Supply Chain Integration: Are Logistics Service Provider Getting it Right - Essay Example

Research-Academia d 13th May 2008 Revised Strategic Management The business of logistics is facing tough competition at the global, regional, and local levels. Service quality and operational efficiency are major challenges. The complexity of supply chain management has additional demand on logistics to improve its relationship with supply chain and deliver accurate and precise service to customers. In 2005 the global logical industry was valued at US $3.5 trillion. US logistics alone was $900 billion worth. Which is 25% of the entire global logistic industry. Any company with ambition to grow faster will aim at consolidating its business. Opportunities and Threats The most controversial acquisition of Patrick by toll Holding in Austrilia though through acrimonious court cases is to improve the losistic effecieny of the company and the industry, technically align it with supply chain management and improved customer responsiveness. The acquisition was aimed to invest in future infrastructure, increase industriy syngeries, leverage scale of economics, improve competitive positioning and thereby reduce operational and management costs. The business of airlines being very volatile and Toll’s competitor having the majority shareholding in Virgin Blue,overcapacity in the shipping business and problematic rail business it was difficult for Toll to establish a firm foothold toward leadership position in the logistics industry. Toll had only two alternatives to either to merge with some bigger international transport company to achieve its strategic goal or acquire related business of high standing to get business opportunities to expand further and consolidate its position. Toll had the vision to get advantage by acquiring Patrick but still there were several internal risk involved. Whether the acquisition would generate synergy and integrated cost saving. Whether investment in an aging infrastructure of Patrick corporation would prove productive or turn negative in future. Will the acquisition build competitive advantage for Toll’s business in the logistic industry. Patrick corporation themselves needed to be reorganized and restructured with injection of massive funds of $1.1 billion to stablize. These were challenging questions for the leadership to answer. However, the oportunity in the industry after acquisition was great to hold about 15% of the market share with the revenues of both the transport giants that was about $5.1 billion in 2005. Market Share and Asset srtength after consolidation This market share would transform them to formidable position in the domestic and international transport and storage market. Toll and Patrick both had massive transport and storage assets which is likely to be over $7.3 billion after consolidation. This asset strength would put them into strategic and competitive advantage position to command leadership in the industry. Patrrick had a massive asset worth $4.6 billion. They had 14 major operating divisions to earn regular revenues: Patrick Terminal as the largest operator of container terminal to provide high technology logistics movement. Patrick Autocare– that offers an integrated service of processing, distribution and storage of motor vehicles that operates in partnership with Patrick Stevedoring. Patrick Port Services– that offer a national network of land based services to importers and exporters, shipping lines, freight forwarding agents, and customs brokers. Patrick PortLink– the interface provider between Patrick’s road, rail and stevedoring services • Patrick Intermodal operates a national network of interstate transport, warehousing, distribution and wharf cartage services. • Patrick Defense Logistics provides logistics support services to the Defense sector, including commercial and government organizations with specialist project management requirements • Patrick International Freight services to Australian importers and exporters. • Patrick Air Services is the airline ground handling business of Patrick Corporation Toll Holdings will be able to utilize these multi-divisional services immediately to take competitive advantage in the logistic market after take-over. Asia Pacific region commands over half or more of the international cargo trade. Patrick port division would get boost by these enhanced activities because they provide logistic services for export and import trades. Further investment in this division would increase business capabilities of Patrick to service better and thereby add to the revenue. Toll has sizeable presence in logistics, storage and stevedoring and in providing total logistics solutions to the emerging economies of south East Asia and china. Toll is further trying to consolidate through acquiring SembCorp with view to extend its services to whole of Asia, Austrilia, New Zealand that is worth $66 billion and is likely to grow double in next 7-8 years. Threat The major threat to transport organization is the rising price of oil which is a critical factor to raise the cost of transportation directlly. The price of crude oil that was $18 in 2001 has risen to $ 119 per barrel today. The transport organisation can really do nothing to control this price and the effect on the transportation cost caused by the high price. They are compelled to adjust the freight rates according to the rise in the operating cost or sometimes they have to incur loss to please the special clients.This is a formidable external factor to be kept on monitor. Competitive Business Strategy and Toll’s Vision The competitiveness of the industry lies in the present business