Description
The business environment has changed tremendously in the last two decades. Corporations have been forced to realign their global strategies and in order to cut costs, they started to transfer activities which were previously performed in-house to the market (e.g. IT, manufacturing or logistics) focusing instead on their core competencies.
Bachelor thesis
Spring semester 2008
Supervisor: Ulrica Nylén
Author: Paulo Bragança
Fourth-Party Logistics
- A study on modern logistics
2
Acknowledgements
This paper is my Bachelor of Science in International Business Administration and Economics
thesis which concludes my studies at the Umeå School of Business and Economics, Umeå Uni-
versity. The work has been conducted between March 2008 and January 2009.
Even though I have put a lot of hard working hours into the writing of this paper, it would not
have been possible to write it without the support of several people. First and foremost I would
like to thank Ulrica Nylén, Associate Dean at USBE and my thesis supervisor for her valuable
insightful suggestions and professional attitude towards the study.
Furthermore, I would like to thank my friend Sverker Brännström, and Harry Uddståhl from Adi-
tro Logistics, here in Umeå for their time during the kick-off of the study as well as the partici-
pating interviewees for their time and willingness in enabling me to collect the required empiri-
cal information.
Finally, I would like to thank my close family and friends for their continuous encouragement
and understanding.
Umeå, January 2009
Paulo Bragança
3
Abstract
The business environment has changed tremendously in the last two decades. Corporations
have been forced to realign their global strategies and in order to cut costs, they started to
transfer activities which were previously performed in-house to the market (e.g. IT, manufactur-
ing or logistics) focusing instead on their core competencies. Nowadays companies outsource
several of their logistics activities to so-called third-party logistics (3PL) companies and thus from
being centralized, vertically integrated and with single-sited manufacturing facilities, enterprises
have their network of resources globally dispersed.
As a result corporate management has realized that the competitive vehicle is no longer the
individual firm, with its own resources and competencies. Instead, in order to cope with shorter
product life cycles and ever more demanding customers, both on industrial and consumer mar-
kets, individual firms need to strategically become part of ‘extended enterprises’; that is, net-
works of specialist providers of resources and competencies.
However, because the capabilities to manage the entire network do not exist in any one organi-
zation, a new business organization was needed to provide the strategic knowledge and compe-
tence that will enable the complete integration of the supply chain. This new sort of firm, with
core competencies on logistics processes and supply chain IT integration, besides offering con-
sulting services on implementation and development of logistics and supply chain solutions,
manages through the use of logistics control towers “the best of breed” 3PL specialists, integrat-
ing the end-to-end supply chain so that superior customer value is delivered in the most cost
effective way.
But how does the use of a supply chain integrator help the supply chain as a whole to achieve
competitive advantages that enhance end-customer service?
This paper aims to answer the above question. I felt that in order to be able to do that the most
appropriate research strategy would be a qualitative study. Hence, a multi-case study was per-
formed on three Swedish companies which differentiate themselves from the more traditional
third-party logistics providers. The study was conducted by performing a set of semi-structured
interviews with these companies. In order to give the study some sort of structure, I used an
interview guide which was divided into three different themes; a) Organizational Design, b) En-
terprise Logistics Integration and c) Logistics and Competitive advantages.
Once the interviews were transcribed and summarized, the empirical findings were then ana-
lyzed in light of a theoretical framework chosen previously. These theories, which in general
terms relate to organizational design, supply chain management and finance, were also divided
in the same themes as above.
Finally, conclusions were drawn by linking the results of the interviews with the theoretical
framework. It became evident that the supply chain integrator can help the supply chain as a
whole not only to reduce costs related to inventory holding but also to help its client to improve
end-customer service.
4
Table of Contents
TABLE OF FIGURES .............................................................................................................................. 6
1 INTRODUCTION ......................................................................................................................... 7
1.1 PROBLEM BACKGROUND .........................................................................................................................7
1.1.1 Moving towards a new organizational paradigm ...................................................................7
1.2 RESEARCH SUBJECT CHOICE ......................................................................................................................9
1.2.1 Research Question ...................................................................................................................9
1.2.2 Research Purpose .....................................................................................................................9
1.3 DISPOSITION .......................................................................................................................................10
2 THEORETICAL METHOD ............................................................................................................ 11
2.1 PRECONCEPTIONS .................................................................................................................................11
2.2 VIEWS OF KNOWLEDGE AND REALITY ........................................................................................................12
2.2.1 Epistemology .........................................................................................................................12
2.2.2 Ontology ................................................................................................................................13
2.3 SIENTIFIC APPROACH .............................................................................................................................14
2.4 SECONDARY SOURCES ...........................................................................................................................14
3 THEORY ................................................................................................................................... 15
3.1 ORGANIZATIONAL DESIGN......................................................................................................................15
3.1.1 The building blocks of organizational design .........................................................................16
3.1.2 Combining Logistics, Strategy and Structure .........................................................................17
3.1.2.1 Strategy .............................................................................................................................................. 18
3.1.2.2 Structure ............................................................................................................................................ 19
3.1.2.3 Structure - Network organization .................................................................................................... 21
3.1.3 Strategic blueprints of the firm ..............................................................................................23
3.1.3.1 Market-based view ........................................................................................................................... 23
3.1.3.2 Resource-based & Core-competencies view ................................................................................... 24
3.2 THE VALUE CHAIN – SHIFTING THE BOUNDARIES (OUTSOURCING / DECONSTRUCTION/ DISINTERMEDIATION) .......25
3.3 ENTERPRISE LOGISTICS INTEGRATION .......................................................................................................26
3.3.1 Logistics & Supply Chain Management Theory ......................................................................26
3.3.2 The supply chain integrator ...................................................................................................29
3.3.3 Information and the synchronous supply chain .....................................................................30
3.4 LOGISTICS AND COMPETITIVE ADVANTAGES ...............................................................................................32
3.4.1 Delivering customer value .....................................................................................................32
3.4.2 Customer service objectives and priorities .............................................................................33
3.5 THE BULLWHIP EFFECT ...........................................................................................................................34
3.6 LOGISTICS AND THE RETURN ON INVESTMENT ............................................................................................36
4 PRACTICAL METHOD ................................................................................................................ 38
4.1 INITIAL STEPS .......................................................................................................................................38
4.2 THE SELECTION OF SITES ........................................................................................................................39
4.3 METHOD OF COLLECTING DATA ...............................................................................................................41
4.4 METHOD OF ANALYZING DATA ................................................................................................................41
4.4.1 Interview guide ......................................................................................................................42
4.4.2 Presentation of the interviews ...............................................................................................42
4.5 EVALUATING THE RESEARCH ...................................................................................................................43
5
5 EMPIRICAL DATA ..................................................................................................................... 44
5.1 SONAT ...............................................................................................................................................44
5.1.1 The single firm .......................................................................................................................44
5.1.2 Enterprise Logistics Integration .............................................................................................45
5.1.3 Logistics & Competitive advantage .......................................................................................46
5.2 UAE LOGISTICS....................................................................................................................................47
5.2.1 The single firm .......................................................................................................................47
5.2.2 Enterprise Logistics Integration .............................................................................................48
5.2.3 Logistics & Competitive advantage .......................................................................................53
5.3 VOLVO LOGISTICS .................................................................................................................................54
5.3.1 The single firm .......................................................................................................................54
5.3.2 Enterprise Logistics Integration .............................................................................................56
5.3.3 Logistics & Competitive advantage .......................................................................................59
6 ANALYSIS & DISCUSSION .......................................................................................................... 60
6.1 THEME 1 – THE SINGLE FIRM ..................................................................................................................60
6.1.1 Sonat ......................................................................................................................................60
6.1.2 UAE Logistics ..........................................................................................................................61
6.1.3 Volvo Logistics........................................................................................................................62
6.1.4 Theme discussion ...................................................................................................................63
6.2 THEME 2 – ENTERPRISE LOGISTICS INTEGRATION ........................................................................................64
6.2.1 Sonat ......................................................................................................................................64
6.2.2 UAE Logistics ..........................................................................................................................65
6.2.3 Volvo Logistics........................................................................................................................65
6.2.4 Theme discussion ...................................................................................................................67
6.3 THEME 3 – LOGISTICS AND COMPETITIVE ADVANTAGES ...............................................................................68
7 CONCLUSIONS ......................................................................................................................... 70
8 APPENDICES ............................................................................................................................ 73
8.1 APPENDIX 1 – THE 4PL CONCEPT (ACCENTURE) .........................................................................................73
8.2 APPENDIX 2 – STRUCTURAL CONFIGURATIONS ...........................................................................................74
8.3 APPENDIX 3 – VOLVO GROUP ORGANIZATION CHART (COURTESY OF VOLVO LOGISTICS) ...................................75
8.4 APPENDIX 4 - INTERVIEW GUIDE .............................................................................................................76
8.5 APPENDIX 5 - GRAPHIC REPRESENTATION OF IT INTEGRATION WITH USE OF AN LCT (OWN CREATION) ..................78
9 REFERENCE LIST ....................................................................................................................... 79
9.1 ARTICLES ............................................................................................................................................79
9.2 BOOKS ...............................................................................................................................................79
9.3 INTERNET ............................................................................................................................................80
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Table of figures
Figure 3-1: Building blocks of organizational design (revised) ......................................................................17
Figure 3-2: The Conceptual Framework (Stock et al., 1998) .........................................................................18
Figure 3-3: The relationship of organizational design – Efficiency vs. learning outcomes (revised) .............20
Figure 3-4: Organizational structure differences ...........................................................................................22
Figure 3-5: The stages of evolution; functional to process orientation (revised) .........................................27
Figure 3-6: The extended enterprise and the virtual chain (revised) ............................................................28
Figure 3-9: The bullwhip effect – Increasing demand variation in a supply chain ........................................34
Figure 3-10: The Du-Pont model revised; return on investment (ROI) .........................................................36
Figure 4-1: Interview table ............................................................................................................................42
Figure 5-1: UAE logistics organizational chart (revised) ................................................................................47
Figure 5-2: Logistics Control Tower (courtesy of UAE Logistics, revised) ......................................................49
Figure 5-3: System platform Worldgate (courtesy of UAE Logistics) .............................................................52
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1 Introduction
In the chapter below, the reader will be introduced to the background that led to the choice of
the study subject as well as to both the research question and purpose of the study. The chapter
finishes with a section where the disposition of the thesis is presented.
1.1 Problem Background
It is a broadly recognized fact that the business environment has changed tremendously in the
last two decades. The political and the financial changes that have occurred in several of the
world’s economies (Allen, 2005), allied to sound technological advances, in particular the devel-
opment of the Internet and applications using the internet (Ericsson, 2000) are having a major
impact on the market and thus on logistics operations, my area of research.
Until the late 1970s, the corporate rationale paradigm was “bigger is better”. Organizations
grew by expanding their boundaries vertically. This, besides enabling economies of scale
(through high volume strategy), gave the opportunity to secure suppliers and distribution chan-
nels (Harbhajan, 2006). However, during the early 1980s, increasing oil prices affected manufac-
turing companies forcing these to reduce costs in order to stay afloat. The world’s largest econ-
omies, i.e., US, UK and Japan were facing severe economical recessions, showing a combination
of low productivity, high unemployment and high inflation (stagflation). The above factors, led
to the privatization revolution; first in US and UK and later spreading itself globally (Allen, 2005).
The liberalization process brought the de-regulation of market sectors such as telecommunica-
tion, energy and financial services, which were previously dominated by single firms enjoying
natural monopolies. With the fall of regulatory barriers new business opportunities were
created motivating creative entrepreneurs and companies alike to seek for new business mod-
els, through restructuring and reshaping of their boundaries. The changes in the financial sys-
tems, on the other hand, besides establishing new legal requirements, leading to increased dis-
closure and transparency, it also accelerated the development of global financial markets and
new ways for company financing (Weiss, 2007).
1.1.1 Moving towards a new organizational paradigm
The above factors created a radical u-turn in the way of thinking. Hence, in mid 1980s, academ-
ics and management gurus started to believe that the key to competiveness is “small size and
high value”. The organizational paradigm shifted towards smaller and agile organizational forms
capable of rapidly changing their cost structures (Harbhajan, 2006).
According to Stock et al. (1998) the changes in the business environment forced large-scale en-
terprises not only to realign their global strategies and manufacturing activities, but also to flat-
ten their hierarchies in order to speed up information flows. Moreover, in order to cut costs,
corporations started to use outsourcing to streamline operations, moving from being centra-
lized, vertically integrated and with single-sited manufacturing facilities, to having their network
of resources globally dispersed, thus creating the concept of “new manufacturing enterprise”.
Currently, companies outsource everything from their data centers, payroll or receivables de-
partments (Corbett, 2004), to subcomponents of their products, or even large parts of their lo-
Introduction
Theoretical
Method
Theory
Pratical
Method
Empirical Data
Analysis &
Discussion
Conclusions
8
gistics processes (Remko, 2002). When it concerns logistics, companies today outsource much
more than the inbound (purchasing) and outbound (distribution) transport of goods. This logis-
tics outsourcing trend has developed into what today is identified as third-party logistics (3PL).
The 3PL service providers are firms that offer a wide range of logistic services; varying from in-
bound consolidation services (pick-up of material and components from suppliers using central
hubs or cross-docking facilities for re-sorting and consolidating for final delivery), to other value
adding activities such as, quality control and just-in-time deliveries to production lines, which
implies the delivery of the required quantity at the right time (Aronsson et al., 2006). Further-
more, companies operating globally may outsource their logistics operations to several different
3PL service providers, who are specialized in different geographical markets (continents) or in-
dustries.
Naturally, the technological progress, in particular the World Wide Web (Internet) which created
a standard global communication and information system, now present in nearly every city or
village around the world, has enabled enterprises to completely new collaboration structures
(Duening, 2005). From a logistics perspective, the development of the Internet and the applica-
tions using it, also implied a shift from supplier oriented (push) to customer oriented strategies
(pull), causing this additional pressure on the need for an effective management of the supply
chain (Ericsson, 2002). In fact, in order to frame this new concept, the author uses the term
“demand chain management” to describe the concept of managing a truly market or customer
driven supply chain.
Today’s global economy is characterized by continuous change and increasing turbulence. Tech-
nological development is unfolding at a growing pace, bringing forward new products and more
efficient production methods. Competition is harder than ever and firms at a global level must
provide high-quality and low-cost goods in order to retain their market share. Customers, on the
other hand, besides being more informed, demand better service and have a much broader
spectrum of needs, reaching from quality to corporate social responsibility and environmental
awareness, in other words in this new business era customers are in the driving seat (Christo-
pher, 2005). As a result companies have become market oriented; that is instead of focusing
primarily on their internal functions (e.g. purchasing or manufacturing) and economies of scale,
they have come to realize the importance of customer service as a strategic tool.
Moreover, the traditional business model was to a great extent transactional. Products and ser-
vices were purchased and sold but little focus was put on long-term and mutually dependant
relationships. However, as a result of some successful pioneering outsourcing activities, corpo-
rate management in general, has come to realize that the competitive vehicle is no longer the
individual firm, with its own resources and competencies. Instead, in order to maintain the
competitive edge, individual firms need to strategically become part of so called ‘extended en-
terprises’; that is, networks of specialist providers of resources and competencies (Christopher,
2005). The author points out that in order to achieve that it is required more than just a simple
re-drawing of the organizational chart. It entails a cultural change in the principles that have
traditionally guided organizations. According to Christopher (2005) in this new era of network
competition, the path to sustainable advantage depends on the capacity to manage the complex
mesh of relationships so that end-user requirements are delivered in a cost-effective and value-
creating manner. Enterprises need to be able to co-operate with stakeholders and partners
within the supply chain network in order to cope with shorter product life cycles and customers,
who besides being extremely time-sensitive also demand high levels of delivery flexibility, both
on industrial and consumer markets.
Christopher (2006 p.295) explains further that because “the capabilities to manage the network
probably do not exist in any one organization” a new business organization is needed to provide
9
the strategic knowledge and competence that will enable the complete integration of the supply
chain. According to the author this new sort of firm, with core competencies on logistics
processes and supply chain IT integration, besides offering consulting services on implementa-
tion and development of logistics and supply chain solutions, would also manage through the
use of logistics control towers “the best of breed” 3PL specialists, integrating the end-to-end
supply chain so that superior customer value is delivered in the most cost effective way.
This study will focus on this new type of organization; the supply chain integrator (see appendix
1), a company which delivers network management capability.
1.2 Research subject choice
When I first started to discuss with my fellow colleagues at the International Business Program,
which areas each of them would research about, it become evident that only I was interested in
studying logistics and supply chain management as a subject. Most likely this had to do with the
fact that previous to my academic studies, I already had a long working career within logistics
and supply chain management. Moreover, I started my professional career by working for a
large IT manufacturer during the 1980s and have since then kept an interest on IT development
and business solutions. Thus, the interest to study this new type of organization (the supply
chain integrator) which combines logistics with information technology as the core-competence
it was very much personal.
Moreover, I knew that companies have changed their views on the importance of logistics on
the company’s overall performance; from being considered an uninteresting business overhead
relating to warehouse and transport (Waters, 2003), logistics is today used by many companies
as a strategic tool to achieve competitive advantages over their competitors (Aronsson et al.,
2006). Hence, I felt that I wanted to explore how this new business organization can help the
supply chain to achieve end-to-end integration that will lead to competitive advantages.
1.2.1 Research Question
How does a supply chain integrator help the supply chain as a whole to achieve competitive ad-
vantages that enhance end-customer service?
1.2.2 Research Purpose
In the conclusion of their study, Stock et al (1998) suggest that their conceptual framework
should be used as basis for further empirical research. The authors recognize that the competi-
tive environment forms a firm’s organizational design and thus affect its strategy and structure.
Stock et al. connect a firm’s strategy, its structure and its logistics capacity with how the firm will
perform, hence recognizing the increasing importance that logistics/supply chain management is
having in being the link between new manufacturing strategies and organizational structures,
which have emerged as a result of changes in the competitive environment. According to these
authors, “enterprise-wide logistics integration” (both internal and external) is the key that pro-
vides the proper balance between strategy and structure within the supply chain.
The purpose of my study is to explore and understand if this recent business concept is here to
satisfy the needs for enterprise-wide logistics integration mentioned by Stock et al. on their
study, and if so how are these integrations bringing competitive advantages to the different
partners within the supply chain.
10
1.3 Disposition
According to Johansson-Lindfors (1993), the use of summaries in the beginning or end of each
chapter of a thesis is important because with a logical and clear disposition follows a better un-
derstanding. Hence this section is created to give the reader a clear outline of what lays ahead.
Moreover, and according to the author above each chapter of this thesis will have a brief sum-
mary of its contents.
Chapter 1 – Introduction
In this chapter the reader was introduced to the topics normally addressed on the introduction
chapter of a thesis. Besides having introduced the problem background, I explained the reasons
behind the choice of subject, formulated the research question and described the purpose of
the study.
Chapter 2 –Theoretical Method
This section is thought to give the reader an understanding of the author’s background, his pre-
vious knowledge and preconceptions about the subject and how these may influence the study.
Moreover, the reader will be introduced to the different theoretical views on how research
should be pursued, concluding the author by establishing the research method that will be tak-
en.
Chapter 3 – Theory
This chapter provides the very essence, the fundaments, of this thesis. During this chapter the
author introduces the theoretical framework chosen for the consequent analysis of the empiri-
cal findings. The author introduces a set of theories relating to organizational design and its
building blocks (e.g. strategy and structure), as well as logistics and supply chain management
theory.
Chapter 4 –Practical Method
Throughout this chapter the reader will have the opportunity to follow the description of the
different steps taken in order to collect the required empirical data. Thus, this section is thought
as to reflect the practical method used to conduct the research.
Chapter 5 – Empirical Data
The empirical findings on the interviewed companies are presented within this chapter.
Chapter 6 – Analysis & Discussion
What is the meaning of the results and how are these related to theory? On this chapter the
author aims to analyze the findings on the lights of the theories chosen.
Chapter 7 – Conclusions
In the final chapter the author will present his final thoughts on the study.
Appendix
In the appendix section the reader will find the interview guide used to conduct the interviews
as well as the description of the 4PL concept, develop by Accenture. Moreover, the reader will
find some examples of organizational structural charts.
Reference List
In this section the author lists the sources used during the conduction of the study, namely ar-
ticles, books and websites.
11
2 Theoretical Method
According to Bryman & Bell (2005), the theoretical method used on the research links the way
researchers visualize the connections between the nature of social reality and how it should be
examined. Hence, in this chapter besides describing to the reader my epistemological and onto-
logical standing points, I will unfold the preconceptions I have on the subject as well as will lay
down the followed scientific approach.
2.1 Preconceptions
According to the majority of the business research methods literature, studies might be affected
by the preconceptions researchers build upon over their life time. Preconceptions (both theoret-
ical and practical) may affect not only the way the researcher conducts the study but also the
conclusions he/she reaches (Johansson-Lindfors, 1993). After all an individual’s preconceptions
are based upon his/hers social background, ethnicity and religion as well as the practical expe-
riences and the education that individual, respectively, lived and obtained during his/her life
time (Johansson-Lindfors, 1993 and Holme & Solvang, 1997).
I was born in Lisbon, Portugal, where I was brought up. After having finished my upper second-
ary school education, I started my professional career (1982), as warehouse manager for an IT
distributor company in Lisbon. I left the company (and Portugal) after seven years moving to
Fort Lauderdale, Florida, in order to pursue an international career within the luxury cruise in-
dustry. Since then I have acquired a wide experience not only in global purchasing and logistics,
but also on other business administration areas in a wide range of industries. During those ap-
proximately seven years I spent working onboard cruise ships I had the opportunity to travel
around the globe, having visited over one hundred countries and all five continents. Moreover, I
lived and worked in a few other countries besides Portugal; namely in US, England, Spain and
now in Sweden, where I had the opportunity to gain a deeper understanding of these cultures
and of my own.
Approximately five years ago I moved to Sweden due to personal reasons. That acted as a driv-
ing force to my decision of adding new theoretical knowledge to my already long professional
career and thus starting a Bachelor’s degree in International Business Administration and Eco-
nomics at Umeå University. During this period I have studied, besides the Swedish language,
areas such as; International Business Environment, Marketing, Finance and Accounting as well as
Economics. Moreover, I studied Leadership and Project management at the university’s Sociolo-
gy Department as well as e-Logistics and e-Business via Skövde University. At bachelor’s level (C-
level), my choice was Organizational Design and Logistics/Supply Chain Management, however
recognizing the fact that we live in a financial world, I have studied Corporate Finance and In-
vestments at D-level. Naturally my preconceptions have been affected by all the above life and
business experiences.
Introduction
Theoretical
Method
Theory
Pratical
Method
Empirical
Data
Analysis &
Discussion
Conclusions
12
2.2 Views of knowledge and reality
2.2.1 Epistemology
Epistemology is the theory of knowledge and it is concerned with the nature of knowledge, its
development, what is possible to know as well as understand and represent (Opie et al, 2004).
According to the authors the motives for doing research, are often to obtain and communicate
knowledge with the goal of informing either practice or policy and thereby make improvements.
But what is knowledge? According to Meyers (2006, p. 54), David Hume depicts knowledge as
perception, memory and the instinct to connect ideas. According to the latter, “The best we can
do when experience leads us to believe something is to consider the issue in light of other things
we believe from experience. This capacity distinguishes the wise from the vulgar, not an
independent intellectual faculty.”.
Changes in the environment affect not only organizations and the agents operating within it, but
also the intellectual environment in which scholars perform their research. As Hansson (2004)
points out, the questions about what knowledge is, and how to develop that knowledge have
been under discussion during the last two decades. This epistemological clash has been between
the positions defended by the “positivists” and the “hermeneutics” (Bryman & Bell, p. 15). Until
the 1980s, the theory of knowledge was very much dominated by the positivistic epistemologi-
cal view (Hansson, 2004), which is closely connected to quantitative research methods, focusing
on amounts and numbers when gathering and analyzing data to explain phenomena. This view,
among other things, defends that only phenomena confirmed by the human senses should be
considered as knowledge and that the purpose of theory is to generate hypotheses that can be
tested (verification or falsification), using therefore a deductive principle (Bryman et al, 2003).
The hermeneutics (interpretivism) views, on the other hand, have since the 1980s become to be
seen as an alternative to the positivism orthodoxy. According to the latter, social- and natural
sciences are different in fundament, hence requiring research procedures that mirror the differ-
ences between humans and the natural order. In other words, the social scientist is required to
understand and interpret the subjective meaning of social action (Bryman & Bell, 2003, p.15-16).
After having reasoned quite extensively around these two different epistemological approaches,
I felt that even though the study requires some objectivity which is provided by the positivistic
view, it is also required an ‘interpretivistic’ approach. Opie et al. (2004) suggest that this feeling
is quite usual as most people feel torn between these extreme views (positivism vs. interpretiv-
ism). I must admit I fall into this category of people; to me things are not black or white. First I
do not believe a researcher is able to achieve neither an objective reality nor a complete objec-
tivity, when it comes to business research studies. Organizations and networks are made of
people and these bring with them a back-pack of preconceptions, values and knowledge that
cannot be dissociated from them. Moreover, I feel that it is required a less linear approach than
the one suggested by the positivism view (deductive), after all it is neither my intention to test
hypotheses against the theory through the collection of quantitative data nor to generalize the
findings through the use of statistical tools.
As previously mentioned, the purpose is to study the competitive advantages that can be
achieved by the supply chain as whole, by using a 4PL service provider. Christopher (2005, p.8),
explains that logistics competitive advantage is obtained through a combination of two factors,
being these cost and value advantages. Cost advantages are provided by the effective (objective
and factual) management of the supply chain, leading to increased efficiency and productivity
and hence to cost reductions. Value advantages, on the other hand, can at times be intangible.
For example, according to the author, it has been recognized for a long time within the market-
13
ing research area that “customer don’t buy products, they buy benefits.” The author means that
the product is not just a physical thing, but it is also something that delivers benefits which are
not possible to measure in a sense as the one defended by the positivistic theory, i.e. the social
benefits for the customer or end-user.
2.2.2 Ontology
Studies the nature of reality and its characteristics (Creswell, 2007, p. 16). Cresswell’s (2007, p.
19-22) introduces Post-positivism, Social Constructivism, Advocacy/Participatory and Pragmat-
ism as four possible ontological paradigms or worldviews. According to post-positivism, those
who are performing a qualitative research following this paradigm will take a scientific approach
to research that is; it will have elements of reductionism, logic, emphasizes on empirical data
collection, it is cause and effect oriented and deterministic. Social constructivism, in turn, de-
fends that people are continuously trying to understand and make sense of the environment
they are embedded in. According to this view, the research should depend as much as possible
on the contributor’s views of the problem and rather than starting with a theory (the principles
of deductive theory), this view defends that researchers inductively develop a theory, after hav-
ing departed from a general research question. The third paradigm, ‘advocacy/participatory´, on
the other hand, has as its ground belief that research should have an action agenda pursuing
reforms that may change the realities of the contributors and the systems in which they either
work or live in. Examples of areas of research are for example issues related to oppression, do-
mination or alienation.
Once again, I must admit having mixed feelings from an ontological perspective. On one end the
study focuses on organizational design, and traditionally organizations are associated with social
order. There are hierarchies and people besides following standardized procedures apply rules
and regulations. Thus requiring an objectivistic approach in order to understand the reality of
the organization. On the other end, these same organizations operate in environments where
the social order is in constant change, with agreements being continuously “established,
renewed, reviewed, revoked, revised…”(Bryman & Bell 2003, p.20). Thus requiring also a
construcionist approach in order to understand the everyday intereaction between the actors
working within these same organizations.
However, it is with the fourth ontological paradigm (pragmatism) that I feel most identified with.
According to Rossman & Wilson (as cited in Creswell, 2007, p.22-23), pragmatism leads to the
concentration on the underlying problem and the questions relating to it rather than focusing on
the methods used. Creswell (2007) develops this concept further by putting forward a list of
characteristics that originates from Cherryholmes (1992) and Murphy (1990). According to the
latter, researchers sharing this view can choose rather freely on the methods and procedures
when doing research, since they are not devoted to the use of a single approach to philosophy
and reality. But most importantly (to me) pragmatists agree that research always occurs in
social, historical, political and other contexts, a fact that is well noticed in this paper.
14
2.3 Sientific approach
Summarizing, logistic competitive advantage have two components; financial (facts) which are
measurable and from where statistical inferences can be drawn, but also a value component
which at times can be intangible and thus requiring understanding and interpretation of the
reality.
Since the research question is to ascertain “how does a supply chain integrator help the supply
chain as a whole to achieve competitive advantages that enhance end-customer service”, I be-
lieve that a qualitative study, as opposed to the more ´’positivistic” oriented quantitative study,
is the most suitable method to be able to obtain the empirical data required to answer the
study’s research question.
Moreover, according to the business research litterature there are two theoretical approaches
usally used when conducting research being these; the inductive and the deductive approaches.
