Logistics Competence in
                                                  Small and Medium-Sized
better grip on logistics than the               an indirect positive contribution       social cognition (13). The theory
established.The survey instrument                       Step     Objective                        Activities              ...
information from the books                                                         I COMPANY DATA
of accounts and other re...
the number of warehouse workers
                                                 Company Inbound     Raw     Throughput Fi...
Fish processing companies                          Textile companies          competence. All textile companies
Strategic ...
Variables                                                                       Fish companies                            ...
Causes of disturbance                 Fish processing companies               Textile companies            quality of the ...
Causes of disturbance                       Fish processing companies           Textile companies    link shown here may n...
processes in the SMEs. Information                Washington, DC : National Academy
contained in the reports is           ...
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Sc Logistic Competence Small And Medium Enterprise

  1. 1. Logistics Competence in Small and Medium-Sized Enterprises: The Norwegian Experience Professor Prabir K. Bagchi, PHD The development of logistics as a competitive tool for increasing market The George Washington University share and improving operational efficiency is mainly occurring in Associate Professor Helge Virum the large “leading edge” companies. Several studies indicate that Norwegian School of Management the small and medium sized enterprises (SME) are lagging behind in adapting to these developments. In this project an instrument for mapping the logistics processes in SMEs has been developed and tried out in 30 Norwegian companies. Background gies, and management practices is inadequate to ensure that American Never before has been accorded so manufacturing will be globally much importance as it has been in competitive”(3). Yet, small medium contemporary business, and never companies contribute a large before has logistics played such portion of a country’s GNP. How an important role in industrial can the SME’s utilize the lessons development as now. Much of the from the experiences of their larger development of logistics, however, counterparts? The health of the is occuring in the so-called “leading SME’s is an important topic for edge” companies. Increasingly, in research in many countries. The these firms, logistics is treated as a importance of SMEs is much strategic activity and the solutions more in case of a tiny country are often characterized by service like Norway where 99.5% of directed to customer demands, costs the manufacturing companies are efficiency and a comprehensive view classified as small and medium of the logistics process, from raw sized (4). The financial health and materials to the end customer(1). competitiveness of the SMEs, there- Close cooperation between sup- fore, are critical for the nation’s pliers, producers and customers is economy. Three years ago, the the hallmark in these companies. transportation research group These firms are concerned with (PROTRANS) of the Research on-going process improvements Council of Norway initiated an and attention to changes in both audit of the logistics preparedness internal and external environ- in small and medium enterprises ments(2). However, only a few in Norway(5). The audit uncovered of the small and medium-sized considerable weaknesses and enterprises (SME) have adequate variability in the logistics administrative resources to partici- processes. No company knew all pate in such competence develop- parts of their logistics costs, or had ment. This is an accepted fact established comprehensive norms in many advanced countries. for the quality of their delivery According to one report by the service. Few companies had any Manufacturing Studies Board of the control of service variations, and National Research Council, USA, even fewer had established “Many of the smaller firms, however, systems to deal with such are operating far below their variations. The study further potential. Their use of modern showed those companies with manufacturing equipment, metholo - more than 20 employees had a Supply Chain Forum An International Journal N°1 - 2000 46 www.supplychain-forum.com
  2. 2. better grip on logistics than the an indirect positive contribution social cognition (13). The theory smallest companies. In addition, for creating awareness in the presupposes that individual per- it was clear that companies companies and in the marketplace. sons are characterized by limited with ownership links to larger We believe that company participa- capacity for information handling, companies, and companies that tion in the data collection, followed and that an individual will process had demanding customers, were by information interchange with information differently, depending logistically better prepared than other companies will contribute to on what it is about. Information the rest. Since the preliminary awakening and increasing the about well-known, situations will be study, industry’s interest for logis- knowledge. treated more or less automatically, tics has increased. To a great while less un-known situations extent, this is due to escalating Methodology require more advanced and time competition in the marketplace. consuming thinking (14). A conside- Higher efficiency and better In the first phase of the project, rable part of the information quality in goods delivery are thirty firms were selected based required in the project falls in the mere conditions of survival. Today on industry type, size, market latter category. The SME-compa- quality applies to both products orientation, geographical location nies that participated in the project and services. The companies (requirements of the research generally