7. Globalization логистика

CHANGES IN LOGISTICS SERVICE MARKET GENERATED BY TRENDS

OF GLOBALIZATION

Jonas Čepinskis1, Ignas Masteika2

1Vytautas Magnus University, Lithuania, j.cepinskis@evf.vdu.lt

2Vytautas Magnus University, Lithuania, ignas.masteika@gmail.com

Abstract

This paper is a theoretical analysis, opening with the introduction where the problem of the research, the object of the research, the purpose of the research and the research methods are described. The analysis revealed that the market situation, logistics service providers face today, differs a lot from the situation years ago. The trend towards globalization has steadily increased with the effect that supply chains have become longer and more complex. The competition has got worse due to the fact that barriers to trade have been gradually reduced. The main object of this article is the changes in logistics service market generated by trends of globalization. The principal purpose of the article is systemization and thorough description of the knowledge and information (found in a large number of sources) about the economic globalisation concept, globalization trends guidelines, logistics services system, to present a coherent overview on such aspects of logistics as: supply chain management, collaborative logistics, and third party logistics.

Keywords: Logistics, supply chain management, globalization.

Introduction

The market situation, logistics service companies face today, differs a lot from the situation that was years ago. The trends towards globalization has steadily increased with the effect that supply chains have become longer, wider and more complex (Christopher. 2005, Ballou, 2004). The competition has got worse due to the fact barriers to trade have been progressively reduced (Christopher, 2005). Both globalization and reduced barriers effected that many new competitors entered the market. In addition, customer expectations have significantly increased as they demand quicker response times and more convenient offerings (Coyle et al., 2003). Today customers have the opportunity to slightly compare prices, quality and services with the Internet and other media. This in turn has influenced the tolerance level so that it is very low for poor quality in products and services (Coyle et al., 2003). In most cases it is not tolerable any more to offer a specific product or service in the right quality, to the high technology level and within the right time due to the fact that these three factors are no solution any more to differentiate markedly from competitors (Grant et al., 2006). It is rather the added value offered to the consumer that leads to competitive advantages. Logistics services have appeared as an opportunity to offer such added value. But as with most of other services demands and complexity have increased (Ballou, 2004, Coyle et al,. 2003). Logistics currently means acting in complex networks of independent, but interdependent organizations (Christopher, 2005). However, customer orientation is an absolute prerequisite in order to survive in this unsettled environment (Christopher, 2005). Logistics service providers today remain no longer responsive in their business, but actively strive for ways to gain market share respond to defend their market position (Soosay and Hyland, 2004; Chapman et al., 2003; Gopfert and Hillbrand, 2005; Flint et al., 2005).

The principle aim of the article is to highlight the changes in logistics service market which were generated by the trends of globalization. Tasks: to analyze the trends of globalization, to emphasize the changes in logistics service market. Object of the article: global logistics service market. Research methods: analysis of scientific literature and statistical data.

Trends of globalization

People around the world become more concentrated to each other than ever before. Information, finance and etc. move around the world faster than ever. Products produced in a most remote corner of the globe are now available to the rest of the world. It is much easier for people to travel, communicate, exchange information and do business worldwide. This whole phenomenon is called globalization. Spurred on in the past by merchants, explores, colonialists and internationalists, globalization has, in more recent times, been increasing rapidly due to explosive evolution in communications, information and transport technologies. It has also been affected by trade liberalization, logistics internationalization and financial market deregulation.

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Globalization, as a process itself, year by year leaves increasingly deeper traces in world’s economics development. Friedman (2008) has an opinion that globalized trade, outsourcing, supply-chaining, and political forces have changed the world permanently, for both better and worse. The author states that the pace of globalization is quickening and will continue to have a growing impact on business organization and practice. Palmer (2004) defines globalization as “the diminution or elimination of state –enforced restrictions on exchanges across borders and the increasingly integrated and complex global system of production and exchange that has emerged as a result.

The globalization process has been recognized as one of the main underlying forces impacting global logistics service providers (Lemoine, 2005). The last few decades have seen a steady growth of international trade and international transport. The main driving forces behind this growth are worldwide growth of the global economy and relaxation of trade barriers. Of course this growth is not evenly spread around the globe and sometimes disruptions can be observed caused by incidental factors such as local economic crises, weather conditions, and political incidents. It is important to understand the mechanism behind this development and, furthermore, to seek to assess the consequences of these mechanisms on global transportation systems, global economies, and their level of environmental sustainability. As a result of globalizations’ input to global logistics system, (Pesut, 2009) notices that:

•Global logistics commonly considered as one of driving forces of economic growth and social development

•Transport is central and functions as an enabling mechanism

•Freight transport services have become more critical

•Accommodating new technologies, markets and organizational structures requires changes

