the TPL into four types according to according to abilities of general problem solving and customer adaptation. The first category is service developer who offering advanced value-added services. This could involve differentiated services for different customers, forming specific packaging, cross-docking, track and trace, offer special security systems, etc. (Hertz et al. 2003). The second is customer adapter which could be described as the TPL firm taking over customers’ existing activities and improving the efficiency in the handling but actually not making much development of services (Hertz et al. 2003). The remaining two types are belong to two polar which are standard TPL supplying the standardized TPL services like warehousing, distribution, pick and pack, etc. (Hertz et al. 2003) and the most advanced and difficult form customer developer involves a high integration with the customer often in the form of taking over its whole logistics operations. Balancing the two dimensions would be one of their main tasks for LSP strategic development. The Importance-Performance Matrix of Slack (1994) is used to distinguish the improving priority of different performance objectives and competitive factors represents these performance objectives during the formulation of operations strategy. The matrix is modified to reflect relationships between “importance”, “performance” and “priority for improvement” perceived by non-retail group’s managers. According to the Slack (1994), this research is categorized to the investigation regarding the level of the whole operations function rather than investigation at the level of the department or micro-operation. The interview to managers of non-retail group about their perceived performance of competitive factors comparing with Chinese competitors refers to the nine-point scale method in Slack (1994).
3.4.4 Data Reference and Resources
used. The empirical data are mainly used for current supply chain description and analysis. External data are the main resources for inbound logistics alliance part. The external secondary data are got from in-depth telephone interviews, published books and internet as well. Part of the external data are sourced from statistical year book of China 2009 because the edition was only published and updated to 2009, it is hard to get macro figures of 2010. The in-depth interview data is mainly sourced from Chinese freight forwarder companies in YRD and PRD regions. The interview was designed to obtain qualitative data regarding supply chain operations and transport decisions as well as information about the export shipments, delays/disruptions, logistics costs, and transit times according to the market requirements defined in pervious section. Most interviews lasted for nearly one hour. A total of twenty-nine managers were interviewed within half months starting from mid September in 2010. The data and analysis presented in the Chapter 5 are based on in-depth interviews. Chapter 4 Current Logistics Alliance Analysis
4.1 Macro Factor
4.1.1 Business Strategy
The macro factors of current logistics alliance analysis are described from non-retail group’s business strategy and its market position two aspects. In this part, Porter’s generic strategy (Porter, 1980) is used as a reference for analyzing non-retail group’s business strategy. Michael Porter has described a category scheme consisting of three general types of strategies that are commonly used by businesses to achieve and maintain competitive advantage. He divides three types of business strategy: cost leadership strategy, differentiation strategy and focus strategy. Among them, the dimension of focus strategy can be based on cost leadership or differentiation. Clarification of strategy positioning for non-retail group, based on Porter’s generic strategy is showed in Figure 7.
Cost Leadership Strategy Differentiation Strategy
Focus Strategy
(Low Cost) (Differentiation)Focus Strategy
Nabek
KPB Pax D.T
Pax P.I.L Pax B.I.S
Figure 7 Porter’s generic strategy applied on non-retail group
construction field with specialized needs. On the other hand, the transportation goods’ additional value is low plus there is no technique or skill which is hard to be imitated by competitors. Therefore, for these two subsidiaries, it is important to reduce costs, especially they just experienced an economic crisis, and the turnover of these two subsidiaries has varying degrees of decline. Currently, Pax P.I.L also adopts low cost focus strategy because the turnover of Pax P.I.L is still focusing on retail sector service for consumer goods; its logistics services mainly serve for low margin and high volume products. However, parts of Pax D.T’s business belong to low value-added raw material transportation for specialized fixed customer, the remaining parts are specialized in high value-added machine transportation for another specialized customer with long-term relationship. Hence, Pax D.T is located between low cost focus strategy and differentiation focus strategy. The root company, Pax B.I.S focuses on industrial project service and transportation, this kind of projects are mainly required by 4PL customers and subjected to very specific customers. The project service is high margin and relatively low volume due to the scale and time requirements of project, so it belongs to differentiation focus strategy. Non-retail group still needs to further reduce costs from internal entities because the market price often fluctuate and the demand is decreasing for non-retail group in the shadow of economic crisis.
