Value Added Services In Logistics Operations Marketing Essay

Logistics is a procedure to optimize all activities to ensure the delivery of cargo through a transport chain from one end to the other. The comparative efficiency of a country’s trade logistics chain is of vital importance in enhancing competitiveness of its industry and commerce. In this regard, international differences in trade logistics efficiency determine in large extent the efficiency and sustainability of the economies. In developed countries such as the U.S. and Japan, logistics costs are about 10 per cent of GDP. For some less developed economies, these costs exceed 30 per cent. Moreover, these differences among countries appear to be widening. According to the European Logistics Association, the logistics costs in relation to annual turnover can amount to more than 30 per cent in the food industry, 27 per cent in the metal industry, 23 per cent in the chemical industry, 15 per cent in the automotive sector. The percentages may differ from country to country and industry by industry, but many of the critical cost factors are influenced by public policy. The logistics chain consists of activities that facilitate the movement of goods from supply to demand. As many such activities require the use of ports, port authorities have taken a particular interest in the various port activities involved in logistics. Logistics costs are not limited to costs consumed in carrying out logistics activities. Rather, they should be understood as all costs input into a given logistics system for the provision of logistics service.

According to the US Department of Transportation, logistics is defined to be the method that service groups position themselves to perform activities such as transportation, warehousing, inventories, information processing and customer relations. Advanced logistics is the term used when the firms make use of technologies and permits to reduce costs by substituting large inventories, multiple warehouses and customer service outlets with transportation, e-commerce and just-in-time deliveries. To reap the benefits of advanced logistics, firms have restructured themselves in relation to transporting of goods from one point to another and improving infrastructure.

During the 1970s typical logistics functions focused on traditional physical distribution activities, including the movement and storage of finished goods between the producer and consumer. Those specific functions were identified in the 1985 A.T. Kearney study of logistics organizations as outbound transportation, logistics administration, intracompany transportation, logistics control, finished goods field warehousing, and logistics systems planning. These activities were eventually determined to be quite narrow in terms of meeting customer needs. Therefore, they provided the foundation for broader interpretation of logistics, which led to inclusion of various activities like the processing of orders and development of customer relations, finished goods plant warehousing, finished goods inventory management, and inbound transportation. The third phase in this evolutionary process was identified to include logistics engineering, production planning, sourcing or purchasing, raw materials or work-in-process inventory management, sales forecasting, and international logistics. This evolutionary process moves logistics from its traditional “physical” responsibility to an integrative value added role in the business. As logistics becomes more important in an organization, it encompasses more functional areas within a single responsibility center to provide more coordination and more highly integrate the logistics channel. Because of the evolution of the logistics operations, its responsibility travels further back through the supply chain to the raw material source. When logistics operations is linked with manufacturing operations, it can be seen that the aspects of manufacturing activities with logistics operations activities address the common underlying foundations that contribute to the value of the products and services offered to customers.

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According to a study conducted by Frost & Sullivan in 2009, about logistics operations in ASEAN countries, it was found that Singapore accounts for the lowest percentage of logistics as a part of total sales at 8 percent while Indonesia has the highest at 19 percent. According to this 2009 study, Malaysia and Thailand accounts for 17 and 12 percent, respectively. It has been noted that the high logistics costs may be attributed to inefficiency in operations. The inefficiency may be linked to the lack of trained man power and inadequate support to facilities and infrastructure, which has led to the slow flow of cargo and distribution of goods. Based from this study it can be deducted that an efficient operation is due to the presence of trained professionals, high quality and an array of logistics services offered and an excellent infrastructure and communications or information system. As of present date, studies have shown that transportation is the largest contributing factor to the cost acquired by most companies.

Currently, the primary reason of most consumers for engaging in a third party logistics provider or what is known to be a ‘trucking service’ is to enhance the efficiency of logistics operations through professional intervention. Engaging in a trucking service also has its cost advantages and thereby acts as a cost saving move for most companies. An arrangement with a logistics company also provides the consumer the ability to focus on other concerns such as their own competency and reliability. It is no surprise therefore that the main criterion evaluated by most companies engaging in this service is the cost savings factor. There is only Malaysia that evaluates the services offered and the condition of the equipments when choosing their logistics service provider. Meanwhile, it has also been found out that across ASEAN countries, technology is the least considered factor. On the other hand, it can be noted that the most efficient country in logistics operations, Singapore, is heavily focused in the communications area. This country’s most influential consideration factor is the network coverage employed by the logistics service provider since Singaporean companies are main players in the international market.

