Logistics processes, supply chains and controlling

Abstract

Year 2020 presented companies with unexpected obstacles, the effects of the COVID-19 pandemic caused serious difficulties. Their turnover has decreased, and in the months April-May 2020 more than 16 thousand jobs were lost in Hungary. In times of crisis company governance calls for higher levels of precision, since not only does turnover drop but also businesses usually have less resources, such as capital and workforce, and their suppliers and customers have an uncertain outlook, as well. In times like this, the role of controlling becomes even more important, as information, alongside affecting short, medium and long term decisions, helps the subtle correction of everyday operations. The present study offers a review of corporate logistics processes, their links to supply chains and those regular indicators provided by logistical controlling that enable managers to measure the standard of the company. This standard determines how satisfied customers are, and to what extent they can expect balanced performance. The study also provides guidelines for gaining and retaining a decisive role in a supply chain. The logistics function and area have become focal points, as successful business results are not only attainable through the product, sales and marketing, but also it is the task of logistics to service the needs of customers at the highest possible standard.

Key words: supply, logistics, controlling, COVID-19, Industry 4.0

1. Introduction

Since the mid-80s, and especially over the last 10-15 years, the importance of logistics has increased significantly. It has to be mentioned that every company is part of a supply chain, closer or farther from the end consumer, therefore, its logistics processes have a determining effect on customer satisfaction and brand loyalty, even if the company’s activities are linked to the service sector. Economic crises – among them today’s crisis caused by COVID-19 – force companies to set goals of survival, and these goals require the supply chain approach beside the organised and efficient operation of logistics processes in businesses. COVID-19 is here to stay indefinitely, making companies’ life even more difficult, much as experts are already discussing its end (He et al., 2020). It is mostly companies that started as small family businesses which regard well-planned, well-thought-out logistics processes less important. Typically, they run the businesses based on knowledge from previous experience, which is not limited solely to the area of logistics. However, the goal is not only to survive the present crisis, but to be successful in the long term; consequently, they cannot afford to ignore knowledge-based governance practices if they have a vision of continued development. Several domestic and international researchers deal with the factors needed for development, since the success of supply chains is one of today’s most important issues. It must be kept in mind that the crisis does not affect the different sectors in the same way. Those companies that are badly hit by the crisis still need to perform at the expected level, just like those businesses (e.g. pharmaceutical and food industries) where supply chain and supply network competition is further intensified. With their individual strategies, corporate logistics systems and functional areas are part of the corporate strategy. It has to be noted that today logistics in not (only) realised through transport. Stock management and the operation of distribution are also essential logistics tasks. The supply chain will be presented with the above factors in mind. It is thus evident that the continued analysis of this function, which influences every area of a company, and its indicators is indispensable.

2. Materials and methods

The present study summarises the difficulties and opportunities of companies by comparing the results of analyses on logistics processes that have been previously emphasised in literature, and by presenting cases with practical implications. This is supplemented by the discussion of the role of logistics controlling and the most important indicators. The topic is examined using the review method, which presents the place and role of businesses in the supply chain in a descriptive way. Solutions applied in logistics systems found in topic-related research are discussed using an exploratory method. The practical examples will be reinforced by bibliography, the supply chain and corporate logistics processes will be presented in parallel with research results and methods. References to research results primarily list professional references that are directly linked to the topic published in the past five years, however, the classics in literature are also included as indispensable parts of the development of logistics and today’s theoretical professional foundations.

3. Literature review

3.1 Logistics

In the 90s, many people thought that a logistician is the driver who transports goods between points A and B. Quite understandably, those who faced this interpretation as qualified professionals in the field felt insulted, since even in Hungary, they could learn about Toyota’s logistics systems (TPS), the opportunities provided by Just-In-Time, which, starting from the automobile industry, laid the foundations for today’s way of thinking and process systems. Logistics processes are primarily material processes within the company, which realise the physical movement of goods. They concern basic, ancillary and raw materials arriving at the company, intermediate products, and in the case of trading companies, the final product that they sell without further processing. As regards production companies, the processes make up more complex, elaborate systems, considering that the goods arriving at the company may be stored or they can be directly used for production. The present study does not deal with production related processes, as production supply and its process system are worth a separate study.

