Business Operations of Logistics
Introduction
Efficient logistics as well as supply chain (SC) control is critical to the success of most firms. The persistent evolution of logistics and SC management is imperative for UK to advance to become a primary business hub in Europe (Cooper, 2003). Better quality and proficient organization SC management is an important reason for nurturing relations with associates and enhancing SC proficiency. The use of third party logistics or 3pl vendors is a way of acquiring these advantages. 3PL, which is also known as “logistics subcontracting” or deal logistics, indicated elementary expansion in the previous decade Third party links between a hauler or client and 3pl, in contrast with normal services, presents more ample, tailored, as well as flexible services. 3pl is however symbolized by never-ending, more mutually beneficial association that flanks between service purveyors and clients. Organizations that subcontract their logistics operations to third party logistic service purveyors enhance interactive relations (So et al. 2006). It is necessary to amass corporate links that adopt a relational, and not transactional, corporate approach. Logistics subcontracting and third party logistics service should remain an imperative facet of modern SC management. Latest study has revealed record high third party logistics treatment among Fortune 500 organizations, and it was estimated that by 2005, United States third party used about 1/3 of their collective outlays in relation to the current usage that is at 20%. In integrating the subcontracting strategy, companies use an exterior organization to perform some, or all, of their logistic practices to attain high-ended expertise services. Third party logistics vendors offers register enhancements and capture the developed economies that lead to elevated volumes that are acquire by the differentiation of demand across a huge market. There appears to be scarcity of study on the collaborative links flanking control as well as corporate performance in 3pl services presenters and their supply chain associates (So et al. 2006). This research of corporate operation determinant of logistics subcontracting in UK haulage logistics industry navigates the connection between third party logistic vendors and SC associates, and advances the proficiency of the serviced offered. It is necessary that companies excel in quality assertion to enhance the proficiency and competent flow of goods and the transmission of information as well as finances within SMs. Certainly, this enhances not only the quality of 3pl vendors, but also supports fiscal development and give UK a competitive edge over EU rivals. Globalisation has altered the way business is conducted on a global scale. Businesses have been forced to re-align their corporate structure and embrace change as they seek to define a niche in liberal markets. Many companies of the day subcontract their logistics operations to third party logistics (3pl) service vendors. This practice has become widespread in various sectors. Third party logistics vendors can be illustrated as subcontractors of specialized logistical operations that cover the complete logistics procedure, or preferred practices within the logistical operation that have previously been core of a company. This paper is a review of existing process flows in the operations management and logistics.
3PL and Supply chain
Conventionally, the control of material flow was centered on internal capability of the company. Usually this culminated to expansion of inventory driven structures. Equally, firms managed the inbound haulage as well as distribution of products. Typically, every production unit managed its own logistic operations. Nevertheless, modern firms which are characterized by unvarying transformation and rivalry, researchers assert that this conventional mode of developing logistic policy and structure supply chain is not a convincing approach to ensure continued existence of companies. This business milieu- characterized by increased rivalry and global presence with the need for increasing product varieties, and (Sink et al. 2006) diminishing inventories has resulted to the need for comprehensive reactive corporate procedures, centered on effective supply chain coalitions. Increased rivalry pressures have promoted many corporations to re-evaluate their niche within supply chain. As majority of these firms reconfigure their activities around core capabilities, established corporate frameworks (Sink et al. 1996) are providing way to novel structures of organization: ‘’ the typical, vertical incorporated multi-divisional company, flourishing in 20th century, is dubious to perform in such settings. Previous studies indicate that it will be substituted by innovative structures of network companies comprising of specialized multinational firms working as cooperative exchange associations.
