ethics. The worst business practices were replaced by good and acceptable ones. This allowed Polish firms to enter European and global markets.
Their practices became not just good, but the best, unique on a global scale, and worthy of being copied abroad.
The research projects carried out by the Department of Logistics at Warsaw School of Economics (WSE) have covered many of the latest examples of leading-edge companies and practices. In the authors’ view, the content of the cases developed within these projects perfectly reflects the spirit of the smart opinion of D Blanchard on best practices’ essence:
‘“Best practices” don’t just happen by throwing a lot of money at your supply chain problems. … It takes money, but it also takes time, talent, energy, focus, commitment from senior management, and a lot of guts to pull off a supply chain transformation. Those are the qualities that the best-run companies in the world share, and it’s why they’re on top.’22 The knowledge and abilities of huge global corporations, together with entre-preneurship, imagination and an innovative approach to the business practices of corporations on the part of Polish managers and employees, led to an unexpected effect – the best practices ‘Made in Poland’.
The benefits that Poland has gained from being a late entrant have enabled it to skip many interim best practices that were implemented by companies before the collapse of communism in the region. This quantum leap has allowed Polish logistics and supply chain managers to develop their own best practices. Moreover, no longer is Poland an importer of best practice. It is now an exporter, with its examples holding their own and available to the rest of the world.23 The Polish small car producer Fiat Tychy provides an excellent example of how Polish best practices can influence automakers of other countries and continents.
Chrysler comes to Poland to learn the secrets
will put up capital to retool part of Chrysler’s production capacity to build smaller cars. The deal is the latest manoeuvre by fiat’s chief, sergio marchionne, who has pulled the Italian company back from the brink of collapse since taking over in 2004. The partnership will provide each company with economies of scale and geographical reach at a time when both are struggling to compete with larger and more global rivals like Toyota motor Corp., volkswagen aG and the alliance of renault sa and Nissan motor Co.
for many years, carmakers searching for the secret to small-car success would travel to Japan’s Toyota City. Today, the destination is Poland’s Tychy. ever since the car manufacturer fiat took over, Chrysler engineers from detroit have been voyaging all the way to this Polish town, up until now more famous for its beer, to discover a car factory employing workers and managing to make a tidy profit! fiat’s plant in Tychy has hit a new production record. as of the end of october 2009 the facility rolled out 500,000 cars – up from the 492,000 produced in all of 2008. The plant is expected to exceed 600,000 units in 2009. at plants like Tychy, standards have been raised and the art of building smaller, fuel-efficient cars has been mastered. Chrysler has high hopes and believes that fiat can do the same since assuming control.
at Tychy, the latest robotic technology is balanced by workers who can quickly shift models to match given demand. Today, the factory is running six full days a week. by contrast, most other car plants in europe and the united states are running at a fraction of capacity. fiat execu-tives have several goals: to produce subcompact european models at Chrysler’s North american plants and to teach Chrysler managers how to introduce smaller cars in the united states that americans will want to buy, while increasing efficiency the way fiat has done at its Tychy plant.
mr zdzislaw arlet, the Tychy plant director, is always on the lookout for time- and money-saving improvements, adding that he himself looks to Toyota’s famous kaizen system for inspiration. for example, instead of filling up cars at different production points with brake fluid, petrol, water and other liquids, one machine on each of Tychy’s three lines fills each vehicle. a car comes off the assembly line in less than a minute, half of what it took about 10 years ago. a new focus on quality has also been developed. about three years ago, workers were assigned an individual identification number that is stamped on whatever sections of the car they assemble so any problems at the end of the line can be traced to the source. ‘At the moment, Tychy is the best of Fiat as far as
quality is concerned’, said Giuseppe volpato, a professor of economics at the university of venice who has long studied the company. ‘I think Poland is becoming the reference point for the whole organization, even in Italy.’
Source: Nd schwartz (2009) To shrink a us car, Chrysler goes to Poland, The New York Times, 14 July; auto profits in Tychy, Warsaw Business Journal, 9 November 2009; small cars, The New York Times, 22 November 2009; fiat: facts, discussion forum, and encyclopedia article, http: // www.absoluteastronomy.com / topics / fiat [accessed 22 November 2009].
The besT PraCTICes – The holy GraIl of CoNTemPorary busINess?
Does the search for best practices place too much hope on discovering something new, something extraordinary, which does not exist? Many theoreticians and practitioners of management formulated and attempted to implement the ‘Zero Inventory’ or the ‘Zero Defects’ theory. From the beginning they were all too aware that they were striving to realize an unachievable goal, but this aim brought them closer to achieving better results than others. They failed to reach the absolute goal, perfection, but did become role models for others. The same goes for best practices. The comparison of the quest for best practices to the quest for the Holy Grail might also be a useful one. Striving to discover best practices is similar to the legendary search for the Holy Grail. To this day, nobody knows what the Holy Grail actually was or whether it actually existed. Despite long-term searches it has never been found. The same goes for the best practices.
