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,
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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).
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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
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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 cheaper access cloud computing system. The members of the platform will be able to optimize their cost of transport, for instance by using common transport, e.g. rail, instead of private road transport (Kawa, 2012).
2.3.2 Lean IT Solution
Other solution for the logistics’ barrier is the application of an effective and inexpensive lean IT. This solution can solve the problem of enabling a logistic network.
Figure 14. Cloud computing
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Lean thinking can provide features for the customer by:
Improving the quality of work processes
Reducing errors or defects in work processes
Reducing costs
Improving flow of the process
Simplifying complex processes
Reducing lead time
Improving employee morale (What Is Lean, n.d.)
Figure 15. gives an overview of the basic requirements which has been identified for the lean IT solution.
Figure 15. Requirements of Lean IT System
Source: (Hildebrandt et al., 2007)
(Figure 15) Lead Logistics Provider (LLP) has the role of a central platform that controls the logistic processes of the whole system. The logistical services are provided by sub-contracting companies. The LLP acts only as the organizer of the logistical processes without the need to
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have own assets. This definition goes in line with (Thomas, 1999): “A supply chain integrator that assembles and manages the resources, capabilities, and technology of its own organization with those of complementary service providers to deliver a comprehensive supply chain solution” (Hildebrandt et al., 2007).
Requirements four and five are central platform and development potential; they are the medium of a virtual LLP. They take over the basic responsibilities of a LLP, and act like central controlling platform and communicate with all of the participants of the system. Furthermore, the system reaches the required size to make them consistent; the solution must arrange potential for additional developments and extensions that are intended to be incorporated. For example, the intended extensions provide with the advanced tracking and tracing features (Figure 16).
Source: (Hildebrandt et al., 2007)
Figure 16. gives an overview of the architecture of the lean IT solution. The information system AmmLog System (ALS) constitutes the core of the solution. The ALS acts as a central communication platform and contact for all the companies within the network, more precisely the participating producers and carriers. Producers communicate with the ALS through one or
Figure 16. Lean It solution
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more of the provided channels, namely web front end, email and Web services. The web front-end channel requires manual interaction, whereas the email channel offers manual interaction as an option. Software operated by the producer can communicate with the ALS through the email and Web services channels to achieve the deepest process integration and the highest degree of automation. Carriers communicate with the ALS in the same way as producers.
However, regarding the offered functionality and access rights, the ALS distinguishes between producers and carriers (Hildebrandt et al., 2007).
The ALS sends and receives information through channels. Even though there are different channels that information passes through, all the critical business information is encoded as EDI messages that pass through an internal, real-time EDI (electronic data interchange) interface. Thus, internally, information from all the channels is processed in a uniform manner.
The ALS contains software components for selecting a carrier for a given shipment order, bundling freight, calculating freight charges and supporting business intelligence and reporting.
Furthermore, the system offers points for future extensions. Information is stored in a centralized database. From a software engineering perspective, the ALS is divided into four tiers in order to assure a clear separation of concerns: client tier (internet browser, email client or producer/carrier software), presentation tier (web front end), business logic tier (core ALS) and data storage tier (Hildebrandt et al., 2007).
Summary. The main factor for the SME companies is to penetrate to data and information about logistic services and get information about supply opportunities. Most of the SME companies have limited or no IT-competence and investments. They mainly focus on business competence rather than IT. The usage of the Internet by SMEs is still relatively undeveloped.
SMEs still utilize the Internet only to send e-mails, transfer files or documents or gather information. For SMEs having their own IT system faces such challenges; such as expensive
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hardware, software and barriers associated with training and integration. Inexpensive solutions, such as Cloud Computing and Lean IT system might reduce the SME’s logistic barriers.
Chapter three: Case Study Methodology 3.1 Research framework
Qualitative Method
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Qualitative research techniques include ‘small-group discussions’ for investigating beliefs, attitudes and concepts of normative behavior; ‘semi-structured interviews’, to seek views on a focused topic or, with key informants, for background information or an institutional perspective; ‘in-depth interviews’ to understand a condition, experience, or event from a personal perspective; and ‘analysis of texts and documents’, such as government reports, media articles, websites or diaries, to learn about distributed or private knowledge. (Hammarberg et al., 2016)
In depth interview
Interview questions
(total nine)
Interview participants
(total six)
Zoom application
(use for the interview)
Record the responses
Conclude final
results
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For further research we have chosen in depth Interview approach to evaluate the Mongolian SME’s logistic system and suggest them appropriate solutions. Interview questions are based on the literature review. We will interview total six employees through Zoom application, during the interview all responses will be recorded as file. After all interview process; collect the significant answers from recorded file and get the final results.
Six employees from three different types of Mongolian SMEs; two employees from each company:
“Bab Invest” LLC:
Baldandorj Denzen- director and Founder of the company
Mandukhai Baldandorj- manager of the company
“EM DJI DI” LLC:
Orgil Shinebayr- director of the company
Adil Byambadorj- procurement manager
“Sarana Goods” LLC:
Narangua Zorig- human resource manager
Ulziidelger Ganbaatar- manager of the company
3.2 Questions for the Interview
1. Briefly introduce about your company.
2. Do you have your own logistic system or not?
3. What kind of barrier do you have in your logistic system?
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4. SMEs most common challenge is the IT competency. Will IT competency enhance the Logistic performance of your Company? Why?