landscape of cost-saving efforts by major companies worldwide through outsourcing from low-cost countries. This is the right strategy to reduce costs provided the costs -saving is not offset by the complexities of logistic management. Transportation and logistics costs are rising as a percentage of cost-of goods –sold. Higher fuel cost, long-distance flow of goods by rail, airfreight, ocean freight push the logistic costs higher. Supply lead time variation if in high degree can lead to poor time delivery of goods that raise costs of final production directly or indirectly. Global flow of goods pass through various hands, carriers, customes, ports and consolidators that increase th probablity of unexpected events causing late deliveries. Companies who would be able to deal with all these complexities and deliver results in time will survive in the logistic industry or will perish The fast growing volume of imports from Asia in particular has caused severe port congestion in America and europe that is the destination for offloading of cargos. More countrires are involved in exports more are the variations in custom and regulatios in handling the cargo clearnce and delivery, Every company has to be efficent handles of these matters of document compliance assessment and processing. The leading logistic companies with network sread all over the world with expert and experienced manpower to deal with complex reguatatory requirements and provide logistic supports are developing right strategies to respond to this challenge of global logistic complexities. This would reduce time of delivery and thereby reduce transportation costs and improve service standards. The logistics with increased emphais on this element of external environment has become the issue of core competency of most of the leading logistic companies. Critical success factors The paragraph above has presented the most important critical success factor a logistic company has to adopt to grow up and survive in this highly competitive world. . Integrated service: Logistic service companies need to act under a worldwide umbrella network of selected members under common agreement to actively promote and support each other in the logistic business. New members are invited in the network, which has broader vision to maintain and surpass client satisfaction by the integrity and service commitment. They should provide value added facilities to benefit the clients. Dynamic synergy, operational integrity, efficiency with financial stability, network methodology for continuous improvement in the service is some of the prime requirements for the critical success of an integrated logic service company. The need for logistics service providers (LSPs) to provide high level service, leading companies need more closer relationship to a more strategic level and develop ‘LSPs friendly programs to meet customers challenge. Global multi-divisional logistic companies need to create a shared-service organizational structure to plan, execute monitor, procure and measure global freight movements. They need to develop business models to effectively manage and service the needs across various lines of business. Real-time visibility into the flow of goods from the supplier to the company’s warehouse is needed to optimize inventory management to reduce lead-time and transportation cost. Corporate Governance at Toll is based on professional standard with seven persons on the board of Directors with one independent non-executive chairperson and two independent non-executive directors. The board is assisted by the Audit & Financial Risk committees to review and monitor financial, auditing, and accounts matters; The Nomination & Corporate Governance committee to monitor and review board compositions, performance ad succession and the remuneration and Succession Planning committee for monitoring, reviewing managing executive remuneration. The company maintains a realm of policies and procedures on all-important aspects of management. The corporate governance document is open to all. Equipped with these fine managerial policies and procedures Toll will be able to demonstrate the takeover of Patrick to be successful. Conclusion The logistic industry has big prospects ahead caused by rapid growth in international trade, outsourcing from low-cost countries and globalization. There is need for integrated service either by active association or expanding the logistic service by consolidation, acquisition or merger. Tolls’ bid of takeover is aimed at achieving the same objective thought it is achieved after acrimonious and controversial fight in courts and in public. Today Toll has taken over Patrick and proved that the company could manage bigger shows with confidence and earn better growth revenue. Endnotes: Conflict by Martin Nigel and Rice John Toll Holdings Acquisition of Patrick Corporation – The Other Story ... MCSJ Management case study journal http: www.ojs.unisa.edu.au/index/php/MCSJ/articles/view/118/99 accessed on 8th May Transport wars Business Sunday, October 23, 2005 http://www.business Sunday.ninemsn.com (accessed on 4th May 2008) : Global Logistics (Best Practice in Global Logistics) http//www.wikiscm.com/wiki/index.php/global logistics accessed on May 6. Tsui, Ir Paul, Managing Director, The Janel Group of Hong Kong Limited A Study in Critical Success Factors for SME Logistics Services Provider Date : 11th April, 2008 accessed on 8th May and www.geog.hku.hk.postgrad/mattp/seminar on 13th May Bean, Sally. Supply Chain Integration: Are Logistics Service Provider Getting it Right? http://www.accenture.com/Countries/South_Africa/Research accessed on 13th May ( Read More