While the latter approach (deductive) is characterized by studies starting with the researcher
based existent theories for a specific domain, formulating a hypoteses (or hypotheses) that later
need to be subject to empirical scrutiny (Bryman & Bell, 2003); the inductive approach is
characterized by the researcher formulating a theory based on the data collected.
Even though qualitative research, more often than not, follows an inductive approach as
opposed to the deductive which is often linked to quantitive researches, personally I believe this
study follows an approach which is closer to deductive. There are a few reasons that explain my
believe but perhaps the most important is that prior to conducting the study, I read several
existing theories relating to both organizational design and supply chain management which
value could not be ignored. Moreover, it was through the knowledge acquired that I was able to
build up an interview guide which reflected relevant theories on the chosen fields. Finally, I used
that same interview guide to collect empirical data which was later analyzed in light of theories
previously chosen. However, as Bryman & Bell (2003, p.13) points out to a large degree the
researcher should think about the deductive and inductive strategies more as tendencies rather
than a “hard-and-fast distinction”
2.4 Secondary Sources
By definition secondary sources are documents (e.g. articles, books or internet) that relate or
discuss issues addressed previously. Hence, the theories used in this thesis have all been found
through the use of secondary sources. Moreover, the majority of the secondary sources used
were primarily obtained by using the Umeå University Library as well as its database resources.
Examples of these databases are Academic Search Elite, Business Source Premier (EBSCO),
ebrary (e-books) or Web of Science. The reason behind this choice of secondary resources is that
the articles included in the above mentioned databases are peer reviewed and thus assumed to
have the quality required in a study of this kind.
15
3 Theory
This chapter is thought to provide the reader with the insight over the theories used to analyze
the empirical data. As the reader will notice, the theories have been grouped into three themes;
Organizational Design, Enterprise Logistics Integration and Logistics & Competitive Advantages.
These same themes will be also used to present the data collected as result of the interviews as
well as for its analysis.
As previously mentioned on the problem background, the competitive environment has
changed tremendously in the last two decades. The political and financial developments oc-
curred at global level, accompanied by relevant technological progresses; in particular the Inter-
net and its applications have certainly contributed to this. Additionally, customers in these glob-
al markets demand cheaper and higher quality products, to be delivered yesterday, if possible.
These factors acted as driving force for change, pushing companies to shift their boundaries, and
hence moving from being vertically integrated, to having their resources horizontally dispersed
in networks created with worldwide based strategic partners. Naturally, this in turn put extreme
pressure on logistics due to the need for enterprise-wide logistics and strategic integration.
3.1 Organizational Design
The modern industrial firm as a concept has been developing ever since it came to existence
after the Industrial Revolution period. This concept was based on obtaining economies of scale
and scope, hence compensating those firms which made the largest investments in production
facilities, distribution channels and management competencies. While economies of scope re-
sult from producing several items at the same time (Weiss, 2007), economies of scale occur due
to the spread of the fixed costs over a greater output volume (Christopher, 2005). The appear-
ance of the industrial firm, characterized by its mass production system has motivated research-
ers to theorize about the reason for the existence of the firm.
Weiss (2007, p. 21) clarifies that characteristics normally linked with the concept of firm are for
example; “…the long-term nature and ongoing relationship in contrast to the arm’s length trans-
actions;” the idea that “…firms allocate authority to some partners over others’ power”, and
that team production occurs within the constraints of the firm.
Traditionally, firms have followed a function oriented division of labor. That is, employees were
placed into different functions or departments where the different firm activities took place.
Even though this concept enables the efficient uses of resources it often leads to ‘silo’ type de-
partment mentality which is a hindrance to future development. Enterprises (firms) expanded
the value chain activities upwards by taking over purchasing or exploration of raw materials and
downwards by taking control over the distribution of goods (Weiss, 2007). The author explains
that besides investing in raw material extraction facilities as well as in production sites for in-
termediate goods, firms took over the transport between the various production sites. Moreo-
ver, the firms that achieved economies of scale and scope through the above investments had
become large enough to take control over the distribution of goods themselves, and thus replac-
ing intermediaries. This combination created substantial cost advantages. Developing on the
above concepts, Chandler (1990), as cited by Weiss, suggested that in order for the modern in-
Introduction
Theoretical
Method
Theory
Pratical
Method
Empirical
Data
Analysis &
Discussion
Conclusions
16
dustrial firm to succeed it was just as important to invest in management know-how and capa-
bilities as it was to invest in production and distribution.
Weiss (2007, p.22-31) continues his explanation of the foundations of organizational design by
introducing four different strands of the theory of the firm, these are; transaction cost theory,
agency theory, incomplete contract theory and finally the firm as a knowledge-based entity.
The study will follow the knowledge-based view. The reason is that the knowledge or compe-
tence perspective of the firm is process oriented, and thus in line with the demands put on to-
day’s supply chain networks. Moreover, function oriented firms are often slow to react to
changes in the competitive environment. Thus it is suggested that organizations should focus on
key business processes, which are by definition cross-functional and market facing (Christopher,
2005). Finally, because the knowledge-based view of the firm takes influences from a wide spec-
trum of literature strands (i.e. strategic management, Austrian economics and sociology), it be-
comes more dynamic, particularly when compared with the other theories mentioned above
(Weiss, 2007 p.32). Thus also in line with the characteristics required from today’s supply chain
networks, that is; they are required to be agile and with high levels of maneuverability in order
to cope with nowadays turbulent and volatile markets (Christopher, 2005, p.33)
3.1.1 The building blocks of organizational design
According to Weiss (2007, p. 167), there are four building blocks within the organizational de-
sign, being these Strategy, Boundaries, Internal Structure and Governance, each having different
parameters.
Because it would be beyond the scope of the study to explain in depth each of the above build-
ings blocks, I will focus on the two blocks present in Stock et al. (1998) model (see next chapter),
which links Logistics, Strategy and Structure. However, in order to give the reader a better un-
derstanding, below the reader will find a brief description of each of these concepts.
The Strategy, defines the purpose of the firm, its reason of existence. The firm strategy should
describe which resources the organization will use in order to create value and hence generate
economic rents. The same truth applies when referring to market positions and resources. Ac-
cording to Weiss (2007, p. 73) only a distinctive configuration of these themes will enable the
creation of added value above the typical return on a perfectly competitive market.
The Boundaries of the firm on the other hand, reflect the scope of the firm, the setting and its
business opportunities. The boundaries determine power (i.e. through the separation between
those inside and outside the firm) and shape investment incentives. These incentives can be
both good and suboptimal for those on the inside. Good if they have access and know-how to
interpret others information, but also negative because they may rely too easily on others deci-
sions and thus issues such as free-riding, rent-seeking or unprofitable investments may occur.
Moreover, the complementary between the balance of incentives and power is affected by the
configuration of a firm’s boundaries and thus the right degree of permeability enables the flow
of important resources across organization boundaries and markets where their value creation
potential is enhanced (Weiss, 2007, p.90).
The Internal structure of an organization, besides establishing how processes are organized, sets
the boundaries of a firm, both internally and externally, and supports the governance of the firm
by ascertaining the decision rights and decision-making power, hence determining how the
strategy translates into success or failure. According to Weiss (2007), the firm’s investments in
value-creating assets, market positions and resources depend on the information about such
opportunities and on the decision-making power of those which hold the relevant information.
17
The author suggests that by matching information with decision rights and by setting incentives
to use these wisely, value is created and surpluses are maximized.
Finally, the firm’s Governance reflects how any success or failure is distributed amongst the
firm’s constituencies. According to Weiss (2007), the consistency between these different blocks
is of the utmost importance in order to keep incentives for value-creating investments and the
distribution of power in balance.
The table below summarizes the themes and parameters, included on the different building
blocks of the organizational design theory (Weiss, 2007, p.166). As the reader will realize, some
of these parameters have been touched upon in the introduction chapter of this study (i.e. ver-
tical and horizontal integration, outsourcing, departments and divisions, etc.)
Building Blocks Main Themes Design Parameters
Strategy Purpose Vision and mission
Activities Integration and construction of the value chain
Positions Markets and Industries
Resources Leverage across business units
Boundaries Setting Vertical and horizontal integration
Shifting Outsourcing, deconstruction, disintermediation
Blurring Degree of permeability
Internal structure Information Tacitness, asymmetry, performance measurement
Power Degree of centralization, leadership
Incentives Reward structure, career concerns, internal markets
Co-ordination Departments and divisions, hierarchy, organizational culture
Governance Constituencies Relative importance of stakeholders
Mechanisms Complete or rational contracts, exit, voice, access, ownership
Forms Legal constructs
Figure 3-1: Building blocks of organizational design (revised)
3.1.2 Combining Logistics, Strategy and Structure
At this stage I would like to recall that the purpose of the study is to use Stock et al. (1998) con-
ceptual framework as point of departure and study the concept of supply chain integrator as the
player that provides the enterprise-wide logistics integration.
As it can be depicted from the figure below, Stock et al. (1998) suggest that a firm’s (or network)
overall performance is affected by the balance between strategy, structure and the organiza-
tion’s logistics capacity. The authors explain that in the context of their study, performance can
be measured in two different categories; internal and external measures of performance. More-
over, Stock et al. clarify that the above mentioned internal measuring category reflect the single
firm (or network) competencies in areas such as manufacturing and logistics (e.g., cost, delivery
speed and reliability, quality, flexibility). The authors continue their explanation by clarifying
that while internal performance measures aspects which are more often than not under the
control of the firm, hence providing a clearer indication of the relationship effects between
strategy, structure and logistics. External performance measures, on the other hand, reflect
factors outside the firm’s boundaries. Some of these later measurements could be; market
share, return on investment or sales growth. Moreover, the authors point out that beside those
measurements named before, firms (and networks) may even measure non-financial factors
such as customer satisfaction for example.
18
The figure below gives a graphic representation of Stock et al. (1998, p.39), conceptual frame-
work, this study point of departure.
Figure 3-2: The Conceptual Framework (Stock et al., 1998)
Stock et al. suggest that the competitive environment besides reflecting economic and technolo-
gical trends affecting the global market, it includes aspects such as the market demands; i.e. the
variability and the location of demand or characteristics of the product like the price. Moreover,
in their framework, Stock et al. (1998) treat logistics as one of the variables, or tools, an organi-
zation has at its disposal in order to gain competitive advantage. The authors mean that, like
technology or management techniques capacity, the existence or not of effective logistics,
which have become a primary mechanism for integration and coordination, may determine the
achievement (or not) of these same competitive advantages. Furthermore, the authors’ connect
a firm’s organizational design (its strategy and structure), with its logistics capacity and explain
that the strategic choices made will affect the balance between the building blocks and hence
determine how the company will perform. Hence, once the logistics environment is seen as a set
of variables, logistics activities such as; transport, warehousing, procurement and so on, can be
conceptualized. Thus, the competitive advantages to be gained will depend on the efficiencies
each firm will achieve on these specific activities in relation to the others firms within the indus-
try.
3.1.2.1 Strategy
Stock et al. (1998) explain that in the context of their study, strategy relates in first place to
business strategy. While the competitive scope relates to the range of activities, in which the
organization decides to excel, the geographic scope establishes the location of supply and de-
mand and its spread. Because companies also purchase abroad, for the purpose of this study,
the strategic geographic scope includes both, the supplier and the customer base. For instance,
enterprises in order to achieve economies of scale may outsource part of their production to
suppliers based in different countries, where manpower is cheaper. Once, the different modules
are assembled into a product and hence adding value to it, organizations may then later distri-
bute these products worldwide. Additionally, when it concerns logistics, companies may follow
different strategic approaches, for inbound, internal and outbound logistics. The latter can in its
turn be further divided into business to consumer (B2C) and business to business (B2B) which in
turn more often than not imply the need for different logistic strategic approaches.
Competitive Environment
Logistics Environment
Strategy
Competitive Priorities
Competitive Scope
Geographic Scope
Structure
Network Organization
Geographic Dispersion
Enterprise Logistics
Integration
Performance
19
Stock et al. (1998) explain further that there are a number of possible strategic logistics activities
where firms choose to excel in order to meet customer demand (competitive priorities). In gen-
eral terms, firms compete on cost, quality, flexibility (agility) or delivery. The latter, in turn, in-
cludes components such as stock availability, delivery frequency and reliability or order size-
constraints (Christopher, 2005). Moreover, whereas firms competing on cost leadership will
concentrate on achieving the lowest producing cost within its industry, firms competing on for
example; quality, flexibility or speed, will focus on differentiation. Stock et al. (1998), suggest
that both, quality and flexibility can be defined in several different ways. When it comes to the
concept of quality, the authors divide the quality concept in; performance quality and confor-
mance quality. While the former relates to the performance and features of a product, the latter
addresses issues such as conformance to product specifications or the absence of defects.
Flexibility, as previously mentioned, also has several possible definitions, depending on the con-
text in which it is used. However, for the purpose of this paper, and in accordance with the con-
ceptual framework chosen as basis for this research, flexibility will refer respectively to design
and volume flexibility (Stock et al., 1998). Miller and Roth (as cited in Stock et al. 1998, p. 41),
suggest that while volume flexibility refers to the capacity to respond rapidly to changes in real
demand, design flexibility, on the other hand, relates to the “capability to make rapid design
changes and/or introduce new products quickly”. Parthasarthy and Sethi (1992), as cited by
Stock et al. (1998), suggest that innovation both in product or process development can be seen
as a part of flexibility.
Besides competing on the above competencies, firms compete on time. The importance of time
as a competitive tool has been recognized for a while. Customers (both consumers and industri-
al) are increasingly more time-sensitive, thus demanding products to be delivered faster than
ever before (Christopher, 2005). Moreover, and in accordance with the old say, ‘time is money’.
Hence, the question is what is the cost of time? According to most of the business literature, the
cost of time is the additional cost a customer is willing to bear whilst waiting for a delivery. Na-
turally these factors, together with shorter product life cycles, have put additional pressure on
logistics management. Christopher (2005) points out that the risks attached with having lengthy
and slow-moving logistics pipelines have become unsustainable in today’s competitive environ-
ment.
3.1.2.2 Structure
According to Stock et al. (1998), there are several definitions and classifications have been given
for the concept of organizational structure.
The authors explain that while Ghoshal et al. (1994) describe organizational structure as the
dimension of centralization or decentralization different companies have, Habib and Victor
(1991), on the other hand, categorized multinational corporations as “pure” structures. These
included worldwide functional, international division, worldwide product division, geographic
region and matrix (Appendix 2), hence introducing a relationship between the corporate head-
office and the foreign operation. This view is shared by Daft (2007) who besides the above men-
tioned organizational structure forms (i.e. functional and functional with cross-functional teams
and integrators) adds three other possible organizational structures; divisional, matrix and vir-
tual networks. Daft explains that the concept of “virtual network structure” is an extension of
the concept of horizontal coordination and collaboration, as it goes beyond traditional organiza-
tion boundaries.
Daft (2007, p. 193-226), develops on Ghoshal’s et al. view and explains that vertically structured
(centralized) organizations are designed for efficiency and stability, while horizontally structured
(decentralized) organizations are most suitable for learning, innovation and flexibility. According
20
to the author, each firm has specific needs in what regards the degree of centraliza-
tion/decentralization required and thus firms may have to experiment different combinations
until they find the balance which best fits the company’s needs. The author continues his expla-
nation by clarifying that vertical linkages are first and foremost designed to control the organiza-
tion and are used to coordinate organizational activities between the top and the bottom of the
organization. Moreover, vertically structured firms have a wide range of structural tools (i.e.
hierarchical referral, rules, plans or formal management information systems). Horizontal infor-
mation linkages, on the other hand, refer to the amount of communication and coordination
across organizational departments (or networks). Furthermore, Daft (2007) suggests that a rele-
vant method to achieve horizontal linkage in organizations is through the use of cross-functional
computerized information systems which enable managers or frontline employees to exchange
information, on a regular basis, about problems, opportunities, activities or decisions, through-
out the entire organization. According to the author, besides using direct contact through the
creation of a liaison role (i.e. an employee placed in one department but with the responsibility
to communicate and coordinate the activities with other department), horizontally structured
firms may use other devices such as temporary task forces (representatives from each of the
organizational units affected by a problem) or a full-time integrator in order to achieve horizon-
tal linkages. Daft explains that unlike the liaison person, mentioned above, the integrator does
not report to one single functional department. Instead the integrator, which could be a single
position or even a department, is located outside the departments and has the responsibility to
coordinate several departments. Additionally, full-time integrators may also be responsible for
innovation or change projects (i.e. coordinating new product design, financing and marketing).
The table below describes the differences between these two organizational structure forms
(Daft 2007, p.193).
Organizational Structure
Vertical Horizontal
Specialized tasks Shared tasks, empowerment
Strict hierarchy, many rules Relaxed hierarchy, few rules
Vertical communication and reporting systems Horizontal communications, face-to-face
Few teams, task forces, or integrators
Centralized decision making
Many teams and task forces
Decentralized decision making
Figure 3-3: The relationship of organizational design – Efficiency vs. learning outcomes (revised)
An alternative to the traditional organization chart built of lines and boxes is Mintzberg’s five-
sector model as explained by Bolman & Deal (2003, p.73-77) (appendix 2). This model is com-
posed by at the very top by the strategic apex. This includes the executive and the board of di-
rectors who focus on the competitive environment surrounding the firm and thus defining the
strategy and shaping the grand design. Right below is the middle management who supervises,
control and provide resources for the operations. At the bottom, one finds the operating core,
i.e. those workers that produce products and/or services to customers/end-users. As one can
depict from the picture two more components complete the model. These are the techno-
structure and the support staff. The former relates to specialists and analysts who take care of
standardization and of the measuring and inspection of outputs and processes. According to
Bolman & Deal (2003) this could be for example accounting and quality control, departments
within industry, or airlines technical support. The latter relates to support staff, these as the
name implies perform support tasks that facilitates others’ work. From this model Mintzberg
21
derived five structure configurations which have become to be named as simple structure, ma-
chine bureaucracy, professional bureaucracy, divisionalized form and adhocracy.
This study focuses on the professional bureaucracy and divisionalized form (appendix 2); the
reason being the importance these give to the operating core, where the core competence lays.
As one can see from the picture (same appendix as above) the operating core is much larger
than the other structural parts in the model. Professional bureaucracy is characterized by having
few managerial levels and thus is flat and decentralized by nature. The authors above explain
further that even though there are benefits in enabling professionals to freely use their exper-
tise and allowing for control to rely mainly on professional training and indoctrination, this or-
ganizational design creates problems related to co-ordination and quality control. On the other
hand, the divisionalized form is categorized by the bulk of the work being done in quasi-
autonomous groups. Within this structure each division serves a distinct market and supports its
functional units. Division managers are responsible for business unit results as well as on its
return on investment. As long as the results are positive the divisions run autonomously. The
advantages with this structure are the economies of scale achieved, resources and responsive-
ness. One disadvantage, as pointed out by Bolman & Deal (2003, p.78), could be the “cat-and-
mouse game between headquarters and divisions.”
Stock et al. (1998), also bring an important dimension to the concept of structure. The authors
explain that their views on structure follows a framework of two constructs; the first relates to
the extent to which the individual firm is part of a larger network (supply chain), the second
aspect it relates to the geographic dispersion of the different partners within the supply chain
(i.e. suppliers, the firm itself as well as distributors and customers).
3.1.2.3 Structure - Network organization
Once the permeability and openness of the firm’s boundaries have changed (increased), firms
are able to pursue different forms of hybrid cooperation with other companies. Examples of this
are joint ventures, franchises or the strategic alliances that can be witnessed in today’s car man-
ufacturing (Helper 1998) as mentioned by Weiss (2007).
Weiss (2007) introduces the concept of ‘clustering’ in relation to product research and devel-
opment (R&D). The author explains that one of the main driving forces for R&D is the combina-
tion of knowledge and proximity to come up with innovative products. By placing their offices in
strategic locations (clusters), i.e. Silicon Valley (USA) for information technology, but even Kista
in Sweden, firms allow for ideas to be exchanged across the boundaries of the firm. The author
explains that by having at their disposal a pool of knowledge (both external and internal) firms
are able to leverage their positions and resources and thus gain advantage when introducing
new products into the market. Finally, Weiss (2007) suggests that organizational designs based
on a hub with a central coordinating management (i.e. in the case of a virtual company) or a
network of interdependent companies working together for their own benefit and for the bene-
fit of the network as a whole, are the most appropriate to be able to capture the returns of su-
per-modularity.
Stock et al. (1998), in turn, suggest that even though ‘network structure’ is a concept that can be
somewhat easy to grasp, is difficult to define, explaining further that there is not an absolute
consensus on the definition of network. The authors who did a literature review on the subject
could, however, identify three dimensions where network structure differentiates itself from
other forms of organizational structure; vertical integration, flexibility and cooperation.
The first dimension, vertical integration, refers to the extent to which firms have ownership over
the different stages of the supply chain (from raw material to distribution). The second, flexibili-
22
ty, refers to the ability to react to changes in customer demand. The final and third dimension,
cooperation or relationships between firms, is according to Stock et al. (1998), both the most
important characteristic of a network but also the most difficult to define.
Taking the above into account, one would expect hierarchies to show high levels of vertical inte-
gration, as opposed to networks and market firms which would show lower levels of vertical
integration.
According to Stock et al. (1998), there are a number of attributes which characterizes the ‘coop-
eration or relationship’ dimension, these are;
Control of power – it relates to the degree a firm has influence over the others.
Information exchange – it relates to the level firms (in the relationship) share informa-
tion about their production processes, technology or costs.
Interdependence – Refers to the extent a firm is dependent on others to achieve suc-
cess.
Time-horizon – it relates to whether transactions are one-off or ongoing
Goal consistency – it relates to the degree to which firms in the relationship align their
objectives.
Formality – it relates to how transactions are between firms (i.e. formal contracts vs. in-
formal arrangements)
The table below describes the expected differences between three basic types of organization,
being these; hierarchy, market and network (Stock et al. 1998, p.44).
Hierarchy Market Firm Network
Vertical integration High Low Low
Flexibility Low High Medium
Relationships
Control of power High Low Medium to Low
Information exchange Low Low High
Interdependence Low Low High
Time horizon Long Short Medium to Low
Goal consistency Low Low High
Formality High High Low
Figure 3-4: Organizational structure differences
Other studies such as those of Thorelli 1986; Powell 1990; Nohria and Eccles 1992, as cited by
Boyce (2000), have tried to bring light into the concept of business networks. In general, one
could say that networks, as opposed to bilateral agency relationships, are characterized by mul-
tilateral and co-operative relationships that rely on trust to provide governance, hence lacking a
central coordinating power. According to these authors, networks members, which could either
be individuals or firms, besides influencing one another in an interdependent manner, promote
long-term relationships which enhances the possibility of mutual exchange of knowledge and
mutual growth. Additionally because network members share risks, networks show some de-
gree of exclusiveness which may guard them against opportunism.
As one can infer from the above, the concept of horizontally linked networks is highly correlated
with the concept of the supply chain integrator, more so, when the trend for outsourcing has
kept its initial popularity. With that I mean that as companies continue to contract out (out-
source) non-strategic activities to other companies, which can perform these more efficiently;
23
the role of the supply chain integrator in these supply chains becomes more evident. Services
such as accounting, manufacturing or logistics, for example, are outsourced to different compa-
nies being these connected electronically to a central office. According to Daft (2007), Accen-
ture, for example, the consulting company that created the concept of 4PL, handles all aspects
of information technology for the well known British food retailer J. Sainsbury’s. The author
suggests that virtual network organizations can be seen as a central hub surrounded by a net-
work of outside specialists.
3.1.3 Strategic blueprints of the firm
Developing his thoughts on organizational design and strategy Weiss (2007 p.73-85), explains
that firms can follow different strategic blueprints; market-based and resource-based views are
some of the possible examples. The author elucidates that each of these possible alternatives of
strategy offer both different and complementary views on strategy.
3.1.3.1 Market-based view
This view has its grounds in economics and in the industrial organization field. There are several
models, some of those using game-theory, analyzing aspects of the interface between the firms
and the markets; however in general terms one could say that the market-based view is more
concerned with aspects related to business level strategy than it is with issues relating to the
distribution of economical rents or the internal allocation of power. This perspective’s main
concern is to understand the existing structure within the industry/market the firm is operating
in; after all this structure will establish the competition rules within these same markets, and
thus determining the performance of the firms in that industry. Because it focuses mostly on
aspects related to business level strategy, the theory suggests different forms on how to reach
unique market positions, where surpluses and the power associated with it can be achieved. By
applying marketing and other instruments, such as differentiation or market segmentation, firms
or individuals are able to increase their power and the surplus generated by a resource (or a
bundle) over its rate of return in a perfectly competitive market (Weiss, 2007). According to the
author, by differentiating themselves from competitors firms can obtain unique market posi-
tions; i.e. by investing in manufacturing products and services of higher quality. Moreover, if
consumers perceive the firm’s product as being better than those of the competitors, monopo-
listic advantages can be generated. Market segmentation, on the other hand can be applied as a
strategic tool as long as it motivates more people to buy the product or service; otherwise the
purpose looses most of its meaning. By differentiating consumers by age group or financial sta-
tus, companies can charge higher prices and hence achieve additional surpluses. Hence, market
segmentation and differentiation have somewhat similar effects.
24
3.1.3.2 Resource-based & Core-competencies view
This relatively recent view in economics focuses on competitive advantage aspects for the or-
ganization as a whole rather than on strategic positions of a specific business unit (market-based
view). The resource-based view enhances the importance of a firm’s resources, competencies
and capabilities and suggests that if a company has either better resources or has developed
better competencies (or both) than the competing firms, the company has a competitive advan-
tage (Weiss, 2007 p.80-81). The author introduces Porter’s (1996, p.64) explanation of competi-
tive strategy. According to the later, “Competitive strategy is about being different. It
means…choosing a different set of activities to deliver a unique mix of value”.
Moreover, Weiss (2007) elucidates that there are several possible explanations for the concepts
of resources, competences and capabilities. However, it seems that has mainly to do with the
way different authors describe the concepts rather than has got to do with the content in itself.
Weiss continues his explanation by clarifying that what distinguishes the views, described below,
is that the ‘core competences and capabilities’ perspective is more process oriented than the
resource-based view is. In common these views have the fact that they share the notion that
uniqueness through the leveraging of resources, competencies or capabilities across business
units and product markets, translates into competitive advantages. Amit and Schoemaker
(1993), as cited by Weiss (2007, p.81) defined resources as “stocks of available factors that are
owned or controlled by the firm”, i.e. property, plants, equipment or tradable know-how in form
of patents or licenses, as well as knowledge embedded in human capital. The authors explain
that the capabilities of a firm are shown by the firm’s capacity to manage resources in combina-
tion with organizational processes so that the pre-established goals and objectives are achieved
and that a firm’s capabilities are information based and are built on the long run. Prahalad and
Hamel (1990), in turn, define core-competences as the “organizational capability to combine
and renew the firm’s assets and capabilities in such a way that the firm obtains and sustains a
competitive advantage” (as cited by Weiss, p. 81) and suggest that competitiveness emerges on
the long run through the ability a firm acquires in manufacturing more cost effectively and faster
than its competitors. Furthermore, the resourced-based view establishes that resources (i.e.
knowledge) can be of strategic importance to a company, after all the scarcer the resource is,
the larger the surplus it will generate.
Weiss (2007) explains that if these specific resources or competencies are needed for efficient
production, then those companies who either own or have access to those resources have a
competitive advantage over the other contenders in the market. The author explains further
that there are several views on which conditions a resource must have in order to be considered
of strategically importance for the firm. The amount of criteria used varies amongst researchers;
while Amit and Schoemaker used eight others use less. Weiss (citing Peteraf 1993), introduces a
list of four conditions that a resource has to hold to be considered as ground for a firm’s sus-
tainable competitive advantage. These are;
Resources must be heterogeneous, scarce or unique (only these generate surpluses)
Difficult to imitate in order to maintain sustainable competitive advantage
The resource should not be fully mobile, that is some barriers should exist in order to
restrict entry/exit so that the rent generating resource is hold within the boundaries of
the firm
The resource must not be tradable.
25
3.2 The Value Chain – Shifting the boundaries
(Outsourcing / Deconstruction/ Disintermediation)
According to Weiss (2007), while the value chain concept is the result of the integration of dif-
ferent assets and activities into a single organization; deconstruction of the value chain, as the
name suggest, refers to the process of splitting apart the value chain but at the same time pre-
serving the identity of its individual parts. The author explains that the increasing confidence on
industry-wide standards has motivated firms to transfer activities which were previously per-
formed in-house to the market (e.g. IT, manufacturing or logistics) focusing the firm instead on
their core competences (principle of outsourcing). Moreover, according to Weiss (2007) “the
manufacturing activity for a mature product or service is best performed when the costs of pro-
duction are lowest” (p.87). Thus in order to take advantage of this fact companies outsource
modules of their own production to specialized companies who bundle the production require-
ments for many other companies and thus enabling creating this benefits from economies of
scale.