have a very small that develop the “best” logistics council), their willingness to share management staff and each processes are winning the their experience and the resear- management person is responsible customers. Over the last few cher’s budgetary constraints. We for several functions. Also, a years, the open and active use of wanted to understand the logistics considerable part of the daily comparing many independent management duties are of operatio- processes adopted by these companies’ process efficiency and nal nature. The time available for companies. This could not be quality attributes has become strategic thinking is limited. To fathomed by a simple mail survey. a well-known and accepted impro- bridge this gap, the researchers The research questions required a vement tool. Although it was organized a reference group good understanding of the meaning the larger companies that led consisting of professionals from of the terms and often involved this development, many smaller four companies for help with long answers. companies have begun employing validation of responses received similar principles through organiza- from the survey participants. tional development and cooperati- The development During data collection, site ve initiatives in several areas. of logistics as a visits were followed by in-depth Facilitating this type of systematic discussions with the senior comparison was a central part of competitive tool for managers and owners. Apart from this project. consultations regarding the compa- increasing market ny characteristics observed by the Purpose of the Study share and improving researchers, the discussions often covered matters germane to the operational efficiency industry the manager represented. The primary goal of this research is to demonstrate how ongoing is mainly occurring By virtue of the seniority of these improvement of the logistics managers (often they were owners) processes in small and medium size in the large and long experience in a particular companies may be facilitated via “leading edge” industry, their responses were information exchange among a considered as representative of the group of such companies. The companies. industry they belonged to. The goals for the project, in other following steps were carried out: words, are to define and uncover Quite frequently, the researchers conditions that are decisive for needed actual observation of the – First, the logistics literature provi- achieving efficiency and quality in process at site. Thus, the responses ded knowledge of logistics pro- the logistics processes and to build expected were beyond the scope of cesses and their measurement (6, up a reference database containing simple “yes” or “no” answers and 7). Prior experience in benchmar- logistics attributes from selected required face-to-face interaction king projects helped us to focus on companies. The database will with the researchers. The research the important logistics issues and provide the basis for determining was set up as an exploratory and processes. These, together with each company’s logistics compe- descriptive investigation. It started experience from a previous study of tence vis-à-vis a selected group. by identifying the critical logistics the logistics situation in small and Improvement possibilities will be processes and their measurement medium-sized companies, formed revealed by comparing logistics parameters, followed by a random the basis for the project plan. conditions in individual companies selection of companies, collection ƒ A reference group was formed with that in other companies in the of data, comparing and analyzing with senior participants from four database and by comparing to the the data and providing feedback companies. In cooperation with best practices in the marketplace. to the participating companies. this group, parameters were Simulateously, it is our hope Handling information is one of chosen for measurement and a that the project will also have the approaches to understanding system for data gathering was Supply Chain Forum An International Journal N°1 - 2000 47 www.supplychain-forum.com
  3. 3. established.The survey instrument Step Objective Activities Participants so designed was tested in these A detailed plan for the project Collect experiences from Researchers and logistics four companies. The feedback 1 benchmarking projects, study experts process, decide measurement received resulted in a consi- metrics. Plan activities, time derable refinement of the survey and resources A realistic data collection Develop and pretest data Researchers and Reference instrument. 2 procedure and validation collection system Industry group „ Responses from 30 companies A logistics variables data base Visit and collect data from 30 Researchers and Management were obtained using face-to-face 3 small and medium enterprises in the 30 enterprises (SME) interviews, observation of logistics Feedback to participating SMEs data analysis, report writing, Researchers and Reference processes at work, and subsequent obtaining further responces Industry group and 4 from the SMEs Management in the 30 discussion. The modified question- enterprises naire served as the basis for data Project report Statistical analysis, report Researchers 5 writing and publication collection. A simplified system for Simplifying and improving Researchers, Reference … The collected data was organized 6 interchange of logistics data in exploratory database for easy Industry group and a SME-network reference by SMEs. Introducing Management in the network and analyzed. Feedback was then the database and operationalize enterprises data collection-and reporting sent to each company. system in one or more SME- š Information on each company’s network organizations. opinion regarding the usefulness Figure 1 shows the steps involved in the project. of the project was gathered, the data was analyzed further and important data for investigation. All literature (7, 8, 9) and suggestions conclusions were drawn. the firms in the study except one provided by