Research Procedure - 中小企業物流管理之問題研究

With Research Topic of: A Study of SME’s logistic system problems: The Case of Mongolian SMEs. The research process consists of five main steps.

The first step is introduction of background information; transportation and logistics system of Mongolia. General information of Mongolian SME industry. From that view of point, we will propose research problems: What kind of challenges the SMEs confront in their logistic system?

What is the accurate solutions to reduce the barriers?

The second Step is Literature Review. Reviewing the necessary background knowledge related to research issues through previous quality journalism and research books. Find and rewrite the suitable content for the research topic in your own way. Based on theories, we will analyze the SMEs challenging problems in logistic system; and accurate solutions of this barriers.

The third Step is Research Methodology. Based on the theories of Literature review, we will arrange interview questions for the employees of Mongolian SMEs.

The fourth Step is Major Findings. All appropriate questions for the employees and outline qualitative answers. Collect data and introduce findings.

The fifth Step is Conclusion. After finishing all analysis, we can write key conclusions for Mongolian SMEs, the limitations of the study and future research proposals.

13 1.6 Research procedure framework

Introduction

Literature review

Research method

Major findings

Concluding Remarks

References

Chapter Two: Literature Review

2.1 General Description of important part of Logistics

There are various definitions that have been applied to describe the logistics.

(Daskin, 1985) defined logistics as “the design and operation of the physical, managerial, and informational systems needed to allow goods to overcome time and space”. Another definition promulgated by the Council of Logistics Management is: the process of planning, implementing, and controlling the efficient, cost-effective flow and storage of raw materials, in-process inventory, finished goods and related information from point of origin to point of consumption for the purpose of conforming to customer requirements (Ballou, 1992). Logistic is the process of delivery product from point of raw materials to the point of final product in hand of costumer.

In the past, logistics had a variety of names such as “physical distribution”, “business logistics”,

“supply chain”, and so forth. However, “logistics management” is the most widely accepted term among professionals (Lambert et al., 1993). And recently people use the name logistic management.

Logistics is a mixture of a number of professional disciplines, such as: planning, controlling, directing, coordination, forecasting, warehousing and transportation, facility location, and inventory management (Joe, 2017). Above processes of inventory all included in logistics.

2.1.1 Elements of Logistics.

The company Logistic System contains the following elements:

 Warehousing (storage)

 Transportation (delivery)

 Inventory Control (inventory management)

 Order Processing (Distribution Center)

 Information System and Communication (IT system)

Warehousing. Logistics centers and delivery centers correspond to storage locations and serve to adjust the time difference between producers and consumers to deliver goods in a timely manner. Storage facilities with functions to maintain the quality and value of goods, such as cooler and freezer warehousing or food processing centers, also correspond to storage locations (Keyence Corporation, 2019). During the delivery of goods between industry and costumers;

the product has to be kept in storage; to maintain the quality of goods.

The moving process of cargo (goods) in and out of logistics centers and storages is called cargo handling. Cargo handling is classified into six processes: assortment, loading/unloading, transportation, allocation (storage), sorting and picking.

Transportation is also important, because logistics involves the movement of products (raw materials, parts, supplies, finished goods) from a point-of-origin to a point-of consumption.

The functions that send goods from the producer to the consumer are transportation and delivery. Transportation, also called "primary transportation", serves to carry goods from point A to point B; movement of products for long distance. Delivery is also called "secondary transportation" and it serves to carry small amount of goods for short distances. This function varies from transportation in that it is not a simple flow like movement from point A to point B. Instead, it sends goods from point C to more locations. Transportation and delivery are also said to make up about 60% of logistics costs (Keyence Corporation, 2019). Transportation carries goods for long distance; for instance, sending goods from one county to another country between distribution centers. Delivery is the process that carry products in consumer hands.

Inventory Control is about counting the number of goods and products which purchased by costumers. It refers to control the quantity of goods.