In brief, the internal material processes of a company are made up of the reception of goods, entry into storage, storage and removal from storage processes. Differentiating these tasks and planning the related resources are essential. If the inventory turnover rate is high, that is, the materials travelling through warehousing move intensively, physical processes need IT support. Firstly, the size of workforce can be optimised this way, and also it enables quality task performance. The paper-based administration of processes is outdated. Developed from barcode systems, in today’s age of the Industry 4.0 industrial revolution, such goods identification systems can be used even in smaller businesses as RFID, just to take an example, which do not only lessen and refine administrative daily tasks related to the goods involved in the processes, but they also permit pinpointing their exact location in the facility at all times, or carrying out a physical inventory without the use of human resource. Several domestic and international researchers (Aguirre & Rodriguez, 2017; David, 2015; Underwood, 2016; Zheng & Xi, 2018; Ślusarczyk et al., 2020) analysed the effect of Industry 4.0 on corporate operations, since experience is preceded by high expectations, even solving logistical problems.

Linking the internal material processes of a company to the stocks make up the logistics system whose basic support is the IT system.

The definition of logistics can be interpreted from the two quotations below:

From the perspective of the stocks: “The activity that ensures that the products needed for the smooth implementation of business processes are available at the right place and time, in the required quantity, quality and variety” (Chikán, 2008).
From the perspective of the material processes: “The planning, directing and controlling of the flow of materials and information within and among the systems, and the creation of the material requirements needed for performing tasks and their lasting implementation” (Prezenszki, 2009).

3.2 Supply chain

A supply chain is the connected network of corporate logistics systems, where logistics service providers are linked in between the companies. Figure 1. shows this chain of which logistics service providers are an integral part, as well. Material flow processes go beyond the boundaries of the companies and they both encourage actors to become interested in the product outside the company range, and, based on the approach, to attain customer satisfaction in every phase. The definition of supply chain is “A series of value-creating – production and logistics – processes across cooperating companies that provide the product which meets customer demands” (Chikán, 2008).

From another perspective, competitiveness comes to the forefront, as supply chains are competing against each other for the same buyers, consumers. “The corporate logistics system is active management for improving corporate competitiveness, whereas the supply chain is active management aimed at improving the competitiveness of participant companies” (Gelei, 2013). This way cooperation becomes important to the competitiveness of commercial units, which not only means the relationship between the product and the brand, but also the market position resulting from the performance of companies. From an organisational approach, “The supply chain is the entirety of those organisations, companies that directly participate in supply and distribution, as well as the related information and financial processes of the products and/or services, from the source to the end consumer” (Oláh et al., 2017).

The participants of the supply chain create value and their performance contributes to supplying the demands of the consumers.

Due to the cooperation among companies and the advantages a successful supply chain brings about, opportunities for improvement and progress evolve, which affects the corporate system of relationships. “The partnerships are continuously growing, which means that companies often become parts of other organisations, supply chains” (Morley, 2017). It is a domestic speciality that “competition makes it more difficult to build partnerships than it does in western countries, especially – mostly owing to lack of confidence” (Szegedi, 2017) –, therefore, a company’s market position, which can give them higher recognition by potential partners, becomes especially important. Taking the common performance of successful companies into consideration, “benefits realisation can only occur if adequately strong cohesion and cooperation forms are built among the individual actors of the supply chain” (Morvai & Szegedi, 2015).

3.3. Controlling

The evolution of controlling systems was primarily born out of the information needs of the management. Company leaders must use all the possible instruments which help them in the dynamic and flexible governance of the company (Zéman & Tóth, 2018). The most important aim of the controlling system is to support the company leader, enabling them to direct functional leaders and through them the entire company in a proper manner (Dobák & Antal, 2010). Company leaders aim at achieving dual value creation, that is, ensuring both owner value and customer value, to put it simply: meeting consumer demands and simultaneously producing profits (Chikán, 2008). The major tasks of controlling are planning, monitoring and providing generated data and information. Plan data provide the benchmark for comparing actual data. The report system of actual data compared to plan data serves as a basis for taking the appropriate measures (Horváth, 1995). According to Virolainen (1991), logistics processes can be grouped based on 3 main approaches:

– Logistics processes level – in a continuous report system controlled with a set of indicators
– Logistics management level – planning, directing and controlling the logistics system
– Corporate strategy level – logistics strategy is part of the corporate strategy.

When controlling analysis is carried out on logistics performance and costs, budget centres, e.g. reception of goods, commodity storage, transport within the facility, finished product storage, packaging, dispatching, etc. need to be created (Francsovics, 2005). Controlling is especially important if companies outsource their activities, which is typical in the case of warehousing and transport activities (Loster & Pavelka, 2016). The performance measurement of logistics service providers is just as important as monitoring corporate functions. Alongside the existence of an adequate planning system, the provision of feedback plays a key role, as this is the only means to keep track of changes and the resulting behaviour in a given period of time (Krauth, et al. 2005).

A well-structured system of indicators becomes a warning system for company leaders, functional leaders and workers alike.