the participants in the had production facilities. The reference group. The instrument respondents were owners and/or was an eleven page document and The companies senior managers of their firms. contained 94 sets of economic, effi- These owners/managers generally ciency, quality and operational We wanted a diverse group of small had over ten years experience in variables describing the following: and medium-size enterprises. Thus, the field and held responsible the participating companies were positions in their organizations. ­ The economic situation and drawn from textiles, fish and meat Thus, their responses can be taken logistics costs in the firm processing, electrical and mechani- as representative of their firms and ­ The logistics management process cal engineering, wood and plastics of the field. ­ Customer service industries. They had from 5 ­ The production, purchasing, and to 360 employees. The average Nine of companies are located in number of employees in our sample Northern, eight in mid and West distribution processes companies was 79. The annual Norway and thirteen are in Eastern sales of these companies varied Norway. Most of the companies are The respondents provided their between NOK 5 - 330 million (US $ export-oriented and some have perceptions regarding the above 0.8 to 45 million) with the average large share of exports. Table 1 factors. Quite often, these res- being NOK 88 millions (about US $ shows the relevant demographic ponses were based on available 12 millions). Although a few of data from the participating these firms do not fit the definition companies. 1. The Euro Parliament’s definition of SMB is as of small and medium business follows : SMEs are companies with fewer than according to the EU definition1, Data collection and Analysis 250 employees, an annual sales of less than 20 these were included because the million ECU, a balance sheet with less that 10 firms were keen to participate in The data collection instrument was million ECU and no more than 25% owned by a company that does not fit this definition. In the the study and the researchers based on the researchers’ experien- US, these are typically defined as firms with felt these firms would provide ce from previous studies, published fewer than 500 employees. Table 1. The companies Company Industry product Number Sales 1994 Value of Company Industry product Number Sales 1994 Value of type employees million NOK export in type employees million NOK export in % of sales % of sales P1 Fish products 17 39,5 98 P16 Mechanical 40 9,9 - P2 Fish products 70 330,0 98 P17 Mechanical 165 170,0 40 P3 Fish products 225 163,0 86 P18 Mechanical 95 92,9 3 P4 Fish products 60 57,0 80 P19 Textiles 25 11,0 70 P5 Fish products 60 63,4 50 P20 Textiles 21 11,0 65 P6 Fish products 98 46,6 95 P21 Textiles 5 8,3 2 P7 Fish products 23 46,0 90 P22 Electrical/mech. 47 49,3 10 P8 Fish products - 50,0 98 P23 Electrical/mech. 100 52,6 8 P9 Fish products 50 17,0 - P24 Plastic products 60 71,0 75 P10 Wood products 10 5,4 4 P25 Printed product 110 56,0 - P11 Wood products 135 255,0 31 P26 Electrical/mech. 59 30,4 97 P12 Wood products 50 79,8 40 P27 Meat products 126 248,0 - P13 Machines 68 69,5 95 P28 Electrical/mech. 360 155,5 82 P14 Machines 155 104,0 20 P29 Electrical/mech. 63 68,5 - P15 Mechanical 75 256,4 95 H1 Electrical/mech. 11 17,8 - Supply Chain Forum An International Journal N°1 - 2000 48 www.supplychain-forum.com
  4. 4. information from the books I COMPANY DATA of accounts and other records Revenue, industry, of operational measurements. number of employees etc. Some of these responses were recorded using Likert-like scale. The companies received the II MANAGEMENT AND ORGANIZATION instrument three weeks prior to the interviews. An interview lasted III PURCHASING IV PRODUCTION V DISTRIBUTION four to five hours. Their general manager, the sales and marketing Measured data Measured data Measured data manager and the manager of Estimates Estimates Estimates accounting and finance generally represented the companies. VI LOGISTICS STRATEGY Two researchers participated in twelve of the interviews and one Logistics Data Base researcher for the rest. Quite often, data regarding cost, efficiency and service elements were based Key Ratios PROFILES DIAGNOSTIC on estimates, which frequently visualize comparisons DATA involved lengthy discussion situations based on ROI. explains differences leading to consensus among the participants. The next step involved compiling, structuring Figure 2 Structuring and Processing of data and transforming all the collected Fish processing companies Textile companies data using a simple spreadsheet. P1 P2 P3 P4 P5 P6 P7 P8 P9 AC P19 P20 P21 AC Average values and ratios were calculated for each company and Costs in 5.0 5.0 N/ 6.3 9.9 11. 13. 14. 16. 10. 3.0 10. 10. 7.9 for the seven groups of companies. % of The following numerical ratios A. 0 9 3 0 2 0 6 sales and performance indicators were Table 2. Total logistics costs in % of sales, AC = Average Cost. considered: market. In this study total logistics ­ ROA (Return on assets), costs are defined as the sum of the Table 3. Changes in inbound lead-time during ­ Logistics costs expressed as a following cost elements: the last three years (n=29) percentage of sales, Changes in lead-time No of companies ­ Perfect customer deliveries – Incoming transportation Increased 21 - 30 % 2 expressed as a percentage of total ƒ Outgoing transportation 11 - 20 % 2 number of deliveries, „ Inventory carrying cost on raw 1 - 10 % 1 ­ Speed of the logistics processes, materials, work-in-progress and Unchanged 9 ­ Quality of the logistics manage- finished goods Reduced 1 - 10 % 7 ment process. … Servicing of inventory (warehousing) 11 - 20 % 6 š Purchasing 21 - 30 % 1 Using return on total assets Red. more than 50 % 1 (ROA) as the primary performance The companies were also asked Table 4. Changes in throughput time in the measurement, the influences of to make relative assessments of production process during the predictor variables were their own costs compared to the the last three years (n=25) determined using the multiple industry average. Administrative Changes of througput No of companies regression analysis. work and costs for data systems time are included in elements 4 and 5. Increased 21 - 30 % 1 Results and Discussion Inventory interest rate was estima- Unchanged 4 ted to be 20% per year including Reduced 1 - 10 % 9 For the whole group, a part of the cost of capital, insurance cost, 11 - 20 % 4 main findings are presented. More shrinkage, obsolescence and taxes. 