Our second trigger described a case of a large retail operator in northern Europe that started to cooperate with an e-commerce company Alibaba to export Finnish food to China. Some international challenges, outbound functions, and competitive advantages were introduced and described in this case. Our PBL team agreed on the following learning objectives to cover the main problem:
1. How to develop outbound logistics functions
2. What are the main competitive advantages
3. Things to consider when adapting to Chinese markets
1. Developing outbound logistics
It is good to start with a definition of outbound logistics, I found a short one on Key Differences, which describes outbound logistics as the outward movement of final goods from the company to the end user. Last week, we studied inbound logistics, which describes the process of transporting the material or parts to a company that manufactures final products. So the outbound logistics follow the inbound logistics and manufacturing process and is the final stage before distribution of products.
Thus, outbound logistics is already a part of customer service.
There are two main parts - the storage section and the transportation section. I would now like to describe these two functions:
The storage section
This section deals with warehousing and inventory. Companies have to make decisions concerning the size of the inventory that is stored and how to keep the products safe but easily accessible.
Our course book (Logistics b Bloomberg, Lemay and Hanna) on page 175 informs about the main functions of warehousing. Those are movement, storage and information transfer. The process then involves four phases: First, goods are received from transporters while the staff performs qualitative and quantitative checks. The goods are then transferred to their specific location, where they are stored until they need to be prepared for the final customer (the preparation involves checking, packaging, transporting to the outbound docks). Finally the goods are shipped by some means of transport to the final customer.
It is generally better to store less since products in a warehouse don't make any money, they cost money. On the other hand, if an only small amount of products are stored, the company might face difficulties in case of an unexpected rise in the demand.
Our course book (Logistics b Bloomberg, Lemay and Hanna) on page 175 informs about the main functions of warehousing. Those are movement, storage and information transfer. The process then involves four phases: First, goods are received from transporters while the staff performs qualitative and quantitative checks. The goods are then transferred to their specific location, where they are stored until they need to be prepared for the final customer (the preparation involves checking, packaging, transporting to the outbound docks). Finally the goods are shipped by some means of transport to the final customer.
It is generally better to store less since products in a warehouse don't make any money, they cost money. On the other hand, if an only small amount of products are stored, the company might face difficulties in case of an unexpected rise in the demand.
As one set of slides for this topic states, another challenge is choosing the optimal location of a warehouse. Locating close to the market and customers is, on one hand, essential, but not always possible and affordable and same goes for locating the warehouse close to the production facility. In order to transport the products effectively, the company has to make sure that there is a good infrastructure on the location of the warehouse.
Supply Chain Digital mentions other factors to consider apart from the physical location: storage requirements of products and labor force availability (the possibility of 2 or 3 shifts and night operation, competition in the location,...)
For example in the Czech Republic, where I come from, there are many warehouses, especially around Prague. Those usually belong to a company called P3 that rents warehouses as an outsourcing service. The location is very convenient since Prague is in the center of Europe so the distances to large countries like Germany, France, Poland or Italy are short. There is also a very good infrastructure with highways connecting to other European countries and finally, there is a skilled workforce that is cheaper than in Germany or other western countries.
The transportation section
the challenges in this section are similar to our last week's trigger and we have also partly covered it by the logistics game, so I can only describe it here briefly. The transportation is very complex and it is not always easy to find the most efficient and convenient way. The best for a company is to have reliable transport team and to be flexible to be able to deal with unexpected challenges. Those cover for example delays or rise in costs (wages, fuel, taxes,...).
The lecture slides introduce four main questions a company has to ask to establish functioning outbound logistics strategy: the means of transport (considering mainly speed, costs, reliability, flexibility, and suitability regarding the type of products), after choosing the means, the company has to think about the carrier that the company will pay to conduct the transport. Here it is again important to consider the costs, accessibility, responsibility or experience with similar kind of products. Connected to the previous- the company has to decide whether to use its own means of transport or use the services of an outsourcing company or of course a mixture of both. And finally, the question is, whether to manage the transportation by themselves or whether to pay a 3P company to manage the transportation. I think that nowadays the absolute majority of companies outsource at least a part of their outbound logistics since it would be very expensive and difficult to manage everything within that one company.
So after describing these two sections, I can write about developing an effective outbound logistics. I found a really good article on MH&L that I going to use the main source for this topic. Miller and Liberatore highlight the importance of outbound logistics in the customer relationship and possible negative impacts it could have if not conducted well. The authors examined 247 companies and came up with the key factors in developing the strategy. I am going to mention only some of those factors are
- consistent on-time performance (forecasting accuracy to match the demand with the supply)
- cost analysis of different 3P companies
- commitment to meet costumers needs
- balance the inventory investment
It is important to add that there is not a single 'recipe' for the right outbound logistics strategy and that it depends heavily on the industry and on the size of the market a company serves.
