Why Value Added Logistics Business Essay


Why value added logistics? Todays customers seem to be more and more unreasonable. They are becoming expert buyers in every field. They want more variety of products, they want better quality with cheaper prices, and they want them RIGHT NOW. If a business fails to meet the level of responsiveness of today's more and more turbulent market, it will almost definitely be forced out of the market (Christopher, 2005). The challenge to business leaders is to improve their logistics operations to increase responsiveness to customer demand and lower the cost as well. What is value added logistics? Verwoerd, W (1999) defines value added logistics as a concept to reorganize the logistics chain in a different, more integrated way to lower the total costs (interest of inventories, material handling, and transportation) and to increase the service levels. This is based on the idea that production should be split into two parts:

w Primary production (parts and subassemblies)

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w Secondary production (assembly and customization). This secondary production is very often combined with distribution activities.

Value added logistics, also known as postponement manufacturing, is currently a hot topic in the logistics field. There are two types of postponement which constitute value added logistics, namely logistics postponement and form postponement. (van Hoek, R., 1998; Christopher, M., 2005)

w Logistics Postponement is the consolidation of finished products into a limited number of places in anticipation for customer orders.

w Form Postponement is the delaying of final configuration of the product until final orders from customer are received.

With value added logistics, high levels of responsiveness can be achieved with lower cost. A wider range of products for customer to choose from and a higher level of customization are also possible with value added logistics (Christopher, 2005). The case of a paint manufacturer such as ICI serves as a good example here: with a relatively small number of base colours stored at the retail outlet, customers can mix almost any colour they want without waiting for days for delivery, because ICI doesn't finalise the paint until the customer arrives, and their ordered colour can be produced quickly via a mixing machine (Christopher, 2005).

The implementation path which is commonly followed by European companies. Source: Harrison and van Hoek, 1999

This issue has been further described by Harrison and van Hoek (1999) as no longer being satisfied with developing new markets overseas and cheap raw material sources, businesses are rationalizing their sourcing, producing and marketing worldwide. Value added logistics is effective here. With semi-finished products produced near the source

where labor and materials are relatively cheap and final customization done near the market where the end customers suddenly place orders, the supply chain benefits from both improved responsiveness to the demand and minimal cost. As in the example of Dell, who achieve both market-responsiveness and cost-efficiency by having the products designed so that they can be produced as generic but unfinished units and finalised only when the final order is placed (Christopher, 2005). China's economic rise and the growth in outsourcing China has been undergoing tremendous economic and social changes with an average 10 per cent growth in GDP, and 18 per cent increase in trade from 1980 to 2005 (China Trade Statistics). And for China's logistics industry, there has been a growth at an annual rate of 15-30 percent during 2000 to 2004 (China Federation of Logistics and Purchasing 2004). The huge growth in economic development and outsourcing activities to China, is evident from the increased export goods movements. From the following list of Lloyd's special report of the World's top 20 container ports, which was released earlier this year, this trend is illustrated (Lloyd's List special report, 2007). According to data from 2005, China, including Hong Kong, represented 23% of world throughput. Which means one in four container movements in the world was in that region, "In contrast, if you go back to 1980 that region's share was a mere 4% of the world throughput" (Lloyd's List special report, 2007).

Source: Lloyd's List special report. Mar 15, 2007. Top container ports

Efforts have been made to improve logistics capabilities in China. For example, the China Communications and Transport Association (CCTA) has developed a link with the United Kingdom's Chartered Institute of Logistics and Transport (CILT) to deliver CILT qualifications to Chinese logisticians (Grant, et al 2006).

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China's movement to value added logistics and the future of global outsourcing Both opportunities and challenges arise in the backdrop of global sourcing development: China has the low-manufacturing-cost advantage, however, the long lead-time and high transportation-costs have been driving businesses away. As suggested by Christopher, et al (2006), value added logistics tend to be the cure for the sector's longer lead-time. For example, Woolworths makes its plastic Christmas tree orders 6 months in advance and applies lean manufacturing to lower the cost. And in HP's case, the postponement concept is used at its four regional centres around the world. Moreover, as there is no longer a "one size for all" case, each business and even each product will eventually have its own supply chain strategy according to its unique characteristics (Christopher, et al 2006). Thus without doubt, value added logistics has raised unique opportunities for different regions all over the world.