21 - 30 % 4 detailed results are included for Only a few companies had comple- 31 - 40 % 1 two major groups, e.g.,the fish and te cost records. Estimation was 41 - 50 % 1 meat processing companies and required in other cases. This was Red. more than 50 % 1 the textile companies. The average often due to CIF (cost, insurance, total logistics costs for all the and freight) deliveries from Table5. Changes in outbound lead-time during companies worked out to be about suppliers or ex-works orders to the last three years (n=28) 10.0% of sales. This compares well customers. In both cases estimates Changes in outbound No of companies with the results of similar stu- were worked out for the transpor- lead-time dies(10). It is worthwile to note that tation costs. The warehousing Increased 11 - 20 % 1 more than half the companies in costs were also often missing the Unchanged 12 our study are competitive with the records and had to be estimated Reduced 1 - 10 % 8 most efficient ones in the European based on the size of the warehouse, Red. more than 50 % 1 Supply Chain Forum An International Journal N°1 - 2000 49 www.supplychain-forum.com
  5. 5. the number of warehouse workers Company Inbound Raw Throughput Finished Outbound Credit Total the number of forklift trucks lead-time materials time goods lead-time time response and other materials handling inventory production inventory cycle time equipement etc. P8 0 19 19 8 10 25 81 Of the fish processing companies, P7 21 7 7 23 12 19 89 both P1 and P2are producers of high-priced products. They P2 3 35 1 14 11 30 94 estimate their logistics cost to P5 10 49 0 40 30 22 151 between 15-50% better than the P6 14 16 20 51 20 34 155 industry average. Cured herring, a low priced commodity type P1 1 91 1 31 14 67 161 product, is the main output of P8 P4 2 43 43 32 30 18 168 and P9, companies at the other P9 1 14 0 93 7 93 208 extreme in terms logistics cost. P3 7 19 22 9 3 N/A N/A Their markets are Poland and Russia and they both estimated Table 6.Response cycle time for the fish processing companies, days. their logistics about 15-25% more than the industry average. Of Company Inbound Raw Throughput Finished Outbound Credit Total the textile companies, P19 is clearly lead-time materials time goods lead-time time response the most cost effective. This inventory production inventory cycle time corresponds quite well with their perception. One reason for P20 31 23 9 17 14 67 161 P19’s cost advantage may be the P19 1 91 1 31 14 27 165 uniqueness of its products (high priced Norwegian wool garments). P21 29 198 30 18 13 95 383 Another reason may be found in their adoption of JIT principles Table 7.Response cycle time for the textile companies, days. that P19 has been practicing for a Fish companies Textile companies number of years. Variables P1 P2 P3 P4 P5 P6 P7 P8 P9 AS P19 P20 P21 AS Long range logistics planning 6 6 6 5 6 1 8 5 1 4.9 5 4 4 4.3 Response cycle time Top-management focus on logistics 9 8 9 8 8 8 7 8 5 7.8 8 8 9 8.3 Planning of logistics operations 2 2 3 3 3 1 9 9 8 4.1 3 7 8 6.0 The total response cycle consists of Improvement of logistics operations 8 4 5 5 8 5 7 5 8 6.1 8 9 8 8.3 the following elements: Internally integrated logistics 7 2 5 5 4 5 5 5 4 4.7 4 4 6 4.7 Logistics information systems 5 7 9 5 6 5 5 8 8 6.4 8 3 8 6.3 – Time from ordering to acceptance Logistics performance measurement 8 7 5 7 5 5 5 5 5 5.8 6 5 7 6.0 of goods from supplier. Co-operation with suppliers 8 8 6 7 7 5 5 5 5 6.2 8 4 9 7.0 ƒ Length of time in raw material stock. Setting goals for customer service 8 9 8 5 8 7 7 8 8 7.6 8 7 7 7.3 „ Length of time in production. Organizing for log. improvement 4 4 - 4 7 2 7 1 4 4.1 4 2 4 3.3 … Length of time in finished goods stock. Table 8.Logistics management performance AS = Average Score. š Time from customer order to receipt of finished goods. cycle times for the fish and textile fore depend on the product specter › Time from receipt and acceptance companies. When a time element is in addition to other marketing mix of goods till bill payment (credit less than half a day, it has been variables. P1, P2, P5 and P9 are time) registered as zero. focusing on products made from fresh fish and their production pro- The 29 companies, for which we As will be evident above, there is cesses are controlled by just-in- collected complete data, had total wide variation in response cycle time (JIT) principles. This explains response cycle times ranging from times for the fish processing com- short throughput times in these 81 to 584 days. Slightly more than panies and the textile companies. firms. The credit time is mainly 50 % of the respondents confirmed Many of the fish companies are dependent on the location of the that they had been able to reduce located close to the suppliers and market. Northern-Europe has the their response times during the last the inbound lead-time is short. The shortest credit times. Longer credit three years. The average reduction volume of raw materials in stock times signal customers in southern- in throughput time in production (time element 3) was 12,4 % and depends very much on whether Europe and extremely long credit the average reduction of outbound they are producing from fresh, chil- times are to be found in Africa and lead-time (time element 5 was 5,9 %. led or frozen fish. Generally, a fish- Asia. Many of these comments are Tables 3 - 5 show the distribution of processing firm is producing a also valid for the response cycle changes of these time elements for variety of products. Some are sold times of textile companies, but the sample companies. fresh and some are preserved or their products are generally less frozen. The time the products time-sensitive which might explain Tables 6 and 7 show the time spend in finished goods inventory why the cycle times generally tend elements and the total response and the outbound lead-time there- to be longer for these firms. Supply Chain Forum An International Journal N°1 - 2000 50 www.supplychain-forum.com