•Need for greater efficiencies has made urgent the need for more “seamless” transport market in which delays in freight movements are minimized and choices of efficient route or mode combination are unhindered by national or modal boundaries

Caldwell (2002) states that: “global market logistics rely heavily on the performance of infrastructure owned and operated by the public sector. Understanding the motivation of global logistics decisions and their local implications is a critical point of departure for a national or multinational effort on fostering trade. Identifying freight bottlenecks, solving them, and establishing market conditions that provide free access should be an important focus of regional, state, national, and international planning or policy efforts”

Global logistics as a process is very flexible and easy variable, because it could be influenced by several of economical, social and political aspects (see Figure 1):

International

politics Role of time value

Figure 1. Logistics influenced by several aspects

Source: Created by authors

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To our opinion all these aspects mentioned above left very deep traces in whole logistics service market. We think that the most significant accelerators of making changes in global logistics service market are progress in technology, changes in time value and growing global competition.

Time value in logistics

It is no coincidence that cities and industrial clusters are situated around great harbours or other nodes in transport networks. Easy access to food, medicines, industrial inputs and markets goes a long way in explaining the location of economic activities. To the contrary, superior communication has led to increased geographical clustering of economic fields while the world’s most peripheral countries have become increasingly economically remote over time (Redding and Schott, 2003). This paradox is first due to the fact that as transport, finance, communication and other trade costs come down, more is traded and trade costs remain as serious as ever for location of production. World trade increased from 23% to 47% of world GDP from 1960 to 2004 (data of World bank 2005). Second, remote areas become relatively more economically remote when infrastructure and logistics are improved in main areas. Better roads will encourage investment in larger trucks that cannot economically service remote areas, greater ports encourage investment in larger and quicker vessels that bypass smaller ports and so on. For many developing countries this means that integration into world markets need a long bound forward as far as availability and quality of transport and other logistics services are concerned.

Time as a management instrument has been added in manufacturing industry since the advent of Taylor’s scientific management principles. Lead-time, standard hours, clocking time, throughput, velocity ratios, etc. are just some of the criteria used in manufacturing since the 1920s. The wordbook of time is in common usage, well understood, and supplies a firm foundation for timecompression activities. The development of some of these metrics and concepts of personal time management to process management, particularly paper work and supply-chain processes, gives instant focus for effectiveness improvements.

Research more then ten years continues to point that it is not uncommon for the average time spent actually “adding value” within a manufacturing environment to be as small as 5 per cent of the total process time (Stalk and Hout, 2000). In effect, this means that in such a context we waste 95 per cent of the time. For the total supply chain segments are generally even worse, as small as one-tenth of 1 per cent has been found to be “adding value” time. In effect this means “time-related positioning” is not reached in such a supply chain for over 99 per cent of the time.

Time-based systems with an emphasis on accelerating up process times result in a reduction in cumulative lead times. This results in lower inventory and thus a further reduction in response time. A time compression “virtuous circle” is produced (Christopher, 2002) in figure 2:

Time compression

Figure 2. The time-compression “virtuous circle”

Source: Christopher, 2002

How should time-based strategy companies evaluate performance. Table 1 represents the key differences which have been identified between time-based companies and those with a more traditional approach (Bhattacharya, 2005). Companies can take two variant approaches to improving performance. They

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can focus on cost decrease or on time compression. The differences between traditional companies and timebased companies you can see in table 1:

Table 1. Comparison between performance measures in traditional and time-based organization

Source: Bhattacharya, S.K. (2005), Time compression – strategic threat or competitive opportunity?

Cost is a lagging measure which follows some time after the physical activity is complete. It is often difficult to calculate and may convey the wrong messages. Time, however, is a more effective management tool. It forces analysis down to a physical plane and generally provides quicker feedback on improvements than cost. Because the measures are physical they are common, visible, easy and fast to use, and obvious to all concerned. Time-based companies meter the cycle times and lead times of all their main activities. However, these meters need to replace some of the traditional measures (Maskell, 2001), otherwise we are collided with conflicting messages about the focus of the company, we get log-jammed trying to reach too much, and the company does not work forward.

Technology in logistics

Everyone admits that operative supply-chain management can supply a major source of competitive advantage. The aim of a supply chain manager must therefore be to link the end client, the channels of distribution, the production processes and the procurement activity in such a way that clients′ service expectations are surpassed and yet at a lower total cost than the competition. One of the enabling elements for the achievement of this point is the efficient use of information technology. In figure 3 it is shown how informational technologies are integrated into logistics.