Nevertheless, in the search for unique company success, business leaders allow themselves to discover all those things that lead to their achievement, which gives the company or institution an edge over the competition and proves its ability to achieve better results. Why, there-fore, should one not aim to discover the basis for all these successes and make further attempts to transfer such experiences to the company? Such a shift may bring great benefits.
One can imagine a Sir Lancelot of the logistics and supply chain industry seeking the ultimate best practice without knowing what it is and whether it actually exists!
Notes
Axson, DAJ (2007)
1 Best Practices in Planning and Performance Manage-ment. From Data to Decisions, 2nd edn, pp 59 – 60, John Wiley & Sons, Hoboken, NJ
http: // www.allbusiness.com / company-activities-management / 2 management-change-management / 11796678-1.html [accessed 5
February 2009]
Axson, p 61 3 Axson, p 30
4 http: // www.johnsmurf.com / jargon.htm [accessed 21 April 2009]
5 http: // www.satisfice.com / blog / archives / 27 [accessed 22 April 2009]
6 Brenner, R,
7 Worst Practices, http: // www.chacocanyon.com / pointlookout / 071024.shtml [accessed 10 May 2009]
Ashton, C (1998)
8 Managing Best Practices, p 12, Business Intelligence, London
http: // en.wikipedia.org / wiki / GxP [accessed 30 October 2007]
9 When ‘Best Practices’ Become ‘Worst Practices’, http: // www.brint.
10 com / advisor / a110398.htm [accessed 13 May 2009]
http: // www3.best-in-class.com / database [accessed 30 October 2006]
11 Elkington, J (1998)
12 Cannibals with Forks: The triple bottom line of the 21st century, New Society Publishers, Stoney Creek, CT; and Elkington, J (2004) Enter the triple bottom line, in The Triple Bottom Line: Does it all add up?, ed A Henriques and J Richardson, pp 1–16, Earthscan, London
Peters, M (1996) The missing link,
13 Logistics Forum, 4 (9), p 9
Spillan, JE, Vyas, BJ and Ziemnowicz, C (2004) Determinants of 14 Poland’s competitive advantage in the logistics sector, Journal of
East-West Business, 9 (2), p 55 Spillan
15 et al, p 55 Waters, CDJ (1999)
16 Changing role of the retail sector in Poland during a period of economic transition, International Journal of Retail
& Distribution Management, 27 (8), p 319 Spillan
17 et al, p 53 Spillan
18 et al, p 46
The new science. A survey of logistics,
19 Business Central Europe,
February 2001, p 45
See: http: // www.paiz.gov.pl / index /?id
20 =59112692262234e3fad47fa8e
abf03a4
Ernst & Young (2008)
21 European Attractiveness Survey 2008, Ernst &
Young, London Blanchard, D (2007)
22 Supply Chain Management Best Practices, p 15, John Wiley & Sons, Hoboken, NJ
See real-life Polish case studies designed and developed in the 23 Department of Logistics at WSE in: Best Practices in Logistics and Supply Chain Management. The Case of Poland, ed K Rutkowski, chapters 3 – 6, Warsaw School of Economics, Warsaw 2009; and Najlepsze praktyki biznesowe w zarzadzaniu łancuchem dostaw, ed K Rutkowski, Warsaw School of Economics, Warsaw 2008, Part II. Case studies completed by WSE and its partners during the BestLog project are available on the project webpage: www.bestlog.org
References
Carter, CR and Rogers, DS (2008) A framework of sustainable supply chain management: moving toward new theory, International Journal of Physical Distribution and Logistics Management, 38 (5), pp 360 – 87
Department of Logistics at WSE (2009) Best Practices in Logistics and Supply Chain Management, ed K. Rutkowski, Warsaw School of Economics
3
Trends and strategies in global logistics
Frank Straube, Arnfried Nagel and Daniel Rief, Technische Universitaet Berlin
INTroduCTIoN
Internationally successful companies have identified the importance of logistics as a management function. Public awareness of logistics has increased significantly, and its influence on strategic corporate decisions is strong. However, many companies are still in the process of defining the specific scope of responsibility for their logistics function and gearing their service networks towards the needs of their customers.1 Reduced delivery times and adherence to defined delivery dates as well as com-pleteness and accuracy of delivery are important criteria for increasing customer satisfaction through logistics services.