Deconstruction takes the concept of outsourcing a step forward. The deconstruction of the
whole value chain implies, not only, the slicing of the value chain into small distinct modules, but
also and perhaps more importantly “the shifting of a set of resources or assets previously em-
ployed or owned by one firm to another firm on a grand scale” (Weiss 2007 p.96).
The concept of disintermediation is intrinsically connected with the principle of modularization
of systems (i.e. information technology) which reduces complexity and costs. By creating links
between all the supply chain activities, the organization (network) can modularize the whole
value (supply) chain and thus create competitive advantages (Weiss, 2007). The coordination of
logistics is one good example of this concept where efficiency can be increased by bundling the
logistic needs for many firms operating within many industries together into just one firm in the
value chain that is a specialist in that activity, for example a 4PL service provider. Moreover,
disintermediation implies the elimination of a level within the supply chain. By eliminating a
series of intermediaries (i.e. wholesalers, warehouses and retailers) which in less perfect mar-
kets appear between the producer and customer and thus inflating the value chain (Weiss,
2007). From a logistics perspective Christopher (2005) suggests that synchronous supply chains
are able to reduce end-to-end pipeline times, increase market responsiveness and lower total
costs considerably.
26
3.3 Enterprise Logistics Integration
Despite the central role logistics has in the overall economic activity, where logistics’ total costs
as a percentage of the gross domestic product (GDP) is estimated to be in average ten per cent
in US as well as in other highly industrialized countries (Christopher, 2005), traditionally organi-
zations have paid little attention to their logistics function. This was due to misaligned account-
ing procedures, ad-doc approaches and the apparent lack of underlying systematic ideology, the
whole area of logistics costing was clouded and misleading (Waters, 2003). This approach has
however changed considerably and from being considered an uninteresting business overhead,
relating to warehouse and transport, logistics is today used by many companies as a strategic
tool to achieve competitive advantages over their competitors (Aronsson et al., 2006).
3.3.1 Logistics & Supply Chain Management Theory
There are several possible definitions for the concept of logistics, however I believe the defini-
tion below describes this concept quite comprehensively:
“Logistics is the process of strategically managing the procurement, movement and storage of
materials, parts and finished inventory (and the related information flows) through the organiza-
tion and its marketing channels in such a way that current and future profitability are maximized
through the cost-effective fulfillment of orders.” (Christopher, 2005, p.4)
According to Christopher (2005), supply chain management is a wider concept than logistics; it
builds upon it and aims to achieve integration and co-ordination between the processes of the
different entities in the logistics pipeline (i.e. suppliers, intermediaries, 3PL providers and cus-
tomers), so that superior customer value is delivered at less cost to the supply chain as a whole.
Traditionally, firms have been organizing themselves (vertically) around functions such as; pro-
curement, purchasing, production, marketing, sales and distribution. The movement and sto-
rage of materials was considered an unavoidable overhead, companies knew that logistics was
expensive; however few could precise how expensive it actually was.
Companies having been working (wrongly) with complete functional independence. That is, each
function did its own thing and was little concerned with the other functions or even the business
as a whole. Purchasing, for example, would be more interested in buying large quantities in or-
der to obtain lower purchasing and transport costs, than they perhaps would be concerned with
quality. This quite often created conflicts of interest between purchasing and manufacturing
departments. Manufacturing concern, on the other hand, would be to obtain long production
runs in order to achieve large economies of scale (low cost per unit). Unfortunately, both of
these approaches create inventory build-up on the warehouses (raw materials and finished
goods respectively), hence neglecting costs relating to inventory holding. Waters (2003) explains
that the problem with this management approach is that it focuses inwards, putting emphasis
on the use of resources rather than on the creation of outputs which achieve customer satisfac-
tion at a profit.
There were several reasons behind the need for change; firstly, rising oil prices were affecting
tremendously manufacturing costs. Secondly, advancements had been made both in manage-
ment theory and in information systems. Hence, with market conditions changing, companies
started to recognize that it was required some sort of internal integration.
According to Stock et al. (1998), internal integration reflects the degree to which logistics activi-
ties interrelate with other functional areas within the firm, as well as by the extent to which
logistics is seen or not a separate functional unit. According to these authors, companies with
high levels of internal integration will show coordination of logistics activities with other de-
27
partments within the firm, increased communication, both electronic and interpersonal, be-
tween logistics and other departments and finally the recognition of the importance of logistics
in the overall business strategy followed by a blurring of the formal distinction between logistics
and other areas of the firm.
The figure below, which is an extract from Aronsson et al. (2006, p.26), represents the stages of
evolution from functional to process orientation.
Level 1: Point of departure
Level 2: Functional Integration
Level 3: Internal Integration
Level 4: External Integration
Figure 3-5: The stages of evolution; functional to process orientation (revised)
Level 1, is characterized by lack of integration within the different functions of the company.
Departments have ‘silo’ type mentality, own management and information systems. Due to this
there are several storerooms, represented in the figure by the colored triangles, creating this as
a consequence extremely high inventory holding costs. Christopher (2005, p.102) explains that
inventory costs can be divided into several different items i.e. the weighted cost of capital, man-
agement costs, storage and handling costs as well as costs related to obsolescence, pilferage or
shrinkage and last but not least insurance costs. Moreover, at level 1, planning is made for the
short-run only and companies react upon impulse. According to Aronsson (2006, p.27), several
small and medium size companies are still today operating at this level.
At level 2, even though the number of inventory buffers have been reduced, the problems relat-
ing to communication persist and has a result customer demand is still not visible across the
entire supply chain. In order words, the firm functions still concentrate very much on them-
selves rather than on the whole business picture (Aronsson et al. 2006). As the figure demon-
strates, some of the functions have been integrated. For example, purchasing and material con-
trol were integrated into a process (Material management), while Sales and Distribution were
integrated into Distribution (Christopher, 2005).
With level 3, comes the need for the establishment and implementation of an ‘end-to-end’
planning framework. The amount of inventory buffers is reduced even further and although the
different functions still exist, they now work with an overall perspective. Internal information
systems are standardized and thus communication flow between functions becomes much more
efficient (Christopher, 2005).
Finally, the external integration (level 4) is directly related to the area of this study, the concept
of supply chain integrator (see appendix 1), as it refers to the integration of logistics activities
across firm boundaries. The degree of external integration is reflected by the extent to which
Material
Management
Production Distribution
Material
Management
Manuturing
Management
Distribution
Suppliers Internal
Supply Chain
Customers
Purchasing Material
Control
Production Sales Distribution
28
logistics activities of a firm are integrated with the logistics activities of the firm suppliers, cus-
tomers and other relevant actors operating within the supply chain. At this integration level
important information is shared amongst the different actors within a supply chain and more
often than not, companies have information systems that are standardized and integrated
across company boundaries and hence information and communication flow besides being fast-
er is much more cost effective. For example, companies using ‘just-in-time’ delivery strategy
have created dedicated ‘inter-firm logistics’ relationships that link their manufacturing functions
with specific suppliers of components (Christopher, 2005).
The figure below depicts the concept of extended enterprise and virtual supply chain, which is
“based upon the value-added exchange of information” (Christopher 2005, p.179). The picture
aims to show that it is through the use of shared information between the different partners
within the supply chain that cross-functional, horizontal management becomes possible.
Figure 3-6: The extended enterprise and the virtual chain (revised)
The above author suggests that the supply chain becomes then a network of organizations
which share common goals and thus bringing strengths to the overall value creation and its deli-
very system. Most importantly, in the context of this study, the author points out that this
process of external integration is moving forward rapidly in line with the continuous trend of
outsourcing and that at times the best way to describe what is happening to called it ‘in-
sourcing’, particularly when one refers to the concept of partnering that virtual supply chain
requires.
Sources
Converters
Retailers
Product and service flow
Information flow
Financial flow
Supplier
s
Distributors
Consumers
29
3.3.2 The supply chain integrator
In order to pursue this study, I felt that I needed to know more about this new sort of business
organization that acts as the integrator between the different partners within the supply chain
(e.g. suppliers, 3PL companies and the client company). During my literature research on the
subject, I came across many different theories as to what will be the next generation of logistics.
Frazelle (2001, p.11), for example, explains that some logistics gurus believe that “collaborative
logistics” (logistics models built with continuous and real-time optimization and communication
between all supply chain partners) will be the next step. Dawe (2001), on the other hand de-
scribes this new type of organization as “Total Service Providers” (TSP). The author explains that
TSPs arise from the development of e-business technology and assemble the competencies of
Logistics Service Providers (LSP), plus those of Application Service Providers (ASP)e.g. IBM, Mi-
crosoft etc., as well as consulting, contract manufacturing and procurement services through e-
business utilities called portals. Living examples of TSP are the alliances of Federal Express with
SAP and the alliance of Ryder Integrated Logistics with both i2 and IBM. Finally, Christopher
(2005) suggests that the next phase will be virtual logistics or fourth-party logistics (4PL). This
latter view suggests that logistics activities will be outsourced to 3PL service providers who in
turn will be supervised by a logistics control tower mastering or 4PL contractor. The author clari-
fies that the 4PL concept was originally coined by the consulting company Accenture (please
refer to appendix 1 for a more complete view of the four key components of a 4PL service pro-
vider), and explains that regardless of the 4PL is a joint venture or some other organizational
form there are four components that this new business must provide being these (Christopher,
2005 p.296);
Systems architecture and integration skills
A supply chain ‘control room’
Ability to capture and utilize information and knowledge across the network
Access to ´best of breed’ asset providers
As the reader certainly understands from the above, the concepts do not vary so much in con-
tent. In common they share the view that this new sort of organization brings together the core
competencies within logistics and IT solutions, so that end-to-end connectivity within the supply
chain is improved, resulting reduced costs through operational efficiencies and process im-
provement which in turn hopefully will lead to competitive and enhanced end-customer service.
For the purpose of this thesis, I will use the 4PL concept when referring to the concept of supply
chain integrator. According to Christopher (2005), the 4PL is often a hybrid organization, formed
as a joint venture or a long-term contract, by several different entities in order to assume the
responsibility for the management and operation of the entire supply chain as well as its related
information flow.
Moreover, according to Richardon (2005), Reed Carr did a study on logistics professionals who
had used 4PL companies, and found that successful relationships between the 4PL and the client
company often included companies or business units that did not have the logistics know-how
or the assets in house. According to the researcher it could be that these companies did not
have either the IT or the physical infrastructure, and did not want to invest in these either. On
the other hand, companies which had all the capabilities in-house and who view supply chain as
a competitive asset were less likely to find the 4PL model desirable. Another issue brought up by
the author is that the client company needs to be willing to give up some of the control over the
supply chain operations. An issue previously addressed in the introduction chapter, as Christo-
pher (2005) also suggests that in this new era of network competition it is required more than a
re-drawing of the organization chapter.
30
3.3.3 Information and the synchronous supply chain
Christopher (2005) points out that the importance of an effective information system has been
recognized for a long time by top leading organizations as a key element in successful supply
chain management. However, information allied to the developments in the use of information
technology, the Internet and its applications are having a major impact on how organizations
communicate nowadays and thus are acting as a driving force for competitive logistics strategy.
The author explains that the term marketspace was first used in 1994 by Rayport and Sviokla to
describe the new era of the internet, electronic commerce and virtual supply chains. In this so
called marketspace, besides supply chain members being able to communicate cost-effectively,
it also enables manufacturers to capture data on demand direct from the point-of-sale (POS).
Additionally, customers are able to reduce dramatically search time and transaction costs. The
use of some of the IT solutions now existent enable companies to respond to real demand ra-
ther than having to forecast demand through the use of historical data.
Moreover, the concept of ‘Extranet’ and virtual supply chain starts to takes form; enabling or-
ganizations with rather different internal information systems to access customers’ data on sales
or product usage for example, and use that same information to manage replenishment, while
simultaneously warn suppliers of near future requirements.
In the fast moving consumer goods sector there are several examples of supply chain synchroni-
zation; Tesco, for example, one of Britain’s largest retailers is using an extranet link (Tesco In-
formation Exchange) with its suppliers to share point-of sale data. By being able to capture cus-
tomer demand earlier, firms besides being able to improve customer responsiveness are able to
plan and schedule both production and transport capacity better and hence more cost-
effectively. Additionally, by partnering with suppliers firms can reduce in-bound lead times sig-
nificantly, for example by adopting Vendor Managed Inventory (VMI) practices. In VMI or Co-
managed Inventory systems (CMI), customers no longer place orders in the traditional way, in-
stead customers share previously considered firm exclusively owned information with vendors.
Examples of the information shared could be; actual usage, product sales, inventory on-hand or
the upper and lower limits of inventory they want to hold on-hand (Christopher, 2005). This
creates advantages for both, the customer and the supplier. For the customer the advantages
are significant. Besides being able to reduce the inventory levels and hence cut costs (i.e. cost of
capital, pilferage, obsolescence, etc), more often than not customers will not have to pay for the
inventory until it has been sold or used, which evidently creates cash flow benefits. The supplier,
on the other hand, will gain because by having direct access to real demand, via Electronic Data
Interchange (EDI) or web-based systems, they are able to improve capacity utilization while at
the same time reduce their own safety inventory levels.
Information goes both ways thus bringing in both supplier and customer perspectives. There has
to be a balance between what the customer demands and what the supplier can offer. One im-
portant aspect is that information about the order should be assembled and sent to the cus-
tomer. This could be information about perhaps delays and quantity related issues. Today, two-
way information exchange has made possible automatic control of all operative activities
(Aronsson et al., 2006)
31
Christopher (2005, p.177) continues his explanation of synchronous supply chains by pointing
out that supply chain partners need a high level of collaboration for the network to be truly
agile.
Below, you will find some of the key processes that need to be linked (both upstream and
downstream) so that the foundation for supply chain synchronization is achieved.
Planning and scheduling: Material positioning/visibility, advanced planning, scheduling,
forecasting, capacity management.
Design: Mechanical and electrical as well as supply chain design.
New product introduction: Bill of materials management, prototyping, design valida-
tion, testing, production validation, transfer to volume.
Product content management: Change generation, change impact assessment, product
change release, change cut-in/phase-out.
Order management: Order capture/configuration, available to promise, order tracking,
exception management.
Sourcing and procurement: Approved vendor management, strategic sourcing, supplier
and component selection.
Furthermore, Christopher (2005) suggests that in today’s competitive environment where
supply chains compete against other supply chain chains, agility cannot be seen as a concept
that only concerns the individual firm. Instead, agility as a concept should extend itself from one
end of the supply chain to the other. According to the author the different partners within a
supply chain network need to synchronize their activities through shared information and
process alignment so that a single schedule for the entire supply chain is achieved. Moreover,
supply chain networks need to work smarter so that ‘non-value adding’ processes within the
supply chain are eliminated or reduced. It has been established that a large proportion of the
time spent in the processes that together form the end-to-end a supply chain pipeline is ‘non-
value-adding’, thus these processes that instead of creating customer benefits only create costs
(i.e. time in inventory). Aronsson et al. (2006) explain that by re-engineering business processes
some of the activities can for example be eliminated, simplified, integrated or even done simul-
taneously (instead for linear), so that the total lead time (end-to-end) can be reduced.
According to Christopher (2005) another way of achieving agility within a supply chain is by re-
ducing complexity (i.e. different packing sizes, great differences between the Bills of Material for
each product within a product family etc). Hence, supply chain networks should ask themselves
if the level of product variety is greater than customer demand actually requires. The author
suggests that more often product proliferation is driven by the sales or marketing departments
and that in actual fact the total sales volume does not increase; instead the same total demand
is just spread over a larger number of SKUs. Moreover, supply chains should manage processes
not just functions. Even though function oriented organizations may be able to efficiently use
their resources, they are often focused inwards which causes this type of organizations to be-
come slow in reacting to market changes. Processes, on the other hand, are cross-functional by
definition both across the organization itself but even across a wider supply chain, thus creating
higher value for customers. According to the author processes such as innovation, supplier and
customer relationship management are good examples of the critical business processes that
most likely would cut across the organization. From a supply chain perspective, process man-
agement is vital to agility because the verticality of the function oriented organizations slows
down the speed and the quality of the information. Hence, because processes are horizontal,
process alignment amongst the different supplier chain’s partners is clearly facilitated.
32
3.4 Logistics and Competitive Advantages
3.4.1 Delivering customer value
The main goal of a market-driven logistics strategy is to achieve ‘service excellence’ in a cost-
effective manner. However, this has not always been the case, because as the reader may recall
from the previous chapters, traditionally “supply chains were designed to optimize the internal
operations of the supplying company” Christopher (2005, p.56). The new perspective does not
any longer see the customer at the end of the supply chain pipeline, but at its start. Moreover, it
is noticeable that successful companies have gradually recognized the importance of customer
service to the point of using it as a tool to achieve competitive advantages over competitors.
This goes in line with the above author’s view which suggests that a possible way to define com-
petitive advantage is that “successful companies will generally be those that deliver more cus-
tomer value than their competitors” Christopher (2005, p.47).
The increasing number of ‘commodity’ type markets, where there is no significant technological
differences between products (e.g. cars, personal computers) has reduced the power of the
brand. Nowadays customers are willing to accept substitute products e.g. in situations such as
out-stock (Christopher, 2005). The author explains that a recent study on the impact of out of
stock has showed that both manufacturers and retailers suffer significant cost penalties when a
stock-out occurs on the shelf. According to the study, when customers are faced with a stock-
out, over 25 per cent admitted that they would buy a different brand, while 31 per cent of the
interviewees said they would purchase the product elsewhere. Naturally, continuous stock outs
will eventually drive customers not only away from the product brand but eventually from the
store altogether.
Customer service can be divided into three categories, before, during and after delivery. When
these integrate the concept of customer service starts to take form. Before delivery is about
taking customer needs into consideration, during delivery is about keeping what has been prom-
ised to the customer and in the event of lags give the proper information to the customer with-
out haste. The third category, after delivery, is about the handling of spare parts, guaranties,
complaints etc. in good manner.
As introduced by Aronsson et al. (2006, p.40-41) presented in 1996 seven elements of delivery
service; lead time, delivery reliability, delivery security, information, customer adjustment, flex-
ibility and stock availability. Below I will develop on some of these elements, namely on those
that have not been addressed yet on the document.
Lead time concerns the time from order to delivery; transmitting and handling of the order,
stocktaking, packaging, transporting and finally the receiving of the order. Examples have shown
that over 90 percent of the time to delivery is connected to non-productive time i.e. unneces-
sary costs which prolong capital binding.
Delivery reliability is about having reliability in the lead time. Increasingly, the adaption to JIT-
delivery has increased the demands for reliable deliveries at the cost of higher lead times. It has
become important that the product is delivered on time thus actually disregarding if the product
is delivered quickly or not. The rate of delivery reliability is monitored throughout the supply
chain with the use of electronic surveillance. In this process bar codes are often used. This way
high reliability is achieved and the need for holding stocks is reduced.
Delivery security is having “the right product in the right amount and with the right quality”
(Aronsson et al. 2006, p.40, own translation). According to these authors most customers take
this for granted. Aronsson et al. point out some of the reasons that might affect deli very securi-
33
ty, these are; administrative wrongdoings, mistakes in the delivery, product damages during
storing or transporting as well as using the wrong packaging.
Customer adjustment concerns fulfilling the slightest requests from the customer; this could
include decreasing lead time, express transports and deliveries, re-packing or perhaps branding
of the different products. (Aronsson et al., 2006)
Stock availability, also known as service level, is “the probability that the product is in stock
when it is requested.” In other words, stock availability refers to if products can be delivered
straight away (from the shelf) and thus has nothing to do with products that need to be pro-
duced when ordered. (Aronsson et al. 2006)
3.4.2 Customer service objectives and priorities
According to Christopher (2005) the easiest way to understand the idea of customer service
objectives is by using the “perfect order” concept. As the name indicates, the perfect order is
achieved when the customer’s service requirements are fully met. The author explains that by
grouping customers into different requirement segments the company can define and evaluate
the level of service delivered on each specific segment (age, country or distribution centre) and
adds that by definition the measure of service is the percentage of instances on which the cus-
tomer requirements are met in full; this is normally measured over a period of time.
Moreover, the author above elucidates that an often used measure of the perfect order concept
is ‘on-time, in-full’ (OTIF), having this measure been upgraded more recently with the ‘error-
free’ factor which includes elements such as documentation, labeling and damage to the prod-
uct or its packing. Hence, if for example the customer service performance for an organiza-
tion/network across all orders is; On-time 90%, In-full 80% and Error-free 70%, the actual per-
fect order achievement is equal to the product of the above three factors (90x80x70), that is
50,4% (Christopher 2005, p.66).
Even if organizations would like to be able to provide excellent customer service to all clients
that is not be possible due to the highs cost involved with that type of service. Hence, compa-
nies have to sort out the weight of the customers in the overall operation. By using for example
profitability as the variable that distinguishes customers and the so-called Pareto Law and its
80/20 rule, which says that in general 80 per cent of the profits of the business, come from 20
per cent of the customers. Furthermore, it is also true that 80 per cent of the total costs to serve
the totality of the customers are generated by 20 per cent of the customers, however these are
probably not the same, adds Christopher (2005). The author makes clear that the challenge to
customer service management is to not only to be able to identify the real profitability of the
customers but even to continuously develop services strategies that will improve the profitabili-
ty of all customers.
34
3.5 The bullwhip effect
The negative impact of the ‘Bullwhip effect’ on supply chains has been under scrutiny for a long
time. Christopher (2005) explains that the bullwhip syndrome is also called “Forrester effect”,
because of the name of its founder, Jay Forrester. The latter developed a set of techniques that
become known as Industrial Dynamics. The researcher used a specially developed computer
simulation language named Dynamo to build a production/distribution system which involved
three echelons (levels) in the distribution channel; that is a retailer’s inventory, a distributor’s
inventory and the factory inventory. By using a model based on real world data and relation-
ships, where these levels are interconnected through information and goods flows, manage-
ment is able to examine the effects that changes (i.e. prices changes, production levels or policy)
have on the overall system. According to Christopher (2005) what becomes noticeable from
using modeling is that small disturbances in one part of the system are very quickly spread and
magnified throughout the supply chain.
Nienhaus et al. (2003) go further and suggest that the bullwhip effect is one of the major rea-
sons for inefficiencies in supply chains. The authors, who did a study on how the human beha-
vior amplifies this effect, explain that the bullwhip effect describes “the phenomenon that the
variation of demand increases up the supply chain from customer to supplier”. The authors
mean that the misperceptions about information cause humans to over-react. In other words,
the further away a supplier company is from the end customer, measured in terms of lead time,
the larger the variation will be.
In the example represented in the figure below (Nienhaus et al. 2003, p.2), the supply chain
consists of a so called ‘original equipment manufacturer’ or OEM, and suppliers ranged from 1
st
tier to 3
rd
tier. As shown on the graph, while the OEM has the lowest variance, the 3
rd
tier sup-
plier, as expected, has the largest.
Figure 3-7: The bullwhip effect – Increasing demand variation in a supply chain
The authors above identify the lead time of information and material as the primary reasons for
the existence of the bullwhip effect. Moreover, they explain that the reasons why supply chains
reactions to changes in real end-customer demand can be delayed is due to the time it takes for
the information to move across the supply chain (i.e. from OEM to 3
rd
tier supplier) and secondly
because the different suppliers need to adjust their capacities and deliveries and that takes
time. Nienhaus et al. (2003) continue by clarifying that the bullwhip affects supply chains nega-
tively in three different aspects (logistics capacity, variation in inventory levels and safety stock
levels), leading this to increased logistics costs and reduced competitiveness. The first aspect
relates to the dilemma companies face when dimensioning their logistic capacity. Because varia-
tion in demand affects capacity usage, if companies dimension capacity based upon average
35
demand, they will most likely face delivery difficulties when there is an abrupt upward change in
demand.
For example, assuming that the human behavior misperceptions about information causes over
reaction (Sterman 1989, as cited by Svensson 2001), one can depict from the picture above, by
looking at bottom part that a peak in real demand (top part- orders) is not perceived as high by
the OEM as it is further down the supply chain (i.e. 3
rd
tier). However, if the OEM forecasts pro-
duction (and its preceding orders of materials and components) based on historical data rather
than real demand, there is a risk that it would face logistic capacity problems, leading this in turn
to stock-outs and to what that implies. In case this would happen, the bullwhip effect would also
be seen across the supply chain. Meaning that the 3
rd
tier supplier would even face larger stock
out because of the time it takes to react and adjust capacity to real demand. This can be de-
picted on the bottom part of the picture (stocks).
The second aspect affected by the bullwhip effect is the variation in inventory levels within the
supply chain. According to Nienhaus et al. (2003), if a company delivers more than the next tier
passes on, inventory levels within the supply chain raise. Contrarily, inventory levels are reduced
when a company delivers less quantity than the next tier passes on. As per the above authors,
while high levels of inventory increase the costs of capital employed; low inventory levels in-
crease the risk for unreliable deliveries, hence affecting customer service.
The third aspect affected by the bullwhip effect is the level of safety stock. Nienhaus et al.
(2003) explain that safety stocks (or inventory) are required to ensure specific levels of demand,
hence when variation in demand increases so it does the levels of safety stock required which as
previously explained, brings additional capital costs.
Svensson (2001) referring to several different researchers points out possible ways which either
help to minimize or to fully eliminate the negative impact of the bullwhip effect. Below the
reader will find a summary of these different alternatives.
reduce lead times
limit price fluctuations (i.e. through marketing campaigns)
align planning with suppliers and co-ordinate pricing, transportation, inventory planning,
and ownership between the upstream and downstream actors in the supply chain
review re-ordering procedures
allow for sharing of knowledge with suppliers and customers to better capture real-
demand (instead for ordering on forecast)
co-operate with supply chain partners to establish what factors are causing disturbances
within the supply chain and thus act upon it
Use the Internet and its applications to speed up communication and thus reduce trans-
action- and administrative costs
The bullwhip effect and its impact on the supply chain’s total operating costs and competiveness
(reduced), is naturally very relevant to this study. In fact by reading the above listed lines of ac-
tion, one can understand why there is a market demand for companies with core competencies
within the logistics and supply chain management and IT integration (i.e. 4PL).
36
3.6 Logistics and the Return on Investment
In today’s financial-oriented business environment there are three financial dimensions behind
the decision making process, being these; firstly the so-called ‘bottom line’, secondly strong
positive cash flows and thirdly the efficient resource utilization particularly the use of fixed and
working capital (Christopher, 2005). The author alerts that in some cases the extreme focus on
the bottom line, often determining the direction of the company, as led companies to potential-
ly dangerous short-term focus, curtailing investment in brands, R&D and capacity as these do
not give immediate payback.
Christopher (2005, p.85 ) continues his explanation on how logistics affects the financial perfor-
mance of the organization by first introducing a variation of the Du-Pont model in order to de-
scribe the effects logistics have on ‘return on investment’ (ROI), and secondly by sharing his
views on the effect that logistics and supply chain strategy have on shareholder value. For those
not familiar with the model, the model has its origins in 1910s, having been created by a busi-
ness controller employed by DuPont Powder Company in USA. Despite its ‘age’ the model is still
very much used today (Aronsson et al., 2006). The authors explain that the model is built in two
parts as it can be depicted from the figure below. The top part leads to the net profit with ac-
counting data obtained from the income statement, while the bottom part of the model gets its
information from the company’s balance sheet.
Figure 3-8: The Du-Pont model revised; return on investment (ROI)
Christopher (2005) explains that return on investment is the ratio between the net profit and
the capital employed to obtain that same profit. The author continues by introducing the expan-
sion of the above formula where; ROI = (Profit / Sales) x (Sales / Capital employed). Hence, in
order to improve ROI it is necessary that one or both of the above ratios increase.
Moreover, even if traditionally companies have placed their main attention on increasing the
margin (Profit/Sales) as they attempt to raise the return on investment, often it is actually more
effective to use the leverage of improved capital turnover to achieve that (Christopher, 2005).
According to this author several successful retailers have since long recognized that even very
small net margins can lead to attractive ROI if the productivity of capital is high. For that it is
required that for example premises are leased rather than owned, that inventories are kept to a
minimum and finally that sales are high per square foot/meter.
37
Again, as it can be depicted from the figure introduced above, besides affecting the operating
income that is, revenues minus the costs, logistics also has an impact on a company’s balance
sheet. Below you will find some examples of this impact.
Cash and receivables - The shorter the order cycle time the sooner the customer’s payment will
be made. There are at least two other very important aspects affecting the inflow of cash, the
first is the order completion rate, concept which has been introduced on the previous chapter
and as the reader may recall it relates to the perfect order concept and its on-time, in-full and
error-free. The second aspect is the accuracy of how invoices are done. If these are made incor-
rectly, more time will be spent until the customer finally makes the payment (Christopher,
2005).
