Improvement of Supply and Procurement Management of the Enterprise

RESEARCH PROPOSAL

Improvement of Supply and Procurement Management of the Enterprise Based on Modern Technologies of Integrated Logistics

Logistics management can have a strong influence on the competitiveness and success of the company, regardless of its size. In the last few decades, a significant number of studies have been conducted on the impact of logistics management and its aspects on the work of companies. However, research in the field of integrated logistics management technologies is very generalized and covers only part of the study area. Therefore, the purpose of this study is to study the technology of integrated logistics for the work of enterprises in the context of procurement logistics. Based on theoretical coverage of this topic in the first part of the study on a specific example, the analysis of economic indicators of the company and its logistics component. Based on the results of the analysis, recommendations are developed with economic justification to improve the efficiency of procurement activities of the company. Consideration of a specific example can show the shortcomings of existing integrated logistics technologies and affect the further development and improvement of logistics management companies around the world.

Keywords: integrated logistics, supply management, procurement management, technologies of integrated logistics.

Introduction

Background. Today logistics is an integral part of any company around the world, even if the company is not directly related to the transportation of goods. Accordingly, the market of logistics services is steadily developing. In order to optimize the main logistics processes companies around the world are introducing methods of integrated logistics management into their work. This has led to the need for better coordination of logistics and other departments within the company. Integrated logistics itself is designed to manage the flow of the logistics system through all its stages. However, this is consistent with the structural division on the principle of functionality (f.e. supply, production, storage, distribution etc.), the activities of which are subject to the general (corporate) purpose of the system. Integrated logistics as a separate area was formed in the 1980s and achieved great popularity in the 1990s. Logistics integration strongly affects the reduction of the unit total costs of circulation, thus contributes to the efficiency of enterprises and thus allows to improve the competitiveness of enterprises in the framework of joint activities, improve performance compared to their independent operation.

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Modern logistics technologies, which are currently used in different companies or enterprises, are mainly based on the principle of integrated logistics management. However, there is a general management concept and organizational strategy, which consist in an integrated approach to planning and managing the entire flow of information about raw materials, materials, products, services that arise and are transformed in the logistics and production processes of the enterprise. This concept is called SCM (Supply Chain Management) and allows to solve various problems of integrated management of functional areas of logistics in the enterprise. The SCM was proposed in 1982 by Keith Oliver, later developed and eventually received practical implementation using application software-supply chain management systems. This concept is the basis of all modern technologies of integrated logistics management. In the last 20 years, the market of logistics management technologies is continuously expanding and developing.

Problem statement. Thus, the question is how can modern technologies of integrated logistics management help to improve the efficiency of enterprises? Undoubtedly, the use of more advanced technologies of logistics management leads to an increase in the efficiency of enterprises, but the way in which this happens is not always clear. Lack of information given in open sources does not allow to just look and immediately find out the answer. In addition, this is impossible because many companies place only the names and brief description of the technologies used, and the results of the use of these technologies are often published only partially or not published at all.

However, many old technologies of logistics management work well, enterprises should implement new technologies of logistics management (f.e. technologies of integrated logistics management) because it can help them to improve efficiency of their work and stay competitive in modern world. Enterprises, which use more advanced technologies of logistics management, achieve better results than their competitors.

Delimitations. Different companies all around the world uses different types of technologies of logistics management, which can suite their own goals and reach most possible for company working efficiency. Because of it this study can not overlook all known technologies of integrated logistics management and their influence on efficiency of a company/enterprise.

Because of the large number of enterprises, as well as the large number of technologies used in these enterprises, the practical part of this work will affect only one specific example. This will allow to consider in detail the impact of the use of integrated logistics management technologies on the efficiency of the enterprise.

Professional significance. The information and knowledge obtained as a result of the study of both theoretical aspects and a specific example, will allow a clearer idea of how one or another logistics technology will affect the efficiency of the company before its full implementation for continuous use in the work. In addition, the study of this topic will not just more specifically represent the impact of logistics management technology on the efficiency of the company/enterprise, it will allow to trace the entire process from the design and test use of the technology to the full release and its implementation in the company.

This work is aimed at studying the impact of the use of modern technologies of integrated logistics management on the efficiency of enterprises. Accordingly, for a full disclosure of the theme, it will be needed to perform the following tasks:

• to analyze and look at a history of development of integrated logistics from the moment of its occurrence;
• to look at trends of development of technologies in the field of logistics management;
• to find out key indicators to assess the impact of technology in the logistics management of the entity;
• to make an overview of some technologies of integrated logistics management on the example of different companies from around the world;
• to make a detailed analysis of the impact of integrated logistics management technology on a specific example.