  6. 6. Fish processing companies Textile companies competence. All textile companies Strategic alternatives P1 P2 P3 P4 P5 P6 P7 P8 P9 P19 P20 P21 in our survey reported logistic as an area of top management Customer focus 3 3 3 2 2 2 1 1 2 1 1 1 attention. However, despite top Product quality 2 2 2 3 3 1 2 2 1 3 2 3 management attention, it appears Business process the fish processing companies efficiency 1 1 1 1 1 3 3 3 3 2 3 2 are falling short in logistics plan- Table 9.Strategy focus. ning, organization, and achieving internal functional integration. Fish companies Textile companies Organizing for logistics improve- Variables P1 P2 P3 P4 P5 P6 P7 P8 P9 AS P19 P20 P21 AS ment is still difficult in textile companies, although logistics Price 1 2 1 1 2 2 2 2 1 1.6 3 5 2 3.6 operations planning is better than Product quality 2 2 1 1 3 3 1 1 3 1.9 2 2 2 2.0 their couterparts in fish processing Large product assortment 5 3 2 4 4 4 4 3 6 3.9 5 2 5 4.0 industries. Most of these compa- Products specified by customers 3 2 2 2 5 3 3 2 5 3.0 4 4 4 4.0 nies in both groups are using some Fast delivery 3 5 3 4 4 2 4 2 4 3.4 3 1 1 1.7 form of logistics information Punctual delivery 3 4 1 2 3 2 1 1 3 2.2 1 1 3 1.7 systems and have made customer Order fulfillment 3 4 1 2 7 3 1 2 3 2.9 3 1 4 2.7 service their priorities. Another Timely and accurate information 3 3 1 4 6 3 1 2 3 2.9 1 1 4 2.0 important area these companies After delivery service 4 3 - 4 7 3 3 4 4 3.6 2 4 7 4.3 are using to achieve logistics Table 10.Importance of marketing variables, 1 = Very important, competence is working closely with 7 = Not important,AS = Average Score suppliers. These trends bode well for the future of SMEs in Norway as Fish companies Textile companies more countries from Europe and P1 P2 P3 P4 P5 P6 P7 P8 P9 AS P19 P20 P21 AS North America try to enter the No perfect orders in % of 98 80 N/ 98 96 93 100 95 90 93 98 95 95 96 Scandinavian markets. total no of orders A. Business strategy, Table 11. Perfect order fulfillment in a one year period.AS = Average Score. marketing mix and perfect order fulfillment The logistics management flexibility. During the interviews, process care was taken to explain to the Three business strategy alterna- respondents what the attributes tives were included in the data col- meant. The measurements were The evaluation of the logistics lection instrument. The alterna- done using a scale where 1=poor management process included nine tives were evaluated by eliciting and 9=excellent. A score of 9 meant variables. Each variable measured information as to how closely they logistics excellence in all aspects. the manager’s perception of how matched the actual situation in well his/her company performed each company. The scores for the The scores for the logistics vis-a-vis a set of logistics manage- firms in the fish and textile groups management variables were graded ment attributes. The regression for these strategy alternatives are as follows: analysis shows that two of the shown in table 9 using a scale – Scores in the range of 1 - 3 management variables are of indicate situations that strongly where 1 = most closely matches the particular interest for achieving need to be improved. actual strategy in the company and improvements. These variables are: ƒ Scores in the range of 4 - 6 9 = least closely matches with the setting goals for customer service indicate a situation that is better actual strategy. For example, a and organizing for the improve- but still needs improvement. score of 1 with respect to customer ment of the logistics processes. „ Score in the range of 7 - 9 focus would mean the company Setting goals for customer service indicate situations where the represented by the respondent was captured by attributes like need for improvement is not as could be descripted as one whose differentiating between customer significant. actual strategy indeed resembles and product groups, fulfileng that of a customer-focused compa- customer’s service expectations Table 8 presents the variables with ny in all aspects. As already pointed and handling customer complaints. scores for companies in the fish out elsewhere in this article, Organizing for the improvementy of processing - and the textile groups. care was taken by the researchers logistics includes the ability and Contrary to the prevailing notion, to explain the scale to the will to change, openess regarding it appears that both fish and meat respondents. change, willingness to channel processing and textile companies resources for knowledge develop- are managing their logistics It appears from above that the fish ment and increasing competence, a function quite well. In fact, top processing and textile companies positive attitude to cooperating management in eight out of nine in our study had a good grounding with suppliers and customers and fish processing companies has in strategy formulation and deve- efforts toward increasing system focused their attention to logistics lopment process. It is worthwile Supply Chain Forum An International Journal N°1 - 2000 51 www.supplychain-forum.com