Inventories - As previously explained on this paper, the levels of inventory are one of the major
concerns of logistics. One should bear in mind that inventory does not only refer to raw material
or finished goods but also the subassembly or work-in-progress inventory buffers. Christopher
(2005) points out that it is not unusual that companies tie up approximately fifty per cent of
their current assets in inventories.
Property, plant and equipment -Christopher (2005) clarifies that more often than not businesses’
logistics systems are responsible for the use of large part of fixed assets. It ranges from the net-
work plants, depots and warehouses (when not leased or rented) to the materials handling
equipment, vehicles as well as other equipments used in storage and handling. Moreover,
transport or the cost of the fleet can also be considered to the total sum of fixed assets. As pre-
viously mentioned many companies have outsourced the physical distribution of their goods to
third party logistic providers, partly to take off fixed assets away from their balance sheet as well
as all other costs incurred by running their own fleet (maintenance, personnel, insurance etc.)
Warehousing is another good example of the processes that have been outsourced.
Current liabilities - From a logistics perspective, the current liabilities refer to the accounts pay-
able and the debts that must be paid due to the purchasing of bought-in materials, components
etc. Christopher (2005) points out that this is an area where through a greater integration be-
tween purchasing and operations management, networks can yield significant dividends. Ac-
cording to the author the problem is that the economic order quantity (EOQ) concept often used
leads to excessive levels of inventory. The main reason being the fact that these economic order
quantities are prognoses of historical data rather than based on real demand.
Debt/Equity - Even though the balance between debt and equity has many ramifications for
financial corporate management (and thus not part of this study) is still interesting to look at it
from a logistics strategy perspective. The author means that as the trend for the outsourcing of
different logistic activities to 3PL companies (and more recently to 4PLs) continues, and allied to
that the fact that ever more companies are leasing plant facilities and equipment instead of
owning them, is naturally changing the funding requirements of the business and consequently
the capital structure chosen by the organization, i.e. debt instead for equity. Christopher ex-
plains that the ratio of debt to equity, usually referred to as ‘gearing’ or ‘leverage’, not only in-
fluences the return on equity but also influences cash flow in terms of interest payments and
debt repayment.
38
4 Practical Method
In this chapter the reader will find a description of the different steps taken in order to select the
sites leading to the method of data collection and the interview guide. I will finish the chapter
with an evaluation of the research.
4.1 Initial steps
After having decided that I wanted to research on logistics and supply chain management latest
developments, and while doing the initial literature review, I came across the concept of fourth-
party logistics. Simultaneously, I had started to talk with different people, trying to get informa-
tion and access to companies in Sweden providing this type of service.
During one of these conversations, with Sverker Brännström, a friend and CEO of SSC Öhns
Snickeri (a joinery), he told me that one of his old-friends from school worked for Adritro Logis-
tics AB, a logistics service provider to Volvo, here in Umeå. At this stage, I was not sure if this
would be the type of company I was looking for (a 4PL), but I was certain that it would give me
an excellent opportunity to get in contact with some of the concepts I have studied about. It was
the kick-off of the study, an opportunity I could not deny.
After questioning Sverker a bit more about the company, I understood that he could not answer
if, Aditro Logistics was or not a 4PL service provider. Nevertheless, Sverker called his old-friend
from school, Harry Uddståhl, a Key Account Manager for Aditro Logistics, Umeå and arranged
for a meeting. At that time I was naturally very eager to be able to get in contact with the logis-
tics environment and to explore this new organizational paradigm which recent supply chain
management literature have been referring as the “next generation” of logistics. I was very well
received by Harry Uddståhl, who promptly enabled himself to show us around their facilities.
Mr. Uddståhl explained that they were a 3PL provider, and that their main customers, in the
region, were Volvo Trucks, Ålö and Komatsu Forest. During my visit at Aditro, Mr. Uddståhl de-
scribed during two hours their operations and talked about concepts such as Procurement and
Material Planning, Pre-assembling and JIT deliveries (i.e. knitting and sequential) to the assem-
bly lines. Moreover, Mr. Uddståhl briefly talked about other aspects such as Vendor Manage-
ment Inventory and relationships between them and their clients.
The above mentioned informal interview provided new insights into the area of research. For
instance, enough information was obtained to come to the conclusion that Aditro Logistics is a
3PL provider, and thus not comparable to a 4PL. According to Opie et al. (2004 p. 12), business
research besides requiring hard work and commitment, is time consuming and problematic,
thus requiring careful planning. It was understood that for future research and selecting of com-
panies, I needed to have some sort of overview of the four key components of a 4PL. That way I
would be able to start looking for companies that fit the description and that way is able to de-
cide whether to pursue a deeper case study with that company.
This interview had also been fruitful in a sense that helped me to realize the importance of
access. This goes in line with Opie (2004, p.27-28) views who suggest that one needs to reflect
upon what under common terminology is identified as access. A significant factor to consider is
Introduction
Theoretical
Method
Theory
Pratical
Method
Empirical
Data
Analysis &
Discussion
Conclusions
39
how the first contact is going to be made and under what assumptions. The author argues that
the ideas one has about the different procedures of data collection needs to be well reflected
upon. For example, one should look critically at the questions one is planning to place and ask
oneself; are these questions relevant? Why? Would I like to answer these questions myself?
Meaning, ‘don’t do to others what you don’t like others to do to you’. Furthermore, the author
above presents a code of conduct for scientists that originates from Milgram (1963). This code
includes the importance of presenting all information as well as making the information unders-
tandable to those involved in the research, and giving them the possibility to decline the offer to
participate. Thus, access is about having the right to use data and/or information (Johansson-
Lindfors, 1993, p.135-137). The author suggests that it is vital to prepare a thorough explanation
of the research, be honest about the estimated time that is needed as well as be clear about
how helpful their participation would be. Moreover, Bryman & Bell (2003, p.317) state that the
formal process of gaining access to selected sites can be lengthy and one of the hardest steps
the researcher takes. The reason for this is that it is not easy to get access into companies, either
because they are not willing to release company data or because they feel that they do not have
the time or the willingness to participate. Hence if possible, the use of an internal link is always
recommendable as it may work as a bridge to the insides of the organization.
I took the above in consideration while approaching the potential 4PL companies. After a initial
contact made by phone, and once directed to the right person, I sent that employee an e-mail
where besides presenting myself and the purpose of the study, I forwarded an attached file
which described the four key components of a 4PL (appendix 1). The idea was not that the com-
pany needed to fulfill all of the principles, instead was to give the guide line of the concept, and
at the same time help me to establish how close the interviewed companies are to the concept.
4.2 The selection of sites
As previously established in the theoretical method chapter, this study will follow the pragmatic
view. For the researcher the underlying problem is of more importance than the method one
uses. This implies that the researcher used the research method that best would solve the re-
search question.
While doing my literature research I come across Dag Ericsson’s (2000) article on e-logistics,
where the author introduced Sonat (a Swedish company) as being “the first company to offer
high growth European companies a comprehensive e-logistics solution, assuming responsibility
for the entire extended demand chain” (p.10) I knew then what I was looking for. According to
Ericsson (2000) in order to facilitate integration, Sonat has formed diverse partnerships with
market leaders within IT and information flow. The following are examples of some of these
partnerships; with Oracle for applications and data-warehousing, SEMA Group for operations,
communication and security and finally with Viewlocity, a global provider of B2B integration and
online trading community solutions for integration of systems and information. Viewlocity´s
flagship product, AMTrix, is used to ensure a seamless flow of information across enterprise
boundaries, connecting Sonat´s customers with their suppliers and distributors, so that end-to-
end e-logistics solutions are achieved.
Initially, I was considering doing a single-case study based on the ´modus operandi´, of Sonat.
However, during one of the meetings with my thesis supervisor, I was given advice about the
risks for the lack of trustworthiness which may occur when one interviews just one company
within the network and try to draw inferences about the supply chain as a whole. This advice
was obviously very important, and made me reconsider. Moreover, a single-case study would
imply that I would have to spend more time near the company and thus the distance factor
would have to be considered.
40
Hence, rather than performing a case study based on a single location or a person (biographical
approach), I decided to proceed by performing a multiple case study (Bryman & Bell, 2003). By
performing a multiple case study, I would be able to gain a broader understanding of the 4PL
companies operating in Sweden, their different strategies and structures. But most importantly I
would hopefully find an answer to the research question and understand how these companies
believe they can provide competitive advantages not only to their customers but to the supply
chain as a whole while enhancing end-customer service. As per Bryman & Bell (2003), when
conducting a multi-case study research, one should bear in mind that it is required for the re-
searcher to have some sort of structure, as this will enable easier cross-case comparability. This
aspect was taken also taken into consideration; themes were created to structurally connect the
theories chosen with the interview guide, the respective empirical data and the consequent
analysis.
I proceeded by using Umeå university electronic library resources to gain access to the database
Affärsdata, which provides information and a registry of the number of companies per sector
registered in Sweden. After I searched for fourth-party logistics companies by using the respec-
tive Swedish word (fjärdepartslogistik), so that I would establish how many companies were
registered in Sweden under this category. Result: none.
I found however a link to an article about the company and consequently to a link within the
database with information on the company. Sonat is registered under the code 70220 which
relates to consulting companies within process organization (konsultverksamhet avseende före-
tags organisation). After obtaining the required information about the company, i.e. telephone
number, the first contact was established.
While browsing through the database Affärsdata using the same search word (fjärdepartslogis-
tik), I saw also a link to the well known logistics company DHL and decided to find out where
that link would take me. I looked at DHL’s home page and learned about UAE Logistics, a com-
pany which part of the DHL group and that is they introduced as being a 4PL company. However,
when accessing Affärsdata, I found out that UAE Logistics is registered under the code 52290
which relates to other support services to transport (övriga stödtjänster till transport). The pre-
vious procedure that had worked well with Sonat was initiated, and consequently I initiated
telephonic contact with UAE Logistics.
I needed however at least one more company as this would help me to increase the study’s
trustworthiness. I believe is worthwhile to explain that when I searched the database for third
party logistics companies, I also did not find any companies registered under that code. Moreo-
ver, when searching for companies registered under ‘logistics’, I found 484. Obviously, I had to
choose a more practical way of finding a company providing consulting services within logistics
without being a traditional third party logistics company, which as previously explained are
more related to just-in-time deliveries (JIT), cross-docking, etc. At that point Aditro came to my
mind, and I questioned myself, if Aditro is a 3PL supplier to Volvo Trucks here in Umeå, and
there is more than one (3PL) here in Umeå doing the same, then the chances would be that Vol-
vo Group would have a supply chain integrator company within (or outside) the group that
would control the entire supply chain. I then browsed through Volvo´s Group webpage and
noticed that there was a company within the group called Volvo Logistics as well as another
called Volvo IT. Somehow this sounded familiar, a combination of logistics and IT operating
across the group. It seemed evident to me that Volvo Group had in some way deconstructed and
the value chain into different companies operating within different core competencies. Once
again, I accessed the above mentioned database and confirmed when searched for Volvo Logis-
tics that the company was also registered under the same code as UAE Logistics, i.e. 52290. In-
teresting I thought.
41
4.3 Method of collecting data
The concept of access has also been addressed earlier in the document Bryman & Bell (2003,
p.318) argue that one should attempt to gain support from an employee within the organization
and that way gain access to top management executives. Hence, with this in mind the first con-
tact was established via a phone call to the company’s head-office (i.e. Sonat, UAE Logistics and
Volvo Logistics) and from there try to get connected with the person who could answer the
questions I had. These phone conversations started naturally with a short introduction of the
researcher and of the purpose of the study; this was then followed up by email and correspon-
dence that led to the final interview. The interviews with Sonat, UAE Logistics and Volvo Logis-
tics were conducted using Skype as means of communication. This besides being a cost effective
way of conducting the interviews (lengthy), enabled to save the conversation into MP3- audio
format. This prove to be right choice as I was able to access the saved information whenever it
was required to better understand the different companies operating mode. After all the
amount of information received is such that needs to be worked upon during several hours.
I chose to adopt a semi-structured style of interviewing since it allows for more flexibility than
the normally structured interview. Rather than just touching the surface, it enabled me to probe
the interviewee´s responses and in real-time allow me to deviate from the established questions
This is in accordance with both Opie (2004) and Bryman & Bell (2003, p.343), who believes that
this method of interviewing enables the researcher to have an interview guide with topics that
at the researchers discretion can be alternated. Moreover, what is identified as interviewer-
administrated interviews brings advantages to the research; the ability to obtain detailed an-
swers on open-ended questions, adjust misunderstood questions as well as the ability to provide
a brief explanation in real-time, if any uncertainty about the question asked exists. This also puts
pressure on the interviewer to be able to, if needed, clarify the meaning of the questions asked.
It is however equally important that the respondent does not get encouraged to answer in any
particular way because of the interference just explained. The interviewer-administrated inter-
views can be applied to both face-to-face and telephone interviews (Brace, 2004, p.24).
Regardless of where the interview takes place, it is important to reflect on the implications that
the milieu can have on the interview. Bryman & Bell (2003) alert for the fact that it can be diffi-
cult to find a quiet place to conduct the interview, being this naturally important as it otherwise
may affect the quality of the data collected. Again this aspect was also taken into account, by
giving enough time to the interviewee to schedule the interview himself upon his/her own sche-
dule. That way commitment from both parts was achieved. Hence noise disturbances were nev-
er an issue during the interview process.
4.4 Method of analyzing data
As the reader certainly notice the theory chapter was divided into three different themes; Or-
ganization design, Enterprise Logistics Integration and finally Logistics and Competitive advan-
tages. These same themes were also applied to build the interview guide used to collect the
empirical data. Once the data was collected, was then coded into the above mentioned themes,
so that one could analyze the empirical data in light of the themes chosen for theoretical back-
ground. This is in line with Bryman & Bell (2003) explanation of grounded theory and its tools.
42
4.4.1 Interview guide
In relation to the interview, it is important to have prepared questions that will provide a sound
basis for the analysis. According to Bryman & Bell (2003) qualitative interviews are characterized
by having a high variability in the way questions are formed. Some examples would be those
listed by the authors above (p.350) when citing Kvale (1996) e.g. introducing questions, follow-
up questions as well as direct and indirect questions.
As above mentioned, the interview guide was divided into three different sections: Organiza-
tional Design, Enterprise Logistics Integration and Logistics and Competitive advantage. The or-
ganizational design section has some introductory questions, as well as questions which are
related to the structure and the strategy of the individual firm (i.e. Sonat, UAE Logistics and Vol-
vo Logistics). The second section, enterprise logistics integration, it has questions relating to the
company’s role within the different supply chains, it touches aspects such as the virtual supply
chain, information flows, integration and advantages. Finally, Logistics and Competitive advan-
tage, concerns topics such as costs, customer service and lead-time analysis, and questions that
will enable the interpretation how these can later produce financial benefits not only for the 4PL
customer, but even to other actors within the supply chain.
The three sections complemented each other well, giving an overall sound balance to the inter-
view guide. Nonetheless, the answers of interview questions often went in to long outlays, the-
reby answering many questions at the same time. This gives the impression that the interview
guide was adequate and well structured. After all, the semi-structured questionnaire became
more of a checklist. The focus was put on the interviewee, hence the researcher tried not to be
leading, instead because the interview guide had been provided in advance, the researcher
could take more of a listening role, naturally prompting or giving feed back when required.
4.4.2 Presentation of the interviews
The figure below provides an overview of the interviews conducted with Sonat, UAE Logistics
and Volvo Logistics.
Figure 4-1: Interview table
43
4.5 Evaluating the research
Qualitative, as opposed to quantitative, research is not interested in finding results that can be
quantified and generalized and thus it does not make sense to talk about external validity (Bry-
man & Bell 2003, p. 288). Trustworthiness, on the other hand, refers to the combination of fac-
tors such as credibility, transferability, dependability and confirmability. According to Bryman &
Bell (2003), this alternative stance for evaluating qualitative research defends that qualitative
studies should follow a different valuation criteria than those used when quantitative studies
are performed. In the context of quantitative studies, researchers are concerned with aspects
such as internal and external reliability and validity.
Credibility is seen as a parallel to internal validity. It relates to how the study is carried out,
checking for aspects such as good practice and submitting. The latter would imply that research
findings should be submitted to those studied for confirmation that the ethnographer unders-
tood the social world researched (Bryman & Bell, 2003). This view is shared by other academics
such Creswell (2007, p. 208-209) or Stake, who in 1995, stated that research study would gain if
participants would “play a major role directing as well as acting in case study”. Transferability,
in turn, relates to the possibility of relating the findings of the study to other areas than the par-
ticular area studied. This becomes particularly important in qualitative studies because these
concern much smaller samples than quantitative studies. The dependability factor, which paral-
lels the reliability in quantitative research, is also very important. Access to information be-
comes a very important aspect in order to be able to review all phases of the performed re-
search. Therefore, to increase the dependability of this study, the process on how the research
participant was selected as well as how the transcription was processed was included (Bryman
et al, 2003, p.81 & 289). Opie (2004, p.5) shares this view; that the dependability is of more im-
portance than being able to generalize. Confirmability concerns the aspects in which the inter-
viewer might have influenced the research and the importance of awareness that complete
objectivity is not achievable (Bryman & Bell 2003, p.289).
From a credibility perspective, I believe the study has followed good practices and even submit-
ting. The author, as previously explained, has tried to keep in mind during the important aspects
such as the accurate interpretation of the empirical data, for example. In order to do this, the
interviews recordings were saved into an audio file, which were accessed whenever was re-
quired. Worthwhile to point out that during the interview with Sonat there were some technical
problems with the recording of the interview. Furthermore, the transcription of interviews as
well as the audio files from where the transcriptions originated were sent to the interviewees
for validation. The aim of this study was never to achieve transferability; however I am con-
vinced that parts of the findings could probably be used in other social settings. When it con-
cerns the dependability factor, this study has tried to follow the requirements of good practice.
All the documentation (e.g. interview guides, audio and transcription files) relating to the differ-
ent phases of the research have been kept and are available for peer review. Finally from a con-
firmability perspective, even though I had previous preconceptions on the subject, I have tried
to keep neutrality an open mind, so that I would not allow personal values or theoretical inclina-
tions to overly affect the research.
44
5 Empirical Data
In this chapter I introduce the reader to the summary of the interviews conducted with the se-
lected companies. As previously explained the semi-structured interview guide was divided into
three different themes. Being these; a) the single firm (4PL) organizational design, from a struc-
tural and strategy perspective, b) the enterprise logistics integration, which relates to the role of
the firm within the supply chain, and c) logistics and competitive advantages.
5.1 Sonat
The interview with Jan Conradson, VP Sales at Sonat took place on the 3
rd
of June. Mr. Conrad-
son has a degree in engineering from KTH (Royal Institute of Technology) in Stockholm. Moreo-
ver, he has several years of working experience within sales, logistics business process develop-
ment and was one of the pioneers of knowledge based outsourcing within SCM in Sweden. The
interview was held in Swedish and the text below summarizes what was discussed.
5.1.1 The single firm
Sonat was established in 1999, aiming to provide high quality logistics solutions to its customers.
The company, with offices in Stockholm, Örebro and Norrköping, has a very clear strategy in that
they aim to supply “high quality, value creating service” to their customers based on six guiding
values; co-operation, professionalism, integrity, humanism, customer focus and development
(Sonat, 2008). By taking responsibility for the customers’ logistics processes, Sonat aims to cut
costs as well as to provide increased business value.
Conradson explained that since Sonat’s establishment the company has been growing steadily,
both concerning the number of employees and turnover. Conradson continued by telling us,
very proudly, that Sonat had been nominated by the Swedish daily newspaper Dagens Industri,
in November 2007, as one of the Gazelle companies of the year. In fact, the company employed
12 people in 1999, between the years of 2003 and 2006 Sonat have developed significantly and
in 2007 the company employed 52 people, while the turnover was 67.5 MSEK.
According to Conradsson, Sonat works with more or less all varieties of companies that have
large flows of goods. He explained that the company concentrates, however, on businesses that
have most of their logistics activities in Sweden, i.e. Apoteket, Lantmännen and Svenska Retur-
system whom have 90 percent of their logistics flows concentrated in Sweden. However, Con-
radson emphasized that whenever their clients need to expand globally, for instance during the
ordering or distribution process, Sonat will provide them with the know-how and guiding
needed in order to complete that process. At that stage Conradson gave Sandvik as an example
of a situation where they follow a customer in their global operations. According to him Sonat
controls Sandvik´s purchasing of machinery, equipment and tools for rock-excavation.
According to Sonat’s VP Sales, the company has a large competence within its 75 employees.
Conradson stressed that somewhere around 15 of them are former logistics managers and many
have been in the branch for quite some time and have had high positions before starting to
work at Sonat. Conradson said as logistics is their core competence they are continuously trying
to develop and improve their competence. Sonat’s management team is composed by the CEO,
Introduction
Theoretical
Method
Theory
Pratical
Method
Empirical
Data
Analysis &
Discussion
Conclusions
45
the VP Sales, a Development Manager, a Quality and Environment Manager as well as five key-
accounts managers which are responsible for the main customers accounts, above mentioned.
The fact that Sonat is in business with many companies within different industries makes our
expertise and know-how well established within the market, said Conradson. Sonat works a lot
towards the transport industry and handle for instance cargo freights today worth 1.2-1.3 MSEK.
This has a positive impact not only in the achievement of substantial economies of scale at op-
eration level but also economies of scale in regards to competence.
5.1.2 Enterprise Logistics Integration
According to Jan Conradson, what differentiates them from their competitors is that Sonat
works closely with their customer base and thereby fading organizational boundaries. In fact,
and using Mr. Conradson’s words, they consider themselves an “insourced” logistics department
rather than an outsourced one. When asked about what type of services Sonat offers to their
customers, Conradson answered that Sonat provides a long-term logistics partner that offers
logistics functionality and development. Furthermore, Conradson explained that the supply
chains that Sonat takes control over varies a lot between the different companies/clients. Alto-
gether, Sonat can work over a broad spectrum of services; for example, within Operations the
services offered are Replenishment (planning and stock management, transport booking and
monitoring), Order fulfillment (receipt and order planning, customer service and capacity plan-
ning) and Distribution (transport booking and documentation, customs processing and daily
problem-solving). More simply, one could say that we provide everything from the most opera-
tive functions, like for example, printing shipping documents to performing strategic supply
chain changes, resumed Conradson.
While discussing the different ways of establishing a new cooperation with a firm, Conradsson
said that “once an agreement is reached between us and the customer that we will take respon-
sibility over a logistics function or a logistics platform, an implementation project group is set
up.” When speaking about the implementation process, Conradson believed that it traditionally
was a lengthy one. Moreover, Conradson believed that sometimes it is hard for their new cus-
tomers to understand and thus take full advantage of the “knowledge database” (using Conrad-
son’s words) that they have at their disposal. Conradson pointed out, however, that Sonat had
developed a few uncomplicated services with the purpose of quickly establishing collaboration
in that way starting with the small things and later deal with the larger issues at hand. Some-
times, pre-studies are conducted. When discussing the advantages of long-term partnerships,
Conradson said that their competence increases every day and thus new firms that Sonat estab-
lish partnerships with will eventually, to some extent, benefit from this. According to Sonat’s VP
Sales, they work with their customers as if they were their employees; Conradson admitted that
they tend to be regarded as that company´s logistics function entirely or to a certain extent. It is
not uncommon that Sonat reports to the logistics or purchasing managers, he said, and that
they are viewed as a section of their customer company. For instance, Sonat is known as the
“Transport unit” at Apoteket and thereby it could be assumed that most of the employees at
Apoteket are unaware that an external company provides that function.
According to Conradson, Sonat are experts at logistics and by outsourcing to them, companies
will be able focus on their core competencies while Sonat do what they do best: “What some-
one else can do better than us one should not continue doing.” Conradson went on and ex-
plained the classical arguments about outsourcing, that it should lower costs, liberate time and
enable the possibility to focus on the core competencies. This will create flexibility in the sense
that one should be able to increase or decrease production more rapidly, to become more effi-
cient and naturally secure/safeguard competence. When talking about outsourcing, in accor-
46
dance with Conradson, this implies that companies give away a process to another company,
hand over the responsibility. At Sonat this is instead called in-sourcing since they believe that
something is added; Conradsson explained “you add something to the company, add compe-
tence and resources to a company and the way they do things” Once the implementation stage
is finished, the project passes on into a so called, management phase. To quote Conradson: “At
that stage, we form a group that will specifically manage the needs of that particular company.”
5.1.3 Logistics & Competitive advantage
According to the company their plan of action varies according to the specific customer needs.
As previously mentioned, Sonat helps customers to change and develop their logistics processes,
so that they for example improve their IT-systems for the effective follow-up over their inbound
or outbound logistics or both. Moreover, Sonat achieves better control over often decentralized
logistics which lack cost control, improve quality, as well as assist customers to better structure
their operating procedures. Thus, they help customers to reduce operational costs, but also to
increase their delivery reliability. For example by having a better and more structured transport
schedule Sonat can help customers to reduce the amount of suppliers as well as to reduce
transport- as well as administrative costs substantially. Furthermore, through process re-
engineering adequate platforms are created so that the customer can increase its sales capacity
and thus become more profitable. Another important aspect is the quality of end-customer ser-
vice. Through improved information flow Sonat is able to help reducing lead times, an extremely
important factor, as well as increased delivery reliability and security.
47
5.2 UAE Logistics
During the study of UAE Logistics, I had contact with three different employees, each of them
very helpful, professional and eager to help, which culminated in a very fruitful two hour long
interview, on September 22
nd
with Henrik Höglund, Consulting Manager. Mr. Höglund has a
Master of Science degree from Chalmers University of Technology in Industrial Engineering and
Management. Höglund has a broad international working experience having worked previously
not only in Europe but also in the United States. Höglund has been working with UAE Logistics
since 2003 and according to him it was then he first came in contact with the concept of fourth
party logistics (4PL).
5.2.1 The single firm
UAE Logistics is a company specialized in logistics services. The company offers a wide range of
services varying from logistics consulting, development as well as administration of Logistics
Control Towers (LCT). The latter, in turn, is divided into two business units; a) Ericsson’s Control
Tower ECT (picture below) which as the name indicates, handles the administration of Ericsson’s
logistics and b) Logistics Control Towers (LCT) which manages the logistics processes of custom-
ers such as SAAB or Alfa Laval, for example. The other main business area of services within lo-
gistics is Developing & Consulting.
Below you will find the organizational chart of the company (Berg & Choroszynski, 2008).
Figure 5-1: UAE logistics organizational chart (revised)
According to Höglund, UAE Logistics vision is “to be recognized as the best logistics partner in
the Nordics”. Currently UAE Logistics has offices in Stockholm, Helsingborg, Linköping, Dubai and
Dallas. According to the interviewee, UAE Logistics was bought by Air Express International,
which was one of the largest American freight forwarders. Later, AEI was bought by Danzas
which then merged with DHL. Today, UAE Logistics is a subsidiary and fully owned by DHL, which
in turn is a part of the Deutsche Post Group.
Höglund continued by explaining that it was actually customer demand that was the reason
behind the creation of UAE Logistics as a fourth party logistics provider. The history is that UAE
was one of the biggest air forwarders in the Nordics and in Europe during the 1990s. At that
point they got a contract with a customer (Ericsson) who requested that they would not only
manage their own freight forwarding agencies and so on, but also to manage the customer’s
complete supply chain. According to Höglund, what differentiates them from the more tradi-
tional logistics service providers (i.e. third party logistics companies) is that they are neutral and
that they are a non-asset provider.
Business Area
ECT
Quality &
Environment
Business
Controlling
Managing
Director
Business Area
LCT
Development &
Consulting
Sales &
Marketing
Human
Resources
48
When asked about how much the company has developed in terms of the number of employees
as well as in terms of turnover Höglund answered that since the establishment of the company
in 1999, they have increased to about 130 employees. When it comes to the turnover of UAE
Logistics, he believed that it was around 1.6 billion SEK. Furthermore, when I prompted and
asked if he believed that there is a market demand for this type of services, he said he definitely
feel that there is. Höglund explained that “what we try to see is where the challenges are and
what the demands are and if we have a fit, if we have a business case, then we can make life
easier for the customer.”
Höglund continued by explaining that traditionally distribution and export have had a larger
weight on the total services provided. However, this trend has been changing and “these days I
believe that importing of raw materials is growing at a fast pace”, thus requiring their services
to expand into this area. Höglund explained that one reason for this occurring could be the pa-
radigm shift, i.e. customers have realized that if they can control more of the supply chain then
they have better abilities also to control costs, income- and balance sheets. The customers of
UAE Logistics operate at a global market, and thus UAE Logistics controls supply chains both
exporting from and importing to Sweden, but also importing to other countries, like cross-flows
Höglund added.
