Failures in logistics management of vinalink s logistics department and recommendations

NATIONAL ECONOMICS UNIVESITY ENGLISH FOR BUSINESS DEPARTMENTFACULTY OF FOREIGN LANGUAGES FAILURES IN LOGISTICS MANAGEMENT OF VINALINK’S LOGISTICS DEPARTMENT AND... This report provides a

ENGLISH FOR BUSINESS DEPARTMENT FACULTY OF FOREIGN LANGUAGES

Hanoi- 5/2010

NATIONAL ECONOMICS UNIVESITY ENGLISH FOR BUSINESS DEPARTMENT

FACULTY OF FOREIGN LANGUAGES

FAILURES IN LOGISTICS MANAGEMENT OF

VINALINK’S LOGISTICS DEPARTMENT AND

This study is completed not as the result of my personal effortbut the outcome of enthusiastic support and contribution frommany people involved in my internship process

Therefore, I would like to thank Ms Trần Thị Thu Giang, Dean

of Faculty of Foreign Languages for giving me the opportunity toconduct this study I am also delighted to give my sincererecognition and appreciation to Ms Nguyễn Phương Hoài for herconstant help with academic knowledge and her support duringthe time I complete my report

I would also like to express my gratitude to VinalinkInternational Freight Forwarders particularly Logistics Department-

Ha Noi Branch for allowing me to do internship in the company Iespecially owe my thanks to people who directly instructed mewho are Mr Nguyễn Quốc Vương, Manager of LogisticsDepartment and other officials of the department

Once again, I deeply appreciate all the great support that Ireceived during my internship.

This report provides an analysis on the failure of LogisticsDepartment-Ha Noi Branch of Vinalink International FreightForwarders in terms of logistics management.

Data collected through methods of observation, horizontal andvertical analysis of revenue, growth and proportion shows thatrevenue of Logistics Department has moderate increase over thetime However, the rate of revenue which Logistics Departmentcontributes to the total number of the whole branch is rather lowdespite the fact that logistics is one of the most popular servicesrecognized by Vinalink’s customers and partners Its revenuecontribution is outnumbered by those of Air and Sea Departments

This situation is the result of inefficient logistics management.Its management failures are shown the most clearly in two of itsrevenue generating sources: warehouse and freight transport

Therefore, a management reform is the key solution to helpLogistics Department overcome its drawbacks and attain greatercompetitive strength among other departments of Ha Noi Branch

Recommendations discussed in this report include:

 Improve warehouse management

 Improve freight transport management

Together with the growth of Vietnam’s economy in generaland business sector in particular, the need for exchanging andtransporting goods is getting greater and greater Logistics hasappeared to fill this market gap In transport context, logistics isreferred to as the planning, organization, management, executionand control of freight transport operations which determines theefficiency of freight transport Up to now, logistics has become abusiness with the emergence of new companies as well asspecialized departments within existing transport organizations Vinalink International Freight Forwarders (Vinalink) is a long-time player in this business Since its establishment in 1999,Vinalink has provided logistics services in combination with itsInternational transport services and from 2002 these services havebeen managed by specialized departments in Ha Noi, Hai Phongand Ho Chi Minh City Among those three departments, LogisticsDepartment of Hanoi Branch has become a popular provider ofthese services However, as a specialized department with its ownmanagement Logistics Department has failed to prove its role inrevenue contribution into the total number of the whole office incomparison with other departments such as Sea and AirDepartments This results from its inefficient management.Therefore, in this study, I analyzed some drawbacks of LogisticsDepartment in terms of logistics management from which I coulddraw some recommendations to solve the situation

Methodology

In this report I based on three main research methods topresent my ideas and arguments, which are observational method,quantitative method and descriptive method

Research questions:

- What are issues of logistics management?

- What are Logistics Department’s failures in logisticsmanagement?

- How can Logistics Department improve its management?