Definitions. Basic term which will be used in this study is “integrated logistics”. Integrated logistics is defined as a flow process management system that expands the scope of application of methodological tools of logistics in the direction of cross-functional integration and optimization of the appropriate set of production and economic activities in their relationship and interdependence, starting with individual operations and ending with end-to-end management of flow processes. In addition, the concept SCM, which was mentioned earlier, also will be used as the basis of many technologies of integrated logistics management. The essence of the concept of “supply chain management” is the consideration of logistics operations throughout the life cycle of products, i.e. the process of development, production, sale of finished products and their after-sales service.

Literature Review

Integrated logistics and its implementation in a firm take a big place in discussion since the emergence and separation of the concept of “integrated logistics” from all logistics. In this part of the work some ideas about integrated logistics and topics connected with it will be presented to understand what is already done in this field.

Successful integrated logistics management system combines all logistics activities together for minimizing costs on distribution, warehousing and manufacturing. As Kenderdine and Larson asserts, “the present competitive environment requires integrated logistics management throughout the entire channel system” (as cited in Daugherty, Ellinger & Gustin, 1996). The research provided by Daugherty et al. (1996), was aimed to define the level of logistics integration of US firms and determine if a dependency exists between implementation of the integrated logistics concept and logistical performance of a firm. The survey showed that more than half of respondents have effectively implemented that concept. Also, such firms are more successful at improved customer service, quality and productivity improvements and other parameters. One year earlier Chiu (1995) marked high importance of integrated logistics system for distribution-oriented companies, who face increased internal competition as well as competition on the global market. Those studies about general aspects of integrated logistics management system were made more than 20 years ago, and it is required to make other point of view to this topic.

One of the most important fields of transportation logistics is transportation of food supply. Besides transportation of products from manufacture or warehouse to a retail store, there are also transportation of products (as ingredients for other products) from one manufacture to another etc. Such a specific field has not been studied much till now. Mejias-Sacaluga & Prado (2002) in their research mention management of integrated logistics in grocery supply chain at Spain. The aim of their work is to analyze the state of relationships between manufactures and retailers and its implementation on effectiveness of functioning of grocery supply chain at the basis of ECR (Efficient Customer Response). The main result of the research was very satisfactory: more than half of manufacturers and retailers already have long-term plans or programs with some of their suppliers/customers. Bennett & Klug (2012) study another field in their work not connected with food industry. They research integration of logistics suppliers in the automotive industry. One more research in a similar field is provided by Fraś & Romanow (2014), who studies integrated logistics management systems for operation of machinery and equipment. Main works for integrated logistics within transportation is devoted to food industry and much less research is on non-food industry. This makes it necessary to study not only food industry, but also companies working in other spheres (e.g. automotive industry etc.).

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One more topic widely correlated with integrated logistics management is total cost analysis and optimization modelling. Both those aspects are aimed at reducing costs and making efficiency of work of a company better. Total costs analysis can be called the basis of concept of integrated logistics management. Shapiro (1992) in his work analyzes current logistics network of a US firm which sells electronics in the continental part of a US and makes a case study about optimizing this network and reducing costs. The result was quite positive: total logistics costs of that firm after optimization were reduced by approximately 10 per cent. Such results allow to conclude that the optimization modeling used in his work was successful and can be used to analyze and optimize the logistics networks of other companies. Shapiro (1992) also said that availability of modelling systems like system of logistics integrated management can facilitate developments of minimizing total logistics costs by identifying and exploiting optimal strategies. Total cost analysis should always be mentioned when a company wants to implement a concept of an integrated logistics management or to improve its effectiveness.

Another point to mention in this part of the work is distribution resource planning and its correlation with integrated logistics management. Distribution resource planning is an important element of integrated logistics management system like any other element, which were earlier mentioned in this part of the work. Edwards & Lucas (1990) in their paper list symptoms of poor integration and tell that some companies do not understand that their problems are due to pure logistics integration. The reason to implement such planning system is the same as reason to implement integrated logistics management system. However, the former allows to optimize inventory and avoid unnecessary costs of maintaining excess inventory. As Edwards & Lukas (1990) mention, companies should select and implement integrated logistics systems from the beginning because of the greater efficiency in this case. The earlier the needs of integrated logistics are identified, the more efficient work of a company will be. Distribution resource planning should not be ignored while implementing integrated logistics system or it can cause even serious problems within a company.