When I asked Henrik Höglund if he considered UAE Logistics to be a 4PL company, he answered
affirmatively. However, he pointed out that one should be careful when using expressions with
three characters (abbreviations). According to him the academic world see the 4PL concept
more as a management fade rather than a new management paradigm. In his words, for the
academics’, the 4PL concept is more like a marketing thing. At that point I explained to him that
I only use the term 4PL because it is simpler to use this jargon word than it would be to use the
expression supply chain integrator all the time, as we believed this would make the reading of
the thesis tedious. Moreover, I explained to him that during the research I had come across oth-
er definitions for somewhat similar concepts (i.e. demand chain integrator or total service pro-
vider) and that in order to avoid confusion to the readers these different concepts had been
explained in thesis.
Höglund added that UAE Logistics as a company very seldom uses that terminology (4PL) when
they introduce themselves to customers; instead they use the concept of “Logistics Control
Tower”. At that stage Höglund provided me with a graphic presentation of the LCT concept
which the reader can find below. However, he added, when comparing the services that UAE
provides with the overview of the four key components of a 4PL that was previously sent to him,
then yes, he believed that UAE Logistics is a fourth party logistics company.
5.2.2 Enterprise Logistics Integration
In accordance with Höglund what differentiates the Logistics Control Tower (LCT), depicted in
the figure below, from the Consulting Services is that the LCT puts more focus on UAE Logistics
to be proactive and to have the driving force to constantly evaluate the customer and come with
new recommendations. The Consulting Services on the other hand focuses on the customer and
what they want help with, i.e. the service originates from the customer. It was also stressed that
both new and existing customers need help to monitor and measure existing suppliers.
49
Figure 5-2: Logistics Control Tower (courtesy of UAE Logistics, revised)
According to UAE, they take operational responsibility for the entire supply chain through the
use of LCTs. Höglund explained that LCTs primarily focus on the administration but also on the
continuous development of both inbound and outbound deliveries. This includes providing ex-
pert services in areas such as; planning and call off (consolidation, direct deliveries and route
optimization), document handling (both transport and other logistics related documents), cus-
toms handling (both on import and export), as well as monitor and handle information so that
visibility is increased within the supply chain. When prompted about the influence UAE have on
their customer internal logistics (e.g. manufacturing processes), Höglund explained that, be-
cause they work very much with Exception Management together with their customers, if an
internal process is creating problems on the efficiency of the LCT then, together with the cus-
tomer they will analyze the process so that is corrected.
Moreover UAE deals with invoice handling. According to Höglund, “this is a big thing”. UAE pro-
vides automated control and consolidation of logistics services invoices into one invoice.
Höglund continued his explanation by saying: “imagine if you have a company with thirty or
forty different distribution service providers and you get different invoice formats from all of
these that you need to match and you need to ensure that these are correct…” This is an impor-
tant aspect because companies need to match the costs of the transport against a specific order
so that the cost price of each individual product reflects the transport costs for that same prod-
uct. Finally, UAE Logistics help customers minimizing their overall logistic costs by using BI appli-
cations, by generating different types of statistics as well as different key performance indicators
(KPIs), added Höglund.
Höglund went on by explaining the Developing and Consulting Services business which is turn
divided into four different categories: a) process & system development, b) supply chain devel-
opment, c) supplier development and d) outsourcing.
Höglund explained this business area is autonomous, and is not used as a marketing tool in or-
der to lead customers to sign a LCT contract, however if there is a fit, that UAE will obviously
suggest to the customer a LCT type solution. Moreover, Höglund explained that the idea of hav-
ing a business is to always prioritize the customer i.e. to not sell Logistics Control Towers by sell-
ing Consulting Services. It was explained that some customers may not benefit from having a LCT
because 1) they might not benefit from outsourcing and 2) because of strategic choices not to
outsource business processes. Therefore, UAE Logistics best option in these cases would be to
provide Consulting Services, emphasizing the importance of “having a joint trust”, Höglund add-
50
ed. Thus, UAE Logistics conducts pre-studies where they analyze and identify areas that could be
improved within logistics and then make recommendations either based on Consulting Services
solutions or if needed, suggestions which will imply LCT-solutions. According to Höglund, UAE
Logistics can manage projects related to for instance outsourcing across the entire supply chain.
Process and System Development is like his baby, said Höglund and laughed. It relates to the
analysis, design and implementation of both logistic processes and system solutions within logis-
tics administration. Moreover, UAE’s consulting manager explained that the services provided
within supply chain development are for example the optimization and implementation of dis-
tribution structures (i.e. delivery setups). He explained that in order to do that, UAE uses a po-
werful software tool that enables them to make simulations which then leads them to the opti-
mization of the resources. Höglund explained that first of all UAE maps out what the customer
operation currently looks like. After that and through the use of the above mentioned simula-
tion tool they will create different scenarios to measure the changes. For example, he contin-
ued: “If you have a company with multiple warehouse structures or ERP system set-ups or triple
organizations in place, what happens if we cut down this into one for the whole organization?
What happens if we would like to go into a new market like Russia? What are the implications of
that and so on?” Moreover, Höglund said that UAE Logistics can map out both costs (warehouse,
transportation, labor) and measure current environmentally hazardous emissions. To quote
Höglund: “So we can actually both analyze the costs, the environmental impact and the lead
time impact today”, this way UAE can find the aspects that can be improved. Thus, the simula-
tion tool previously explained helps UAE Logistics to set-up different scenarios that can later be
used as basis for discussions with their customer and the final decision-making.
Developing on the concept of supplier development Höglund went on by explaining: “UAE fol-
lows a methodology, you can say, it starts with the analyses of the market and of the customers’
demands as well as their logistics requirements.” Based on this UAE Logistics may help custom-
ers to design so-called request for quotation (RFQ) if they do not already have one. A RFQ is a
document (standard) normally used by companies to ask suppliers or potential suppliers infor-
mation about prices of the product or other relevant aspect about the purchasing contract (e.g.
Incoterms). Sometimes customers might already have an RFQ on their hand, requiring different
sorts of supplier information. UAE helps them to gather all the answers. Moreover, UAE also has
a database with all the different supplier ratings, costs and other relevant information that has
been used for previous customers. According to Höglund, UAE analyzes this information in two
different ways.
One way is cost analysis, where UAE uses the customers’ historic information, for example facts
related to previous shipments, individual shipments or orders or something that symbolizes
where they have traffic, from where UAE can draw statistical inferences. Another type of infor-
mation UAE uses is the price lists, or the response in the RFQ from the different suppliers.
Höglund explains “…we try to price each and every row here in statistics, to find out which sup-
pliers that have the best costs for different markets, for different products, different transport
methods and so on. That’s the first thing that we do, we make a cost analysis.”
Another thing UAE does, Höglund explained, is a quality analysis. UAE may question suppliers if
they are ISO 9000 or ISO 14000 certified and what kind of IT-systems they use so that UAE can
establish how to connect themselves to these same suppliers, i.e. can they use EDI or XML or if
suppliers can report via different IT platforms. There are also organizational aspects that UAE is
interested in, i.e. local presence. The fourth thing could be laws and regulations, how do suppli-
ers follow up on that and so on.
51
Once UAE Logistics has performed both cost- and quality analysis the company weights between
the most important quality factors and those that relate to costs. Based on the findings, UAE will
then make a recommendation to their customer, suggesting a smaller list of suppliers that they
believe are the most suitable to satisfy the customer requirements. After having visited on-site
this smaller group of suppliers, UAE picks perhaps one after negotiations and then set the pilot.
Höglund explains, “…we start with one or several flows and then together with this we also doc-
ument standard operational procedures (SOP’s) which serves as a quality manual between the
customer and the supplier and if we have a Control Tower in place…”, it will also serve the Con-
trol Tower. According to Höglund, these SOP manuals establishes all the rules that must be fol-
lowed within the supply chain, i.e. how follow up is done, and how invoices, reporting and meet-
ings should be handled and so on. Höglund stressed that the company focuses a lot more on
continuous improvements than the ISO 9000 standard requires; that UAE “need to understand
the how and also the why we do things, because…then we can also improve it.” To have conti-
nuous improvements or Kaizen as Höglund puts it; “built into the Control Tower that´s our bread
and butter, that´s what we live with…but what we also see is that we can have the ability not
only to sell Control Towers but we can also sell stand alone consulting services.”
Outsourcing refers firstly to the implementation of a LCT, the other thing adds Höglund, is “that
we can also manage projects of outsourcing of anything else within the supply chain, meaning
the different logistics activities (warehousing, transportation, but even supplier assessment).
Höglund said that the main impediment for UAE Logistics when implementing 4PL service for a
new customer is “change management.” The Consulting Manager explained that “the customer
must have the resources in place, dedicated budget, IT experience, they have to have a mind-set
that this is going to be a change, they have to realize the benefits and they have to work with us
and to be on the same side as us. I think in order to do that it is really important to work with
change management.” That is, the customer needs to realign their strategy in a sense to fit into
the service; otherwise they will not be able to take the full advantage of the service. Höglund
added that the customer should not outsource everything. Instead, one reason they should keep
qualified competence in-house is so that requirements on UAE Logistics can be set. After the
implementation phase UAE Logistics educate the key personnel for the customer, i.e. the per-
sonnel that are going to work with them on a daily basis. Höglund said that everything is written
down in SOPs (standard operating procedures) that “…are continuously revised, so it´s not a
document that we develop in 1995 and then we don´t do anything about it.” Whenever there are
improvements or changes the SOPs will be updated, “so we live after our SOP´s” Höglund added.
When I asked Höglund if he could describe the network IT system integration, he answered that
UAE Logistics work both with standardized systems and with their own systems. He continued
by explaining that UAE can build a solution based on modules rather than for example an “Euro-
pean system that carries out everything but is not very flexible to set up different customers”.
UAE’s Consulting Manager explained the customer should not have to worry about what system
to use. In essence they should have the benefit to have all information at their disposal at any
given time. Höglund went on and explained that this means that their customers should work
with their own SAPs, when they update their order lines from ‘pick to pack’ then an EDI file
should be sent to the LCT for further processing. To quote Höglund: “If they need to have docu-
ments…they should find that in their SAP system created by the Control Tower.” Since different
actors in the supply chain might work with different applications, continuous improvement is an
important aspect at UAE Logistics. Moreover, the diversity of standards or even the lack of it
puts additional pressure on the LCT. The LCT is considered as the integrator, which according to
Höglund has the big challenge of translating “…different types of messages and the contents of
the message…but also to make sure that we can transfer it all in the supply chain.”
52
KPI &
Statistics
Shipping
Invoice
handling
Monitoring
Planning
Customs
Integrator
SAP Movex
Log 2000
...
Baan
The figure below depicts UAE’s role has the integrator.
Figure 5-3: System platform Worldgate (courtesy of UAE Logistics)
I then asked if customers can capture information in real-time. To that he answered, “it must be
more often than daily”, in fact continued Höglund sometimes “we talk rather about minutes
than hours and never talk about days.”
When it comes to the information flow UAE Logistics measure how fast they are at reporting.
However, Höglund added that “it depends on the requirements on each individual customer but
when it comes to sending back information then we talk about minutes… we are a non-asset
provider so we are dependent on reporting back from our suppliers and if they are bad in report-
ing then we are bad in reporting, so we need to set the requirement not only ourselves but also
on our suppliers.”
Another example, provided by Höglund, of the importance of time was at times of delivery. UAE
Logistics might have service technicians at the customer site “ready to start working as soon as
the shipment arrives, then we have requirements not only to be there on a Tuesday, and not only
to be there at twelve a clock, but twelve plus or minus 15-30 minutes…” Höglund said that de-
pending on the supply chain those kinds of solutions might be too expensive. To quote: “You
don´t say that we only use that the whole time because that would cost enormous amounts. We
need to have an optimized mix between cost, lead time and service.”
As per Höglund the advantage with having long-term partnerships is that due to the transparen-
cy that exists, UAE is able to support their customers in their investment decisions when it re-
lates for example the development of logistics operations or processes.
On the other hand, the disadvantages with having long-term partnerships are trust related is-
sues. This could be, quoting Höglund: “obstacles to go in to an outsourcing…you have to have an
understanding with the customer.” Höglund said that it is always easier to conduct improve-
ments in the beginning of a process; “in the beginning it is easy to pick the low hanging fruits.”
However, it becomes more difficult to measure improvements at later stages because “it take
more to realize the benefits…it takes a lot of creativity and skills to manage a long-term partner-
ship with the customer”, added Höglund.
The Consulting Manager of UAE Logistics said that when talking with 4PL companies or logistics
providers most likely “most of them will say…that they want to climb in the value chain, they
don´t only want to ship goods for the companies, they want to have an effect on the logistics
strategy…” However, Höglund added, “…if you want to climb in the value chain then you need to
have more trust and you need to really show the customer that we are a very skilled and compe-
53
tent player here, we can form alliances together.” Once climbing up the value chain UAE Logis-
tics would be able to offer different Consulting Services such as supply chain development.
Höglund continued by saying: “The more dependent a supplier is of its customers, the more in-
fluence the customer will have on the suppliers processes, mindset and business idea.”
5.2.3 Logistics & Competitive advantage
When asked what, in UAE’s perspective, is the best way to reduce cash-to-cash cycles, reduce
capital binding or increase customer service levels, Höglund answered that UAE Logistics uses a
common project methodology on structure within DHL that is called First Choice. To quote: “The
whole idea with First Choice is that the customer should choose DHL as number one, and within
First Choice which is based on lean production, kaizen and continuous improvements we have a
specific tool that we use”, called DMAIC which has the following phases:
Define (to define the problem, to set the scope), Measure (to start to measure everything within
this process, with statistics, with surveys etc). The third step is the Analysis phase where the
problem is sorted out. During the Improvement phase, as the name indicates, UAE tries to put in
place improvements in order to gain efficiencies, to put it differently: “we try to do things bet-
ter”, Höglund added. Finally, in the Control phase UAE puts in place the Standard Operation
Procedures (SOP), train people and make sure that bottlenecks are not going to happen or re-
occur in the future. Höglund believed this way of working, using models like DMAIC, simplifies
procedures since it provides clear steps to follow, makes it easier to know in what phase one is,
as well as it lays down the actions that need to be implemented. A plus is that their customers
will be able to follow the different steps, have a good perception of the work that has been tak-
en and in the process learn and obviously in the end help UAE Logistics do their job.
When it comes to increased growth profits Höglund said that lead time and logistics integrations
are the two major things; to shorten the lead time to the market as well as decreasing the va-
riance of the lead time. One customer service in relation to this is that when dealing with the
LCT, the customer does not need to talk to the different suppliers, instead UAE Logistics takes
care of that. Höglund explained that emphasis is on lowering the cost of goods sold and that the
above “…has an implication on the increased growth profits in the DuPont-Schedule.” To lower
the operating costs, then, to quote: “you need to find a optimized mix of service costs and lead
time, it is a lot about IT and processes…increased share of consolidated shipments, improved
handling of customer returns and claims, accurate freight charging, invoicing of customer or-
ders…continuous identification and elimination of bottlenecks, improved physical distribution
and supply chain monitoring…track-and-trace.”
Höglund said that there is nothing like real-time in logistics since everything has to pass a miles-
tone in order to be ordered. However, if UAE Logistics can be on top of the information, to “take
action before the flight is canceled or the ship has sunk” then according to Höglund “…when it
comes down to reduced working capital then…the cure is to be transparent to reduce inventory
through improved reliability.” Höglund added that focus should be on having “less warehouse
facilities, shorter cash-to-cash cycles, focus on payables and then of course finally to focus on the
core competence.” Examples to clarify this were the companies Kellogg’s and Dell, “world lead-
ers that have become so successful because they have realized what is my bread and butter,
what do the customers expect from me?”
54
5.3 Volvo Logistics
The interview with Volvo Logistics occurred on October 15
th
. The interviewee as previously men-
tioned was the Project Manager at Global Logistics Development, Henrik Erkfeldt who has been
working for Volvo Logistics during the past six years. His previous working experience includes
working for another division within the Volvo Group, as well as for other companies, for instance
a supplier to Volvo Cars, and a consulting company.
5.3.1 The single firm
Volvo Logistics is a wholly owned subsidiary of the Volvo Group. At the Volvo Logistics webpage
(www.volvologistics.com) it is stated that; “Volvo Logistics designs, handles and develops com-
prehensive business logistics systems for the automotive industry worldwide.” Moreover, accord-
ing to Mr. Henrik Erkfeldt, Volvo Logistics vision is “to be recognized as the leading partner with-
in the automotive commercial transport industry.” The company is active in the different areas
of inbound, outbound and emballage (packing).
Within Volvo Logistics each of the divisions, i.e. inbound, outbound and emballage (packing),
have their very own logistic development group. Erkfeldt explained that previously Global Logis-
tics Development had belonged to Inbound but nowadays is considered to “stand on its own
legs” so to speak. What this division of Volvo Logistics does is that they handle support functions
such as logistics development of different supply chains in regards to for instance environment,
purchasing, insurances and IT. Thus, the idea with this group is that they should handle large
projects, projects that could include both inbound, outbound and emballage (packing). Moreo-
ver, the division works with key areas within the Volvo Group; areas such as optimizing, network
analyzes, geographical information systems i.e. programs and systems that can be connected to
different logistic services. Thus within the above mentioned area Volvo Logistics is the compe-
tence centre and not Volvo IT.
As mentioned above, Volvo Logistics vision is according to Erkfeldt; “To be recognized as the
leading partner within the automotive commercial transport industry.” Moreover, this implies
the underline and the reason why they have no customers outside the automotive industry. It
was believed that commercial industries reflect the task they perform for Volvo Aero; handling
spare parts for their customers, e.g. Boeing and Airbus. So what Volvo Logistics did was that
they bought stocks of used spare parts. Moreover, within the Volvo Group there is a division
called Volvo Construction Equipment that manufacture excavators, wheel loaders, pavers and so
on, and the division is thus also seen as part of the commercial industry. To be recognized as the
leading partner stands for the ambition to be logistics provider to at least one more automotive
company. However, as the large automotive companies already have established strong rela-
tions it has been proven to be quite difficult to enter this market.
Since the start of Volvo Logistics the company has gone from being a company based in Gothen-
burg, Sweden, primarily for Volvo Cars and Volvo Trucks, to a company situated all over Sweden,
for example in Umeå. According to Erkfeldt the company has during the last six years grown
approximately 40 percent. When Erkfeldt started to work at the company, 2002-2003, an agent
logistics division that belonged to Volvo Cars was reorganized to Volvo Logistics, and it was not
until then that the company became a big player in Europe. At this stage the company had offic-
es in the US, but still considered themselves as being a very Swedish company.
During the last four to six years Volvo Logistics have established offices at many locations, pri-
marily those that traditionally were not as strong; North America, South America, Asia and even
Southern Europe. Erkfeldt stated that; ”We are at Renault in France, we are at Volvo Trucks in
USA, Boeing in USA, Volvo Trucks in South America, the car manufacturers in Peru, Asia and so
55
on.”. Still the different offices are quite small with the exception of USA, thus, perhaps offices
located by the clients consists of three to five people. Having this expansion in mind, still most of
their employees are located in Gothenburg, Sweden (Volvo Logistics Corporation) and Gent,
Belgium (Volvo Logistics Europe). There are also quite a lot of people located throughout North
America at two-three locations. “Out of roughly 1,000 people, 350 are located in Gothenburg,
200 in the US, 150-200 in Gent, and the rest in South America, Asia, locations in Sweden (Umeå,
Skövde, Arvika, Fredriksberg) and so on.”
The company handles multiple customer relationships, although rather many of them belong to
the Volvo Group in one way or another, such as subsidiaries. A few of their customers have been
provided to them via Volvo Cars. As Erkfeldt previously explained, their vision “…within the au-
tomotive…industry.” effectively reduces the segments that their clients are operating in. All their
different customers have a connection to the automotive industry and thus have not so much to
do with the building or retail trade. Volvo Logistics has customers both importing raw materials
and exporting finished goods. Inbound logistics deal with all the material that goes into the fac-
tories i.e. the raw material and different components. The turnover from inbound is larger than
that from outbound and the reason for this is that they do not have control over the distribution
of vehicles in the USA. So, the penetration is better within inbound where Volvo Logistics have
approximately 100 customers, covering from the steel going in to the manufacturing in Umeå to
the final distribution of cars. Volvo Logistics both own and rent warehouses. The fact that they
own warehouses is more or less a tradition according to Erkfeldt as those warehouses are lo-
cated in Gothenburg. Thus Volvo Logistics almost does not own any transport assets by them-
selves apart from the occasional warehouse and cross-docking facilities that they do own. The
company has had manufacturing but due to the historical turning towards outsourcing within
their branch, the automotive industry, today it is limited to small scale operations. During more
recent years the trend has become something more like in-sourcing, he added.
Erkfeldt had obviously heard about such as supply chain integrator and control tower, supply
chain engineering, business process analyzing, development of activities and also recognized the
pressure towards IT and business development. However, the interviewee felt that the concept
of fourth party logistics (4PL) is yet not as well-known as the concept of third party logistics
(3PL). After having looked into the file with the “four key components of a 4PL”, which was pre-
viously sent to him, Erkfeldt believed that even though Volvo Logistics Corporation has the am-
bition to be become something in the frame of a 4PL, there are some areas where they still are
not there yet. Erkfeldt suggested that one of these areas would be the transparency i.e. that
Volvo Logistics do not have yet the transparency that he believed a 4PL should have. To quote;
“We do not have the overview of the entire supply chain, all the different supply chain activities,
and we are short of this firstly because we do not have the systems for it and secondly because of
our clients requests; they already possess a lot of the functions one could say and do not want us
to have that responsibility.”
Volvo Logistics handles not only transport procurement but also provides long-distance ware-
housing for different global suppliers; for instance providing the suppliers located in China with
warehouses in Europe. Volvo Logistics purchase all the different transport and warehousing
solutions and later packages this in different packages that are located closely to the different
Volvo factories.
56
5.3.2 Enterprise Logistics Integration
According to Erkfeldt, the company has better integration in outbound logistics than in inbound,
being this very much due to the application for distribution (A4D) system. This system gives up-
dated information about the order-production-distribution sequence. For instance, all the dif-
ferent Volvo cars come with A4D. Moreover, Erkfeldt said that when it comes to inbound their
base system is not as good. Perhaps when the new system ATLAS is in place things will change,
he said. ATLAS is an application that they are currently developing currently and will eventually
be used as a transport-management system. For example, it will enable new services that facto-
ries and suppliers will be able to use. Today, parts of the system are in use more or less with the
purpose of conducting pilot studies and only as a booking and planning system. On the other
hand, there are examples where they are very connected (on inbound) with their customers. For
example, in certain countries trade on behalf of customers is invoiced to Volvo Logistics. In this
aspect, Erkfeldt believed that they had gone very far. Continuous innovation lay within the re-
sponsibilities, their projects and developments, of Volvo Logistics.
The problem that Volvo Logistics is having with the current set-up is that globally they are using
three different systems, i.e. in Sweden, in Europe and in the US. Moreover, they use yet another
system as a few of their clients are using a fourth system. Thus, even though the different sys-
tems are noteworthy by themselves, Volvo Logistics, according to our interviewee, has a prob-
lem with sharing information between these different platforms. Implementing ATLAS will bring
them to the next level; to quote Erkfeldt: “the consolidating step.” The ambition is that the new
system will replace the four systems currently in use. Different customers have different de-
mands. At outbound, as above mentioned, Volvo Logistics is using A4D which in turn, if required,
can be connected to GPS-functions, i.e. providing the possibility to follow every truck in real-
time. Using so called milestones is also common, e.g. when the goods come into a harbor signals
might be sent to a controlling entity within the supply chain.
There is a difference when it comes to the handling of information between inbound and out-
bound. While at outbound the A4D system allows for track-and-trace, taking the system care of
the flow of information, at inbound it works in the opposite way; everything that is not reported
is regarded as on-track. As a consequence, only information about what is reported as out-of-
track is shared throughout the supply chain; information about congestions, incidents or strikes.
Erkfeldt willingly admits that this puts pressure on the different transport providers, that they
“…conduct transports the likelihood of them doing that is higher than vice versa. It builds a lot on
established relations”. Volvo Logistics thus suffers from not having the different service portals
up and running. Instead flows of information many times circulate throughout the supply chain
(service department via the customer and the customers’ counterpart) with use of Excel spread-
sheets. The company has a lot of back office functions and service functions that their clients
can make use of at an operational level to achieve a track-and-trace, however as pointed out by
Erkfeld, things are still done half manually.
Erkfeldt said that Volvo Logistics has a budget responsibility (transport and logistics wise) within
a number of companies, towards a number of clients, where the company conducts all follow-up
of transports but they do not do for example Warehouse data mining and that kind of follow-
ups that the clients do themselves. Within the Volvo Group, Volvo Logistics has procurement
services of the purchasing of all transport and logistics services. Thus, per definition, Volvo Logis-
tics clients whether belonging to the Volvo Group or not are not allowed to procure transports
on their own.
57
One of the services that Volvo Logistics offer their customers is insurances. According to Erkfeldt
insurances are a very big business. One of the examples mentioned was the insurances that
Volvo Logistics had saved the Volvo Group when a cargo ship sunk in the English Channel. Fur-
thermore, Volvo Logistics have customs handling. Their expertise in this area functions as a
competence center within the Volvo Group; that is, the handling of customs, value added tax
and so on. As one can realize from the above areas there are a lot of money involved and the
insurances are covered by different insurance companies.
When asked about the barriers that might occur when Volvo Logistics implement services for a
new customer the answer was “politics”. First and foremost because there is often need for
radical changes. Volvo Logistics take over a lot of people from the customers and that in turn
naturally have a large effect on both the ones that are being transferred and those that are left
at the company. From Erkfeldt’s experience it was generally hard to say if there is certain re-
sentment against changes. Though, what was distinguishable was that it differs depending on
where in the world one conducts business. When talking about Europe and the company Re-
nault they have had some struggles, whereas Erkfeldt’s colleagues in the USA have been very
successful. Generally speaking, he believed that the markets in Europe are more difficult than
the markets in the USA, Brazil and the so-called new world.
Volvo Logistics often work within different projects and have well established methods for doing
so. The projects duty is to deliver improvements or solutions for new development, as well as to
integrate themselves with new customers. The interviewee said that personally he only works in
project form. If a customer would like to cooperate with Volvo Logistics the first step is almost
always to map that customer’s recent activity. For instance, which different areas can be trans-
ferred to Volvo Logistics, what is their KPI (Key Performance Indicators) today, and which cur-
rent suppliers are they using? This leads to the establishment of a road map which in turn is
expanded as the different products comes in. To quote: “Is it inbound, outbound or emballage
(packing) that goes in first, or what is to be carried out? This is followed by different sub-
projects.”
Erkfeldt explained that naturally it is easier to grasp what needs to be changed in the beginning
of a project, those are the big changes. After the implementation is done, Volvo Logistics lets the
project roll for a couple years, and then already at operational level, they go back and start
working with continuous improvements. Erkfeldt explained that Volvo Logistics is currently run-
ning the integration for Nissan in Japan with the purpose of taking over the logistics companies,
a lot of warehouse companies that Nissan owns today. In essence it is about giving Nissan ade-
quate support. Suppliers such as Volvo Powertrain will establish themselves in Japan and thus
Volvo Logistics will support the logistics structure. Erkfeldt said that “one project will be to sup-
port Volvo Powertrain, another to support Nissan with European suppliers which have nothing to
do with Volvo Powertrain, and another project is for example dealing with the distribution of
Nissan stuff in the USA. That is, some sort of Control Tower for this client will be established as
an initial phase and later it will be phased out.” Moreover, a project such as this would perhaps
last for five years with most of its activities executed during the initial phase.
When it comes to formulating deals Erkfeldt said that they affect the different supplier at an
operative level; that Volvo Logistics decides when they should deliver, however, this is the only
thing that they could have an influence on. Thus, the impact that Volvo Logistics has have noth-
ing to do with production planning, instead what the company can shape is how the deliveries
should be packaged (emballage). When talking about the logistics pipeline Erkfeldt said that
Volvo Logistics chooses the transport and logistics providers but never the suppliers of material.
What Volvo Logistics does is that they evaluate transport and logistics costs and later it is the
purchasing department that decides, that handle the order process. However, Volvo Logistics
58
would sometimes make a recommendation to switch between different suppliers. For instance,
if the purchasing department is wondering how much the costs would be effected if the produc-
tion was placed in China instead of the one here in Sweden, Volvo Logistics would evaluate that
and perhaps come to the solution that a hub in China needs to be set-up. Thus, that would be
the recommendation. When it comes to the extended enterprise and the virtual supply chain,
the project manager said that Volvo Logistics see it as if they widen the scope; “the ordinary
Volvo companies are very focused on the three Islands (so to speak) of manufacturing, selling
and purchasing. What Volvo Logistics does it that we integrate these three different aspects.”
Erkfeldt admits that the integration with their customers could be better in order to really suc-
ceed with the virtual supply chain and even the extended enterprise, that the customers would
see the consequences throughout the chain.