Sources and method of data collection

Analysis in my report primarily based on secondary data such

as statistics of revenue, rates of revenue, growth andorganizational records The data was collected throughobservation, Vinalink’s performance reports and minutes ofmeetings

TABLE OF CONTENT

CHAPTE

R

1

2

3

Title page I Acknowledgement II Executive summary III Introduction IV Table of content VI

Main chapters 1

Introduction of Vinalink International Freight Forwarders and Logistics Department 1

1.1.Vinalink International Freight Forwarders’ background.1 1.2 Logistics Department’s background 3

1.3 Logistics Department’s performance 4

Literature review 7

2.1 Logistics 7

2.2 Logistics management 8

2.2.1 Warehouse management 8

2.2.1.1 Use of building space 8

2.2.1.2 Minimum movement 10

2.2.1.3 Control and information system 10

2.2.1.4 Product integrity 11

2.2.1.5 Working condition and safety 11

2.2.2 Freight transport management 11

2.2.2.1 Choice of transport modes 11

2.2.2.2 Scheduling and routing control 13

2.2.2.3 Fleet management 13

Analysis and findings 15

3.1 Warehouse management 15

3.1.1 Warehouse design and layout 15

3.1.2 Information and communication system 17

3.1.3 Working condition and safety 18

3.2 Freight transport management 18

Recommendations 21

4.1.1 Warehouse design and layout 21

4.1.2 Information and communication system 23

4.1.3 Working condition and safety 23

4.2 Freight transport management reform 24

Conclusion 26

Appendix 28

References 29

CHAPTER I INTRODUCTION OF VINALINK INTERNATIONAL FREIGHT FORWARDERS AND LOGISTICS

1.1 Vinalink International Freight Forwarders’ background

Vinalink International Freight Forwarders or Vinalink forabbreviation founded under the decision of Minister for Ministry ofTrade to equitize state-owned company, officially started itsoperations on September 01, 1999 as a Joint Stock company with10% state-owned, and 90% individual-owned, with starting capital

of VND8 billion

Vinalink is headquartered at 145 – 147 Nguyen Tat Thanh,District 4, Ho Chi Minh City and has branches and representativeoffices in Ha Noi, Hai Phong, Binh Duong, Da Nang, Quy Nhon,Dong Nai…

Vinalink has more than 270 employees and owns over 2.500

sq m of office building, 16.000 sq m of warehouse and open yards,over 40 prime movers, trucks and pick-up vans, loading andunloading equipments and devices

Vinalink’s scope of business includes:

- Freight forwarding (Seafreight and Airfreight)

- Transport services

- Logistics services

- Bonded warehouse and cargo storage services

- Shipping and Liner Agency

- GSA (General sales agent) for airlines

- Air ticket booking agency

- Import - export and trading business

- Infrastructure investment and real estate business

As a trustworthy partner of cooperation Vinalink has achievedmembership of honorable associations of freight forwarders as well

as economic organizations such as Vietnam Freight ForwardersAssociation-VIFFAS, International Federation of Freight Forwarders-FIATA, American Moving and Storage Association-AMSA andVietnam Chamber of Commerce and Industry-VCCI…

Vinalink Ha Noi Branch

Vinalink Ha Noi Branch was launched on January 1st, 2005 atNo.2 Bich Cau Street, Dong Da District, Ha Noi In 2006 its officewas moved to level 6, Lang Ha Builiding, Ba Dinh District, Ha Noi.Until the end of the year 2009, Ha Noi Branch had 70 employeesworking in 6 departments The organizational structure of Ha NoiBranch is described in Figure 1

Figure 1: Organizational structure of Ha Noi Branch

Ha Noi Branch

Ocean Export Dept.Ocean Import Dept.Airfreight Dept.Logistics Dept Accounting and Administra-tion Dept

Hai Phong Office

1.2 Logistics Department’s background

Logistics services have been provided by Vinalink since its

official establishment to assist international transport services

Since 2002, logistics services have been separated into specialized

departments in Ho Chi Minh City, Ha Noi, and Hai Phong

There are five main services being provided by Logistics

Department consisting of:

- Logistics services for import and export cargoes: such as

custom declaration, import export formality, project and exhibition

cargoes delivery, door to door delivery, cargoes packaging and

wrapping, crating, import export consulting, certificate of origin,

insurance, fumigation, culture checking, authorized import and

export formalities, local inland transit and on forwarding from mainports to province.