CUSTOMER

Figure 3. Integrating IT into Logistics

Source: Stock, J. R. and Lambert, D.M. (2003), Strategic Logistics Management, 2nd ed.,

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Logistics information technology takes an important place in firm success. Specifically, supply chain research shows that form success is hardly dependent on efficient information sharing (Knill, 2008). For example, one study found that 87% of companies trusted logistics information technology (LIT) (as a tool for information exchange) plays a virtual role in a company’s supply chain management strategy (Dranove and Hogan, 2008). Given that supply chain management strategies and operations span suppliers and clients, information technology must conjoin the supply chain. One acknowledged LIT benefit is improved interaction between supply chain partners, thereby improving supply chain effectiveness (Bowersox and Closs, 2001). Investigation of LIT roles and advantages related of supply chain dynamics is necessary to define the appropriate trade-off between LIT applications and supply chain performance. LIT influences the relationship with downstream firms as well. Bensau and Earl, for example, states that without high technology, a company may lose clients (Bensaou and Earl, 2003). However, this opinion is no longer satisfactory justification for senior management given the substantial level of prior investment. While the dormant benefits are apparent, these have always been realized. Therefore, there are increasing calls for more empirical justification of LIT-specific investment (Torkzadeh and Doll, 2002). Examining information technology in more detail, such as dividing information technology into its critical dimensions, may be a method to define further justification.

Several recent studies have indicated internal and external supply chain elements as critical to achieving performance connected competitive advantage (Liedtka, 2006; Stank, Daugherty and Ellinger, 2009). Other researchers have analyzed the impact internal/external integration has on technology/information exchange (Daugherty, 2004). These authors pointed that enhanced profitability and high competitiveness can be succeeded when integration is facilitated by information exchange. A synthesis of prior literature supports the segmentation of LIT into internal and external dimensions or constructs. However, previous research has granted limited evidence regarding the breadth and validity of these dimensions (Keller, Savitskie, Stank, Lynch and Ellinger, 2002). Keller et al. summarized a number of logistics related information technology scales. They suggested limited insight as they are: focused on individual technologies, very multifunctional focused such as with warehousing or transportation used only the general “information technology” notion. Previous research has proved limited evidence regarding the validity of these dimensions. Examining LIT as two separate elements, internal and external provides a unique method for estimating the relationship between LIT and client integration and client service performance. Items (i.e., survey questions) were assigned to internal or external LIT based on whether the technology supported applications within the firm or information exchange across companies. The next sections describe elements of the internal and external logistics information technology.

Inner Logistics information technology covers technologies that relieve information exchange, communication between departments, and functional and effective process. Inner information technology involves a company’s databanks and transaction applications which are often defined by the extent of integration, data accuracy, timeliness, and quality.

An enterprises resource planning (ERP) system is an instance of an internal logistics information technology. ERP systems facilitate accounting, financial, fulfillment, manufacturing and fulfillment integration. One author states that ERP packages are most significant LIT-related development in the 2000 (Davenport, 2003). This is based on the demands for raised accuracy and improved responsibility of division and enterprise data. The tremendous absorption in ERP systems during the late 1990s is also due to concerns regarding the year 2000 question. While such concern was suitable, the rationale for widespread implementation of ERP systems was much broader. Typical ERP system advantages include inventory reduction, decreased data processing time, and increased customer responsiveness (Minahan, 2001). Other instance of internal LIT involves warehouse management system (WMS) and transportation management systems (TMS). While other internal LIT instances could have been involved, the Broad ERP perspective effectively describes most inner LIT elements addressed in this survey.

External LIT describes those technologies that relieve communication and information transactions between supply chain partners. These technologies are external interfaces or applications that relieve efficient information exchange, analysis, and reporting between supply chain partners. Today many firms are extending their information sharing capacities to reach integrated supply chain management which demands more extensive information exchange. Electronic data interchange (EDI) and the Internet is examples of information technology that relieves information exchange (Walton, 1999). However, other important criteria of external LIT as reflected by these items involve strategic and tactical information exchange and coordination with customers and suppliers.

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Supply chain success is closely reliant on information exchange effectiveness and efficiency (Fox, 2006). The advantages of information exchange are enhanced responsiveness, cost reduction, and decreased uncertainty. Additionally, those companies effectively employing information shaping initiatives often develop a great supplier-manufacturer relationship.

It is referred that internal LIT integration and customer integration are strong accelerators of customer service performance. Internal LIT integration does have a straight, although not particularly great impact. While external LIT integration has a very great indicative impact on customer integration and presumably indirect impact on customer service performance, its direct impact is negative and is counter to the anticipated relationship (Stein, 2000). Overall, customer integration has an essential influence since the relationship is very strong. In assessing the influence internal and external LIT integration have on customer integration the results are very various. In this evaluation, external LIT integration has a significantly larger impact on customer integration, than internal LIT integration, which was not significant and therefore not useful for predictive purposes.