Order Processing (Distribution Center) Separating goods that enter a warehouse and

distribution center, and then resorting and packaging them into units that are easy for consumers to purchase. Wrapping products, applying price tags, applying labels to imported goods, and checking clothing for needles are also types of distribution processing. Packaging the process to protect products from physical damage (scratches and breakage) that occurs during the logistics processes (Keyence Corporation, 2019). In distribution centers the goods are packaged into the small amounts ready to deliver. The packaging of product protects it from damage during the delivery and transportation.

Logistics Information Processes. All relevant information of logistic processes is managed by information flowing. This is managed by the logistics information processes and systems of producers, traders, importers and exporters, distribution centers, and freight forwarders or their agents, whose operations vary depending on the sectors and kind of products involved.

These processes can include pre-information, warehouses and distribution centers (Logistics Information Processes, 2012).

An important difference between these systems is whether the emphasis is on the content of the goods or on the transport equipment or transport means used. Manufacturers and traders want to monitor the actual products and articles to know whether they will arrive on time and in proper condition at the delivery places, and to be able to take prompt action when incidents happen. Transporters are focused on the progress and status of the transport means and the transport equipment in them. If incidents or delays happen, transporters can report these to their clients but the impact on delivering or restocking can only be understood by the traders and manufacturers. For commercial reasons, the transporter may not actually know the details

of the goods.

Authorities, especially Customs and authorities responsible for security in transport, have an interest in the content of goods, as well as the transport means and equipment used to

transport them (Logistics Information Processes, 2012). During the whole logistic process, the information of inventory and other information flows have to be controlled by information system.

The above definitions imply that there exist four flows in a logistics system (Figure 11). First, material flow is a flow of raw materials from their sources through the important processes, such as storage, retrieval and delivery, then flow to the customer with no delays or expenses.

Second, merchandise flow which is related to marketing flows in the distribution channels. It shows a moving process of goods from producers through wholesalers and retailers to customers. The difference between material flow and merchandise flow is that the former is only to move goods from producers or suppliers to customers without considering the paths through which the ownership of goods passes on the way from suppliers to customers. Third, money flow involves pay in advance and money transfer, which can be handled by electronic fund transfer, such as mobile bank. Fourth, the members of logistic system share their information between each other in the logistics channel constitutes information flow. This creates the need for the installation of a logistics information network.

Source: (Keyence Corporation, 2019)

2.1.2 Types of Logistics.

Logistics can be classified into five field (Figure 12):

 Procurement logistics

 Production logistics

 Sales logistics

 Recovery logistics

 Recycling logistics

Figure 11. Logistics Information Processing

19 Source: (Keyence Corporation, 2019)

Procurement Logistics: Procuring Raw Materials and Parts

Procurement logistics is the flow of goods when the raw materials and parts necessary for manufacturing are procured from suppliers. This field did not attract much attention before, but now that small-lot production of a variety of models is the main type of production, many firms are actively pursuing production by procuring the necessary materials in only the necessary amounts at the necessary times (the shift to just-in-time production) because it is directly connected to reducing inventory costs (Keyence Corporation, 2019). Procurement logistics refers as delivery of raw materials to the manufactory.

Production Logistics: Materials Management, Distribution in Factories, Product Management, Shipping

Production logistics is the flow of goods that includes the management of procured parts and materials, distribution inside a factory, product management, packaging, and shipping to warehouse. Delivery management, warehouse dispatch management, and shipping

Figure 12. Logistics by field

management can be optimized and the state of delivery vehicles can be managed by smoothly linking procurement logistics and sales logistics described later (Keyence Corporation, 2019).

Delivery of parts of products between manufacturers.

Sales Logistics: Delivery from Warehouse to Wholesalers, Retailers, and Consumers Logistics typically refers to sales logistics. In the past this was mainly delivery from delivery centers and logistics warehouses to distribution points such as wholesalers and retailers. But now direct delivery also makes up a large amount of this volume due to online shopping and e-commerce. Whether delivery through delivery centers and logistics warehouses or direct delivery from production sites, higher efficiency in transportation and delivery and shrinking inventory are indispensable for delivering the necessary goods to the necessary people in the necessary quantities at the necessary time. This also contributes to improving customer satisfaction (Keyence Corporation, 2019). Delivery of final products from distribution centers through wholesalers and retailers to the costumers. It also includes the shipment of goods through e-commerce.