- Delivery services for import cargoes: take care ofdistribution services including transport to warehouse, storage,classification, unloading and loading, delivery to requireddestinations or on-site, payment on behalf of shippers…

- Transport services: which include container transport andbreak-bulk cargoes, office removal, factory removal, householdand personal effects removal, transport of transit cargoes to Laos,Cambodia and China

- Warehouse and bonded warehouse services are composed

of storage and distribution, bonded warehouse services andmortgaged cargo management services for Banks

- Services providing to shipping lines at terminals areservices related to ships and crew, shipping boarding agency,packages tallying, containers tallying, cargoes tallying for loadinginto containers, export and import consolidation and de-consolidation operations at Container Freight Station terminals andbuyer’s consolidation

Logistics Department of Ha Noi Branch is currently utilizing

350 sq m of warehouse and fleet of more than10 container trucks,vans and forklifts Logistics Department of Ha Noi Branch is alsoresponsible for managing logistics services provided by Hai Phongoffice Human resource of Logistics Department consists of 30officers for different posts: 01 logistics manager and 01representative of Hai Phong office, 03 customer service officers,

02 documentation officers, 08 operation officers, 01 accountant,

03 transporters and 11 drivers (01 in Ha Noi and 10 in Hai Phong)

1.3 Logistics Department’s performance

During two years 2008 and 2009 Logistics Department had amoderate growth in revenue with an increase of 63.77% of thedepartment’s total revenue Container trucking accounted for the

greatest proportion of revenue contributing to the total and wasthe sector with the most remarkable growth in two years whichnearly doubled its revenue in 2009 Other sectors also had tenderrise in revenue except for railway sector which lost more than half

of its revenue in 2009 Detailed information is shown in Table 1

Table 1: Logistics Dept.’s Revenue 2008-2009 (Unit: USD)

Warehouse 12,458.43 20,078.96 161.17%Inland Ha Noi 10,455.86 12,749.97 121.94%Inland Hai Phong 28,791.84 49,289.41 171.19%Railway 10,846.21 4,131.82 38.09%Container

Table 2: Ha Noi Branch Revenue 2008-2009 (Unit: USD)

Proport ion (%)

Revenu e (USD)

Proporti on (%)

Figure 2: Revenue contribution 2008 by departments

Figure 3: Revenue contribution 2009 by departments

There may be many reasons for Logistics Departmentsituation, one of those is inefficient management which will beanalyzed as the focus of this report The following chapters of myreport aimed at finding the answers to some questions:

- What are issues of logistics management that contribute toperformance and result of logistics organizations?

- What practices of logistics management did LogisticsDepartment Ha Noi Branch fail to apply? What was theconsequence of its failure?

- How can Logistics Department improve its logisticsmanagement to overcome the problems?

Research methodology and methods of data collection

This report used observational method to observe and recordhow management tasks are performed by Logistics Department inorder to point out some drawbacks emerging in the middle of itsoperation process Basing on quantitative method, it analyzednumerical statistics from the company’s performance reports andminutes of internal meetings such as its revenue, rates of revenue

to draw a clear picture of Logistics Department’s situationconcerning its growth, position and competitive strength amongother departments Moreover, carried out as a descriptiveresearch, this report aims at identifying the underlying causesleading to Logistics Department weaknesses from which properrecommendations can be given out