5. IT system faces such challenges; high up-front costs associated with hardware, software, training and integration. Could you purchase high cost software? Why?
6. Currently what kind of applications do you use? Is it useful for you? Why?
7. Would you prefer to customize the appropriate web software for your own company?
It will cost expensive but once you have your own software it will enhance the efficiency of your logistic system.
8. One of the solutions to these problems is cloud computing with web semantic services based on the Internet network. Is it useful for you or not?
9. How about the LEAN IT system?
3.3 Introduction of Mongolian SMEs
We have chosen “Bab Invest” LLC; “EM DJI DI” LLC; “Sarana Goods” LLC as a representatives of Mongolian SME industries to make our further research in logistic system, hoping to understand SME’s challenging problems in logistic system, to suggest an appropriate solution for them. For this study three different types of SMEs will be investigated. First company is conducting business in construction sector, and operates only from April to October.
Second company operates in agricultural and trading field, seasons of operation- whole year.
Third company is conducting business in food production sector, operates whole year. All three
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SMEs have different strategy in logistics. Depending on the different sector of their operations;
the logistic system of each companies differs from each other. For better understanding and get appropriate results and different reactions about the logistic system barriers of different types of SME; we had chosen three different sectors.
Table 4. "Bab Invest" LLC
About company
Bab Invest LLC has been established as a building maintenance, construction and production of construction materials company near Sonsgolon Road, Songinokhairkhan District, Ulaanbaatar, Mongolia. Company was founded in 2001. This company has been providing their clients with reliable solutions to their construction projects. It has 4000 m2 field with office building, cement silo, bridge crane and iron workshop. Founder of Bab Invest LLC is Baldandorj Denzin
36 Equipment
37
38 Products
Logistics (final delivery
of raw
materials, and finished products, storing products, carrying and
Concrete products: Mostly no-shipment. Customers come to the factory to purchase products. Deal with the private truck drivers to carry products.
Fresh concrete: one-time deal with private drivers. One trip is around 25,000MNT/m3
Storage: at the site near industry.
Moving: most of the products are very heavy duty.
39 moving
goods)
They use loader and country crane during the making of the concrete products.
Consumers Internal suppliers of raw materials
External suppliers for equipment components (alibaba.com;
amazon.com) How many
Employees, their job descriptions
Director- Operation and sales. Handles procurement.
Manager- Advertising, paper works.
Accountant- deal with tax and social insurance offices, payments
Book keeper -Manages book keeping.
Production manager- arrange daily activities according to orders.
Seasonal workers: 4-6 person Main
directions
Building maintenance
Construction
Production of construction materials
What they
want to
improve in their Logistic System
Better data management for better production forecasting and planning
Reliable raw material sourcing
40 Website
https://www.facebook.com/babinvest/
Table 5. "EM DJI DI" LLC
About company
“The EM DJI DI” LLC was found in 2003. The founder is SH. Shinebayar.
He transferred all 100% shares to his son Sh. Orgil in 2018. The subsidiaries:
“EM DJI DI AR and Key” LLC; “Namirlan” LLC; “Altan Zoos Invest”
LLS. The board of directors (the head company’s owner and subsidiary’s consultants; executive directors) initiate the current year planning, and approve financial statements. This company has been established as agriculture SME to provide customers with health wheat. At the same time the company imports plant protection products from China.
41 Products
Plant protection products (wheat from insects)
Fertilization product
Wheat Equipment
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Trucks to carry products
Tractor
1. Import products and raw materials from China:
by truck through Chinese city Ereen and Mongolian province zamiin-Ud;
by railway from China to Ulan bator; Mongolia.
2. Storing; saving their products in the company’s warehouses
Consumers Farmers from Selenge; Bulgan; Khuvsgul; Darkhan; Tuv;
Arkhangai; Uvs; Khovd; Dornod provinces.
Ministry of Food; Agriculture and Small Industry
Ministry of Nature; Environment and Tourism Suppliers Raw materials import from china- shanghai; Russia
Cooperation Warehouse of Ministry of Food; Agriculture and Small Industry
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Six Warehouses of the Agriculture Support Funds
Companies warehousings,
Company’s rural branches Employees In the office 10 employees;
At the agriculture site 10 employees Main
the plant protecting production trading;
the greenhouse industry.
What they
Product tracking system
Insurance
Logistic centralized system and monitored by state.
Website Facebook
Currently don’t have web pages
Table 6. " Sarana Goods" LLC
About company
Sarana Goods LLC was established in 2017. One of the national organic product producer as SME. The main production of the company is the organic honey. Currently has seven different types of glass bottled honey supplying it to the Mongolian market.
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Founder of the “Sarana Goods” LLC is L. Naranzul.
Products
Three different types of honey jars
Tea flavors (dried lemons; tea leaves)
Honey sieve packaged as one spoon
Wooden honey spoon2
Wooden bark box
Wooden bark box