Reacting to the growing pressure created by such severe competition, management and innovation corporations are constantly working on enhancing their marketing strategies to realize sustainable direction in their areas of operation. In achieving a competitive edge, supply chain has been applauded as a new (Trunick, 2009) approach and within this; the logistic procedure has been recognized as strategy that can offer competition strength. SCM or otherwise supply chain management, through successful logistic processes, has be encouraged as an imperative source of attaining stable positions of advantage over rival mainly in terms of client preference. The enduring competitiveness of companies is hence tied to supply chain in which they partake; that is, positioning of SC (supply chain) for realizing long term competitive advantage that signifies a core strategic gain of successful SCM
Previously, it was believed that the only means corporations could realize a justifiable competitive tactic was if they pursued a cost effective strategy or one of diversification. However, the objective of successful SCM is to (ensure a smooth operating supply channel where clientele are offered comparative differentiation via service delivery and simultaneously, reduction of inventory by minimizing costs and better utilization of competence. Due to technological developments that (Sohail et al. 2006) portray the present market, successful firms will be those who distinguish and take advantage of opportunities provided by efficient SMC. The establishment of vastly successful SC represents the only strategy that corporations can uphold a valid competitive edge in the current marketplace. It is SCs that compete and not firms because of virtual, information-oriented integration.
Moreover, to remain competitive, industrial establishments are (constantly faced with barriers to improve the quality of goods and services? This can be attained by implementing a strategy which centers on branded core, value adding procedures within the firm and outsourcing others to proficient service providers. Utilizing of core competence tactics to supply chain management implies developing a competitive SC by outsourcing a non essential, non-value) augmenting SC procedures to experts firms beyond the precincts of supply chain. In United States, outsourcing logistic practices revolves around manufacturing area. Subsequently, outsourcing has been identified as a viable strategic preference for treating non-essentials within companies.
In retail industry, however, logistic procedures of purchasing and distribution are major organizational plans and therefore contracting them will impact on both the strategic framework of the company and the entire supply chain cycle. 3PL vendors have the ability to provide skills and cost benefit services to individual firms because they offer opportunities for corporations. They minimize unnecessary costs in expensive logistic equipments such as warehouses, trucks, sorting tools among others. Additional, 3PL offer added benefits of economies of scope which is evident as voluminous services are offered without increases in labor or even equipment. At the center of all these issues, SC firms need to restructure their activities in order to integrate transformations inherent in a logistic subcontracting strategy. This can be done by integrating a procedure-based plan, accentuating on business practices cutting across functional challenges. In reality, this requires an integrative technique to supply chain management such as supply chain integration (SCI). To attain this integrative plan, firms have formed logistic associations with 3PL.
2.2.1 Supply chain in Retail Perspective
Retail sector deals with the framework, control marketing and supply channels. In this area, supply operations are concerned with strategic management of SC; that is, supply conduits is the sector within which organizational strategy, logistic procedures as well as promotion function leads to client transaction (Murphy and Poist, 2008). In these promotions, the procedures entailed in the supply and distribution of goods and services are significant practices via which long term competitive edge can be exploited. Particularly, in a convenient vending store, the need for client service and delivery of products on time as a way of differentiation can’t be stressed. In retail sector, increased competition for shelf space, pressure on price tag and margin- coupled with expanding store formats and industrial consolidation has made many firms seek new approaches to enhance their operations and cost-effectiveness. This requires implementation of a radical technique to corporate strategy in order to realize long tem competitive edge such as SCM policies to promote sustainable strategic associations (Sahay and Mohan, 2006). In the United Kingdom, for instance various retailers are working towards the introduction of ‘complete SC’ via the utilization of direct distributor negotiation, central warehouse, supply chains and use of 3LP.
Logistics and SCM
SCM and logistic has progressively increased from the 80s, when firms began to acknowledge the importance of collaborative associations both within and beyond their own corporations. Nonetheless, analysis on logistic and SCM is not a new concept. The first detailed exploration and demonstration of SC interdependence was carried out by Forrester in 1961 (Kopczak, 2006). In the past, numerous analyses have endeavored to address various logistical aspects and SCM. From 1950s to 70s, studies on manufacturing highlighted mass fabrication with reductions in costs as the key operation focus. It was considered that expansion of planning as well as investment could reduce operational costs and at the same time increase quality of goods and services. In the 80s, widespread competition among organizations resulted to logistical and SCM as approaches of minimizing costs, increasing quality and reliable merchandize (Kopczak, 2006). The growth of JIT concept, for instance, acted as drivers in the production efficiency and abridged the SC cycle. Moreover, in the 90s corporations extended their execution of best practices to organizational administrative resources such as strategic vendors and logistical roles. SC partners have embraced the model of third party logistic and SCM to increase efficiency across the supply chain cycle, which has culminated to expansion of SC performance measurements Recent reviews in logistics are centered on SC integration to measure the effectiveness of strategic decisions Generally, research into SCM and logistic highlight two key perspectives;
- Corporate integration: firms severely affected by competition reflect and interact with distributors and clientele base to enhance client services, and minimize operation expenses. Additionally, senior management disbands the functional boarders within departments- production, distribution, marketing, and bookkeeping to enhance employee cohesiveness.