Scope of the research

This report analyzes failure of Logistics Department - HanoiBranch of Vinalink International Freight Forwarders in logisticsmanagement, focusing on two aspects which are the main profit-generating sources of Logistics Department: warehousemanagement and freight transport management These twoaspects are discussed at length throughout literature review,analysis and recommendation chapters

In the close-up of the performance of Logistics Department,some problems in logistics management have arisen In the latterpart of my report, I will introduce the theoretical framework forlogistics management on which I can draw a clear picture for thedepartment situation, especially its failures in applyingmanagement principles which result in its current weaknesses

CHAPTER 2 LITERARURE REVIEW

Chapter 2 presents the theoretical framework for analyses andarguments of my report It is responsible for answering thequestion about management issues which contribute toperformance of logistics organizations It is also the guide toinstruct the building of effective logistics management strategies

2.1 Logistics

The term “logistics” originates from the ancient Greek word

“logos” – “ratio, word, calculation, reason, speech, and oration”.And “Logistikas” was the title of ancient Greek military officerswho were responsible for financial and supply distribution matters

By the time the term is more and more widely used in manyaspects beyond the boundary of military activities Nowadays, themost general definition of “logistics” is:

“Logistics is the management of the flow of goods, information and other resources, including energy and people, between the point of origin and the point of consumption in order to meet the requirements of consumers” (Wikipedia)

However it is not easy to have complete understanding of

“Logistics” because its definition varies in different aspects In thecontext of transport which is the scope of my research the term

“logistics” should be understood as follows:

“Logistics is the strategic management movement, storage and information relating to materials, parts and finished goods in supply chains, through the stages of procurement, work-in-progress and final distribution Its overall goal is to contribute to maximum current and future

profitability through the cost effective fulfillment of customer orders.” (Cooper, ed, 1994)

“Logistics is… the positioning of resource at the right time, in the right place, at the right cost, at the right quality.”

(UK Institute of Logistics and Transport, 1998)

“Logistics is the efficient movement of finished product from the end of the production line to the consumer, and in some cases includes the movement of raw materials from the source of supply to the beginning of the production line These activities include freight transportation, warehousing, material handling, protective packaging, inventory control, plant and warehouse site selection, order processing, marketing forecasting and customer service.” (USNational Council of Physical Distribution Management (NCPDM)

To sum up, logistics is a business activity which manages thephysical distribution of goods and materials from producers (orshippers) to consumers (or consignees), through the stages ofwarehousing, manufacturing and distribution, in order to fulfillcustomers orders

2.2 Logistics management

Like management of any other businesses, logisticsmanagement includes tasks of planning, implementing, andcontrolling logistics operation One of the most detailed definitions

of logistics management is presented by Council of Supply ChainManagement Professionals (CSCMP)

“Logistics management is the governance of supply chain functions Logistics management activities typically include inbound and outbound transportation management, fleet management, warehousing, materials handling, order fulfillment, logistics network design, inventory management,

supply/demand planning, and management of third party logistics services providers.”

In my report, due to the scope of my study I focused myanalysis on two among many aspects of logistics management:warehouse management and freight transport management

2.2.1 Warehouse management

Warehouse has a prime objective which is to facilitate themovement of goods from suppliers to consumers Servicesprovided by warehouses include stock holding, packaging andrepackaging, incorporating value-added activities, such aspostponement, as a means of reducing the number of stockkeeping units (SKUs) in a system and increasing the flexibility tomeet customer requirements

There are five principles for an effective warehousemanagement

2.2.1.1 Use of building space

Warehouse space represents a very significant proportion oftotal warehouse costs, so space should be used effectively.Warehouse manager can think of some considerations for effectivespace utilization

Firstly, warehouse design and layout should make effectiveuse of building height rather than counting on its floor area Thereare many suggestions for achieving better use of height, forexample, using mezzanine floors where appropriate

Secondly, warehouse should be organized in a way thatminimizes aisle numbers and widths consistent with access andsafety