This business strategy directly guides functional strategy. Before talking about non-retail group’s market positioning, it is necessary to clarify the strategy relationship from top to down side:
1) Pax Group Level (Corporate Strategy)
The main objectives from top level are firstly increasing market share and maintaining the leadership in northern market in Netherlands, secondly building brand in Pan-Europe district and future Chinese market. Pax Group started transformation since 2007, before that Pax Group has merged several subsidiaries such as Nabek and Pax .P.I.L to expand its business range from purely transportation to more diversify to such as freight forwarder field to increase market share. The enhancement of lead in northern market is implemented by increasing the value-added transportation service, such as project service, packing, assemble and disassemble service etc. As a result, through business expansion and service upgrade, the brand building objective can be achieved in the future.
2) Non-retail Group Level (Business Strategy)
subsidiaries in non-retail group to integrate the resources to serve for developing industrial logistics service.
3) Subsidiary development level (Functional Strategy)
On functional level, due to most MANU and SOM customers are concentrating in root company – Pax B.I.S. The leadship of Pax B.I.S to explore industrial logistics service has been fixed. The objective of Pax B.I.S is to transfer the industrial logistics experiences to remaining subsidiaries to make them transfer to more industrial transportation rather than focusing on current retail transportation. Establishing work of internal communication platform has been launched in order to smooth the friction of business in different subsidiaries and serve for future coordination and cooperation. 4.1.2 Market Positioning
In this part, firstly non-retail group’s market position is located following a brief classification of logistics operators. And then, non-retail group is further located in Hertz’s matrix which classified LSP firms according to abilities of general problem solving and customer adaptation.
Generally, the logistics operators are categorized into four categories: 4PL, 3PL, 2PL and 1PL. The definition of these four terms has been defined in Chapter 2.
These four categories are differentiating based on the different logistics resources and processes managed. Therefore, there is a clear assignment of responsibilities and duties among four types of logistics operators. The logistics chain between logistics operators is showed in Figure 8.
Figure 8 Non-retail group markets positioning in logistics chain
speed up the transformation schedule. It manages the goods flow between different organizations, from the transportation to the warehousing. Three transportation companies have different customer groups and business areas. Pax B.I.S is positioned between 2PL and 3PL, because it has its own truck fleet but also posses some characteristics of 3PL, such as it is responsible for multiple logistics activities, integration of activities, and provides a solution to customer’s logistics and supply chain problems. 1PL is the customers of non-retail group. Thus the position of non-retail group is indicated in Figure 8. The 5 subsidiaries are either distributed in 3PL level, 2PL level or between these two levels, but the whole non-retail group can be seen as an asset-based 2PL with some 3PL characteristics, it expect to become fully 3PL within 2 years. The position of current level will be upgraded in a short time in the near future, but the non-retail group’s business strategy of exploring high-value added industrial logistics activities for specific industrial customers won’t be changed for a long time. Currently, the remaining three 2PL subsidiaries is now following the way of Pax B.I.S to increase the business opportunity and transform from low end transportation to high value-added service to generate constellation effect to further enhance the brand development process. Figure 9 indicates the strategic development process of non-retail group.
Traditional house brokers or warehouse firms Integrators Service developer Problem solving general abilities High Low High Low Customer adaptation Standard transport firms Customer adapter Standard LSP firm Customer developer
Figure 9 Strategic development process of non-retail group Hertz’s matrix
a completely equipped transport group. So the problem solving general abilities become relatively high. The customer adaptation ability is strong in some subsidiary such as Pax B.I.S but not in the remaining subsidiaries because they provide various kinds of logistics service such as commodities& construction transportation and consumer goods logistics services etc. to different scattered customers. Gradually, non-retail group has begun to change to customer adapter by concentrating on fewer customers and taking over their total warehouses and the logistics activities. Although this kind of outsourcing relationship takes over customers’ existing activities and improving the efficiency but actually don’t contribute too much to service development. Therefore, it still can be imitable and replaced by other competitors if other competitors can offer cheaper price than non-retail group. The stability of this kind of relationship is not so high but also not very low because it is a kind of customer specific service after all. Unless the service level of non-retail group is too low or costs too much compared with competitors, the customers won’t change their logistics service partners easily in consideration of the customers switch costs. In order to change the unstable relationship and develop unique selling point of non-retail group, non-retail group is now trying to become service developer who offering advanced value-added services to further enhance the problem-solving capability based on current customer adopter role. This could involve differentiated services for specific customers. Relying on customers’ system and standards as a customer adaptor is useless for non-retail group now, an advanced IT system which can facilitate integrated modules including more standardized activities and advanced service package is important so that customers can freely combine different modules according to their demand. The focus would be more on creating economies of scale and scope (Hertz, 2003). In summary, besides continuously enhance the current customer adapter role in the market, non-retail group is trying to become service developer to pursue high problem solving abilities based on high customer adaption ability.