  7. 7. Variables Fish companies Textile companies P1 P2 P3 P4 P5 P6 P7 P8 P9 AS P19 P20 P21 AS % total number of inbound deliveries received on time N/A 60 95 75 33 80 99 80 99 79.6 95 90 90 91.2 % of total number of inbound deliveries received with no other quality deficiencies 99 70 60 60 80 95 97 80 96 81.9 98 95 98 97.0 Number of active suppliers in % of total supplier base (last 12 month) 100 100 100 95 70 90 100 75 80 90.0 90 60 70 73.3 % of suppliers with formalized patnership agreement 0 0 0 0 0 0 0 0 0 0 0 0 10 3.3 % of suppliers with quality certificate 20 0 0 5 50 10 50 0 0 15.0 0 30 10 13.3 % of suppliers providing 80 % of total purchase value 45 70 N/A 70 20 20 35 90 60 51.3 N/A 25 30 27.5 Change of value of purchased goods value in % of total operating costs (last 3 years) +15 +5 +15 +5 +25 +5 -5 +5 0 +7.8 +15 +5 0 +6.7 Table 12. Variables describing the purchasing process in each of the fish processing and the textile companies. to re-emphasize the fact that, information processing are the most configuration, customer-ready with- according to the respondents, important factors for the textile out damage. quality and customer focus were companies. It would thus be appa- perceived to be the guiding rent that logistics competitiveness It is important to point out that principles in these companies. This is a critical element for both groups several of the companies remarked is indeed remarkable considering of companies. that the customers they serve the fact that these are small and would not regard the PRTM medium size companies in textile To investigate further, using the definition as sufficient for perfect and fish processing industries PRTM definition (15) of perfect order fulfillment. In particular and traditionally these sectors order fulfillment as a comprehensi- many of the companies pointed have not always been in the ve measurement of customer out that their customers often forefront of technology diffusion service, we elicited responses require delivery specified to a given and adaptation. regarding order fulfillment situation hour. To arrive one day early or late in these companies. A “perfect is not acceptable. Table 11 shows order” according to PRTM is the results for the fish and textile A set of related marketing variables defined to be one that meets all of companies. were also evaluated according to the following standards: the importance they had for win- As we can see, order fulfillment ning in their markets. Table 10 – Delivered complete, all items on rates were quite high in these shows results for the companies in order are delivered in the quanti- companies. Again, this speaks very the fish and textile groups. ties requested. well of these companies’ logistics ƒ Delivered on day earlier. preparedness and market competi- It is clear from above that price, „ Documentation supporting the tiveness. It would certainly appear product quality, and delivery order include packing slips, bill of these companies understand the punctuality are the most important lading, invoices, etc…, is complete nature of the marketplace and have drivers for the fish processing and accurate. started working to make them companies, while fast and punctual … Perfect condition: Faultlessly ready for a more competitive delivery and timely and accurate installed (as applicable), correct world. Table 13.Problem causes in the purchasing processes, (1 = no problem,5 = serious problem). Fish companies Textile companies Problem causes P1 P2 P3 P4 P5 P6 P7 P8 P9 AS P19 P20 P21 AS Forecast errors 3 5 2 4 3 3 3 5 1 3.2 2 3 4 3.0 Planning errors 1 2 3 2 4 3 1 2 2 2.2 3 4 2 3.0 Internal ordering error 3 2 N/A 2 2 2 1 2 1 1.9 1 4 1 2.0 Customer changing order 3 1 4 2 2 2 3 2 1 2.2 1 2 5 2,7 Supplier deliver too late 3 2 5 2 3 3 2 3 1 2.7 2 2 3 2.3 Supplier has capacity problems 4 2 3 3 3 2 1 2 4 2.7 1 1 2 1.3 Late inbound transport 1 3 3 2 4 2 1 2 1 2.1 2 3 3 2.7 Faulty materials received from supplier 3 3 5 3 2 3 1 2 4 3.2 2 2 2 2.0 Supply Chain Forum An International Journal N°1 - 2000 52 www.supplychain-forum.com
  8. 8. Causes of disturbance Fish processing companies Textile companies quality of the Far East competitors, Average Ón Average score Ón it is essential for any textile time, days days time, days days company to organize their supply pipeline efficiently in order to have Norway 3.3 1.7 2.7 0.5 the capability to stay competitive Sweden, Denmark, Finland 4.8 2.7 4.0 2.0 in the marketplace. Rest of Europe 6.2 2.5 4.3 2.1 The production process Table 14.Causes of production disturbances, fish processing and textile companies (1 = no disturbance, 5 = serious disturbance) 22 variables were measured in the The logistics operations errors, suppliers delivering late and production process. The variables processes. suppliers lacking capacity were give an understanding of the perceived most serious. As we can reasons for differences between The data describing the logistics see, expertise in these areas often the production processes in the operations processes were analyzed comes from the level of sophistica- companies and they provide a base and reported in four comprehensi- tion reached in management. Thus, for studying variations in efficien- ve sets of tables with values for logistics management maturity cies and quality aspects among the every company and for groups of would certainly be desirable in companies. An important quality companies. The respondents were these organizations. Although very variable is the percentage done supplied with text explaining few respondents felt they had right the first time. Another impor- how these questions should serious deficiencies in any one tant variable was the percentage of be understood and used. We area, some companies (P1, P2, P3, orders produced with no delays. have included selected data for P4, P5, P20 and P21) experienced For the fish processing companies the textile and fish processing problems in a number of areas, and the textile companies, average companies in tables 12, 13, 14, 15 while several others (P7 and P9) percentage done right the first time and 16. felt their problems were limited to a were 94 % and 98 % respectively. On few areas. the average, 8 % of the orders for The purchasing process the fish processing and 5 % for the These results in tables 12 and textile companies were delayed. The measurement of the purchasing 13 certainly show that the fish Other important variables included process included 23 variables. Due processing companies have to the length and frequency of to space limitation, only a section work with their suppliers closely of the responses