Thirdly, it is more advisable to use random location systemsfor stock rather than fixed locations Fixed location system assignsspecific location for a designated product line and never for anyother product Consequently, the installation must be designedwith enough capacity to hold the maximum stock of every product

line With random location, when any empty location can beutilized for any product line as required, the size of installation can

be reduced because there is hardly any possibility for any product

to be stocked at maximum stock level at the same time

Fourthly, warehouse manager should carefully select theappropriate storage system for each particular warehouse Thereare some main storage systems to consider:

Table 3: Some main storage systems

to a maximum stable height

- few product lines

- each product line with highstock level

- first-in-first-out (FIFO) movement not required

Pallet

racking

A system consists of vertical support frames,tied at the top, with cantilever pallet supportbeams at different

heights

- pallet loads are not strong enough or of regular enoughshape to carry

superimposed loads

- high stock product lines

- first-in-first-out (FIFO) movement not requiredShelving A system which is made

from standard modular components that allow installations of different heights, vertical shelf spacing and shelf depths

- storage of small items

Lastly, warehouse manager should make a careful analysis of

stock and throughput data to make decision in trade-off between

good use of space and easy stock access Analysis will suggestwhere emphasis should be put in any particular situation or forparticular parts of the product range

2.2.1.2 Minimum movement

Movement requires resources and involves operating stafftime As a result, minimum movement means the smallest costcontributing to total warehouse costs Warehouse layout,positioning of various warehouse operations within the building,locating of stock are factors that affect the amount of movement.Accordingly, ways to minimize movement include five mainstrategies

The first strategy is to locate popular to fast-moving goodsclose to dispatch to minimize travel distance The second is toseparate order picking and reserve stock to concentrate pickingactivity into the smallest feasible area while avoiding congestion.Apart from that, warehouse should be provided with handlingequipments to minimize manual work and movement Moreover,computer planning of warehouse movement routes in automatedsystem is also important for warehouse management in order tomake sure minimum travel Finally, warehouse managementshould be assisted by movement planning to maximize the use ofpeople and handling equipment and avoid traveling withoutpayloads A consideration for this circumstance is dual cycling, inwhich both outward and return movement of a handlingequipment item are utilized for carrying goods

2.2.1.3 Control and information system

Warehouse management has to be facilitated with aneffective, fast, accurate and flexible communication system tofulfill its tasks successfully Information system of warehouse

should have ability to perform much functionality, including: logstock movements and maintain balances, control stock location,monitor productivity and availability of resources such as handlingand storage equipment, track the movement of goods through thesystem, and effective communication between operators and themanagement system, sort order requirements into appropriateorder picking tasks, and finally, plan optimum movement routesincluding order picking.

2.2.1.4 Product integrity

Warehousing and handling systems should be designed andmanaged in a way that maintain the suitable state of any productuntil it is delivered to the final customers To make that happen,warehouse should have systems to minimize damage, loss and tosatisfy stock rotation or product life requirements and constraints

on storage environment such as temperature limits

2.2.1.5 Working condition and safety

Traditionally, warehouse tasks have been repetitive,monotonous and sometimes arduous Factors of working conditionsuch as lighting levels, temperature, humidity and hygiene havedirect impact on operator performance in the long term Moreover,because of the amount of movement, lifting and manual handlinginvolved, safety has always been of great importance inwarehousing Safe working environment is not only a moralobligation but also an economic strategy as it minimizes lost stafftime, legal costs, material and equipment loss and damage.Therefore, working condition and work safety in warehouse should

be improved through education, labour protection programs asregulated in Labour Laws

2.2.2 Freight transport management

Freight transport management includes various strategies ofincreasing the efficiency of freight and commercial transport Alogistics manager’s concern in controlling freight transport is tokeep a balance between reducing transport cost and providingsatisfying services to customers Main strategies of freighttransport management are listed below

2.2.2.1 Choice of transport modes

There are many modes of transport available They have theirown advantages and disadvantages from which modal choicedecision can be made Their characteristics are described in Table4