Volvo Logistics position themselves as being neutral because as Erkfeldt puts it himself; “We buy
100 percent of our transport capacity and as stated almost 100 percent of the warehousing ca-
pacity. We do not have any proprietary interests in anything and we use I do not know how
many different transport providers and 3PLs.”
After briefly introducing the different concepts Vendor Managed Inventory (VMI) and Co-
managed Inventory (CMI), Erkfeldt said that they are leaning more towards CMI, Especially Vol-
vo Powertrain (the world´s largest producer of heavy diesel engines). Although Volvo Powertrain
identifies it as VMR, vendor-managed replenishment, it is similar to VMI; the difference is that
Volvo Powertrain owns the material. A few key suppliers have been selected where they work
with CMI, which they also do quite often when it comes to large flows of goods. On the other
hand, a normal supplier would be using VMI, e.g. an ordinary supplier somewhere in a small
region where development is not part of the operations.
When discussing the selection process of the customers’ suppliers, the response was that if talk-
ing about suppliers of material then Volvo Logistics do not check for their quality and/or quality
of products. However, when it comes to transport and logistics companies then they actually do
these things. As supply chains are becoming more global, Volvo Logistics have for instance
started to work with insurances. Erkfeldt said that the company works with knowledge, i.e. they
try to attend to upcoming strikes and that sort of things. However, financial risks are not part of
Volvo Logistics operation as it is the purchasing department’s liability. What Volvo Logistics do is
that they work with set solutions so that they in for example China can set up hubs and logistics
solutions with the goal to support and minimize certain risks. These risks could be transport
risks, that the suppliers provide the transportation the whole way. What this comes down to is
that Volvo Logistics at an earlier stage in the supply chain will create control.
Volvo Logistics see advantages with having long-term partnerships with their suppliers because
then they will be able to build relationships, and thus ensure capacity if they ever should fall
short of it. Erkfeldt explained further that “it is about system and relation integration with their
suppliers. Towards the customers it is very much about confidence, long-term relationships; we
build confidence so that we get these inquiries of supporting them with supply chain develop-
ment, an area which is not under our ordinary operations”. Moreover, the interviewee saw the
need for their customers to grasp the ideas that Volvo Logistics brings in from other customers,
i.e. that Volvo Logistics becomes a sort of bridge of knowledge. Lastly, Volvo Logistics establish a
rigid system for invoice handling, customer relationships, and so on. When discussing the possi-
ble disadvantages with having long-term partnerships the immediate response was that one
could get lazy. According to Erkfeldt “there are a number of examples showing perhaps that we
do not develop, are sufficiently quick, and thereby our customers drive us because we do not
really see the market due to focusing too much on the customer. Many times it might be that the
customer sees the market better than us, i.e. the logistics market.”
59
5.3.3 Logistics & Competitive advantage
When asked if Volvo Logistics provides competitive advantages to their customers Erkfeldt rep-
lied; “We hope so, that is the whole idea.” One competitive advantage, he said, is “naturally
when we do procurement we have the benefit of being a large actor because we cover so many
factories”. Due to their purchasing power Volvo Logistics are able to achieve economies of scale.
Another competitive advantage is that the company can have an influence over especially trans-
porters or the market in a certain direction. Volvo Logistics also has exchange of competence
between different clients. An example of which is that Volvo Cars affects Volvo Logistics which in
turn affects others. Volvo Logistics have observed that the smaller companies within the Volvo
Group have an immense benefit from them, being able to acquire competence that they other-
wise would not obtain.
The company’s supply chain knowledge provides their customers with high service levels. For
instance, Erkfeldt said that quite often when they have discussions with their smaller clients
they are given requirement specifications. The reply from Volvo Logistics could be: “it is very
good that you have done this, but we can deliver 20 percent better on everything except this
which we actually can deliver 30 percent better.” This implies that the smaller clients cannot
really contribute i.e. they are not in the game. Because of this Volvo Logistics will be able to
have a dialogue from a totally different perspective than what a normal supplier would be able
to. Erkfeldt said that since they are not going to be profitable it implies that Volvo Logistics can
be more transparent. Volvo Logistics will be able to work a lot with the customer’s development,
the logistics functions and so on.
In Volvo Logistics’ perspective the best way to reduce cash-to-cash cycles is all sorts of lead time,
i.e. both transport lead time and administrative lead time. Erkfeldt said; “Terms of payment and
stuff like that is after all only tricking oneself. Only lead time can provide additional savings.”
When talking about capital binding, once again a lot of it is connected to lead time, to reduce
lead time and first and foremost ensure that it is stability in that lead time. When it comes to
this, Volvo Logistics has proven to be quite tough. Sometimes they might have systems that are
not connected to lead time but instead have the highest stability, i.e. if it is two days then it is
two days. Volvo Logistics has undergone radical changes to create robust systems. There are
always ways to improve, for instance the cost that their transporters and logistics providers bill
them for, how can that be reduced? What if Volvo Logistics set-up something differently, what
would happen then?
In order to achieve reduced cash-to-cash cycles and capital binding Volvo Logistics admits that
they do not work so much with lead times. Quite frankly, they have certain contracts and set-
ups and accordingly, their clients should deliver the lead times that are stipulated in the differ-
ent contracts. Then, Erkfeldt states that one way of achieving the above is to look at the market
and see if there is anyone that is better. The main lead times of Volvo Logistics are the adminis-
trative ones, and that is where they have things that can be improved.
Moreover, Volvo Logistics conducts ABC-analyzes. Erkfeldt believed that the key is to conduct
mapping of flows, to find working standards. Volvo has VPS (Volvo Production System) and ac-
cording to our interviewee, Volvo Logistics need to implement this in their administrative
processes; this way a production process throughout the entire organization (the Volvo Group)
will be created.
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6 Analysis & Discussion
In this chapter I will analyze and discuss the empirical data obtained through the interviews. In
order to do that, I will use three different themes being these; Organizational Design, Enterprise
Logistics Integration and Logistics and Competitive advantages.
6.1 Theme 1 – The single firm
In order to analyze this theme, I will be using the theories that relate to organizational design
and its building blocks, in particular the strategy and structure perspectives, which were those
mentioned in Stock et al. (1998) conceptual framework. Moreover, I will analyze the single firms
from the market-base and the resource-base views of the firm.
6.1.1 Sonat
When analyzing Sonat from the market-based perspective of the firm (Weiss, 2007), one notices
that the company uses both differentiation and market segmentation techniques, being these
two aspects in line with Weiss’s presentation of the above theory. Sonat differentiate them-
selves strategically from their competitors by marketing themselves as an ‘in-sourced’ logistics
department rather than an outsourced one. Furthermore, by emphasizing that they are a non-
asset provider, Sonat also differentiate themselves from the traditional 3PL companies. Addi-
tionally Sonat give emphasis to the importance of a close daily co-operation with their custom-
ers and on each customer specific demands, going to the extent of sharing office spaces with the
most important partners within the supply chain. An example of this is the office Sonat shares
with Posten and Apoteket in Örebro, which can be related to the concepts of blurred firm boun-
daries and clusters introduced in the theory chapter (Weiss, 2007). Thus co-operation platforms
are tailored to meet customers’ predefined conditions, needs and demands. The other relevant
aspect when analyzing Sonat from the market-based perspective of the firm is the clear evidence
of market segmentation. This is confirmed by the fact that Sonat’s customers have 90 percent of
their logistics flows within Sweden.
Moreover, because the company’s core-competencies are within logistics and supply chain
management it is evident that Sonat, even though a non-asset provider, emphasizes the impor-
tance of the firm’s resources, competences and capabilities, particularly when it refers to the
knowledge embedded in the human capital of the firm (e.g. the firm employees and their logis-
tics know-how). This fact can be related to the resource-based view of the firm (Weiss, 2007),
which as the reader may recall from the theory chapter, suggests that if a firm has either better
resources or has developed better competencies (or both) than competitors, the company has a
competitive advantage.
When analyzing the single firm (Sonat) strategy from Stock et al. (1998) conceptual framework
perspective, which includes aspects such as the firm’s competitive priorities as well as its geo-
graphic and competitive scopes; the fact that 90 percent of the logistics flows controlled by So-
nat are in Sweden gives a clear evidence of the firm’s geographic scope. However, it was not as
obvious to establish the firm’s competitive priorities and scope. The reason for this it might be
that as a supply chain integrator or 4PL, Sonat has to align their strategy with that of their client
(s) and thus depends very much on which strategic logistic activities the client company chooses
to be best at (e.g. cost, quality, flexibility or delivery). For example, even though there were no
Introduction
Theoretical
Method
Theory
Pratical
Method
Empirical
Data
Analysis &
Discussion
Conclusions
61
indications that the Sonat aims to be the cheapest 4PL service provider, Sonat helps customers
to gain a better control over their logistic processes and thus reduce costs substantially.
From an organizational structure perspective, I would say the company resembles both
Mintzberg’s professional bureaucracy and divisionalized form (appendix 2). As the reader may
recall, the former organizational structure is characterized by a much larger operating core than
the other structural parts, few managerial levels and is flat by nature (horizontal). However,
Sonat is also divisionalized as it has different autonomous business units (e.g. Apoteket,
Lantmännen and Svenska Retursystem), with own business unit managers.
Moreover, when analyzing Sonat’s organizational structure from the perspective of Stock et al.
(1998) framework, namely regarding the firm geographic dispersion, one would say that they
are within Sweden, after all the company does not have offices abroad. Finally, when looking at
Sonat’s roll on the network structure (e.g. cooperation or relationships between firms), using for
that Stock et al. (1998) third dimension of organizational structure, I would say the company
shows high levels of information exchange, interdependence and goal consistency. However,
when it concerns aspects such as ‘control of power’, ‘time horizon’ and ‘formality’, these are
medium to low, thus in line with the authors view on organizational structure differences, intro-
duced earlier in the theory chapter (figure 3:4).
6.1.2 UAE Logistics
When analyzing UAE Logistics from the market-based perspective of the firm, one finds evidence
of both market differentiation and segmentation (Weiss, 2007). UAE Logistics differentiate
themselves from their competitors by selling the concept of logistics control tower (LCT), offer-
ing to its customers the total administration of their logistic activities. In fact, as per the inter-
viewee it was customer demand the reason behind the creation of the company. Moreover, and
still according to Höglund, UAE also differentiate themselves from the more traditional logistics
services providers (e.g. 3PL) by maintaining neutrality and by being a non-asset provider. The
company’s goal is “to be recognized as the best logistics partner in the Nordics”. When it comes
to market segmentation, the company does not operate in any specific industry or market.
However, besides offering customers the complete administration of their logistic activities, UAE
Logistics also offers logistics and supply chain management development and consulting servic-
es, as a form of reaching other segments of the market. As Höglund pointed out himself, a) LCTs
may not be appropriate to all customers, and b) there are companies that do not want to out-
source the totality of their logistic function to another company. UAE Logistics core-
competencies are also within logistics and supply chain management, and thus it is within this
business area the company has decided to make the difference. Being this is in line with the
resource-based and core-competence views of the firm.
Looking at UAE from a strategy perspective, one can infer from the empirical data presented in
the previous chapter that UAE Logistics not only controls global logistics flows, but also has of-
fices in Dubai and Dallas, determining these factors the company’s geographic scope. Moreover,
and as expected it was difficult to ascertain the single firm’s competitive priorities and scope.
This, as previously explained, most certainly has to do with the fact that while acting as supply
chain integrator within different supply chains, UAE has the responsibility to assist their clients
in achieving the competitive priorities (cost, quality, flexibility or delivery) that these aspire
(Stock et al. 1998).
From an internal structural perspective, UAE shows similarities with Mintzberg’s divisionalized
form. This can be confirmed by looking at the company’s organizational chart which was pre-
sented on the previous chapter (empirical data). The geographic dispersion of the firm’s struc-
ture, is shown by the fact that UAE has offices outside Sweden, namely in Dubai and in US.
62
Finally, when looking at the firm’s roll on the network structure and its cooperation or relation-
ship with the other partners within the supply chain, I believe the company shows high levels of
information exchange, interdependence, goal consistency but even formality. As the reader
may recall from the empirical data, the well functioning of a LCT is very much based on standard
operating procedures, which should be followed from both UAE’s customers but also by the
customer’s suppliers. When it concerns aspects such as ‘control of power’ and ‘time horizon’,
these are medium to low, and thus in line with the Stock et al. organizational structure differ-
ences table (figure 3:4).
6.1.3 Volvo Logistics
From the market-based perspective of the firm, Volvo Logistics differentiate themselves from
their competitors by having specialized themselves in logistics solutions for the automotive in-
dustry (inbound, outbound and packaging). Although a large part of the customers come from
within the Volvo Group, the company stands on its “own legs” and thus many of the automotive
suppliers are part of their customer base. Moreover, as stated above, the company’s core-
competency is within logistics and supply chain management, and thus is within this business
area the company has decided to make the difference, with the particularity that their core-
competence is within the automotive industry which even more difficult to imitate. Again, this is
in line with the resource-based and core-competence views of the firm (see page 26).
Strategically, Volvo Logistics with its ca. 1000 employees and offices spread worldwide, namely
in Europe (Sweden, Belgium, France and UK), US, Brazil, China and Australia for example, is of
the three interviewed companies the one which has the widest geographic scope. Moreover,
due to its close relation to the Volvo Group, the company’s competitive priorities and scope are
to a certain degree dependant on the group goals, however as pointed by the Volvo Logistics
respondent because they are a large actor, they take can advantage of their purchasing power
when doing procurement and thus are able to achieve economies of scale.
From a structure perspective, Volvo Logistics as a single firm can be compared to Mintzberg
divisionalized structural form. The company, as previously mentioned in the empirical data
chapter, has three well indentified divisions (inbound, outbound and packaging), having each of
these divisions own business units managers and own logistics developing groups. However, one
need to bear in mind that Volvo Logistics is a company that perhaps because is fully owned by
the Volvo Group operates primarily within the group. Thus in relation to the group, Volvo Logis-
tics is part of a matrix structure (Daft 2007), taking the logistics function across the different
business areas of the group and integrating these in terms of logistics operations. As the reader
may recall from the theory chapter, Habib and Victor (1991), as cited by Stock et al., categorized
multinational corporations as pure structures, which include worldwide functional, international
division, worldwide product division, geographic region and matrix. This can be confirmed by
looking at Volvo Group organizational chart (appendix 3). Moreover, when analyzing the firm’s
roll on the network structure and its cooperation or relationship with the other partners within
the supply chain, and here I mean not only those within the Volvo Group, I believe the company
shows high levels of information exchange, interdependence, goal consistency but even formal-
ity. When it concerns aspects such as ‘control of power’ and ‘time horizon’ and ‘formality’, these
are medium to low, and thus in line with the Stock et al. organizational structure differences
table.
63
6.1.4 Theme discussion
As explained above, when analyzing Sonat, UAE Logistics and Volvo Logistics strategic blueprints,
namely from the market-based view of the firm, all these three companies show signs of using
market differentiation and segmentation techniques. First of all these companies differentiate
themselves from traditional 3PL companies in that they do not own any transport assets. Volvo
Logistics, on the other hand, differs from Sonat and UAE in that they own, although not many,
some warehouse and cross-docking facilities, which according with the respondent (Erkfeldt) is
closer to the concept of 3PL. In fact, it seemed to me that Volvo Logistics is in somewhat a tran-
sition period; the company aims to become something in the frame of a 4PL but is still not there
yet, as Erkfeldt explained himself.
Moreover, from a resource-based view of the firm, which according to Weiss (2007) offers either
a different or complementary view on a firm strategy, one can infer that all these companies put
emphasis on logistics and supply chain management know-how as the core competency as well
as on the knowledge embedded on the firm’s human capital.
All three interviewed companies have well defined geographic scopes. While Sonat have as
clients companies which have the majority of their logistic flows within Sweden, Sonat and Vol-
vo, on the other hand, have wider geographic scopes in that they operate globally. Furthermore,
as previously explained it was difficult to establish each of these companies’ competitive priori-
ties (e.g. cost, quality, flexibility or delivery) because their role as supply chain integrators is to
assist their clients in achieving these competitive priorities, which may vary between different
clients. Most likely one would find a mix of the above mentioned competitive priorities.
From an organizational structure perspective, as single firms Sonat, UAE Logistics and Volvo
Logistics do not vary so much. These companies’ organizational structure, as previously men-
tioned, can be compared to Mintzberg divisionalized form. However, Volvo Logistics besides
being significantly larger and having a much wider geographic dispersion play a total different
role within the network organization. One needs to bear in mind that Volvo Logistics primarily
functions within the group taking the logistics function across the different business areas of the
group and integrating these in terms of logistics operations. In fact Volvo Logistics is perhaps of
the three companies the one that is closer to Stock et al. concept of manufacturing enterprise,
where the logistic function creates the balance between the enterprise structure and strategy.
Sonat and UAE Logistics, on the other hand, are companies that have emerged on the market as
a result of the outsourcing trend. As companies started to outsource different parts of their lo-
gistics activities (warehouse, transport etc.) to different 3PL service providers, they lost the lo-
gistic knowledge and thus the competence not only to integrate the different activities but even
the capacity for continuous development.
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6.2 Theme 2 – Enterprise Logistics Integration
In order to analyze this theme, I will be using the theories that relate to logistics and supply chain
management as well as the concept of 4PL, which the reader may find in appendix 1.
6.2.1 Sonat
Sonat, as previously established in the empirical data operates as though they were an in-
sourced logistics function. Moreover, Sonat offers a wide range of logistics services within
supply chain development, and management and operation of costumers’ logistics activities.
Examples of these are; replenishment, which includes activities such as planning and inventory
management, order fulfillment (e.g. receipt and planning of orders, customer service and capaci-
ty planning), and finally distribution and its related activities such as transport booking, respec-
tive documentation, customs related issues and daily problem solving, as pointed out by Con-
radson. These activities in turn can be linked to the concept of synchronous supply chains intro-
duced during the theory chapter (3.3.3), where Christopher (2005) introduces some of the key
processes that supply chain partners need to link (both upstream and downstream) so that
supply chain synchronization is achieved. One can recognize some of these processes (e.g. plan-
ning and scheduling, order management, sourcing and procurement etc).
When comparing Sonat’s structure and the services the company provides against the concept
of 4PL (appendix 1) and its four key components, the company satisfies many of these require-
ments. For example, Sonat acts sometimes, if not always, as the supply chain visionary. By work-
ing in close contact with their client company, in project form as described during the empirical
data section, Sonat assists their clients in the re-engineering of their logistic processes as well as
its continuous innovation and development. This aspect can in turn be related to the theory
chapter and Aronsson et al. (2006) explanation on the re-engineering of business processes.
Where the authors explain that by eliminating, simplifying, integrating or by performing activi-
ties or processes simultaneously the total lead time can be substantially reduced. This in other
words is the same to say that a large part of the non-value adding time existent in the value
chain will disappear. Furthermore, Sonat employees are in general experienced logisticians and
by maintaining neutral positioning they are able to manage multiple 3PL service providers. The
company is however a non-asset provider in a sense that they do own assets such as transporta-
tion, warehouse or cross-docking facilities, manufacturing outsourcing or co-packing services,
these are instead outsourced to 3PL logistic companies which, as explained above, are super-
vised by the company in name of their customers. Meaning Sonat has access to the ‘best of
breed’ of service providers (Christopher, 2005). This can also be related to the empirical data;
according to Conradson, the fact that Sonat is in business with many companies within different
industries makes their expertise and know-how well established in the market. From this one
can perhaps infer that the company is able to achieve economies of scale for example on out-
bound logistics.
Moreover, when it comes to be the supply chain informediary (Christopher, 2005), as previously
mentioned, Sonat has formed diverse partnerships with market leaders within IT and informa-
tion flow (e.g. Oracle for applications and data-warehousing, and with Viewlocity, a global pro-
vider of B2B integration and online trading community solutions for integration of systems and
information (page 37). Thus the company assists their clients in achieving IT system integration,
as well as in converting data into information that can later be used to support managerial deci-
sions. Moreover, the IT integration is intrinsically related to aspects of supply chain management
which were addressed during the theory chapter, e.g. Vendor Managed Inventory (VMI) practic-
es, point of sales (POS) systems or electronic data interchange (EDI/EDIFACT) which can be used
for electronic invoicing (Christopher, 2005).
65
6.2.2 UAE Logistics
UAE Logistics, as previously explained in the empirical data section, also offers logistic services
which range from the complete administration of a customer’s logistic operations through the
use of so-called logistics control towers (LCT), to supply chain developing and consulting. The
latter is in turn divided into four different areas; namely Process and System Development,
Supply Chain Development, Supplier Development and Outsourcing. The logistics services that
UAE provides are in many ways similar to those offered by Sonat; as per the empirical data these
may vary from procurement, inbound and outbound logistics (e.g. planning and call off, trans-
port planning and booking as well as documentation and customs handling), invoicing etc. Fur-
thermore UAE also performs logistics diagnoses as well as assists customers minimizing their
overall costs by using Business Intelligence applications in order to draw statistical inferences as
well as different KPIs as explained by UAE respondent.
Once again these activities can be linked to the concept of synchronous supply chains intro-
duced during the theory chapter (3.3.3) and some of the key processes that supply chain part-
ners need to link (both upstream and downstream) so that supply chain synchronization is
achieved (Christopher, 2005). Namely, planning and scheduling, order management and sourc-
ing and procurement, but even to the concept of reduced non-value adding time and the points
brought up by Aronsson et al. (2006) which lead to reduced lead times (e.g. elimination, simplifi-
cation and synchronization).
When analyzing UAE Logistics in light of the 4PL concept (appendix 1) and its four key compo-
nents, one can infer that the company satisfies several aspects of the criteria. For example,
competencies are within logistics and supply chain management and thus the core of its person-
al is formed by experienced logisticians. Moreover although UAE Logistics is a non-asset provider
(physical) they have access to the best-of-breed of service providers, where the relation to DHL
and Deutsche Post World Net cannot be ignored. An example of this connection could be given
by the fact that UAE Logistics uses a common project methodology within DHL, called First
Choice and that is based according to the respondent on lean production, kaizen or continuous
improvements (see section 5.2.3).
Moreover, UAE Logistics and their concept of Logistics Control Towers LCT is very close to the
idea of ‘Supply chain infomediary‘ (see appendix 1) introduced in the theory chapter (Christo-
pher, 2005). I found particularly interesting that both suppliers and customers can log them-
selves in into the company website. Customers, in turn can use Worldgate portals, track-and-
trace and web-order services.
Finally, as in the previous case, the IT integration is closely related to other supply chain man-
agement techniques which were addressed during the theory chapter, e.g. Vendor Managed
Inventory (VMI) practices, point of sales (POS) systems or electronic data interchange
(EDI/EDIFACT) (Christopher, 2005). Aspects such EDI and electronic invoicing were aspects which
were brought up by Höglund during the interview.
6.2.3 Volvo Logistics
Volvo Logistics, which as the reader understands not only from the empirical data but even from
the analyze made on the firm from an organizational design perspective, both using Weiss and
Stock et al. theories, has a very different structure within the network organization. This was
actually one of the reasons why the company was studied. I wanted to analyze the concept of
4PL from a different perspective, meaning one where the interpretation of the 4PL may take
another perspective. This is also in line with Christopher’s (2005) description of the concept of
4PL and his suggestion that the 4PL can take different structural formats
66
As the reader may recall from the theory chapter, Carr suggests that “companies with all in
place…were less likely to find the 4PL model desirable” (Richardsson, 2005). However, in the
same article there are examples of companies that because they had in-house all the resources
required to become a 4PL, instead of outsourcing the logistics function to another company, the
company becomes the 4PL for its customers instead. This thought can in turn be linked to the
introduction section of this theme, particularly to the example given of deconstruction of the
value chain. And with this I mean, by transferring assets as well as the know-how embedded in
the human capital to Volvo Logistics, Volvo Group may have created its own model of 4PL. As it
can be understood from the empirical data, Volvo Logistics does not only have costumers from
within the group but even from outside the group, namely suppliers from within the automotive
industry. This way Volvo Logistics brings competitive advantages to the Group, but even to other
partners within the supply chain.
Furthermore the company is specialized and has its origins within the automotive manufacturing
industry. That in my opinion makes Volvo Logistics a good example of the concept of enterprise-
logistics integration which Stock et al. (1998) introduces in their study. As the reader may recall,
the authors suggest that logistics, like any other activity that provides competitive advantages
(e.g. technology or manufacturing), is the key to achieve a proper balance between the structure
and the strategy chosen by the enterprise. This can be confirmed by looking at appendix 3,
where the process oriented role played by Volvo Logistics is very clear. However, the company in
my opinion is still changing or perhaps adjusting to the continuous changes in the competitive
environment.
The company has several aspects that can be related to the concept of 4PL and its characteris-
tics. Erkfeldt himself is the project manager for the global logistics development group, with all
that means…
As Erkfeldt explained, Volvo Logistics works continuously to reduce lead times and thus costs,
aspects which can be linked to the concept of synchronous supply chains (Christopher 2005 and
Aronsson et al. 2006). Moreover Volvo Logistics works actively with inbound, outbound and
packing logistics and without doubt has access to the best-of-breed of service providers within
the automotive shipping industry.
From an IT perspective, as the reader could understand from the empirical data, Volvo Logistics
as a better controlling system on the outbound (A4D) then on inbound logistics, however realiz-
ing the importance of inbound logistics, the company is working intensively to achieve the stan-
dardization and integration level desired, which hopefully will happen when the company will
implement the system ATLAS. These integrations problems can in part be justified by the fast
growth rate of the company (40percent in the last six years) as well as by the sheer size of the
company with several offices dispersed worldwide. Moreover Volvo Logistics work with the con-
cept of Co-managed inventory introduced on the theory chapter, as explained by Erkfeldt.
67
6.2.4 Theme discussion
As previously mentioned in the theory chapter, whereas the value chain concept is the result of
the integration of different assets and activities into a single organization, deconstruction on the
other end, refers to the dismantling of the value chain while maintaining the identity of its indi-
vidual parts (Weiss, 2007). Once companies have dismantled their value chains, which were
vertical by nature, they started to outsource some of these activities to the market, focusing
instead on their core-competencies. The result is that the value chains become dispersed and
thus difficult to control.
The above is in my understanding what created the need for enterprise logistics integration. And
here logistics should be seen not only as the flow of products and services, but also from the
perspective of information and financial flow. Moreover, enterprise logistics integration can be
looked upon from two different dimensions; deconstruction and disintermediation. These as-
pects which as the reader may recall were brought up during the theory chapter (3.2) are in my
opinion directly related to the structure of the interviewed companies, explaining in my opinion
the differences between Sonat and UAE Logistics on one hand, and Volvo Logistics on the other.
Sonat and UAE Logistics are in my opinion two typical examples of companies that have ap-
peared on the market to satisfy the need of companies that either have decided to outsource
their logistics and supply chain management function or the staff that these client companies
employ simply do not have the sufficient logistics know-how (Richardsson, 2005). Even though
as pointed out by Höglund (UAE), it is required that the client company keeps some level of lo-
gistics knowledge in-house in order to be able to take full advantage of the services provided by
the 4PL. Moreover, and linking to the previous theme Sonat and UAE Logistics role in the net-
work structure, it seems to me that can also be related to the concept of disintermediation,
which as the reader may recall from the theory chapter, is intrinsically connected to the prin-
ciple of modularization of systems, which reduces complexity and costs (Weiss 2007). As ex-
plained, the coordination of logistics is a good example of this concept; “…efficiency can be in-
creased by bundling the logistic needs for many firms operating within many industries together
into just one firm in the value chain that is a specialist in that activity…”. Both Sonat and UAE
Logistics handle different logistics activities to client companies which in turn operate within
different industries.
Finally Volvo Logistics, on the other end, resembles more an example of a deconstruction of a
value chain, which has the reader, may recall from the theory chapter, “it implies the slicing of
the value chain into small distinct modules”, as well as “the shifting of a set of resources or as-
sets previously employed or owned by one firm to another firm on a grand scale” (Weiss, 2007).
This aspect can be linked to the empirical data collected during the interview with Erkfeldt in
what regards the position of Volvo Logistics as an independent company but also as part of the
Volvo Group.
The above mentioned difference between Sonat and UAE on one end and Volvo Logistics on the
other can in turn be linked to Christopher’s (2005) description of the 4PL in that the author sug-
gests that the concept of 4PL can take different formats for different supply chains, meaning the
formats may vary from a joint ventures, to long-contracts or some other hybrid formats (Chris-
topher, 2005). Having said that, one can perhaps infer that when analyzing the concept of 4PL
perhaps is not as important to look at the structural format but more on its content, and by that
I mean the cornerstones that Christopher (2005) brings up in the presentation of the model (i.e.
a) systems architecture and integration skills, b) a supply chain ‘control room’, c) ability to cap-
ture and utilize information and knowledge across the network and d) access to ´best of breed’
asset providers. Which in my understanding all three companies do.