At the same time, worldwide megatrends such as internationalization of procurement, production and sales, increasing resource scarcity and energy costs are challenges for logistics managers and lead to new and changing requirements on the network competence of companies. As a result, overriding macroeconomic and social trends have an ongoing effect on the development of logistics. More than ever before, today’s logistics managers are confronted with dynamic trends in corporate
development, and dynamic trends are difficult to forecast. Future-oriented strategies must be able to adapt to nascent trends as early as possible, and logistics goals must be geared towards these trends. This is the only way to ensure the long-term success of a company. Besides globalization, other major logistics challenges are continuously arising, especially in the form of internationalization, increased security requirements and an increasing demand for ecological sustainability. Within the framework of this chapter, we discuss the evolution of megatrends in general and analyse the effects of three identified megatrends on logistics and supply chain management.
TreNd researCh
A challenging market environment paired with modern information and communication technology as well as continuously increasing global link-ages and dependencies of economic systems lead to higher dynamics on enterprise levels. In addition, the increasing complexity of value chain sys-tems makes future developments appear more uncertain than ever before.
Accordingly, companies are constrained to react to these constantly changing influences. Studying the past in order to make a future projection is suitable only to a limited extent. Rather, early detection of emerging developments and their influencing factors as well as anticipatory estima-tion of possible impacts is required.
Logistics in particular has been subjected to extensive change in the past four decades in order to meet the changing requirements and influences. This process is not yet complete, and in the future logistics will assume more tasks that go beyond its current scope. To face these changes in an efficient way and to stay competitive, future developments have to be forecast and understood. Then strategies can be adjusted to allow for and take advantage of upcoming trends.
The expression ‘trend’ is not to be considered as a temporary fashion or short-term fad; rather it can be understood as the tendency towards substantial changes in economic and social structures and processes that will take effect in the near future. Core characteristics of trends are their duration and the scope of their effects. For duration, the shortest trend interval is a season. Assuming a certain stability in the development of trends, research is limited to five years of observation. The scope of their effect differentiates the sectors of our society in which changes show up.
Three types of trends can be distinguished:
social trends that describe cultural and social changes;
z z
consumption trends that show the impact of social trends on goods z
z
and services;
industry trends that reveal developments within an industry sector.
z z
Based on the combination of duration and scope, different types of trend can be outlined. ‘Hype’ is when the scope of effects increases in a very short time, followed by an equally fast decrease. In comparison, a ‘niche trend’ has changes that do not reach a certain threshold or advance beyond a defined range of scope. These can have varying intensity and continue for an extended period. ‘Real’ trends, however, achieve the trend threshold after a period of about five years and usually decline after a further two to three years.
Economic and social developments that have a significantly greater scope, on a global scale, and often much longer duration – perhaps more than decades – are described as megatrends. In general, they characterize a large, powerful, sustained and clear direction of future developments.
meGaTreNds
Persisting long-term megatrends create particular challenges for logistics managers and result in increasing demands on their network skills. In the context of three studies conducted at the Berlin Institute of Technology, different megatrends with long-term influence on value-adding networks – and thus on logistics – were analysed. In the following sub-sections, key results of the surveys into the megatrends of internationalization, security and ecological sustainability and their implications on logistics systems are considered in more detail.
Megatrend internationalization
The conditions for employment and execution of cross-border economic activities have improved significantly during the past century, and have led to an unprecedented amount of globally exchanged goods and globally dispersed value chains. Liberalization of markets, decreasing transportation costs and huge steps forward in information and communication tech-nologies allow globally interconnected production systems – encouraging companies into a continuing process of internationalization to achieve growth in new markets and gain cost advantages in new locations.
In a rapidly changing environment, time is of major strategic import-ance for success when companies go global. On the one hand, com-panies need to manage the specific point in time when they penetrate a foreign market (particularly important in, for example, the current economic downturn), and on the other, the duration of the entire process of entering the foreign market is of decisive importance. In order to keep costs low, utilize assets as quickly as possible and implement business strategies, the internationalization process faces an enormous pressure on time.
In 1993 Miller suggested breaking internationalization down into a series of activities that gave access to foreign markets, with a framework that started with ‘assessment’ and finished with ‘implementation’.
Generally, all levels of decision making are integrated in such a process, starting with a top management strategic decision, handing over to middle management at a tactical level, and followed by operational tasks at the end. In practice, the internationalization process is more complex than this framework suggests and involves several business functions, and interdependencies are difficult to analyse. However, the simplification allows a structured and more detailed look at the different steps necessary for foreign market entry (as shown in Figure 3.1).