are included production runs, number of levels to improve their performance. in tables 12 and 13. There are large in the production processes, This is understandable considering variances in the results among number of levels in the product the fact that most of these the fish processing companies. structures and the division suppliers are small and their This may be explained by the management procedures are not between production to customer differences in the product types always sophisticated. As would be orders and to stock. Table 14 ans the customer requirements. clear from table 13, many compa- shows the causes of disturbances Raw material for ready-made meals nies face considerable problems in the two company groups. and canned foods is different with inbound material quality and Misunderstanding and inadequate from salmon to be sold fresh. The need to work with their suppliers to communication between marke- uncertainty in inbound lead-time improve significantly. On the other ting, purchasing and production is high for P4, P6 and P8 and very hand, textile companies have done were the most serious problems high for P2 and P5. This is due better with their suppliers. This for the textile companies, while to supplies coming from smaller can be explained if we consider the technical problems connected to fishing vessels with arrivals nature of competition that prevails machines and equipment were depending on the time it takes to in the textile companies. With the considered significant for the fish catch the required volume, weather cheaper imports and consistent processing processes. conditions, etc…, whereas, trawlers and fish farmers, the main Table 15.Lead times to customers, fish processing and textile companies. suppliers to the majority of the companies, can provide more Causes of disturbance Fish processing companies Textile companies predictable deliveries. The results Average Ón Average score Ón show that the textile companies are Internal communication problems 2.5 0.70 2.0 0.82 experiencing a much more reliable Internal planning mistakes 2.7 1.05 2.7 0.47 supply situation overall. Although Errors in customers order 1.2 0.42 2.0 0.00 both company groups show weak ties to a large number of suppliers, Order picking errors 1.6 0.68 1.3 0.47 the business volume procured from Production delays 2.8 1.03 2.7 0.47 vendors seems to be growing. Delays in outbound transport 3.3 1.05 2.5 0.96 Outbound transport damages 1.9 0.87 1.7 0.47 Of the problems in the purchasing Stockout 2.1 0.57 2.5 0.50 process, planning errors, forecast Internal capacity problems 2.7 0.94 2.3 0.47 Supply Chain Forum An International Journal N°1 - 2000 53 www.supplychain-forum.com
  9. 9. Causes of disturbance Fish processing companies Textile companies link shown here may not simply be in the production processes (n=9) (n=3) ignored as a random occurence. Average Ón Average score Ón Based on our discussions with the senior managers of the reference Internal communication problems 2.6 0.83 3.7 0.47 industry group and recognized Internal planning problems 2.3 0.70 2.7 0.47 experts in the field, we expect Technical production problems 3.2 0.91 2.0 0.82 these relationship will be of interest Production capacity problems 2.3 0.94 2.7 0.47 to logistics professionals, both Quality problems with purchased practitioners and researchers. To materials 2.6 1.06 1.3 0.47 understand the relevance of this Customer changing order 2.3 1.29 1.3 0.47 research, these results were freely Forecast errors 2.6 0.83 2.0 0.83 shared with the participants. Supplier delivery delays 2.3 1.15 2.0 0.82 Thereafter, a follow-up questionnaire Errors in customers order 1.7 0.94 1.3 0.47 about the usefulness of the results was sent to the participating Table 16.Causes of distribution disturbances, fish processing and textile companies (1 = no disturbance, 5 = serious disturbance). companies. Two months later only two companies had returned The distribution process effects of the predictor variables the questionnaire. After a second were studied using the multiple distribution of the questionnaire, In the distribution process, 32 regression analysis. The results eleven additional companies variables were measured and a obtained for the whole sample set answered. Eight companies were nalyzed. These included service were as follows: enthusiastic about their participa- elements, efficiency factors, costs, ­ A 10 % reduction in total logistics tion in the project and reported physical and technological aspects costs gives a 7.8 %improvement in that they had benefited from their of the distribution system. Many ROA. role in the project. They believed companies export a large part of ­ A 10 % reduction of time spent in that they have been forced to their output. Fast and reliable the logistics processes gives a 2.4 % critically analyze their logistics transportation is important for improvement in ROA. processes by virtue of their partici- export. Road and water are the ­ A 10 % higher score in the pation in the project. They further predominant modes of transporta- management variable, “Organizing added that they would like tion for all companies. Road transportation is fast and most for the improvement of the logistics to continue working with the reliable even to customers located processes”, gives a 1.6 % improve- researchers. Another company as far south Paris. Sea transport ment in ROA. stated that they had not started is the cheapest. Examples of ­ A 10 % higher score on the using the results, but wanted transport time from factory to management variable, “Setting to continue working with the customers are presented in table goals for customer service”, gives a researchers because this would 15. The fish processing companies, 2.6 % reduction in ROA. be generally beneficial for the with their perishable products, development of logistics in their have approximately the same trans- These four variables explain 87 % of organization. Of the seventeen port time as the textile companies the variance (R-square, coefficient companies that did not return the