Multi-regional clusters and potential linkages between Humber and N E China As Porter (1998) defined, clusters are geographic concentrations of interconnected companies and institutions in a particular field. Poor countries lack well-developed clusters; they compete in the world market with cheap labour and natural resources. To move beyond this stage, the development of well-functioning clusters is essential. Clusters become an especially controlling factor for countries moving from a middle-income to an advanced economy. Meanwhile, Håkanson (2005) argues that clusters consist of and are defined by the value-adding activities in a set of linked companies and institutions. Both definitions of clusters emphasizes geographic proximity, which concerns spatial separation and relations in terms of distance. However, the development of logistics technologies such as container shipping have made the world smaller and the world economy bigger (Levinson, 2006). Moreover, the limitation of the long lead-times of global transportation could be further minimized by the application of value added logistics (Harrison and van Hoek 1999; Christopher, 2005). With added value logistics reducing the constraints of geographic distance, the proposed research will evaluate the viability of the concept of „multi-regional clusters' which can be defined as clusters that spread supply chain dynamics between more than one regional base. The development of multi-regional clusters theory could offer potential for the union of regions from different parts of the world, for example, Humberside and Northeast China. There are several similarities between the Humber region and North East China.

w Both areas are focused on regeneration or, recovery strategies from industrial decline.

w Both have access to large consumer populations.

w Both share similar specific sectors such as the chemical industry.

In comparing clusters in the same industry, the European ceramic tile clusters located in Spain (Castellon) and Italy (Emilia-Romagna), Hervás-Oliver, et al. (2007) indicate that clusters have a unique set of resources and capabilities and a certain performance level. On the whole, a cluster's unique set of resources and capabilities matter. It is proposed that empirical research is conducted to examine potential links between clusters in different parts of the world to create multi-regional clusters and take advantage of the resources and capabilities from both worlds. Northeast China is looking for logistics hubs close to markets, while the Humber as a UK hub is also in need of cheaper sources. Could value added logistics be a link between the two regions to form a multi-regional cluster? By studying this particular context, it is intended that the theory developed will be generalisable, and therefore valid in other geographic locations. A model of value added logistics is suggested and to instigate the proposed research:


This section addresses methods to be adopted in addressing the selected research questions. Mangan, et al. (2004) propose a mix of both quantitative and qualitative methods be used for logistics research. It has also been pointed out by Naslund (2002) that it is necessary to use both quantitative and qualitative methods if we really need to develop and advance logistics research. Moreover, employing both quantitative and qualitative techniques enables methodological triangulation, to provide for generalization of the findings (Mangan et al, 2004). The proposed methodology adopts a case study strategy. A case study is an empirical inquiry that investigates a contemporary phenomenon within its real-life context, especially when the boundaries between phenomenon and context are not clearly evident, (Yin, R. 2003). Stuart, et al (2002) argue that the case research methodology is both appropriate and essential where either theory does not yet exist, or where theory exists but the environmental context is different, or where cause and effect are in doubt or involve time lags. Stuart, et al. (2002) suggest the process of case study research should be broken down into five critical stages as illustrated:

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The first stage of the research process involves defining the research question. Having defined the research question, the case-based investigator needs to develop measurement instruments to capture data for future analysis. The second step in conducting case research is the development of a research instrument and selection of appropriate field sites. The third stage is data gathering via selected quantitative and/or qualitative methods. Stage 4 involves analyzing the data, to determine what has been learned and how to present it. This is integral to a researcher's task and may take a great deal of time and effort. The last stage is actually writing the dissertation.

As advised by Yin, R. (2003), multiple-case designs may be preferred over single-case designs. This will enable greater generalisability of the research findings. Case studies will be conducted at UHLI member companies, such as the GBA Group based in Grimsby who currently provide value-added logistics for Kia, the car manufacturer to tailor their cars for the UK market. GBA have expressed an interest in the proposed research.

Plan of work

The proposed plan of work in 5 stages follows the case study model offered by Stuart, I. et al (2002)

w Stage 1. Define the research topic and questions.

o Agree research topic and clarify objectives, scope and an abstract.

o Preliminary literature review. Extensive reading at this stage will generate more questions.

o Key questions. This research should establish a framework of key questions as early as possible.

w Stage 2. Instrument development.

o Survey: I would plan to develop a framework of questions to be put to the local SME community and, logistics practitioners to evaluate the theory.

o Business Model review. Many regeneration models use Retail as a primary driver. For example, Hull, Dalian and in the Gulf.

o Face to face interviews.

w Stage 3. Data gathering. This research topic depends on more than one location to generate relevant data. Whilst the same methodology will be employed, access to information may differ. Data gathering is an iterative process and this research should allow scope for adjustments throughout.

w Stage 4. Analysis. This is where the key concepts and arguments will be evaluated

through analysing the data collected. In fact, this cannot be "postponed" until the late stages of research. A rigorous research instrument will be developed to enable effective testing of hypotheses set.

w Stage 5. Disseminate. I take this from the Stuart (2002) s model and would adapt it to Write up in my own research.