Technology wise, there are sixty percent of consumers adopting technology are heavily rely on warehouse management and the bar coding system. On the other hand, transportation planning system and vehicle tracking system are yet to be embraced by more than sixty percent of the end-users. The use of the smart labeling system or RFID for public vehicles is still low. The adoption and usage for RFID or smart labeling system are still low mainly because of the high cost of implementation and the less mature technologies across South East Asia.

Among all the activities in logistics operations, transportation is the most utilized activity accounting for more than seventy percent of end users outsourcing such logistics activities to service providers. Freight forwarding comes to a close second to transportation followed by inbound warehousing accounting for more than fifty percent. On the other hand, processes like the packing and labeling of goods and management of fleet are the value added services that are most utilized.

DISCUSSION AND ANALYSIS

Value Added Services (VAS), which is loosely defined as a collection of specific requirements mandated by customers involving additional processing of a product or an order beyond the simple picking of the product for an order, is an especially common practice in the retail supply chain and is estimated to consume +10% (and growing) of total labor hours. According to Logistics Management’s 2nd Annual Warehouse Operations Survey, 80% of respondents are dealing with some form of VAS in their DCs. This was confirmed during in-depth interviews conducted by Distribution Digest for our report on Automated Case Picking (ACP). Value added services are offered by the logistics companies in order for customers to benefit from their full use and application. This may include anything from routine maintenance and customer technical support; to customization and application training; to real-time inventory management and state-of-the-art channel support. It refers to the process of developing relationships with customers through the provision of an augmented offer, which may encompass many aspects of value-added activities. Value added services are aimed at ensuring that special requirements of customers are met and that product is received as ordered. These services are integrated with logistics operations through a global network of agents and coordinated at either point of origin or final delivery location. These services may include: complete shipping documentation from start to finish; cooperation with convention/trade show coordinator; pickup and delivery of time definitive freight; unpacking and setup assistance including the removal of packing materials; repackaging of materials at end of trade show; pickup and return; logistics consulting; performance reporting and distribution services.

Through out the years, an evolution to the terminologies relating to the consumer has been witnessed in the logistics industry. Logistics initially gave birth to the concept of customer relations which represents the combined output of the various processes in logistics. Eventually, end products of marketing and logistics activities were connected to customer relations to create customer satisfaction. Most recently, the concept of customer success has been introduced to link the service provided by the firm not only with the satisfaction of the customer, but with the success that the customer realizes in attaining its organizational objectives. Since, transportation, warehousing and freight forwarding are activities that are most likely to continue in the next 2-3 years, there is an increasing trend for consumers to look for companies that can supply value added services. The value added service employed by the logistics companies are created through the eyes of the logistics executive. It is critical that the strategies and tactics used influence the perception that the customer has of the organization and has the potential of transaction creation during the short term as well as the long term. Therefore, the logistics executive’s perception of value is directly linked to the firm’s ability to satisfy the customer. This can result in customer satisfaction, which can ultimately lead to a positive attitude by the customer towards the service provider. The value of the logistics service provided is measured by an assessment of the logistics executive’s perception of how customers perceive the service provided by the firm and how they react, or respond to this service. This measure, called “customer reaction,” include the level of perceived satisfaction with the existing service levels, whether customers are inclined to reduce or increase their business with the firm if the service levels change relative to their expectations, and whether customers can recognize changes in the service levels provided by the firm.

These days, the commercial success of a logistics operation could stem from a productivity advantage in traditional cargo-handling service, from value-added service, or from a combination of the two. Productivity advantages come mainly from economies of scale and economies of scope, suggesting that the most productive ports will be those that are equipped to handle large cargo volumes and significantly reduce unit costs through efficient management. Shippers and carriers select individual ports not only based on their cargo handling service capabilities, but also on the benefits they are capable of “delivering”. Unless a port can deliver benefits that are superior to those provided by its competitors in a functional aspect, customers are likely to select logistics providers based merely on price. This fact raises the question of how to one logistics company can stand out from the rest of the companies that are in the market or what is known to be value differentiation.