4.2 Median Factor
4.2.1 The general resources
The following are the detail description of five strategic resources. The process of how to bundle five strategic resources to generate competitive advantage is explained in Appendix 4.
1) Physical resources
belongs to light asset-based LSP compared with giant LSPs such as TNT, DHL etc. The assets of non-retail have are 9 logistics service centers located within Benelux and France, 206,000 m2 warehouses and 575 full time road vehicles. As described before, non-retail group generated its revenues from mainly commodity transportation and industrial project service. The business coverage is limited in the northern part of Netherlands.
2) Information Resource
systems are developed by application service providers (ASP) for central manufacturers without considering the needs of smaller users (i.e., transporters, suppliers, brokers, and carriers) (Trappey et al., 2010). Thus, the necessity of communication to reach a common consensus with all system users to gain the maximum benefits also needs to be considered as a hidden costs of non-retail group. 3) Human Resource
Human resource (skilled workforce) is another key resource. Skills and experience in warehouse management, transportation management, customer service and information system management are the often mentioned logistics-specific skills. Also, during the acquisition of physical resources human resource could be acquired at the same time. Especially for LSPs actively engaged in merger and acquisition (e.g. Exel, DHL, FedEx), skilful and knowledgeable employees were particularly important for the extension of network coverage and service offerings (Wong et al., 2009). This phenomenon is obvious for non-retail group because except Pax B.I.S other four subsidiaries are all gained through M&A. It not only enlarges the network coverage and service offerings, but also declines the risks of whole group because it increases the flexibility to transferring to focus on other types of service type if demands of one service decline significantly. Cooperation of staff between different subsidiaries can make employees understand and know their own business a different angle, the transformation of non-retail group to more professional industrial LSP is based on these kinds of multi-aspect human resources and aims to further enhance the synergetic effect of human resources.
4) Knowledge Resource
Knowledge resources are the keys to competitive advantage for both non-asset and asset-based LSPs. This kind of resource is hard to imitate and replicable. It can be gained through the M&A on one hand, more importantly, the hiring of expertise from other industrial sectors mentioned earlier was a crucial strategy to access to knowledge of various industries (customers’ supply chains) (Wong et al., 2009). The knowledge of one-stop management solution is the strength of non-retail group and such capabilities are embedded in the human resources and organizational routines which are extremely hard to imitate. But it lacks the knowledge of various industries especially customers’ supply chains knowledge. The problem is related with the lacking of information resources which has to passively follow the customers’ information system.
5) Relational Resource
Therefore, it forms a virtuous circle for both LSPs and their customers. Currently, the contracts between non-retail group and customers are mostly mid-term contracts. One of the important reasons for non-retail group chooses to focus on industrial logistics is the customer base. Most customer relational resources are distributed in this area, thus this kind of collaborative relationship is useful to help non-retail group to win new contracts and secure long-term or continuity of contracts. The other reason is to enhance customer retention through building competence in industrial logistics areas which hasn’t been explored and developed largely in Europe. However, the nature of Pax B.I.S wouldn’t limit the development of long-term collaborative relationship with customers, because although it is a project service subsidiary, once the project is finished the agreement is terminated immediately, the long-term partnerships with service solution companies guarantee more projects will be generated through their network. An effective way to gain relational resource is horizontal alliance. As described before, non-retail group has gained knowledge resources and human resources from M&A, actually it is a kind of vertical integration. The horizontal alliance of non-retail group as described before is limited within internal 2PL and between internal 2PL and external 2PL. The horizontal logistics alliance between internal 3PL and external 3PL is very few. Due to horizontal alliance is a quick-win strategy to swiftly access to physical, information, human and knowledge resource with relatively low financial investment (Wong et al., 2009). The non-retail group’s relational resources should be enhanced through seeking more opportunities to horizontal logistics alliance with other 3PL to gain broader “network converge” knowledge and thus enhance the core competence.