- Flow co-ordination: this involves organization coordinating physically to ensure information flow and capital with the SC cycle to improve efficiency so as to reduce wastage (Langley et al. 2005)
Reviews on Third Party Logistics (3PL)
Subcontracting firms have received growing interests from scholars and dealers. These firms act as 3PL providers, and help enhance the proficiency and competence of an organization’s logistical operations. 3PL is merely the subcontracting of logistic activities to diverse organizations, such as haulage, warehousing, inventory administration as well as distribution among others. Stank et al. (2003) described 3PL providers as firms that offer a range of logistical services to outsourcing firms, to co-ordinate the transport of merchandise in various places. Third party logistic providers’ supply processed goods within a supply chain. The need to build up sustainable competitive edge, the budding stress on presenting quality client service and the tactical value with a focus on core dealing and re-designing culminates in the development of contract logistics, in comparison to conventional logistics. Third party service evolution has been an imperative pattern in logistical administration since the 90s Third party logistics created about US$40 billion globally in 1998, and had grown by US$10 billion two years later Nevertheless, findings on 3PL are comparatively modern (Sahay and Mohan, 2006). It is however apparent that even though studies have existed into the integration of rapport marketing as well third party logistics, study has not exclusively centered on the effect of relational practices on corporate operation and in connection to management flanking third party providers and their customers.
Client Relation Management
Client loyalty is a primary aspect that can help a third party logistical corporate perpetual survival Lao et al., (2011). They asserted that if third party logistic vendors can reinforce variables that prompt the devotion of their clients, they seem to gain advantageously. They nevertheless state that diverse variables also affect client devotion ad client contentment does not imply that it would lead to client allegiance. In this regard, if the clients are satisfied they might not be devoted to the companies. It is nevertheless affirmed that 3PL vendors are dependent on corporate proactive techniques to clients and the expertise and capacity to present persistent services to realize convoluted and un-anticipated client demands. Previously, firms adopted CRM as a strategy for increasing profit margins, expand on technologies, endure competition or as demanded by their clients. All these were done for the purposes of winning loyalty. With expanding market production technique, competition on cost of goods increases. Firms realize that increasing client satisfaction generate little or even no profit. According to various scholars loyal clients tend to be profit minded. Additionally they can help a company to minimize its costs and size by 27 and 60 % respectively. Subsequently, sustainable relationships with clients can not be aped by business rivals (Bowersox and Calantone, 2008). Firms thrive in association management can hence benefit from this long term advantage, particularly in the unstable and tough market. CRM was adopted in 90s it has attracted businesses, since it can offer mutual advantage for clients and corporations. CRM is helping third party logistic providers manage client links in an organized approach. Moreover, CRM has been a driving force in this sector by helping these firms to meet their clients’ requirements. Normally, it entails firms changing their processes and adopting new technologies, accordingly competent leadership is necessary.
A case study of BP Global Plc
BP Global plc (BP, formerly known as British Petroleum) is a British multinational oil and gas company whose headquarters are based in London, England, United Kingdom. BB Global Plc has a global presence and it deals with production and distribution of petroleum products across the globe (Bamberg, 2000). However, the company is unique among other petroleum companies because it also engages in the production and distribution of aluminum coils for the beverage industry. Therefore, considering that the company appears in the marketplace across the globe, the company offers its crude and refined fuel products, where the company products are marketed to both retail and wholesale customers (Meyer and Brysac, 2008). Due to the global presence of the company including its diversification of its business segments including oil and natural gas as well as oil exploration, refinery and marketing, BP Global Plc is undoubtedly on the leading petroleum companies globally because of its excellent management of logistics and operations. Also the company has for a very long period of time maintained an effective supply chain management which has been critical in ensuring that its petroleum products globally (Bamberg, 2000).