Logistics as a competitive advantage

Global business has been undergoing a period of quick transformation. Trends towards globalization, integrated logistics and the development of information and communication technology are all reforming the world’s trading models and consequently physical trade flows.

In order to be globally competitive, businesses are organising strategic worldwide networks that can deliver an effective and high quality response to demand from any section of the world market. The effective and integrated organisation of such practice is often referred to as global logistics or supply chain management, and it has become the glamour of global competitive power.

Logistics has been called the last frontier that even at the nowadays time, the improvement of logistics has been the prime source of companies’ to make new profits and maintain competitive advantage. There are also couple instances where the logistics system has become the cause of obstacle in company’s overall management. The potential for decreasing total cost and for improving the class of services provided to clients can be raised through the elimination of these obstacles. Also, from the social standpoint, an effective logistics system could offer possibilities to decrease road congestion and environmental pollution, which could influence in raised macroscopic economic productivity.

The fast growing companies often dispute that their logistics functions can be restricting their growth if the supply chain is not optimised. Barney (2001) states that to understand the importance of logistics it has to be viewed from a competition perspective. Therefore, the company has to evaluate that logistics can be applied as tools for competition. When this is achieved, logistics will gain the role they need. It is not enough to state that logistics are significant and valuable; the reason for the importance, and how it can be organised, must also be understood.

It is even discussed in the literature (Li et al., 2004; Yusuf et al., 2004; Mentzer, Myers & Cheung, 2004) that a well developed strategy of supply chain management could grant competitive advantage for a firm. Li et al. (2004) states that in order to secure competitive advantage, the supply chain has to be managed efficiently. According to their research, there are five main dimensions of an efficient supply chain: strategic supplier partnership, level on information sharing, customer relationship, quality of information sharing and postponement. Yusuf et al. (2004) have found out agile supply chain capabilities in order to find out how companies may stay competitive. Li et al. (2004), also bring up information integration within other companies and long-term collaboration with suppliers and clients as the main characteristics of agile supply chain management. Beside these, they add several other aspects, for example, cooperation with competitors and alliances amongst complementary equals. However, Olavarrieta & Ellinger (2007) states that finding suitable companion for deep co-operation within supply chains can be not so easy, because the relationship can be demanding and complicated.

Barney (2001, 2005) uses the resource-based view to observe how companies can achieve sustained competitive advantages. As mentioned earlier, competition in today’s markets is not always between firms, but rather between supply chains and its elements (Li et al., 2004) Barneys model involves four empirical criteria for the potential of company resources reaching competitive advantage: value, immutability, rareness and substitutability. With a competitive advantage, a company has a better opportunity for strengthening their supply chain, and therefore supporting the fast-growth of the member companies.

Ahrens (2002) finds out several circumstances where fast-growth companies could collide with some obstacles within logistical operations. For example, it can be hard to know how to make optional the

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inventory levels without always knowing the often accidental demand fluctuations. Likewise, the capacity of the distribution system has to be well considered to be able to respond to the variations in customers’ needs. Especially when companies expand globally, which in most cases it is fast-growth companies, the strategic decisions concerning logistics will be of high priority. The linkage between logistics and other activities – such as research and development, manufacturing and marketing – in global companies is also pointed out by Kotabe and Murray (2004). When the decision for these problems are found, the company have taken a step closer to gaining competitive necessity from supply chain management.

Conclusion

Creating a customer-driven supply chain, time compression in all business processes is becoming a main requirement. Viewing logistics as a timebased strategy will lastly contribute to achieving our aim of sustained competitive advantage enhancing profitability and growth. The definition of logistics indicates that the planning, execution and control of the movement of people, production and related support, in order to reach an objective within a system. If this is achieved in relation to time, logistics becomes a powerful enabler for time-based strategy. There is no dispute that a time-based focus can always lead to benefits even if it is usually an improved understanding of our logistics and supply-chain processes.

In twenty first decade trends are that the enforcement to invest in technology are strong and will increase during the nearest future. While there are business benefits and advantages for successful investment, the penalties of under investment or of poorly through investment decisions are also high. This is because competitors will also be investing in technology to improve the effectiveness and efficiency of their supply chains and develop new ways of doing business in order to achieve competitive advantage.

As a mater of fact it is known that supply chain management is as a research subject, still it is an outset, and in a period of rapid development. This indicates the usage of advanced logistical applications in companies; not all are aware of the opportunities that modern logistics system could bring to their operations. To recognise the meaning of logistics, companies have to understand that it could be a source of competitive advantage. Additionally, fast-growth companies often dispute that logistics could limit their growth. This is especially true when companies expand globally: strategic decisions concerning logistics must be well considered.

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