4.2.2 Outsourcing level (Capacity)
Figure 10 Three levels of logistics outsourcing (Source from Hsiao et al., 2010)
There is no strategic planning level business in non-retail group. On planning level, the activities are limited in several subsidiaries. The transportation management activities distributed in Nabek and Pax B.I.S. Nabek responsible for some construction related companies’ transportation management, such as hardware store and for other retail companies. While Pax B.I.S refers to transportation management within the logistics service projects, especially when Just-In-Time (JIT) transportation is required in projects. Inventory management activity is only required by Pax P.I.L’s biggest customer - Sara Lee. And Pax P.I.L is just responsible for parts of Sara Lee’s inventory management. Therefore, non-retail group actually has no customer source of inventory management in industrial logistics field. On execution level, the customer number is the most compared with the previous two levels. The outbound transportation is non-retail group’s daily work, while packaging& labeling is non-core activities for non-retail group, 80% customer needs is satisfied by non-retail group’s strategic packing partners. The remaining 20% small and simple packing tasks are completed by non-retail group itself. In summary, the non-retail group’s target customers are mainly distributed on the execution level. Very few customers’ outsourced activities are on planning level. It means that the scale of logistics service provided by non-retail group is rather narrow and low level, it can also be showed from the composition of turnover and profit. The transportation service and dedicated contract carriage take up 80% turnover while contribute 60% profit. The value-added service and shipment consolidation take up remaining 20% turnover but contribute 40% profit. The scale of logistics service still needs to be enlarged to provide higher level service, because at execution level, contractual relationships between LSPs and their clients are often short-term, the time dependency is high but the functional dependency is low, the network relationship is changeable. However, at (strategic) planning level, the LSPs offer customized logistics solutions and their skills are complementary to their clients, the time dependency and functional dependency are both high, the network relationship can enhanced by the mutual needs of clients and LSPs. Moreover, the customers of non-retail group seldom perceive they lose control over activities and resources, because the logistics service provided by non-retail group is low, customers just need to offer transportation order and selling goods information, and the whole logistics process can be completed smoothly. However, the service level of non-retail group is quite high compared with other competitors. 4.2.3 Supply network
coordinated by internal collaboration. The collaboration from suppliers to customers called vertical collaboration, the collaboration with competitors and other organizations called horizontal collaboration. Regarding the vulnerability of supply network is indicated in Appendix 5.
External Collaboration (Other organizations) External Collaboration (Competitors) External Collaboration (Suppliers) External Collaboration (Customers) Internal Collaboration Vertical Collaborative Transport Management Inbound flow Outbound flow Horizontal Collaborative Transport Management
Figure 11 supply network structure (source from Barratt, 2004)
asset utilization.
4.2.4 Service Technology (Process Technology)
In this part, the logistics processes of non-retail group are controlled across supply networks by leveraging coordination and integration mechanisms.
Coordination usually refers to materials and information flows for logistics processes. The materials and information flows extend from the market place, through non-retail group and its operations and beyond that to suppliers. In current supply network of non-retail group, non-retail group adopts a “pull perspective” which is driven by final consumer demands. Thus the common owner for several of the links in the supply network is customer. The best interest of them is to reduce overall supply chain costs and how will savings or benefits be shared among the individual supply network actors. This perspective avoids a long-term sub-optimization that would generate disadvantages for each actor of the supply network (Romano and Vinelli, 2001) because the starting point of non-retail group is managing of the supply network as “a single entity” or “a whole”. In order to streamline material and information flow, non-retail group doesn’t use traditional SCM methods like joint venture or equity ownership but vertical integration. Vertical integration is regarded as an effective way to achieve supply network co-ordination (Grandori and Soda, 1995; Grandori, 1997) because it increases the extent to which an organization owns the network of which it is a part. Figure 12 indicates the vertical integration of non-retail group. There are two directions for integration which are backward integration and forward integration, they represent the extent of integration.
Focal company Pax B.I.S Nabek Pax D.T KPB Pax P.I.L Extent of integration Forward integration Backward integration
Figure 12 Vertical integration of non-retail group