4. Companies in the supply chain

When a company begins its operations, regardless of its activities, it becomes part of a supply chain or supply network. It is true for primary producers selling their produce at the market in a short supply chain, or the cleaning company whose responsibility is to provide for the cleanliness of the factory hall in a production company. In order to begin their operation, equipment and materials need to be purchased, and these as well as the final products need to be stored, then transported to customers using their own or other provider’s transport equipment. It has to be noted that meeting consumer expectations is the focus of both quality and logistics, beside the determining factors of product and service competitiveness (Morauszki et al., 2018). Needs and solutions defer depending on the company’s activity, size and the type of the product.

4.1 Procurement and corporate logistics processes

Procurement is a key element of supply chain management. Its first and foremost issue is what to buy or manufacture. After that the question arises where, what, when and at what price to buy. Both suppliers and customers aim at successful cooperation, which is called relationship success. As the definition says, it is the fulfilment of mutually developed and accepted, growth-related relationship goals for success (Gelei et al., 2016). Based on the results of a Hungarian research, it can be stated that by adjusting their strategies to the needs, companies work towards improving their supplier-customer relationships (Szegedi et al., 2020). Today procurement is no longer viewed as a logistics task, but a separate field of study, which many companies fail to differentiate from logistics. However, it is highly important that, similarly to production and sales, it has a vast influence on material processes, since procured products should be transported to the company, stored and dispatched. Therefore, procurement, through stocks, affects corporate logistics processes. Stocks are needed for the continuity of material processes and customer service – since the location of the stocks and demand differ –, but it also has to be taken into consideration that the stock should service the company in an economical way. The present study does not detail either procurement or stock management, my aim is to emphasise their importance.

The definition of stock shall be expanded to the level of individual items and units – SKU = Stock Keeping Unit (Szász & Demeter, 2017). When warehouses handle stocks – reception of goods, storage or dispatching – different units must not be handled together, even if the variety of the goods is smaller. During an inventory, for example, the excess of a certain product does not rectify the quantity of another product which can be found in a smaller number in physical stock than in the inventory. Stock size has a great impact on tied-up capital and the amount of resources used for handling stocks. Lower levels of stock hinder providing customers, whereas high stock levels unnecessarily tie up capital. Neither is beneficial for company owners, workers or suppliers, as planning order quantity and time between orders becomes difficult.

4.2 Transport and forwarding

As a result of technological development the relationship between logistics service providers and their customers is becoming closer and complementary. The most common forms of relationship are the opportunities offered by 3PL providers, however, the 4PL type of contractual relationship is gaining ground in certain sectors. The basis of the cooperation stems from the transport connection, which, as regards its operation, is similar to the processes of an individual business (Gao et al., 2020). The development of related IT systems plays a vital role in the development of the relationship between logistics service providers and their customers (Oláh et al., 2017). From the perspective of the present study the difference between transport and forwarding is irrelevant, still it is worth taking a look at their differences. A transport company arranges transit and signs the required contracts for their customers. As providers, they also perform complementary tasks, such as warehousing, loading, packaging, inventory, etc. This evidently means a new budget centre, which is important for logistics controlling, since several logistics functions are attached to the budget centre. From the perspective of product owner expectations, transport companies play an intermediary role between the customer and the forwarder, but they may introduce other service providers into the chain.

Forwarders are companies with a smaller range of powers and capabilities. Forwarding (more commonly delivery) means movement between points A and B. From the logistics controlling point of view, the analysis of forwarding costs is extremely important. Forwarding expenses in a company can be grouped into three categories:

– inland forwarding
– import forwarding and
– export forwarding

In most companies, the accepted range of the total cost of the three forwarding directions, with regards the companies’ turnover, is around 3%.

It has to be noted that forwarding can be performed using the company’s own transport equipment. In these cases, alongside forwarding-related costs, maintenance costs should be analysed as well. One of its major indicators is the utilisation rate of transport equipment:

4.3 Warehousing

When talking about warehousing, we refer to separating production and use in time and space and the related stockholding and storage needs. Its key task is safeguarding the quantity and quality of stocks, and another important competitiveness factor is its value-adding role, which begins with the commissioning function. Warehousing does not mean the existence of a storage facility to place stocks. Warehousing should be interpreted as a system in which resources are used to achieve the optimal level of costs, and stock management is carried out using strategies, equipment and machinery.