Recovery Logistics: Recovering and Recycling Products, Containers, and Packaging If the flow of goods from production to consumption by procurement logistics, production logistics, and sales logistics is described using the circulatory system of the body, it would be said to be forward logistics. On the other hand, recovery logistics or reverse logistics is the flow that recovers and recycles products, containers, and packaging that have fulfilled their role. Similar to recycling logistics described later, emphasis is being placed on this flow in recycling-oriented societies (Keyence Corporation, 2019). After usage of products, consumer left the box and packages of products and all of them carried to the disposal center, it’s called recovery logistics.

Recycling Logistics: Recovering and Recycling Recyclable Products and Containers Typical examples of recycling logistics are recovering and recycling empty cans, plastic bottles, and old paper. Containers, packaging, old computers, and inkjet cartridges can also be recovered and recycled in the same manner. The importance of recycling logistics has been increasing in recent years as measures for the environment and to effectively utilize materials such as minor metals (Keyence Corporation, 2019). In disposal centers the used cans and plastics recovered and prepared to new usage. And they carried as raw materials to the manufactory.

2.2 The Challenge of SME in Logistic Management

Small and Medium Enterprises (SMEs) also confront some challenges in the field of Logistics.

Modern logistics companies today rely on advanced ICT solutions for information processing and sharing. Penetrate to data and information about the demand for logistics services and supply opportunities are becoming a key barrier. Unfortunately, only the largest companies can afford advanced IT systems. Small and medium companies have limited or no IT-competence.

Tools are therefore needed to facilitate cooperation between smaller logistics companies, which in turn will reduce transaction costs (Kawa, 2012). The main barrier for the SME is they cannot afford the expensive IT system.

The logistics services centers lack solutions that would integrate the services of different operators in one platform. For instance, if a consumer orders goods from Taiwan to the Czech Republic, he must choose several type of transport (e.g. shipping, rail, road) and use the services of logistic companies. A similar problem occurs in regional transport, for example, in a province or country. However, in some countries there are logistic centers (e.g. in Germany,

Italy, Spain), the small number of SMEs use them. Individual logistics centers compete, ensuring comparable conditions of infrastructure. The only thing that distinguishes them is value-added services. Information about the availability of services of other businesses located near the center is an example. It includes shared information on schedules for arrivals and departures of regular and charter services, cargo tracking and tracing across organizational borders, real-time business process monitoring and exceptional situations. Unfortunately, SME logistics companies have limited or no IT-competence and investments. They think that they should focus on business competence rather than IT (Kawa, 2012).

IT is a crucial aspect of application of a logistic system of SMEs. An IT solution is crucial for SMEs to support the logistic processes in an effective and efficient way. It is known that a positive relationship exists between IT application and business performance (Rothgang et al., 2006). Company’s business performance can be hold on IT applications.

SME and ICT. There is a Research from the European Union (EU) and US shows that Small and Medium Enterprises (SMEs) do not take advantage of ICT (Information and Communication Technology) and e-Business solutions in the way that large companies do.

This makes SMEs more vulnerable to changing economic conditions as they have a relatively lower level of competitiveness (Arendt, 2008). Information Technology is an element of Logistic Management; SMEs also have barriers in their Logistic Systems especially they cannot have their own Information System.

The usage of the Internet by SMEs is still relatively undeveloped. SMEs still use the Internet only to send e-mails, transfer files or documents or gather information. There is no evidence that SMEs use and invest in ICT with an intention to improve services, processes and business automation (Wei Dai, 2009).

Most of the SMEs losing their emerging business opportunities depending on that they cannot connect digitally with their business partners and suppliers.

(Maguire et al., 2007) explored how SMEs may use ICT to secure a competitive advantage.

The key outcomes of this research were the following:

 SMEs considered ICT as a key factor in cost reduction;

 ICT could enrich product development and service quality at a very high level in SMEs;

 SMEs viewed sales forecasting, customer analysis, and pricing as the most effective

ways of utilizing ICT for competitive advantage.