Last but not least topic which will be mentioned in this part of the research is 3PL providers, their connection with integrated logistics and what is studied about all this for today. Since 1990s the percentage of logistics functions given to other companies more known as 3PL providers significantly increased. Today third-party logistics providers play a big role in logistics chain. Research provided by Rabinovich, Windle, Dresner & Corsi (1999) results in the survey of about 370 logistics managers in different industries. This survey expands previous findings about suggestions that giving some multiple logistical functions on outsourcing can help a company to improve customer service and reduce costs. The research gave results similar to results of previous findings. In many industries giving logistics functions on outsourcing to third-party firms helped companies to save money on logistics and to get competitive advantages over other companies. Many researches about integrated logistics and 3PL providers are made by experts from Asian countries. Huo, Wang, Zhao & Hua (2017) in their study made an empirical research about barriers for successful third-party logistics integration in China. This research is important as any other because of the fact that a large number of products, including clothing, electronics, household goods and even some types of food products are currently produced in Asia, especially in China. As Huo et al. (2017) mentioned, there are two types of specific barriers for successful integration between firms and third-party logistics providers in China: measurement difficulty and cooperation difficulty. Both of them negatively affect information sharing and coordination of the process. However, the presence of such barriers is relevant not only for China, but also for the rest of the world, especially for countries where the production of various goods sold and consumed around the world is concentrated in large volumes. As for Chinese 3PL industry, the greater hindrance on process coordination is made by cooperation difficulty (Huo et al., 2017). External integration between 3PL providers and its customers should also be considered in terms of improving efficiency and minimizing costs. Liu & Lai (2016) studied those type of integration and its influence on financial performance of third-party logistics providers. The main result of their research demonstrates that than external integration capabilities of 3PL providers are stronger, than it has a stronger positive effect on their resource efficiency.

To sum up, the topic of integrated logistics and its impact on the efficiency of the company is discussed in various fields by experts from different countries around the world. However, not all important aspects of its impact on companies are fully discussed. This is especially true of supply and procurement logistics enterprises, regardless of the country in which these enterprises are located. Therefore, this once again confirms the need for this work, at least clarification and explanation of the theoretical aspects of the impact of integrated logistics on the efficiency of the enterprise.

Methodology

This part of the project proposal gives special emphasis to the analysis of data. Here it is essential to describe the data which will be analyzed and the methods which will be used in this study. Collection of data for the theoretical and practical parts of the work will be slightly different. To highlight the theoretical aspects of the work various scientific articles, textbooks and other sources of information on the topic will be analyzed. While for the practical part of the study information about a particular company will mainly be used and only a little – the theoretical information necessary for the calculations. Theoretical information for the practical part of the study will include different formulas and, of course, definition and description of those formulas.

Practical part of the study will be divided into two big parts: analyzing a company and making recommendations for this company according to results of analyze. The former will be devoted to analyzing the chosen company and its economic indicators. The most important in practical part of the study will be to select a company which is suitable for use in the study according to several criteria. First, the selected company must have a production component in its structure. In addition, this company should preferably be a full-cycle company. This means that the logistics chain of the company begins with the supply of raw materials and resources for production and ends with the sale of finished products to consumers, and includes the storage of raw materials and resources, work in progress products and finished products. Fulfilling this condition is needed for more complete reliability and accuracy of the research conducted in this work. Also, an important criterion for choosing a company is its size because the introduction of modern integrated logistics management technologies will presumably have less benefit for small companies with small production volumes and, accordingly, a small sales region than for larger companies.

After choosing a company it will be needed to collect information about the company, including the history of its origin and development, the definition of its main activities, as well as the main economic indicators of the company over the past few years. When the needed data about a company is collected, all economic indicators for the last few years will be analyzed by some mathematical methods. It will be the method for analyzing current situation in the company and some methods for prediction of changes that could happen in the company in the near future. Analysis of current economic situation of the company will be made for to see dynamics of changes in various economic indicators of the company. The result of this analysis will be necessary not only to indicate the actual state of the company at present, but also to be used in the next part of this study, that is, to make recommendations for improving the management of integrated logistics at enterprises of the company.

The second point in practical part of the study will be devoted to making recommendations for the company about how effectiveness of integrated logistics management at the enterprises of the company can be improved. Also, here will be given economic justification of recommendations to improve the efficiency of integrated logistics management at these enterprises. Various formulas will be used for the economic justification of the recommendations for the company.