On the one hand, warehousing realises expectations regarding outgoing goods, which is reflected in the quality or service. From the point of view of logistics controlling, the utilisation rate of the warehouse is one of the most important indicators:

The three main processes of warehousing are entry into storage, storage and removal from storage. The appropriate use of resources means that processes are carried out with the help of IT support systems, which are operated by using live workforce according to capacity planning. Many companies make the mistake of maximising or minimising workforce in planning. Good planning results in optimal levels of cost and thus it contributes to achieving and maintaining the targeted standard of service. Analysing warehousing-related costs as indicators compared to the size of turnover at a budget centre, the production capability of the human resource is revealed. That is, it shows whether the size of workforce is appropriate compared to the generated turnover. The robotisation of processes (Industry 4.0), which replaces human workforce, is available for even companies having smaller amounts of capital (Suhajda, 2020). The most important factor as regards decision-making about their implementation is the long-term total cost approach.

4.4 Distribution

Distribution is a system whose strategy has two main segments: determining the service quality and the related levels of cost. This is the area where customer expectations meet corporate performance (product) in a company. A well- functioning corporate system has the ability to exceed customers’ expectations, helps good product and company (brand) recognition, and determines the market position. Distribution is the face of the company, where sales, marketing, customer service and the contractual logistics partner altogether represent the company.

The key tasks of supply chain are stock management and logistics costs reduction, as well as managing the trade-offs between the indicators of the individual areas, all the responsibilities and conflicts included. The proper functioning and efficiency of this area influences company recognition and justifies its existence, since the intermediary role it plays between the company and its customers is crucial to successful operation.

Key aggregated KPIs:
– total primary (pre-distribution) forwarding costs
– total primary (pre-distribution) warehousing costs
– total secondary (distribution) forwarding costs
– total secondary (distribution) warehousing costs, and
– their unit costs over sales volume

The control mechanism of the distribution area affects customer satisfaction as the determining factor of service quality. This requires appropriate finished product stock levels and service availability standards (OTIF = On time, In full), applicable in the case of trading units.

Summary

The main aim of the present study is, through literary and practical experience, to draw attention to the difficulties caused by the COVID-19 crisis, the logistics and supply chain approach and the importance of logistics controlling. It is an important and timely topic, as the approach is efficient and total cost oriented, yet this operational model seeks meeting the demands of buyers and customers, which is a prerequisite for successful corporate operations in times of crisis as well. The study points out the difficulties posed by critical processes, as well as provides examples for mistakes often made by less expert-oriented businesses – since, the old saying that everyone is competent in logistics, does not apply.
The entirety of corporate material processes linked to supply chains and supply networks service consumer demands, therefore, taking a simplified supply chain as an example, from supplier to distribution, all corporate processes and the related processes carried out with logistics providers were presented. There was a huge emphasis on logistics controlling, which provides opportunities for continuous monitoring, markedly from the perspective of the company in question, as the study does not include all the details of relationships with suppliers and logistics service providers, who, as external actors influence the targeted level of service and company costs as well. This is just as important as the systematic interlinkedness of corporate processes, determining the optimal resource demands, which in turn have a decisive role in corporate performance, market position and competitiveness.