Logistics and process flows of the case organization operation
BP Global Plc logistics and process flows have made it one of the leading petroleum companies globally. This is mainly because it is sometimes referred to by its former name the fifth-largest energy company on basis of market capitalization and the fifth-largest company worldwide on basis of revenues, as well as the sixth-largest oil and gas Company in terms of production. BP Global Plc has operations are present in about 80 countries across the world, and its global headquarters are based in England (Bamberg, 2000). BP Global Plc is amongst the six oil and gas “supermajors“, and it is vertically integrated. The operates of BP Global Plc are in all areas of the oil and gas industry, including exploration and production, refining, distribution and marketing, power generation and trading as well as production of petrochemicals. The operations of BP Global Plc are organized into two main business segments, Downstream and Upstream (Bamberg, 2000). As a result of effective management of operations and logistics, BP Global is considered an energy industry benchmark.
BP Global Plc is undoubtedly a benchmark company in terms of operations management, logistics and process flows. This is mainly because the company has an effective mechanism of ensuring its logistics are top notch. Due to the company’s global presence, the company has around 80 subsidiaries across the world in different countries which act as a way of distribution and refinery of crude fuels (Bamberg, 2000). According to the company, BP Global Plc operates offshore oil and gas fields as well as onshore terminals and extensive pipeline network for the transportation of gas and natural gas. However, diversification of business operations has been one of the crucial way through which the company has been logistically performing better. This has also been achieved joint ventures (Meyer and Brysac, 2008).
Additionally, there has appropriate logistics and proper management of operations in order to make sure that the company products and services are widely distributed in the countries where its operations are based (Bamberg, 2000). For instance, the company operates many retail sites mostly in form of service stations under the flagship of the company’s retail brand BP Connect, which consists of chains of service stations combined with a café, a convenience store, and in many stations, an M&S Simply Food shop (Meyer and Brysac, 2008).
Internal and external process map
Moreover, the company process flow follows a downward direction from its global headquarters based in London, England, United Kingdom to all the company subsidiaries located across the world. This is usually essential for making sure that there is consistency of process flow in all aspects of the company operations (Meyer and Brysac, 2008). This is due to the fact that the company adopts a bureaucratic organizational structure where process flows from top going below. However, the company process flow involves operations in all areas of the oil and gas industry, including exploration and production, refining, distribution and marketing, power generation and trading as well as production of petrochemicals. The company’s process flow is illustrated below:
Analysis of the advantages and disadvantages of BP Global Plc operations using SWOT
The analysis of the advantages and disadvantages BP Global Plc operations will be done using the SWOT analysis as a tool that analyses a company’s strengths, opportunities, weaknesses and threats. However, the advantages of BP Global Plc will be discussed under the strengths and opportunities aspects of the SWOT analysis. Moreover, the disadvantages of BP Global Plc will be discussed under the weaknesses and threats aspects of the SWOT analysis.
Strengths
BP Global Plc has numerous strengths including its geographically diverse business and revenue which is crucial in helping to shield the business from shocks in any one of the segments, especially during the global financial crisis experienced towards the end the previous decade (Bamberg, 2000). The company also has an extensive in-house engineering/petroleum engineering expertise which plays an essential role in making sure the company continues to come up with innovative ideas. BP Global Plc also has been undertaking incremental increase in supply through its strategy of speeding up production (Meyer and Brysac, 2008). Moreover, the company has also been using superior oil-related technology which has been vital in maintaining revenue and profits by giving the controlling power in the global oil market. This has also been instrumental in ensuring that the company remains among the best in exploration as well as production at low cost offering it higher margins for oil producers. Furthermore, BP Global Plc is the largest oil producer in the Gulf of Mexico which gives it economies of scale (Bamberg, 2000).
Opportunities
BP Global Plc has many opportunities which are discussed as shown below: for instance, energy companies BP included usually do well in inflationary environment and consumers who can rarely afford cutting down their energy consumption which translates to higher income (Bamberg, 2000). The company also has an opportunity to exploit the increasing demand for petroleum products in the emerging markets which helps in the company growth and margins. BP Global Plc has been doing major Iraq oil projects where many foreign companies are able to win concessions. Moreover, the company also has other opportunities such as the new management led by Tony Hayward, high quality oil which means less refining which reduce its cost of production and refinement implying that the profits increases. Finally, the rising fuel prices continue to increase the company revenue and margins (Meyer and Brysac, 2008).