even though they are located 150 - of determination) in the return on questionnaire, several were later 200 Km (in Northern Norway) total assets. contacted by telephone. Generally farther from their main customers. they were positive to the study, but The textile companies have less These results are extremely impor- they have not yet had the time to variation in transit times. The tant indicators for advocating analyze the results and thus have difficult terrain in Northern Norway logistic competence. The relation- not started working to strengthen perhaps contributes to a slightly ship between logistics competency their deficient areas. It should be higher variability for the fish companies. and firm performance is quite said that many participants gave complicated and difficult to fathom. the impression that they received For many companies distribution Experts can surely testify that increased and valuable insight does not pose any problems. logistics competence has been during the data collection. To go For the fish industy, outbound valued in leading edge organiza- through a critical review of their transport is a frequent and serious tions since the dawn of civilization. own logistics situation yielded problem. Production delays and Yet, the nature of the relationship many desirable benefits. The internal planning problems have is not very easy to understand. project has in many ways been affected both product groups The linkage between logistics com- a pioneering work. The results adversely. petence and market performance indicate that increased efficiency of a firm may not be as straightfor- and speed in logistics processes Discussion of Results ward as it may appear from the improve a company’s profitability. and Conclusion results of the regression analysis. This signals that we are in an area Critics will certainly point out that where continued efforts should Using return on total assets (ROA) there are many other factors that give good returns. The study has as the primary measurement of can contribute to a firm’s market also provided a wealth of other how well a company was doing, the performance. Yet, we believe the insights into many generic logistics Supply Chain Forum An International Journal N°1 - 2000 54 www.supplychain-forum.com
  10. 10. processes in the SMEs. Information Washington, DC : National Academy contained in the reports is Press : 1993, p. 1. therefore of general interest to 4. Spilling O., SMB-1997 fakta om små o logistics professionals. Regarding mellomstore bedrifter i Norge. improving logistics excellence in Fagbokforlaget (in Norwegian) Oslo, the participating companies, it may 1997. however, be concluded that the project has been a mixed success, 5. Virum H., Logistikk i små og mellom - at least in the short run. There are store bedrifter, Handelshøyskolen BI Research Report (in Norwegian) several reasons for this. At the Sandvika, Norway 1994. outset, the researchers and the members of the reference group 6. Lambert D.M. and Stock J.R., Strategic had a strong focus on how to Logistics Management, Homewood, IL : define and map logistics processes. Irwin, 1993 p. 151-158, 583-622. Much effort was put into trying out 7. Byrne P.M. and Markham J.W., and selecting variables that would Improving Quality and Productivity in the fit the purpose of describing logis- Logistics Process, Council of Logistics tics processes - but not so much to Management, 1991. facilitate implementation of the results. Discussion with experts in 8. Bowersox D.J. et A.L., Logistics organizational learning resulted in a Management. Third Edition, Collier Macmillan Publishers, London, 1986 p. more profound and critical analysis 93-102, 268-277. of the methodology applied in the project (12). The misfit between the 9. Mentzer J., Konrad B., An definitions and the participants’ Efficient/effectiveness Approach to logis - understanding and far too many tics Performance Analysis. The Journal of variables in the data collection business Logistics, Vol. 12, N°1, 1991. instrument proved to be the 10. A T Karney Inc., Logistics Productivity : biggest obstacle. In addition, lack of The Competitive Edge in Europe, 1990. availability of information in the participating companies became 11. Virum H., Logistikk i små og mellom - apparent during the data collection store bedrifter, Forbedringer ved sam - phase. As already explained, in menligninger mellom bedrifter, many companies a large part of the Handelshøyskolen BI Research Report (in Norwegian) Sandvika, Norway 1996. data had to be based on estimates as no reliable information could be 12. Flygansvaer B., Virum H., gathered. Future research should Diffusjonsprosesser i nettverk - hvordan emphasize the following in order to bedrifter kan forbedre sin logistikk gjen - obtain better cooperation from the nom laering av hverandre, participating organizations: Handelshøyskolen BI Research Report (in Norwegian) Sandvika, Norway 1998. ­ New information must be easily recognizable to the management in 13. Kiesles S.B., Sproull L.S., Mangerial the participating companies. response to changing environements : ­ To get management attention Perspectives on problem sensing for care should taken to obtain social cognition, Administrative Science Quaterly N°27, 1992 p. 548-570. strength and continuity in the ties between the researhers and the 14. Bazerman M., Judgement in management. Managerial Decision Maki, Second ­ Care must be taken to avoid Edition, John Wiley, London 1994. jargons. 15. Kardon K., Integrated-Supply Chain Performance Measurement. A Multi- References Industry Consortium Recommendation, PRTM 1994.B 1. Christopher M., Logistics and Supply Chain Management, Pitman: London 1993. 2. Bowersox D.J. et Al., Global Logistics Best Practice - An International research Perspective. Council of Logistics Management, Annual Conference Proceedings 1994, p. 27 - 42. 3. National Research Council, Learning to Change : Oppurtunities to Improve the Performance of Smaller Manufacturers, Supply Chain Forum An International Journal N°1 - 2000 55 www.supplychain-forum.com