2. What are the main competitive advantages
As we saw in the trigger, one of the advantages is the uniqueness of a product as it was in the case of Finnish food products. This is also related to quality that can also be offered as an advantage. In today's fast world, speed is necessary and may also become an advantage of a company.
The SCM concept states, there are generally two possible ways to overcome competition in terms of logistics: the value advantage and the cost advantage.
The value advantage means delivering different or significantly better service than competitors. Those involve speed (delivering faster than scheduled), offering product assembly or using information technology to increase the performance of order placement, storage management or transport monitoring. This advantage is usually better for smaller companies that are not yet able to reduce the costs through economy of scale.
The cost advantage means activities (efficient processes, partnering with suppliers, using cheaper materials) to reduce the overall costs and providing cheaper services than the competitor.
The best possible for a company is to combine the value advantage and the cost advantage. Other advantages that can play a key role in today's world is the ability to adjust to unexpected situations and be ready to solve problems effectively and with minimal costs. To find and use a company's advantage effectively it is important to regularly revise the supply chain process in order to find the weak links and replace them.
The Industry Week also reminds the importance of human resources in the supply chain management. As SCM is getting more and more complex even using the newest IT systems may not be enough to govern the whole process effectively. That's why getting a supply-chain talent for its team can be the way to remain relevant for decades. the article literally says that 'a supply chain talent is the price of admission for the next decade'.
The right talent should:
- understand all parts of the process
- drive proactive planning of procurement
- optimize the distribution center network
- improve customer service
Coming back to our trigger, we saw that K Group has numerous advantages that would belong to the value advantage area and thus it is on the right track to managing a profitable relationship.
3. Chinese market specifics
The Chinese economy has been growing for several years and the growth is predicted to continue. It is also a huge market and a gate to other southeastern Asian countries.
It is however quite challenging country to do business in, in terms of its specifics. One of these is that the country is very diverse and the population, life standard, GDP or education vary among different provinces. B2B International warns that companies have to think carefully about the geographical location to get the best value. Most industry is situated on the eastern coast, where also all the large cities are. That means that there is also good infrastructure, on the other hand, the costs are usually high. The more to the west, the less populated areas are there including the mountain areas. China itself encourages companies to spread more around the country and avoid the capital area since more business there would make the pollution situation even worse.
Even though China is a member of the WTO, some industries remain heavily regulated and those remain off-limits for foreign companies. For our trigger, relevant regulators in China are the Ministry of Health and the State Food and Drug Administration. On top of that, there are also local regulators depending on the location of the business. All those regulations have an impact on the timeline and costs of market entry.
The other thing is that even though there are existing policies, nobody actually makes sure, those policies are being met by companies. Generally, the authorities start to care when there is a serious problem.
I am adding the table from the website mentioned above that includes the general Do's and Don'ts on the Chinese market.
Despite the initial complications and challenges, the success on a Chinese market can be extremely rewarding for a company.
Sources:
Lecture slides (Logistics Functions)
B2B International. Entering Chinese Markets: The Challenges and Opportunities. Available from: https://www.b2binternational.com/publications/china-market-entry/. Accessed: 23.2.2018.
Bloomberg, J. & Lemay, S. & Hanna, Joe. Logistics. Pearson Education.
Industry Week. Supply Chain & Logistics: the Competitive Advantage of a Supply Chain. Available from: http://www.industryweek.com/competitive-chain. Accessed: 23.2.2018.
Key Differences. Difference Between Inbound and Outbound Logistics. Available from: https://keydifferences.com/difference-between-inbound-and-outbound-logistics.html. Accessed: 22.2.2018.
MH&L. Outbound Logistics: Strategies, Performance and Profitability. Available from: http://www.mhlnews.com/transportation-distribution/outbound-logistics-strategies-performance-and-profitability. Accessed 22.2.2018.
SCM Concept. The Logistics Business as a Competitive Advantage. Available from: http://www.scmconcept.com.br/site/en/a-logistica-empresarial-como-vantagem-competitiva/. Accessed: 23.2.2018.
SCM Concept. The Logistics Business as a Competitive Advantage. Available from: http://www.scmconcept.com.br/site/en/a-logistica-empresarial-como-vantagem-competitiva/. Accessed: 23.2.2018.
Supply Chain Digital. Four Things to Consider When Choosing Warehouse Locations. Available from: http://www.supplychaindigital.com/warehousing/four-things-consider-when-choosing-warehouse-locations. Accessed: 22.2.2018.
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