In a recent study (Task-force, 2000), the barriers were classified into two broad categories:

macroeconomic and microeconomic.

The first microeconomic barrier was the lack of awareness, knowledge and skills within the SME environments. This makes it difficult for SMEs to select the right technologies as these are changing rapidly. However, they often use the services of external advisors. The second challenge is that existing ICT platforms are not suitable for SMEs’ needs. This increases difficulty on SME owners and managers to train employees for future e-business readiness. It was indicated that the SMEs sector was experiencing huge challenges in finding appropriate IT solutions than large corporations. The reasons of that was a lack of time and the lack of internal information and knowledge. Further, SMEs choose to use the existing and familiar IT models to avoid the risk of transferring to the new ones.

The existing IT system solutions are expensive associated with high cost software. SMEs consequently face entry and infrastructure barriers. Lowering entrance and participation barriers will help SMEs gain access to technologies and to help them instantaneously participate in point-to-multi-point supply value nets (Bovet et al., 2000). For the SME users it is crucial to find inexpensive solutions to penetrate to centralized platform.

24 2.3 Solutions for the logistic barrier

According to the previous research works most convenient solution for the logistic barrier is IT system; between them the cheapest way to access to the network is feasible for the SME company. Logistics companies utilize information technology to increase efficiency and automate their whole process. Thanks to them, numeric data presentation and fast verification and control of costs, revenues, sales and other such data transparent for everyone. Also, all the contracts with partner companies and the transfer between them can be facilitated through the system. Another essential feature of the application of IT system by logistics service providers is to fulfill the expectations of customers. These are the customers who care more and more about the time and safety of delivery and full information about the logistics process than about the price of the services (Ciesielski, 2005).

That is why there is a huge need to create a cheap electronic centralized platform which will enable SMEs to access to network, to get the relevant data about the logistics and suppliers.

2.3.1 Cloud Computing

First solution to these problems which we obtained during the research is cloud computing with web semantic services based on the Internet (Figure 13). It avoids to pay excessive money on hardware and software.

25 Source: (Kawa, 2012)

Cloud computing can be thought of as computing resources sharing information and services delivery which is convenient for users. Cloud computing particularly suggests the following characteristics to support SME’s needs:

1) Services on Demand: it provides with services which users can penetrate to the system anytime and anywhere.

2) Database Sources on Demand: users can gather relevant data (e.g. database) in relation to the application needs;

3) Applications on Demand: necessary applications for the users according to dedicated processes;

4) Platform on Demand: allocation of application environments for users. For SME users, information communication technology infrastructure, platform, equipment of the system and

Figure 13. Cloud Computing host

the majority of relevant data can all be taken care through cloud computing system to support SMEs logistic needs. According to the platform user can facilitate the whole logistic processes.

Public Cloud represents a majority of the current market share and is, as it sounds, cloud hosting

that is openly available to the public for use. Anyone from individuals to multi-national businesses can utilize these offerings. The catch here is that multiple customers could potentially be sharing the same piece of physical hardware at the data-center level (Baird , 2019). On that platform all the information is transparent for everyone (Figure 14).

Private Cloud functions similarly to public however the resources are dedicated and isolated

per customer. Ranging from the hardware to sometimes even the physical placement of the servers in question. This solution is generally ideal for larger and more security focused organizations (Baird , 2019). Every users of the system have their own individual platform which can create their own data storages. It is nor transparent for everyone (Figure 14).

Hybrid Cloud is an amalgamation of both public and private solutions. Some businesses may

have a desire to operate their non-critical or sensitive operations to a cheaper public hosting solution, while also leveraging a private solution for say their sensitive customer information and proprietary data (Baird , 2019). Compound platform which can be private and public for users.

27 Source: (Cloud computing Trends, 2019)

Logistic Companies integrated in Cloud Computing System

Another global logistics networks, such as DHL, UPS, FedEx and other suppliers in this market, such as insurance companies, petrol stations, suppliers of car parts have already started to use

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