68
6.3 Theme 3 – Logistics and Competitive advantages
In order to analyze this theme, I will use a slightly different approach. The motivation is that the
companies have now been analyzed from two different themes and thus it is clear by now that
the services they provide are somewhat alike. Hence instead of analyzing each company indivi-
dually, I will pursue a more generalist analyze, where I will use examples from the three inter-
viewed companies.
In general terms, one could say that a 4PL company by providing customers with integrated or
standardized IT applications applied to logistics and business operations (e.g. Transport Man-
agement, Warehouse Management or Enterprise Resource Planning, see appendix 5) helps the
supply chain to achieve integration and thus reduce the risks of the bullwhip effect syndrome
(Nienhaus et al., 2003), which as previously mentioned creates a very negative impact on the
performance of the supply chain as a whole.
For example, as previously established in the empirical data as well as in the previous analyze
section, all three companies (Sonat, UAE and Volvo Logistics) provide services such as; sourcing
and procurement, planning and scheduling with suppliers (i.e. capacity management), co-
ordinate pricing and transportation, order management (e.g. order tracking, exception man-
agement) inventory planning and ownership between the upstream and downstream actors in
the supply chain. Moreover, Sonat, UAE and Volvo Logistics are able not only to speed up the
communication flow but also to improve inventory visibility (e.g. by using VMI or CMI tech-
niques) and thus enable for inventory reduction. This in turn will free capital which can be used
in a more profitable manner. As a result, the different actors within the supply chain (suppliers,
3PL and the client company) are able to not only reduce transaction- and administrative costs
(Svensson, 2001), but also the costs related to inventory holding (e.g. cost of capital, storage and
handling, obsolescence, damage and deterioration, pilferage/shrinkage and last but not least
management costs) which as previously explained are quite significant (Christopher, 2005).
Furthermore, as explained on chapter 3.1.2.1 Strategy, firms compete for example on cost, qual-
ity, flexibility (or agility) and delivery, which includes some of the aspects that are closely related
to the concept of customer service e.g. stock availability, delivery frequency and reliability etc.
(Aronsson et al. 2006). When it comes to cost advantages one could say, for example, that Volvo
Logistics as explained by Erkfeldt, due to its transport purchasing power is able to achieve econ-
omies of scale that result in extremely competitive prices. Moreover, by possibly assembling the
transport needs of Volvo Cars suppliers with their own, Volvo Logistics not only is able to
achieve economies of scale for themselves but also to the suppliers which if would purchase
transport on their own would pay a much higher price. Moreover these companies often per-
form supplier evaluation, measuring aspects such as ‘on-time’, ‘in-full’ and ‘error-free’ (Christo-
pher, 2005); meaning that there will be a guarantee that the suppliers, regardless if they are
suppliers of materials and components, transport or warehousing suppliers they need to have
higher quality. Hence, there will be a positive synergy within the supply chain. Additionally, and
on the same token by providing warehousing or managing warehousing through the use of 3PL
specialists, Volvo Logistics but also Sonat and UAE are able to achieve economies of scale which
also leads to cost reductions.
UAE Logistics as explained by Höglund in order to reduce costs or lead time, they first map out
how the customer operations looks like, and after they use a powerful software simulation tool
which will enable them to reach conclusions on the best way to use resources. When it comes to
increased growth profits Höglund said “lead time and logistics integrations are the two major
things; to shorten the lead time to the market as well as decreasing the variance of the lead
time”. The respondent as the reader may recall added that focus should be on having “less
69
warehouse facilities, shorter cash-to-cash cycles, focus on payables and then of course finally to
focus on the core competence.” These aspects can be related to the Du-pont Model theory as
well as to the section on Logistics and the return on Investment.
The other factor that leads to competitive advantages is time. As the reader may recall from the
theory chapter, Christopher (2005) suggests that customers (both consumers and industrial) are
increasingly more time sensitive, demanding products to be delivered yesterday if possible. Na-
turally by providing consulting in supply chain management and business processes, all three
interviewed companies help their customers to reduce the already mentioned non-value adding
activities which besides adding to the total end-to-end lead time, increases cost substantially. As
the reader may recall the importance of time and the constant fight to reduce lead-time was an
aspect touched by all three respondents.
The final aspect that leads to competitive advantages is customer service and customer reten-
tion. As previously stated, the main goal of a market-driven logistics strategy is to achieve ‘ser-
vice excellence’ in a cost-effective manner. All of the interviewed companies assist their clients
in reducing order lead times, as well as to achieve higher delivery reliability and security (Arons-
son, 2004). Not only on inbound logistics through supplier evaluation and supervision, as ex-
plained above, but also on outbound logistics where factors such as delivery reliability, delivery
security or stock availability, for example, are also present. Moreover, an efficient distribution
and high customer service levels may in turn lead to customer retention and increased sales
revenue.
Hence, the combination of reduced operating costs and increased sales will hopefully lead to
increased profits as explained through the Du-pont model theory (Christopher, 2005). Moreo-
ver, by increasing visibility within the supply chain, inventories levels as previously explained can
be reduced significantly. As a result firms are able to reduce their warehouse facilities, as ex-
plained by Höglund. Moreover, through efficient pipeline management and reduced cash-to
cash cycles, 4PL companies are able to assist their clients in receiving end-customer payments
sooner rather than later, thus reducing the risk for liquidity problems. This together with re-
duced inventories and asset deployment (e.g. property, plants and equipment) will lead to lower
levels of capital employed and thus to increased return on investment (Christopher, 2005).
70
7 Conclusions
In this chapter the author presents his final thoughts on the research.
The purpose of my study was to depart from Stock et al. (1998) framework which recognizes
that the competitive environment forms a firm’s organizational design and thus affecting its
strategy and structure. Moreover, the authors connect a firm’s strategy, its structure and its
logistics capacity with how the firm will perform; hence recognizing the increasing importance
that logistics/supply chain management is having in being the link between new manufacturing
strategies and organizational structures, which have emerged as a result of changes in the com-
petitive environment.
Furthermore, I was interested in exploring and understand if the recent business concept, the
4PL, is here to satisfy the needs for enterprise-wide logistics integration mentioned by Stock et
al. on their study, and if so how are these integrations bringing competitive advantages for the
different partners within the supply chain.
In order to accomplish the above it was necessary to find 4PL companies operating in Sweden,
which was not an easy task as explained during the practical method chapter. This difficulty
could be due to the fact that there are different terminologies used to describe this new busi-
ness organizational concept; e.g. total service providers (TSP), supply chain integrators or 4PL as
adopted in this study. Additionally, these concepts allow for a certain degree of flexibility in its
form, which in the case of a 4PL for example and as previously explained, can take the form of a
hybrid organization formed from a number of different entities, often establishing joint-ventures
or long-term contracts. Thus perhaps difficult to precisely pin-point what is a 4PL or not.
Nevertheless, I knew that there were companies operating in the field of logistics and supply
chain management which differentiated themselves from the traditional 3PL service providers
and the idea that logistics besides the manufacturing of goods was very much about transporta-
tion and warehousing. Today, as one could observe through the study, inbound logistics is seen
to be just as critical factor as outbound logistics. These companies were offering a different type
of service, something more in line with logistics and supply management consulting, where
processes and information flows are more in focus as opposed to traditional logistics which have
been very much about material things.
When comparing the interviewed companies against the concept of 4PL originally created by
Accenture, one can infer that the interviewee companies satisfy several of the cornerstones
required to be considered a 4PL that is; a) systems architecture and integration skills, b) a supply
chain ‘control room’, c) ability to capture and utilize information and knowledge across the net-
work, and d) access to ‘best of breed’ of asset providers. Demonstrating however the inter-
viewed companies slightly different interpretations of the concept.
Sonat, for example, it seemed to enroll in some sort of long-contract with their clients, position-
ing themselves as an in-sourced company. The concept of Logistics Control Towers (LCT) pro-
vided by UAE Logistics is in my opinion very close to the concept of control room intelligence
introduced by Accenture, something which was not as strongly emphasized on the other studied
companies.
Introduction
Theoretical
Method
Theory
Pratical
Method
Empirical
Data
Analysis &
Discussion
Conclusions
71
Moreover, it seemed to me that Sonat and UAE are examples of companies that have emerged
on the market to provide logistics services and business process consulting to firms (or networks
of firms) that do not have the logistics and IT-integration competence within the network. Thus
providing these companies, in my opinion, the logistics integration across the network and con-
sequently to a certain degree the balance between the structure and the strategy of that same
network. In turn and as a result of transferring the coordination of logistics to specialized com-
panies, the client firms are able to take advantage from the knowledge and the economies of
scale obtained by these specialized companies. These facts can be related not only to Stock et
al. model (1998), but also to Weiss (2007) and the concept of disintermediation previously men-
tioned (p.24), as well as to Christopher (2005) and the idea of ‘extended-enterprises’, which
according to the author firms need to become part of networks of specialist providers of re-
sources and competencies (p.7). Meaning that, firms with other core-competencies rather than
logistics and IT-integration, outsource these services to specialized companies within these fields
(e.g. Sonat and UAE).
Finally, Volvo Logistics is an example of a company that emerges from within the group in order
to provide logistics integration (inbound, outbound and packaging) and development within the
different product lines of the group as demonstrated by the matrix organizational structure pro-
vided by the company (appendix 3). As previously discussed in the analysis section, Volvo Logis-
tics it seems to me to be a good example of a deconstruction of a value-chain (p.24), but also
closely related to the Stock et al. (1998) conceptual framework in that, logistics (but also IT no-
wadays) makes the bridge between new manufacturing strategies and organizational structures
now globally dispersed. Moreover, one gets the impression that Volvo Group had the logistics
and the IT competencies in-house and thus did not need to outsource (in-source?) these compe-
tencies. Instead Volvo Group created small distinct modules which not only help the group to
achieve integration and thus competitive advantages, but also by enabling these different mod-
ules or firms (e.g. Volvo Logistics or Volvo IT) to specialize themselves, these are able to inde-
pendently sell their competence and services outside the group.
Perhaps more important than concentrating on how much the interviewed companies fully fit or
not the concept of 4P, is the fact that that companies are realizing the importance of logistics as
a tool to achieve competitive advantages. As previously mentioned, I found that the interviewed
companies provide logistics services such as procurement, planning and inventory management,
order fulfillment and capacity planning as well as other logistic activities related to the control of
distribution. Hence, by assisting their customers to take control of the different stages of the
supply chain from Inbound to Outbound, these companies are able to increase the visibility
within the supply chain, leading this to substantial cost reductions, shorter time to market and
hopefully improved customer service which in turn may lead to increased sales.
One should however bear in mind that the use of a 4PL is not on its own the solution for all the
logistics problems a firm or a network may have. There may be situations where the 4PL concept
is not the most adequate, an issue which was touched upon by the UAE respondent. One of the
reasons could be that the client companies have reduced the logistics personnel so much, or the
employed staff does not have the required competence, that the client companies have difficul-
ty to take full advantage of the knowledge embedded on the outsourced company. Another
important aspect that at times may hinder the success of the relationship 4PL/Client is that for
the concept to work the client company needs to be willing to give up some of the visibility into
the daily activity. This issue was bought up by Richardson (2005) on her article “What are you
willing to give up?” According to the author, a 4PL relationship can make the client company
more competitive however the firm needs to accept that they will not have full control over the
supply chain.
72
Summarizing, I believe that one can infer that as the result of the outsourcing trend, firms have
realized that they can no longer compete alone. Instead, in order to remain competitive and
afloat, firms need to become part of interdependent networks of specialist providers of re-
sources and competencies, which compete against other networks. Moreover, technology is
unfolding at a growing pace thus making it very difficult to individual firms to keep up with the
development and to continuously invest not only in new equipment and software but also in
highly trained personnel. As a consequence of this, firms or networks have started to share joint
strategies, aligning their processes and sharing open communication and transparency. Moreo-
ver, there was evidence that firms are leaving behind the traditional view of buyer/supplier rela-
tionships, which has been somewhat adversarial, in order to embrace a more win-win approach
characterized by co-operation between network partners leading this to improved performance
across the supply chain. Other relevant aspect present during the study was the overall concern
in increasing supply chain visibility so that both inventory levels and cash-to-cash cycle are re-
duced.
As a final remark, I noticed that all the interviewees mentioned during the interviews environ-
mental issues such as emissions for example, and they work they do on those areas. Perhaps
would be interesting to do further research in order to understand if the 4PL integrator can help
the supply chain network to become more environmental friendly, taking into account the man-
ufacturing and transportation that is continuously occurring.
73
8 Appendices
8.1 Appendix 1 – The 4PL concept (Accenture)
74
8.2 Appendix 2 – Structural configurations
CEO
VP Product
mangement
VP
Development
VP
Marketing
VP
R&D
VP
Finance
Techno-
structure
Support
staff
Middle
management
Strategic
apex
Operating core
Mintzberg’s Fives
(Bolman & Deal, 2003, p.74-79, revised)
Manager
Product 2
Manager
Product 2
Manager
Product 1
The matrix structure (own creation)
As per Daft (2007) the matrix is the best organizational structure for a company
that requires being multi-focused where both product and function or product and
geography are needed to be emphasized at the same time. The author points out
that matrix are unique in a sense that it gives both product division and functional
structures (horizontal and vertical) are implemented simultaneously. Moreover,
matrix structure besides being a strong form of horizontal linkage is similar to the
use of full-time integrators which again is very relevant in for the purpose of our
study.
Professional bureaucracy
Divisionalized form
75
8.3 Appendix 3 – Volvo Group organization chart
(Courtesy of Volvo Logistics)
76
8.4 Appendix 4 - Interview Guide
General Interview Guide
The single firm theme
1. What position do you have within the company?
2. Do you consider the company to be a 4PL company?
3. How much has the company grown since its start (year)?
(i.e. nr of employees, turnover and number of customers)
4. What is the company’s vision?
5. Would you say the company has more customers importing (raw materials) or exporting
(finished goods)? Do they operate globally?
Enterprise logistics integration theme
6. The company helps companies to develop logistics strategies. Can you develop on the
different business areas?
7. What major impediments does the company encounter when implementing 4PL services
for a new customer?
8. Does the company work in project form? If so, could you please briefly describe your line
of action?
9. Which activities within your customers’ logistics pipeline do you have control over?
inbound logistics
internal logistics
outbound logistics
10. As a Supply Chain Manager, how would you describe the concepts of the extended enter-
prise and the virtual supply chain?
What are the implications for a logistics manager?
11. Do your customers use Vendor Managed Inventory (VMI) / Co-managed Inventory (CMI)?
12. Could you please describe the network IT-systems integration?
Is the company involved in the selection process of the customers’ suppliers?
Do you check for their quality and the quality of products?
13. Supply Chains have become more global. How does the company help customers manag-
ing supply chain risks?
14. What are the advantages with having long-term partnerships? Disadvantages?
77
General Interview Guide
Logistics & Competitive advantages theme
During the last decade companies have realized the importance of Logistics/Supply Chain Man-
agement as a source of gaining competitive advantage.
15. In which way does the company help customers to achieve that?
Costs
Customer service
Time
16. In the your perspective what is the best way to:
Reduce cash-to-cash cycles?
What type of steps would you use?
Reduce costs i.e. capital binding?
Increase customer service levels?
17. What type of logistics tools do you use in order to achieve the above?
78
8.5 Appendix 5 - Graphic representation of IT integration with use of an LCT (own creation)
KPI &
Statistics
Shipping
Invoice
handling
Monitoring
Planning
Customs
Integrator
SAP Movex
Log2000
...
Baan
79
9 Reference List
9.1 Articles
Dawe, R.L., (1998) “A Case Study of Advanced Supply Chain Strategy: The Evolving Role of the
Total Service Provider”, Council Supply Chain Management Professionals, case study; EBusi-
nessCS, Golden Gate University, San Francisco
Ericsson, D. (2000), “e-Logistics – Key to Success in the Digital Economy”, Eurolog conference,
University of Skövde
Nienhaus, J., Ziegenbein, A., Duijts, C. (2003), “How human behavior amplifies the bullwhip ef-
fect – a study based on the beer distribution game online”, Centre for Enterprise Sciences (BWI),
Zurich
Richardson, H.L. (2005) “What are you willing to give up?”, Penton Publishing, Logistics today
Stock, G.N., Greis, N.P., Kasarda J.D. (1998) “Logistics, strategy and structure: A conceptual
framework”, International Journal of Operations & Production Management, Vol.18 No.1, pp.
37-52
Svensson, G. (2003), “The bullwhip effect in inter-organizational echelons”, International Journal
of Physic Distribution & Logistics Management, Vol.33 No.2, pp.103-131
Van Hoek, R.I., Weken, H.A.M., (1997), “SMART (car) and smart logistics”, FIER research insti-
tute, Erasmus University of Rotterdam
9.2 Books
Allen, L. (2005), ”The Global Economic System Since 1945”, 1
st
edition, Reaktion Books Ltd, Lon-
don
Bolman, L.G., Deal, T.E. (2003), ”Reframing Organizations: Artistry, Choice, and Leadership”, 3
rd
edition, US: Jossey-Bass – A Wiley Imprint
Boyce, G., (2000), “Co-operative Structures in Global Business: Communicating, transferring
knowledge and learning across the corporate frontier”, Routledge Publication
Bryman, A., Bell, E. (2003), “Business Research Methods”, Oxford University Press, Oxford
Corbett, M.F. (2004), “The Outsourcing Revolution: Why It Makes Sense and How to Do It Right”,
Dearborn Trade Publishing, USA
Creswell, J. W. (2007), “Qualitative inquiry and research design”, 2
nd
edition, Sage Publications
Inc, Thousand Oaks
Christopher, M. (2005), “Logistics and Supply Chain Management: Creating Value-Adding Net-
works, 3
rd
edition, Pearson Education Ltd, UK
Daft, R.L. (2007) “Organizational Theory and Design: Understanding the theory and design of
organizations”, International Edition, Cengage Learning
Duening, T.N. (2005), ”Essentials of Business Process Outsourcing”, John Wiley & Sons, Inc.
Frazelle, E.H. (2001), ”Supply Chain Strategy”, McGraw-Hill Education Group, USA
Hansson, B., (2004), ”Social konstruktion av vad?”, 1
st
edition, Thales, Stockholm
80
Harbhajan, K.S., Varinder P.S. (2006), ”Outsourcing and Offshoring in the 21
st
century: A Socio-
Economic Perspective”, Idea Group Publishing, Australia
Holme I., Solvang, B. K. (1997), “Forskningsmetodik: om kvalitativa och kvantitativa metoder”
(översättning av Björn Nilsson), 2
nd
edition, Student litteratur, Lund
Johansson-Lindfors, Maj-Britt (1993), ” Att utveckla kunskap: om metodologiska och andra
vägval vid samhälsvetenskaplig kunskapsbildning”, Studentlitteratur, Lund
Meyers, R. G. (2006), ”Understanding empiricism”, Acumen, Chesham
Opie, C. (edited by), (2004, “Doing educational research: a guide to first-time researchers, xvi,
SAGE, London
Oskarsson, B., Aronsson H., Ekdahl B. (2006), “Modern logistik: för ökad lönsamhet”, 3
rd
edition,
Liber, Slovenian
Waters, D. (2003), ”Global Logistics and Distribution Planning: strategies for management”, 4
th
edition, The Institute of Logistics and Transport, published by Kogan Page Ltd
Weiss, M. (2007), ”Efficient Organizational Design: Balancing Incentives and Power”, 1
st
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9.3 Internet
Affärsdata,http://www.ad.se, 2008/09/10
DHL,http://www.dhl.se/publish/se, 2008/09/11
Sonat AB,http://www.sonat.se, 2008/05/20
UAE Logistics,http://www.uaelogistics.com, 2008/09/11
Volvo Group,http://www.volvo.com/group/global, 2008/09/11
Volvo Logistics Global,http://www.volvo.com/logistics, 2008/09/11
doc_343945587.pdf
The business environment has changed tremendously in the last two decades. Corporations have been forced to realign their global strategies and in order to cut costs, they started to transfer activities which were previously performed in-house to the market (e.g. IT, manufacturing or logistics) focusing instead on their core competencies.
Bachelor thesis
Spring semester 2008
Supervisor: Ulrica Nylén
Author: Paulo Bragança
Fourth-Party Logistics
- A study on modern logistics
2
Acknowledgements
This paper is my Bachelor of Science in International Business Administration and Economics
thesis which concludes my studies at the Umeå School of Business and Economics, Umeå Uni-
versity. The work has been conducted between March 2008 and January 2009.
Even though I have put a lot of hard working hours into the writing of this paper, it would not
have been possible to write it without the support of several people. First and foremost I would
like to thank Ulrica Nylén, Associate Dean at USBE and my thesis supervisor for her valuable
insightful suggestions and professional attitude towards the study.
Furthermore, I would like to thank my friend Sverker Brännström, and Harry Uddståhl from Adi-
tro Logistics, here in Umeå for their time during the kick-off of the study as well as the partici-
pating interviewees for their time and willingness in enabling me to collect the required empiri-
cal information.
Finally, I would like to thank my close family and friends for their continuous encouragement
and understanding.
Umeå, January 2009
Paulo Bragança
3
Abstract
The business environment has changed tremendously in the last two decades. Corporations
have been forced to realign their global strategies and in order to cut costs, they started to
transfer activities which were previously performed in-house to the market (e.g. IT, manufactur-
ing or logistics) focusing instead on their core competencies. Nowadays companies outsource
several of their logistics activities to so-called third-party logistics (3PL) companies and thus from
being centralized, vertically integrated and with single-sited manufacturing facilities, enterprises
have their network of resources globally dispersed.
As a result corporate management has realized that the competitive vehicle is no longer the
individual firm, with its own resources and competencies. Instead, in order to cope with shorter
product life cycles and ever more demanding customers, both on industrial and consumer mar-
kets, individual firms need to strategically become part of ‘extended enterprises’; that is, net-
works of specialist providers of resources and competencies.
However, because the capabilities to manage the entire network do not exist in any one organi-
zation, a new business organization was needed to provide the strategic knowledge and compe-
tence that will enable the complete integration of the supply chain. This new sort of firm, with
core competencies on logistics processes and supply chain IT integration, besides offering con-
sulting services on implementation and development of logistics and supply chain solutions,
manages through the use of logistics control towers “the best of breed” 3PL specialists, integrat-
ing the end-to-end supply chain so that superior customer value is delivered in the most cost
effective way.
But how does the use of a supply chain integrator help the supply chain as a whole to achieve
competitive advantages that enhance end-customer service?
This paper aims to answer the above question. I felt that in order to be able to do that the most
appropriate research strategy would be a qualitative study. Hence, a multi-case study was per-
formed on three Swedish companies which differentiate themselves from the more traditional
third-party logistics providers. The study was conducted by performing a set of semi-structured
interviews with these companies. In order to give the study some sort of structure, I used an
interview guide which was divided into three different themes; a) Organizational Design, b) En-
terprise Logistics Integration and c) Logistics and Competitive advantages.
Once the interviews were transcribed and summarized, the empirical findings were then ana-
lyzed in light of a theoretical framework chosen previously. These theories, which in general
terms relate to organizational design, supply chain management and finance, were also divided
in the same themes as above.
Finally, conclusions were drawn by linking the results of the interviews with the theoretical
framework. It became evident that the supply chain integrator can help the supply chain as a
whole not only to reduce costs related to inventory holding but also to help its client to improve
end-customer service.
4
Table of Contents
TABLE OF FIGURES .............................................................................................................................. 6
1 INTRODUCTION ......................................................................................................................... 7
1.1 PROBLEM BACKGROUND .........................................................................................................................7
1.1.1 Moving towards a new organizational paradigm ...................................................................7
1.2 RESEARCH SUBJECT CHOICE ......................................................................................................................9
1.2.1 Research Question ...................................................................................................................9
1.2.2 Research Purpose .....................................................................................................................9
1.3 DISPOSITION .......................................................................................................................................10
2 THEORETICAL METHOD ............................................................................................................ 11
2.1 PRECONCEPTIONS .................................................................................................................................11
2.2 VIEWS OF KNOWLEDGE AND REALITY ........................................................................................................12
2.2.1 Epistemology .........................................................................................................................12
2.2.2 Ontology ................................................................................................................................13
2.3 SIENTIFIC APPROACH .............................................................................................................................14
2.4 SECONDARY SOURCES ...........................................................................................................................14
3 THEORY ................................................................................................................................... 15
3.1 ORGANIZATIONAL DESIGN......................................................................................................................15
3.1.1 The building blocks of organizational design .........................................................................16
3.1.2 Combining Logistics, Strategy and Structure .........................................................................17
3.1.2.1 Strategy .............................................................................................................................................. 18
3.1.2.2 Structure ............................................................................................................................................ 19
3.1.2.3 Structure - Network organization .................................................................................................... 21
3.1.3 Strategic blueprints of the firm ..............................................................................................23
3.1.3.1 Market-based view ........................................................................................................................... 23
3.1.3.2 Resource-based & Core-competencies view ................................................................................... 24
3.2 THE VALUE CHAIN – SHIFTING THE BOUNDARIES (OUTSOURCING / DECONSTRUCTION/ DISINTERMEDIATION) .......25
3.3 ENTERPRISE LOGISTICS INTEGRATION .......................................................................................................26
3.3.1 Logistics & Supply Chain Management Theory ......................................................................26
3.3.2 The supply chain integrator ...................................................................................................29
3.3.3 Information and the synchronous supply chain .....................................................................30
3.4 LOGISTICS AND COMPETITIVE ADVANTAGES ...............................................................................................32
3.4.1 Delivering customer value .....................................................................................................32
3.4.2 Customer service objectives and priorities .............................................................................33
3.5 THE BULLWHIP EFFECT ...........................................................................................................................34
3.6 LOGISTICS AND THE RETURN ON INVESTMENT ............................................................................................36
4 PRACTICAL METHOD ................................................................................................................ 38
4.1 INITIAL STEPS .......................................................................................................................................38
4.2 THE SELECTION OF SITES ........................................................................................................................39
4.3 METHOD OF COLLECTING DATA ...............................................................................................................41
4.4 METHOD OF ANALYZING DATA ................................................................................................................41
4.4.1 Interview guide ......................................................................................................................42
4.4.2 Presentation of the interviews ...............................................................................................42
4.5 EVALUATING THE RESEARCH ...................................................................................................................43
5
5 EMPIRICAL DATA ..................................................................................................................... 44
5.1 SONAT ...............................................................................................................................................44
5.1.1 The single firm .......................................................................................................................44
5.1.2 Enterprise Logistics Integration .............................................................................................45
5.1.3 Logistics & Competitive advantage .......................................................................................46
5.2 UAE LOGISTICS....................................................................................................................................47
5.2.1 The single firm .......................................................................................................................47
5.2.2 Enterprise Logistics Integration .............................................................................................48
5.2.3 Logistics & Competitive advantage .......................................................................................53
5.3 VOLVO LOGISTICS .................................................................................................................................54
5.3.1 The single firm .......................................................................................................................54
5.3.2 Enterprise Logistics Integration .............................................................................................56
5.3.3 Logistics & Competitive advantage .......................................................................................59
6 ANALYSIS & DISCUSSION .......................................................................................................... 60
6.1 THEME 1 – THE SINGLE FIRM ..................................................................................................................60
6.1.1 Sonat ......................................................................................................................................60
6.1.2 UAE Logistics ..........................................................................................................................61
6.1.3 Volvo Logistics........................................................................................................................62
6.1.4 Theme discussion ...................................................................................................................63
6.2 THEME 2 – ENTERPRISE LOGISTICS INTEGRATION ........................................................................................64
6.2.1 Sonat ......................................................................................................................................64
6.2.2 UAE Logistics ..........................................................................................................................65
6.2.3 Volvo Logistics........................................................................................................................65
6.2.4 Theme discussion ...................................................................................................................67
6.3 THEME 3 – LOGISTICS AND COMPETITIVE ADVANTAGES ...............................................................................68
7 CONCLUSIONS ......................................................................................................................... 70
8 APPENDICES ............................................................................................................................ 73
8.1 APPENDIX 1 – THE 4PL CONCEPT (ACCENTURE) .........................................................................................73
8.2 APPENDIX 2 – STRUCTURAL CONFIGURATIONS ...........................................................................................74
8.3 APPENDIX 3 – VOLVO GROUP ORGANIZATION CHART (COURTESY OF VOLVO LOGISTICS) ...................................75
8.4 APPENDIX 4 - INTERVIEW GUIDE .............................................................................................................76
8.5 APPENDIX 5 - GRAPHIC REPRESENTATION OF IT INTEGRATION WITH USE OF AN LCT (OWN CREATION) ..................78
9 REFERENCE LIST ....................................................................................................................... 79
9.1 ARTICLES ............................................................................................................................................79
9.2 BOOKS ...............................................................................................................................................79
9.3 INTERNET ............................................................................................................................................80
6
Table of figures
Figure 3-1: Building blocks of organizational design (revised) ......................................................................17
Figure 3-2: The Conceptual Framework (Stock et al., 1998) .........................................................................18
Figure 3-3: The relationship of organizational design – Efficiency vs. learning outcomes (revised) .............20
Figure 3-4: Organizational structure differences ...........................................................................................22
Figure 3-5: The stages of evolution; functional to process orientation (revised) .........................................27
Figure 3-6: The extended enterprise and the virtual chain (revised) ............................................................28
Figure 3-9: The bullwhip effect – Increasing demand variation in a supply chain ........................................34
Figure 3-10: The Du-Pont model revised; return on investment (ROI) .........................................................36
Figure 4-1: Interview table ............................................................................................................................42
Figure 5-1: UAE logistics organizational chart (revised) ................................................................................47
Figure 5-2: Logistics Control Tower (courtesy of UAE Logistics, revised) ......................................................49
Figure 5-3: System platform Worldgate (courtesy of UAE Logistics) .............................................................52
7
1 Introduction
In the chapter below, the reader will be introduced to the background that led to the choice of
the study subject as well as to both the research question and purpose of the study. The chapter
finishes with a section where the disposition of the thesis is presented.