Weaknesses
The company has several weaknesses such as the costs involved in mitigating environmental hazards as well as the risks of trying to appear sustainable and green. The company also has low activity in the Middle East (Meyer and Brysac, 2008). Moreover, hostile foreign governments may result to considerable profits off due to the encountered hostility. Moreover, there are also political risk accompanied with oil companies which affects all companies to a certain extent, but the frequent targets are the oil companies. Finally, the declining oil reserves are another weakness because the decrease can not be replenished since oil is not renewable (Bamberg, 2000).
Threats
BP Global Plc encounters several threats that pose as disadvantages of the company operations including the spilling of oils leading to years of years of litigation and environmental problems. The global strategy of the company is threatened by the political risks encountered in some parts of the world, especially in the company’s Russian Oil Joint Venture involving TNK and BP associated with high political and economic risk. These political risks raise the cost of doing business, especially in foreign territories (Meyer and Brysac, 2008). Volatility of the oil industry is also another threat encountered by BP because it negatively influences the company’s projections and valuation. Moreover, the Windfall Tax Political action for very high profits has the potential of significantly decreasing the company revenues (Meyer and Brysac, 2008).
Suggested improvement for better business logistics and operations management
BP Global Plc should continue with its joint ventures in order to continue with its global expansion strategy so that it can continue to be among the leading oil and gas industries worldwide. However, caution should be taken prior to such decisions in order to make sure that political and economic risks are reduced or averted (Meyer and Brysac, 2008). Moreover, the company should significantly reduce it oil transportation through the road and adopt a comprehensive pipeline networks for the distribution of its products. This would improve timely delivery of products while at that same time reducing operational costs. This will also significantly improve the operations the company’s supply chain management (Meyer and Brysac, 2008). Alternatively the company should subcontract all its products’ distribution activities in order to reduce maintenance costs.
The company should also encourage automation of its chains of service stations which are the main way through which the company distributes its products within their regions of operations. Moreover, the company should also diversify the products and services offered by the service stations in order to ensure that it is shielded from financial shocks when the prices of one of the company’s major product or service is affected. Despite the fact that this initiative will be cost intensive, eventually the returns shall be more compared to the initial investments (Meyer and Brysac, 2008).
References
Bamberg, J.H. (2000). The History of the British Petroleum Company: British Petroleum and Global Oil, 1950–1975: The Challenge of Nationalism. Cambridge: Cambridge University Press.
Bowersox, D. J., and Calantone, R. J. (2008). Executive insight: Global logistics, Journal of International Marketing, Vol.6 No4, pg 83-93.
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Kopczak, L. R. (2006). Logistics Partnerships and Supply Chain Restructuring.
Langley Jr., C.J., Van Dort, E., Ang, A., and Sykes, S.R. (2005) Third-Party Logistics: Results and Findings of the 10th Annual Study.
Lao, S.I., Choy, K.L., Ho, G.T.S. Tsim, Y.C. & Chung, N.S.H.. (2011). Determination of the success factors in supply chain networks: a Hong Kong-based manufacturer’s perspective. Measuring Business Excellence, Vol. 15 No. 1, pp. 34-48
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Meyer, K.E. and Brysac, S. (2008), Kingmakers: The Invention of the Modern Middle East. New York, NY: W.W. Norton.
Murphy, P. R., and Poist, R. F. (2008). Third-party logistics usage: An Assessment of propositions based on previous research, Transportation Journal, Vol.2, pg26-35.
So S., Kim J., Cheong K., Cho G. (2006), Evaluating the service quality of third-party logistics service providers using the analytic hierarchy process, Journal of Information Systems & Technology Management, Vol. 3, No. 3, pp. 261-270.
Sahay, B.S. and Mohan, R. (2006), “Managing 3PL relationships,” International
Stank, T P., Goldsby, T J. Vickery, S K. and Savitskie, K. (2003), “Logistics Service Performance: Estimating its Influence on Market Share,” Journal of Business Logistics, Vol. 24, No. 1, pp. 27-56
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