References

Aguirre, S. – Rodriguez, A. (2017): Automation of a business process using robotic process automation (RPA): A case study. In J. Figueroa-García, E. López-Santana, J. Villa-Ramírez, & R. FerroEscobar (Eds.), Applied computer sciences in engineering (pp. 65-71). Berlin Springer. DOI: https://doi.org/10.1007/978-3-319-66963-2_7
Chikán, A. (2008): Az értékteremtõ folyamatok menedzsmentje. Budapest, Akadémia Kiadó
David, H. A. (2015),. „Why Are There Still So Many Jobs? The History and Future of Workplace Automation.” Journal of Economic Perspectives, 29 (3): 3-30., DOI: http://dx.doi.org/10.1257/jep.29.3.3
Dobák, M. – Antal, ZS. (2010): Vezetés és szervezés. Szervezetek kialakítása és mûködtetése. Aula kiadó, Budapest
Francsovics, A. (2005): A Controlling fejlõdésének sajátosságai. Ph.D. értekezés, Témavezetõ Dr. Dobák Miklós, Budapesti Corvinus Egyetem
Gao, T.G. – Huang, M. – Wang, Q. – et al. (2020): Dynamic organization model of automated negotiation for 3PL providers selection. Information Sciences, Volume: 531 Pages: ‏ 139-158DOI: https://doi.org/10.1016/j.wneu.2020.03.086
Gelei, A. (2013): Logisztikai döntések – fókuszban a disztribúció. Budapest, Akadémia Kiadó
Gelei, A. – Dobos, I. – Bódi-Schubert, A. (2016): Üzleti kapcsolatok kutatása. Akadémia Kiadó, Budapest
He, S. – Tang, S. – Rong, L. (2020): A discrete stochastic model of the COVID-19 outbreak: Forecast and control. School of Mathematics and Information Science, Shaanxi Normal University, Xi’an, 710119, China DOI: https://doi.org/10.3934/mbe.2020153
Horváth, P (1995): Controlling: a sikeres vezetés eszköze. Közgazdasági és Jogi Könyvkiadó, Budapest
Krauth, E. – Moonen, H. – Popova, V. – Schut, M. C. (2005): Performance measurement and control in logistics service providing. Icfaian Journal of Management Research, 7(IV), 7-19. India
Loster, T. Pavelka, T. (2016): Outsourcing as an innovate approach to logistics services of warehousing: A case study. Conference: 10th International Days of Statistics and Economics, Prague, Czech Republic, Date: SEP 08-10, 2016
Morauszki, K. – Lajos, A. – Szemere, T. P. – Almádi, B. (2018): A beszállítók kiválasztásának optimalizálása és értékelése. Acta Carolus Robertus pp. 173-191., 19 p.
Morley, M. (2017): Supply Chain Analitics for dummies. John Wiley and Sons, Ltd. Chichester, West Sussex
Morvai, R. – Szegedi, Z. (2015): Erõviszonyok az Élelmiszeripar Ellátási Láncában. Vezetéstudomány, XLVI. Évf. 2015. 2. Szám
Oláh, J. – Karmazin, Gy. – Lakner, Z. – Popp, J. (2017): Az idõlapú verseny hatása a logisztikai szolgáltatók tevékenységére és rugalmasságára az ellátási láncban. Controller Info, 5(3), pp. 30-36. DOI: https://doi.org/10.24387/CI.2017.3.6
Oláh, J. – Karmazin, Gy. – Petõ, K. – Popp, J. (2017): Information technology developments of logistics service providers in Hungary. International Journal of Logistics Research and applications 21: 3 pp. 332-344., 13 p. DOI: https://doi.org/10.1080/13675567.2017.1393506
Prezenszki, J. (2009): Logisztika I. tizenhetedik kiadás, Mûegyetem Kiadó, Budapest
Suhajda, Á. (2020): A Folyamat-robotizálás hatásai az emberi munkaerõ hatékonyságára üzleti területen, és a Blockchain hozzáadott értéke, XXVI. Ifjúsági Tudományos Fórum Keszthely, Pannon Egyetem Georgikon Kar, Könyvrészlet
S´lusarczyk, B. – Tvaronavicˇienc˙, M. – Haque, A.U. – Oláh, J. (2020): Predictors of Industry 4.0 technologies affecting logistic enterprises’ performance. Intermational perspective from economic lens. Technological and Economic Development of Economy, 26(6), 1263-1283. p. DOI: https://doi.org/10.3846/tede.2020.13376
Szász, L. – Demeter, K. (2017): Ellátásilánc-menedzsment. Készletek menedzsmentje az ellátási láncban. Akadémia Kiadó, Budapest, 181-192 o.
Szegedi Z. (2017): Ellátásilánc menedzsment elmélet és gyakorlat. Budapest, Kossuth kiadó
Szegedi, Z. – Papp, I. – Tõsi, J. – Valentinyi, Z. (2020): Az ellátási láncon belüli együttmûködés hatása a magyar kis- középvállalkozások stratégiájára. Logisztikai évkönyv 2020, Magyar Logisztikai Egyesület
Underwood, S. (2016): Blockchain technology has the potential to revolutionize applications and redefine the digital economy. Communications of the ACM, Volume 59, Number 1, 15-17.
Virolainen, V. M. (1991): Control Systems for Logistics Performance. IIASA Collaborative Paper. IIASA, Laxenburg, Austria: CP-91-003 Elérhetõ: http://pure.iiasa.ac.at/id/eprint/3577/ (olvasva: 2020. november 15.)
Zéman, Z. – Tóth, A. (2018): Stratégiai pénzügyi Controlling és menedzsment. A controllingrendszer és a stratégiai vezetés kapcsolata. Akadémia Kiadó, Budapest
Zheng, Z. – Xi, S. (2018): Blockchain challenges and opportunities: a survey, Int. J. Web and Grid Services, Vol. 14, No. 4, 2018 DOI: https://doi.org/10.1504/IJWGS.2018.095647

 

Tímea Kozma
associate professor, Budapest Business School

Antal Balogh
Szent István University, Doctoral School of Management and Regional Sciences, PhD student

Róbert Tóth
chief economist, KAVOSZ Zrt., external lecturer, Károli Gáspár University of the Reformed Church in Hungary