In the 1970s, almost every logistics company provided the same basic package of services to almost every customer. Nowadays, however, it is more difficult for service providers to compete on the basis of cargo-handling service. There has been a convergence of technology within cargo-handling service categories. This means that though new technology may sometimes provide a window of opportunity for productivity improvement, in many cases that same technology is also available to competitors. It is no longer possible to compete effectively on the basis of basic, traditional functions. Thus, there is a need for logistics service providers to seek out new means of gaining a competitive edge. The late 1980s saw the emergence of major changes. Consumers began to ask service providers to provide a greater variety of services. Providing value-added services is a powerful way for logistics companies to build a sustainable competitive advantage. Shippers and customers are becoming increasingly demanding. Customers now tend to look at value-added logistics services as an integral part of their supply chain. As a result, service providers must attempt to satisfy these needs by offering differentiated services. This poses a particular challenge for logistics operators in the industry. Studies show that the most successful logistics service providers are those that not only have a productivity advantage in cargo-handling services, but that also offer value-added services because operators who do not provide additional services are indistinguishable to their competitors. Although there have been researches that have found that there continues to be a need for operators to provide the basic, traditional cargo-handling function and that there continue to be many customers for such services, it is clear that, in the future of the logistics operations industry, there will be fewer ports that prosper only in this area. Rather, we will see the dominance of superior service leaders that possess both a productivity advantage and a value-added service advantage. Logistics companies that provide value-added services are on their way to becoming the more superior logistics company. The advanced ports around the world have continuously emphasized the function of logistics centres mainly due to the high degree of global production and the need for value added services. These trends in international logistics strongly suggest that the trend toward value added services is likely to continue into the future. Currently, the logistics discipline continues to revolutionize itself with the adaptation of various e-business practices and forms of just in time delivery. The nature of these adjustments may result to more single package deliveries requiring additional transport services.

KEY RECOMMENDATIONS

Therefore, for logistic operations to have an edge, it is recommended that logistics companies incorporate valued added services to the array of services that they provide in a matter that is cost efficient. There is also a need for service providers to be able to offer services of high quality and as well as cost reducing solutions. Service providers must also take a closer look at the activities in operations and ensure that there are no repetitions of activities for maximum optimization. The elimination of redundant activities results in more efficiency and cost reductions. Providing trainings for inexperienced personnel is also vital in achieving maximum customer satisfaction in the future. The ultimate output of the quality effort by the logistics organization should be through the customer’s reaction in the market. This reaction is continually perceived by the logistics executive in the form of individual customer sales, business in specific traffic lanes, changes in facility inventory levels, or changes in the volume of customer complaints to the customer service department.

However, the simple truth is that when you are processing thousands of cases an hour and shipping dozens of trailers per day, there just isn’t a lot of time for value added services, especially that which doesn’t provide real benefit. In the end engaging in value added services is a business decision. A customer can be told that the service provider can do just about anything they want, but the customer must also know that it’s not free. Value added services make the services provided by the logistics service providers more expensive. The customer needs to gauge how important it is to its business. Sometimes retailers are surprised that their requests don’t add any value. As an example, in a certain logistics company, one Vice President of Operations, described a situation where an existing customer ordered standard 12 packs last year, however this year all their orders were in 6 packs. The Operations VP went back to the customer explaining that when you’re handling 80,000 cases verses 40,000 there is a big difference in handling and processing cost. That particular customer understood the logistics cost impact for the DC, as well as for them, and immediately changed their Purchase Order back to 12 packs. Still, for some companies the consequences of value added services have been more frequent shipments and in smaller quantities, forcing many of them into piece-pick operations where they had previously been a full case-based pick. Or, at the very least, having to open full cases to apply tickets and other paperwork and then manually applying a special shipping label.

  If it is determined that the cost absorption for a specified value added service is too great, the logistics company has the option to try and work out a deal with the customer to obtain waivers, or in some extreme situations refuse to comply. On the other hand, a major component of an efficient supply chain is getting everything done on the first touch. Therefore, it can be logically argued that in many cases moving value added services upstream to the manufacturing level is moving it in the right direction. •