The following findings are based on a study of internationalization of logistics systems2 that analyses how Chinese and German companies enter foreign markets:
1. Evaluation of a new market. This is triggered by the initial strategic idea of starting to work in a specific market or region. The internationalization process begins with comprehensive market analysis where top man-agement evaluates the overall conditions in the target market. If the analysis shows that market entry is feasible and it is expected to meet the respective objectives, this first phase ends with the decision to enter the new market. Chinese and German respondents complete this step in between five and six months on average, meaning that this evaluation of the new market is the longest of all phases.
2. Strategic planning. Still at the top management level, in this phase foreign market entry is defined as a project, with a time schedule,
Evaluation of a new market
Strategic planning
Logistics planning
Flexibility and Dynamic Environment Standardization
Strategic Collaboration with Logistics Service Providers
Implementation of the logistics system
Figure 3.1 Framework of the internationalization process
defined milestones, budgets and concrete objectives for different corporate functions. The result of this phase is a framework that will guide the functional divisions of the company in developing their plans of action to achieve the strategic objectives of foreign market entry. Compared with the evaluation of the new market, this phase is much shorter. Chinese respondents calculate less than three months, Germans slightly more than four months.
3. Logistics planning. With close cooperation between all relevant functions, inbound, outbound and in-house logistics operations are defined and implementation plans are developed. Relevant topics in logistics planning include the definition of service levels, intended lead times, inventory policy, network structure, capacity calculation, allocation of facilities (such as warehouses and cross-docks), IT integration, decisions about logistics outsourcing, and preparation of tenders.
Chinese respondents stated that this phase accounts for nearly two months, German companies need slightly more than three months.
This phase has the shortest duration for both Chinese and German companies, which shows the tremendous time pressure under which these complex logistics structures are being planned.
4. Implementation of the logistics system. This is where managers find out whether their plans and decisions made in the early phases meet the requirements of the real world. The work in this phase is at an operational level and the organization must have comprehensive problem-solving skills, as unexpected occurrences and developments can raise a lot of unexpected difficulties. Owing to its complexity and the necessity for the success of internationalization, implementing the final logistics system is comparatively time-consuming, with 4.2 months at Chinese and 4.9 months at German companies.
Overall, Chinese companies indicate that the complete internationaliza-tion process lasts for approximately 14 months. German companies exceed that, with an average of almost 18 months.
The internationalization process addresses aspects of cross-functional as well as cross-company integration as a top-down process, from the initial idea to enter a foreign market to the closing implementation. The huge numbers of locations, intermediaries and suppliers involved in logistics networks, as well as customers working with different methods, procedures and conditions, always make global logistics a complex task.
One proven way of reducing complexity in this area is by standardizing processes. However, since different countries and regions have market-specific conditions and requirements, logisticians need to balance globally standardized procedures with local adjustments to deal with the hetero-geneity and complexity of international networks.
For an individual company the range of processes to be standardized differs according to its industry and business models. All kinds of inbound, in-house and outbound processes could be subject to standard-ization. One might think of boxes and pallets used to transport and store goods, order cycles and replenishment strategies, the application of milk runs and Kanban systems, production scheduling, the design and layout of cross-docks and warehouses, the use of Auto ID technologies etc.
In practice, standardized logistics processes are more or less equally widespread in all three sectors – industry, trade and services. In a study of trends and strategies in logistics,3 a survey found that a minority of 10 to 15 per cent of companies currently operate without any standardized processes at all. By 2015, this figure will have fallen to between 3 and 8 per cent across all sectors. Across all surveyed companies, the plans for the period up to 2015 indicate a particularly strong trend towards worldwide standardization. According to these findings, the share of industrial companies with worldwide logistics standards will increase from today’s figure of 25 per cent to 65 per cent, while the increase in the trading sector will be from 25 per cent today to 50 per cent in 2015. This shows that a high percentage of the surveyed companies have recognized the relevance and potential of globally standardized logistics processes as a means of integrating existing locations (see Figure 3.2).
There are many reasons for the worldwide introduction of standardized processes – one factor that is of key significance in all sectors is the desire to cut costs and reduce complexity. Eighty-five per cent of the surveyed industrial companies and 81 per cent of their trading counterparts name cost reduction as the primary driver of global standards. In addition to reducing costs, 78 to 83 per cent of companies believe that standardized logistics processes can also help to reduce complexity. Across all sectors, the focus of the surveyed companies is on the simplification or standard-ization of existing structures. In addition to reducing complexity and simplifying interfaces, 84 per cent of industrial companies and 77 per cent of trading companies name supply chain control as a further motive for the standardization of logistics processes (see Figure 3.3).
In the endeavour to maximize the efficiency of logistics processes by standardization, however, each company must decide for itself whether it can employ standardized processes worldwide or to what extent it needs to adapt processes to local conditions. Successful companies often base their internationalization concept on a global strategy that they can adapt to local circumstances as and when needed – in line with the motto
‘think global, act local’.