In the practical part of the study, various types of graphs and tables will be used to graphically display the dynamics of various economic indicators of activities of the company. In addition, when justifying recommendations for improving integrated logistics management at enterprises of the company, the formulas that will be used for calculations will be indicated in advance, and explanations will be given to those formulas. After all parts of the study have been completed, general conclusions will be drawn for the entire work.

Preliminary results

It is expected that results of the study will fully complete all the tasks which were formulated at the beginning of the study. As for theoretical part of the study, the history of development of integrated logistics will be approximately fully described according to scientific articles, textbooks, practical studies and some materials from conferences which are devoted to the field of integrated logistics management and especially procurement aspect of this field. Another objective of the theoretical part of the study, associated with the identification and description of existing trends in the field of integrated logistics management, will also be fully disclosed with high probability. Regarding this task, it is expected that some differences will be revealed in the trends of integrated logistics management for different regions of the world. It is highly likely that there will be differences between trends in Asian countries (for example, China, Japan, Korea) and European and American countries. It is also expected that trends in logistics management in the Russian Federation will differ from trends in other countries of the world. In the practical part of the study it is expected that the company that will be selected for analysis will meet all the criteria for its selection, which, in turn, will allow an accurate analysis of its logistics management system. The results of this analysis will allow making sufficiently accurate recommendations for this company in the field of integrated logistics management. Also it is expected that such an accurate analysis will approximately allow to find out key indicators which have an impact on successful implementation and usage of technologies of integrated logistics management in the company.

Conclusion

Thus, in the course of this research, it is highly likely to conclude that, despite the fact that the old integrated logistics management technologies ensure the stable functioning of the company at the level necessary for them, however, these companies are recommended to change the old logistics management technologies to more modern technologies, providing more effective management of integrated logistics. Such changes will probably allow companies of different sizes to increase their competitiveness and efficiency of their work. Better competitiveness of a company will allow her to achieve better results than with old logistics technologies. Also, better efficiency of work of a company will probably help her to expand the territory of its activities and acquire more and more new customers. This will also apply to the company, which will be considered as an example in this study.

This study can be further used for a more in-depth study of the topic of integrated logistics management technologies. Also, this work in the future may become the basis for the development of more effective ways of managing integrated logistics in the enterprise, including in the context of purchasing logistics.

Reference list

1.                Bennett, D., Klug, F., (2012). Logistics supplier integration in the automotive industry. International Journal of Operations & Production Management, Vol. 32 Issue: 11, 1281-1305.
2.                Chiu, H. N., (1995). The integrated logistics management system: a framework and case study. International Journal of Physical Distribution & Logistics Management, Vol. 25 Issue: 6, 4-22.
3.                Daugherty, P. J., Ellinger, A. E., Gustin, C. M., (1996). Integrated logistics: achieving logistics performance improvements. Supply Chain Management: An International Journal, Vol. 1 Issue: 3, 25-33.
4.                Edwards, L., Lucas, R., (1990). Integrated Logistics Systems with Distribution Resources Planning. Logistics Information Management, Vol. 3 Issue: 4, 26-34.
5.                Frąś, J., Romanow, P., (2014). Integrated logistics management system for operation of machinery and equipment. LogForum 10 (3), 263-272
6.                Huo, B., Wang, Q., Zhao X., Hua Z., (2017). Barriers to third-party logistics integration: empirical evidence from China. Industrial Management & Data Systems, Vol. 117 Issue: 8, 1738-1760.
7.                Liu, C.-L., Lai, P.-Y., (2016). Impact of external integration capabilities of third-party logistics providers on their financial performance. The International Journal of Logistics Management, Vol. 27 Issue: 2, 263-283.
8.                Mejías‐Sacaluga, A., Prado‐Prado, J. C. (2002). Integrated Logistics Management in the Grocery Supply Chain. The International Journal of Logistics Management, Vol. 13 Issue: 2, 67-78.
9.                Rabinovich E., Windle, R., Dresner, M., Corsi, T., (1999). Outsourcing of integrated logistics functions: An examination of industry practices. International Journal of Physical Distribution & Logistics Management, Vol. 29 Issue: 6, 353-374.
10.            Shapiro J. F., (1992). Integrated Logistics Management, Total Cost Analysis and Optimization Modelling. International Journal of Physical Distribution & Logistics Management, Vol. 22 Issue: 3, 33-36.