1.1 Problem Background
It is a broadly recognized fact that the business environment has changed tremendously in the
last two decades. The political and the financial changes that have occurred in several of the
world’s economies (Allen, 2005), allied to sound technological advances, in particular the devel-
opment of the Internet and applications using the internet (Ericsson, 2000) are having a major
impact on the market and thus on logistics operations, my area of research.
Until the late 1970s, the corporate rationale paradigm was “bigger is better”. Organizations
grew by expanding their boundaries vertically. This, besides enabling economies of scale
(through high volume strategy), gave the opportunity to secure suppliers and distribution chan-
nels (Harbhajan, 2006). However, during the early 1980s, increasing oil prices affected manufac-
turing companies forcing these to reduce costs in order to stay afloat. The world’s largest econ-
omies, i.e., US, UK and Japan were facing severe economical recessions, showing a combination
of low productivity, high unemployment and high inflation (stagflation). The above factors, led
to the privatization revolution; first in US and UK and later spreading itself globally (Allen, 2005).
The liberalization process brought the de-regulation of market sectors such as telecommunica-
tion, energy and financial services, which were previously dominated by single firms enjoying
natural monopolies. With the fall of regulatory barriers new business opportunities were
created motivating creative entrepreneurs and companies alike to seek for new business mod-
els, through restructuring and reshaping of their boundaries. The changes in the financial sys-
tems, on the other hand, besides establishing new legal requirements, leading to increased dis-
closure and transparency, it also accelerated the development of global financial markets and
new ways for company financing (Weiss, 2007).
1.1.1 Moving towards a new organizational paradigm
The above factors created a radical u-turn in the way of thinking. Hence, in mid 1980s, academ-
ics and management gurus started to believe that the key to competiveness is “small size and
high value”. The organizational paradigm shifted towards smaller and agile organizational forms
capable of rapidly changing their cost structures (Harbhajan, 2006).
According to Stock et al. (1998) the changes in the business environment forced large-scale en-
terprises not only to realign their global strategies and manufacturing activities, but also to flat-
ten their hierarchies in order to speed up information flows. Moreover, in order to cut costs,
corporations started to use outsourcing to streamline operations, moving from being centra-
lized, vertically integrated and with single-sited manufacturing facilities, to having their network
of resources globally dispersed, thus creating the concept of “new manufacturing enterprise”.
Currently, companies outsource everything from their data centers, payroll or receivables de-
partments (Corbett, 2004), to subcomponents of their products, or even large parts of their lo-
Introduction
Theoretical
Method
Theory
Pratical
Method
Empirical Data
Analysis &
Discussion
Conclusions
8
gistics processes (Remko, 2002). When it concerns logistics, companies today outsource much
more than the inbound (purchasing) and outbound (distribution) transport of goods. This logis-
tics outsourcing trend has developed into what today is identified as third-party logistics (3PL).
The 3PL service providers are firms that offer a wide range of logistic services; varying from in-
bound consolidation services (pick-up of material and components from suppliers using central
hubs or cross-docking facilities for re-sorting and consolidating for final delivery), to other value
adding activities such as, quality control and just-in-time deliveries to production lines, which
implies the delivery of the required quantity at the right time (Aronsson et al., 2006). Further-
more, companies operating globally may outsource their logistics operations to several different
3PL service providers, who are specialized in different geographical markets (continents) or in-
dustries.
Naturally, the technological progress, in particular the World Wide Web (Internet) which created
a standard global communication and information system, now present in nearly every city or
village around the world, has enabled enterprises to completely new collaboration structures
(Duening, 2005). From a logistics perspective, the development of the Internet and the applica-
tions using it, also implied a shift from supplier oriented (push) to customer oriented strategies
(pull), causing this additional pressure on the need for an effective management of the supply
chain (Ericsson, 2002). In fact, in order to frame this new concept, the author uses the term
“demand chain management” to describe the concept of managing a truly market or customer
driven supply chain.
Today’s global economy is characterized by continuous change and increasing turbulence. Tech-
nological development is unfolding at a growing pace, bringing forward new products and more
efficient production methods. Competition is harder than ever and firms at a global level must
provide high-quality and low-cost goods in order to retain their market share. Customers, on the
other hand, besides being more informed, demand better service and have a much broader
spectrum of needs, reaching from quality to corporate social responsibility and environmental
awareness, in other words in this new business era customers are in the driving seat (Christo-
pher, 2005). As a result companies have become market oriented; that is instead of focusing
primarily on their internal functions (e.g. purchasing or manufacturing) and economies of scale,
they have come to realize the importance of customer service as a strategic tool.
Moreover, the traditional business model was to a great extent transactional. Products and ser-
vices were purchased and sold but little focus was put on long-term and mutually dependant
relationships. However, as a result of some successful pioneering outsourcing activities, corpo-
rate management in general, has come to realize that the competitive vehicle is no longer the
individual firm, with its own resources and competencies. Instead, in order to maintain the
competitive edge, individual firms need to strategically become part of so called ‘extended en-
terprises’; that is, networks of specialist providers of resources and competencies (Christopher,
2005). The author points out that in order to achieve that it is required more than just a simple
re-drawing of the organizational chart. It entails a cultural change in the principles that have
traditionally guided organizations. According to Christopher (2005) in this new era of network
competition, the path to sustainable advantage depends on the capacity to manage the complex
mesh of relationships so that end-user requirements are delivered in a cost-effective and value-
creating manner. Enterprises need to be able to co-operate with stakeholders and partners
within the supply chain network in order to cope with shorter product life cycles and customers,
who besides being extremely time-sensitive also demand high levels of delivery flexibility, both
on industrial and consumer markets.
Christopher (2006 p.295) explains further that because “the capabilities to manage the network
probably do not exist in any one organization” a new business organization is needed to provide
9
the strategic knowledge and competence that will enable the complete integration of the supply
chain. According to the author this new sort of firm, with core competencies on logistics
processes and supply chain IT integration, besides offering consulting services on implementa-
tion and development of logistics and supply chain solutions, would also manage through the
use of logistics control towers “the best of breed” 3PL specialists, integrating the end-to-end
supply chain so that superior customer value is delivered in the most cost effective way.
This study will focus on this new type of organization; the supply chain integrator (see appendix
1), a company which delivers network management capability.
1.2 Research subject choice
When I first started to discuss with my fellow colleagues at the International Business Program,
which areas each of them would research about, it become evident that only I was interested in
studying logistics and supply chain management as a subject. Most likely this had to do with the
fact that previous to my academic studies, I already had a long working career within logistics
and supply chain management. Moreover, I started my professional career by working for a
large IT manufacturer during the 1980s and have since then kept an interest on IT development
and business solutions. Thus, the interest to study this new type of organization (the supply
chain integrator) which combines logistics with information technology as the core-competence
it was very much personal.
Moreover, I knew that companies have changed their views on the importance of logistics on
the company’s overall performance; from being considered an uninteresting business overhead
relating to warehouse and transport (Waters, 2003), logistics is today used by many companies
as a strategic tool to achieve competitive advantages over their competitors (Aronsson et al.,
2006). Hence, I felt that I wanted to explore how this new business organization can help the
supply chain to achieve end-to-end integration that will lead to competitive advantages.
1.2.1 Research Question
How does a supply chain integrator help the supply chain as a whole to achieve competitive ad-
vantages that enhance end-customer service?
1.2.2 Research Purpose
In the conclusion of their study, Stock et al (1998) suggest that their conceptual framework
should be used as basis for further empirical research. The authors recognize that the competi-
tive environment forms a firm’s organizational design and thus affect its strategy and structure.
Stock et al. connect a firm’s strategy, its structure and its logistics capacity with how the firm will
perform, hence recognizing the increasing importance that logistics/supply chain management is
having in being the link between new manufacturing strategies and organizational structures,
which have emerged as a result of changes in the competitive environment. According to these
authors, “enterprise-wide logistics integration” (both internal and external) is the key that pro-
vides the proper balance between strategy and structure within the supply chain.
The purpose of my study is to explore and understand if this recent business concept is here to
satisfy the needs for enterprise-wide logistics integration mentioned by Stock et al. on their
study, and if so how are these integrations bringing competitive advantages to the different
partners within the supply chain.
10
1.3 Disposition
According to Johansson-Lindfors (1993), the use of summaries in the beginning or end of each
chapter of a thesis is important because with a logical and clear disposition follows a better un-
derstanding. Hence this section is created to give the reader a clear outline of what lays ahead.
Moreover, and according to the author above each chapter of this thesis will have a brief sum-
mary of its contents.
Chapter 1 – Introduction
In this chapter the reader was introduced to the topics normally addressed on the introduction
chapter of a thesis. Besides having introduced the problem background, I explained the reasons
behind the choice of subject, formulated the research question and described the purpose of
the study.
Chapter 2 –Theoretical Method
This section is thought to give the reader an understanding of the author’s background, his pre-
vious knowledge and preconceptions about the subject and how these may influence the study.
Moreover, the reader will be introduced to the different theoretical views on how research
should be pursued, concluding the author by establishing the research method that will be tak-
en.
Chapter 3 – Theory
This chapter provides the very essence, the fundaments, of this thesis. During this chapter the
author introduces the theoretical framework chosen for the consequent analysis of the empiri-
cal findings. The author introduces a set of theories relating to organizational design and its
building blocks (e.g. strategy and structure), as well as logistics and supply chain management
theory.
Chapter 4 –Practical Method
Throughout this chapter the reader will have the opportunity to follow the description of the
different steps taken in order to collect the required empirical data. Thus, this section is thought
as to reflect the practical method used to conduct the research.
Chapter 5 – Empirical Data
The empirical findings on the interviewed companies are presented within this chapter.
Chapter 6 – Analysis & Discussion
What is the meaning of the results and how are these related to theory? On this chapter the
author aims to analyze the findings on the lights of the theories chosen.
Chapter 7 – Conclusions
In the final chapter the author will present his final thoughts on the study.
Appendix
In the appendix section the reader will find the interview guide used to conduct the interviews
as well as the description of the 4PL concept, develop by Accenture. Moreover, the reader will
find some examples of organizational structural charts.
Reference List
In this section the author lists the sources used during the conduction of the study, namely ar-
ticles, books and websites.
11
2 Theoretical Method
According to Bryman & Bell (2005), the theoretical method used on the research links the way
researchers visualize the connections between the nature of social reality and how it should be
examined. Hence, in this chapter besides describing to the reader my epistemological and onto-
logical standing points, I will unfold the preconceptions I have on the subject as well as will lay
down the followed scientific approach.
2.1 Preconceptions
According to the majority of the business research methods literature, studies might be affected
by the preconceptions researchers build upon over their life time. Preconceptions (both theoret-
ical and practical) may affect not only the way the researcher conducts the study but also the
conclusions he/she reaches (Johansson-Lindfors, 1993). After all an individual’s preconceptions
are based upon his/hers social background, ethnicity and religion as well as the practical expe-
riences and the education that individual, respectively, lived and obtained during his/her life
time (Johansson-Lindfors, 1993 and Holme & Solvang, 1997).
I was born in Lisbon, Portugal, where I was brought up. After having finished my upper second-
ary school education, I started my professional career (1982), as warehouse manager for an IT
distributor company in Lisbon. I left the company (and Portugal) after seven years moving to
Fort Lauderdale, Florida, in order to pursue an international career within the luxury cruise in-
dustry. Since then I have acquired a wide experience not only in global purchasing and logistics,
but also on other business administration areas in a wide range of industries. During those ap-
proximately seven years I spent working onboard cruise ships I had the opportunity to travel
around the globe, having visited over one hundred countries and all five continents. Moreover, I
lived and worked in a few other countries besides Portugal; namely in US, England, Spain and
now in Sweden, where I had the opportunity to gain a deeper understanding of these cultures
and of my own.
Approximately five years ago I moved to Sweden due to personal reasons. That acted as a driv-
ing force to my decision of adding new theoretical knowledge to my already long professional
career and thus starting a Bachelor’s degree in International Business Administration and Eco-
nomics at Umeå University. During this period I have studied, besides the Swedish language,
areas such as; International Business Environment, Marketing, Finance and Accounting as well as
Economics. Moreover, I studied Leadership and Project management at the university’s Sociolo-
gy Department as well as e-Logistics and e-Business via Skövde University. At bachelor’s level (C-
level), my choice was Organizational Design and Logistics/Supply Chain Management, however
recognizing the fact that we live in a financial world, I have studied Corporate Finance and In-
vestments at D-level. Naturally my preconceptions have been affected by all the above life and
business experiences.
Introduction
Theoretical
Method
Theory
Pratical
Method
Empirical
Data
Analysis &
Discussion
Conclusions
12
2.2 Views of knowledge and reality
2.2.1 Epistemology
Epistemology is the theory of knowledge and it is concerned with the nature of knowledge, its
development, what is possible to know as well as understand and represent (Opie et al, 2004).
According to the authors the motives for doing research, are often to obtain and communicate
knowledge with the goal of informing either practice or policy and thereby make improvements.
But what is knowledge? According to Meyers (2006, p. 54), David Hume depicts knowledge as
perception, memory and the instinct to connect ideas. According to the latter, “The best we can
do when experience leads us to believe something is to consider the issue in light of other things
we believe from experience. This capacity distinguishes the wise from the vulgar, not an
independent intellectual faculty.”.
Changes in the environment affect not only organizations and the agents operating within it, but
also the intellectual environment in which scholars perform their research. As Hansson (2004)
points out, the questions about what knowledge is, and how to develop that knowledge have
been under discussion during the last two decades. This epistemological clash has been between
the positions defended by the “positivists” and the “hermeneutics” (Bryman & Bell, p. 15). Until
the 1980s, the theory of knowledge was very much dominated by the positivistic epistemologi-
cal view (Hansson, 2004), which is closely connected to quantitative research methods, focusing
on amounts and numbers when gathering and analyzing data to explain phenomena. This view,
among other things, defends that only phenomena confirmed by the human senses should be
considered as knowledge and that the purpose of theory is to generate hypotheses that can be
tested (verification or falsification), using therefore a deductive principle (Bryman et al, 2003).
The hermeneutics (interpretivism) views, on the other hand, have since the 1980s become to be
seen as an alternative to the positivism orthodoxy. According to the latter, social- and natural
sciences are different in fundament, hence requiring research procedures that mirror the differ-
ences between humans and the natural order. In other words, the social scientist is required to
understand and interpret the subjective meaning of social action (Bryman & Bell, 2003, p.15-16).
After having reasoned quite extensively around these two different epistemological approaches,
I felt that even though the study requires some objectivity which is provided by the positivistic
view, it is also required an ‘interpretivistic’ approach. Opie et al. (2004) suggest that this feeling
is quite usual as most people feel torn between these extreme views (positivism vs. interpretiv-
ism). I must admit I fall into this category of people; to me things are not black or white. First I
do not believe a researcher is able to achieve neither an objective reality nor a complete objec-
tivity, when it comes to business research studies. Organizations and networks are made of
people and these bring with them a back-pack of preconceptions, values and knowledge that
cannot be dissociated from them. Moreover, I feel that it is required a less linear approach than
the one suggested by the positivism view (deductive), after all it is neither my intention to test
hypotheses against the theory through the collection of quantitative data nor to generalize the
findings through the use of statistical tools.
As previously mentioned, the purpose is to study the competitive advantages that can be
achieved by the supply chain as whole, by using a 4PL service provider. Christopher (2005, p.8),
explains that logistics competitive advantage is obtained through a combination of two factors,
being these cost and value advantages. Cost advantages are provided by the effective (objective
and factual) management of the supply chain, leading to increased efficiency and productivity
and hence to cost reductions. Value advantages, on the other hand, can at times be intangible.
For example, according to the author, it has been recognized for a long time within the market-
13
ing research area that “customer don’t buy products, they buy benefits.” The author means that
the product is not just a physical thing, but it is also something that delivers benefits which are
not possible to measure in a sense as the one defended by the positivistic theory, i.e. the social
benefits for the customer or end-user.
2.2.2 Ontology
Studies the nature of reality and its characteristics (Creswell, 2007, p. 16). Cresswell’s (2007, p.
19-22) introduces Post-positivism, Social Constructivism, Advocacy/Participatory and Pragmat-
ism as four possible ontological paradigms or worldviews. According to post-positivism, those
who are performing a qualitative research following this paradigm will take a scientific approach
to research that is; it will have elements of reductionism, logic, emphasizes on empirical data
collection, it is cause and effect oriented and deterministic. Social constructivism, in turn, de-
fends that people are continuously trying to understand and make sense of the environment
they are embedded in. According to this view, the research should depend as much as possible
on the contributor’s views of the problem and rather than starting with a theory (the principles
of deductive theory), this view defends that researchers inductively develop a theory, after hav-
ing departed from a general research question. The third paradigm, ‘advocacy/participatory´, on
the other hand, has as its ground belief that research should have an action agenda pursuing
reforms that may change the realities of the contributors and the systems in which they either
work or live in. Examples of areas of research are for example issues related to oppression, do-
mination or alienation.
Once again, I must admit having mixed feelings from an ontological perspective. On one end the
study focuses on organizational design, and traditionally organizations are associated with social
order. There are hierarchies and people besides following standardized procedures apply rules
and regulations. Thus requiring an objectivistic approach in order to understand the reality of
the organization. On the other end, these same organizations operate in environments where
the social order is in constant change, with agreements being continuously “established,
renewed, reviewed, revoked, revised…”(Bryman & Bell 2003, p.20). Thus requiring also a
construcionist approach in order to understand the everyday intereaction between the actors
working within these same organizations.
However, it is with the fourth ontological paradigm (pragmatism) that I feel most identified with.
According to Rossman & Wilson (as cited in Creswell, 2007, p.22-23), pragmatism leads to the
concentration on the underlying problem and the questions relating to it rather than focusing on
the methods used. Creswell (2007) develops this concept further by putting forward a list of
characteristics that originates from Cherryholmes (1992) and Murphy (1990). According to the
latter, researchers sharing this view can choose rather freely on the methods and procedures
when doing research, since they are not devoted to the use of a single approach to philosophy
and reality. But most importantly (to me) pragmatists agree that research always occurs in
social, historical, political and other contexts, a fact that is well noticed in this paper.
14
2.3 Sientific approach
Summarizing, logistic competitive advantage have two components; financial (facts) which are
measurable and from where statistical inferences can be drawn, but also a value component
which at times can be intangible and thus requiring understanding and interpretation of the
reality.
Since the research question is to ascertain “how does a supply chain integrator help the supply
chain as a whole to achieve competitive advantages that enhance end-customer service”, I be-
lieve that a qualitative study, as opposed to the more ´’positivistic” oriented quantitative study,
is the most suitable method to be able to obtain the empirical data required to answer the
study’s research question.
Moreover, according to the business research litterature there are two theoretical approaches
usally used when conducting research being these; the inductive and the deductive approaches.
While the latter approach (deductive) is characterized by studies starting with the researcher
based existent theories for a specific domain, formulating a hypoteses (or hypotheses) that later
need to be subject to empirical scrutiny (Bryman & Bell, 2003); the inductive approach is
characterized by the researcher formulating a theory based on the data collected.
Even though qualitative research, more often than not, follows an inductive approach as
opposed to the deductive which is often linked to quantitive researches, personally I believe this
study follows an approach which is closer to deductive. There are a few reasons that explain my
believe but perhaps the most important is that prior to conducting the study, I read several
existing theories relating to both organizational design and supply chain management which
value could not be ignored. Moreover, it was through the knowledge acquired that I was able to
build up an interview guide which reflected relevant theories on the chosen fields. Finally, I used
that same interview guide to collect empirical data which was later analyzed in light of theories
previously chosen. However, as Bryman & Bell (2003, p.13) points out to a large degree the
researcher should think about the deductive and inductive strategies more as tendencies rather
than a “hard-and-fast distinction”
2.4 Secondary Sources
By definition secondary sources are documents (e.g. articles, books or internet) that relate or
discuss issues addressed previously. Hence, the theories used in this thesis have all been found
through the use of secondary sources. Moreover, the majority of the secondary sources used
were primarily obtained by using the Umeå University Library as well as its database resources.
Examples of these databases are Academic Search Elite, Business Source Premier (EBSCO),
ebrary (e-books) or Web of Science. The reason behind this choice of secondary resources is that
the articles included in the above mentioned databases are peer reviewed and thus assumed to
have the quality required in a study of this kind.
15
3 Theory
This chapter is thought to provide the reader with the insight over the theories used to analyze
the empirical data. As the reader will notice, the theories have been grouped into three themes;
Organizational Design, Enterprise Logistics Integration and Logistics & Competitive Advantages.
These same themes will be also used to present the data collected as result of the interviews as
well as for its analysis.
As previously mentioned on the problem background, the competitive environment has
changed tremendously in the last two decades. The political and financial developments oc-
curred at global level, accompanied by relevant technological progresses; in particular the Inter-
net and its applications have certainly contributed to this. Additionally, customers in these glob-
al markets demand cheaper and higher quality products, to be delivered yesterday, if possible.
These factors acted as driving force for change, pushing companies to shift their boundaries, and
hence moving from being vertically integrated, to having their resources horizontally dispersed
in networks created with worldwide based strategic partners. Naturally, this in turn put extreme
pressure on logistics due to the need for enterprise-wide logistics and strategic integration.
3.1 Organizational Design
The modern industrial firm as a concept has been developing ever since it came to existence
after the Industrial Revolution period. This concept was based on obtaining economies of scale
and scope, hence compensating those firms which made the largest investments in production
facilities, distribution channels and management competencies. While economies of scope re-
sult from producing several items at the same time (Weiss, 2007), economies of scale occur due
to the spread of the fixed costs over a greater output volume (Christopher, 2005). The appear-
ance of the industrial firm, characterized by its mass production system has motivated research-
ers to theorize about the reason for the existence of the firm.
Weiss (2007, p. 21) clarifies that characteristics normally linked with the concept of firm are for
example; “…the long-term nature and ongoing relationship in contrast to the arm’s length trans-
actions;” the idea that “…firms allocate authority to some partners over others’ power”, and
that team production occurs within the constraints of the firm.
Traditionally, firms have followed a function oriented division of labor. That is, employees were
placed into different functions or departments where the different firm activities took place.
Even though this concept enables the efficient uses of resources it often leads to ‘silo’ type de-
partment mentality which is a hindrance to future development. Enterprises (firms) expanded
the value chain activities upwards by taking over purchasing or exploration of raw materials and
downwards by taking control over the distribution of goods (Weiss, 2007). The author explains
that besides investing in raw material extraction facilities as well as in production sites for in-
termediate goods, firms took over the transport between the various production sites. Moreo-
ver, the firms that achieved economies of scale and scope through the above investments had
become large enough to take control over the distribution of goods themselves, and thus replac-
ing intermediaries. This combination created substantial cost advantages. Developing on the
above concepts, Chandler (1990), as cited by Weiss, suggested that in order for the modern in-
Introduction
Theoretical
Method
Theory
Pratical
Method
Empirical
Data
Analysis &
Discussion
Conclusions
16
dustrial firm to succeed it was just as important to invest in management know-how and capa-
bilities as it was to invest in production and distribution.
Weiss (2007, p.22-31) continues his explanation of the foundations of organizational design by
introducing four different strands of the theory of the firm, these are; transaction cost theory,
agency theory, incomplete contract theory and finally the firm as a knowledge-based entity.
The study will follow the knowledge-based view. The reason is that the knowledge or compe-
tence perspective of the firm is process oriented, and thus in line with the demands put on to-
day’s supply chain networks. Moreover, function oriented firms are often slow to react to
changes in the competitive environment. Thus it is suggested that organizations should focus on
key business processes, which are by definition cross-functional and market facing (Christopher,
2005). Finally, because the knowledge-based view of the firm takes influences from a wide spec-
trum of literature strands (i.e. strategic management, Austrian economics and sociology), it be-
comes more dynamic, particularly when compared with the other theories mentioned above
(Weiss, 2007 p.32). Thus also in line with the characteristics required from today’s supply chain
networks, that is; they are required to be agile and with high levels of maneuverability in order
to cope with nowadays turbulent and volatile markets (Christopher, 2005, p.33)
3.1.1 The building blocks of organizational design
According to Weiss (2007, p. 167), there are four building blocks within the organizational de-
sign, being these Strategy, Boundaries, Internal Structure and Governance, each having different
parameters.
Because it would be beyond the scope of the study to explain in depth each of the above build-
ings blocks, I will focus on the two blocks present in Stock et al. (1998) model (see next chapter),
which links Logistics, Strategy and Structure. However, in order to give the reader a better un-
derstanding, below the reader will find a brief description of each of these concepts.
The Strategy, defines the purpose of the firm, its reason of existence. The firm strategy should
describe which resources the organization will use in order to create value and hence generate
economic rents. The same truth applies when referring to market positions and resources. Ac-
cording to Weiss (2007, p. 73) only a distinctive configuration of these themes will enable the
creation of added value above the typical return on a perfectly competitive market.
The Boundaries of the firm on the other hand, reflect the scope of the firm, the setting and its
business opportunities. The boundaries determine power (i.e. through the separation between
those inside and outside the firm) and shape investment incentives. These incentives can be
both good and suboptimal for those on the inside. Good if they have access and know-how to
interpret others information, but also negative because they may rely too easily on others deci-
sions and thus issues such as free-riding, rent-seeking or unprofitable investments may occur.
Moreover, the complementary between the balance of incentives and power is affected by the
configuration of a firm’s boundaries and thus the right degree of permeability enables the flow
of important resources across organization boundaries and markets where their value creation
potential is enhanced (Weiss, 2007, p.90).
The Internal structure of an organization, besides establishing how processes are organized, sets
the boundaries of a firm, both internally and externally, and supports the governance of the firm
by ascertaining the decision rights and decision-making power, hence determining how the
strategy translates into success or failure. According to Weiss (2007), the firm’s investments in
value-creating assets, market positions and resources depend on the information about such
opportunities and on the decision-making power of those which hold the relevant information.
17
The author suggests that by matching information with decision rights and by setting incentives
to use these wisely, value is created and surpluses are maximized.
Finally, the firm’s Governance reflects how any success or failure is distributed amongst the
firm’s constituencies. According to Weiss (2007), the consistency between these different blocks
is of the utmost importance in order to keep incentives for value-creating investments and the
distribution of power in balance.
The table below summarizes the themes and parameters, included on the different building
blocks of the organizational design theory (Weiss, 2007, p.166). As the reader will realize, some
of these parameters have been touched upon in the introduction chapter of this study (i.e. ver-
tical and horizontal integration, outsourcing, departments and divisions, etc.)
Building Blocks Main Themes Design Parameters
Strategy Purpose Vision and mission
Activities Integration and construction of the value chain
Positions Markets and Industries
Resources Leverage across business units
Boundaries Setting Vertical and horizontal integration
Shifting Outsourcing, deconstruction, disintermediation
Blurring Degree of permeability
Internal structure Information Tacitness, asymmetry, performance measurement
Power Degree of centralization, leadership
Incentives Reward structure, career concerns, internal markets
Co-ordination Departments and divisions, hierarchy, organizational culture
Governance Constituencies Relative importance of stakeholders
Mechanisms Complete or rational contracts, exit, voice, access, ownership
Forms Legal constructs
Figure 3-1: Building blocks of organizational design (revised)
3.1.2 Combining Logistics, Strategy and Structure
At this stage I would like to recall that the purpose of the study is to use Stock et al. (1998) con-
ceptual framework as point of departure and study the concept of supply chain integrator as the
player that provides the enterprise-wide logistics integration.
As it can be depicted from the figure below, Stock et al. (1998) suggest that a firm’s (or network)
overall performance is affected by the balance between strategy, structure and the organiza-
tion’s logistics capacity. The authors explain that in the context of their study, performance can
be measured in two different categories; internal and external measures of performance. More-
over, Stock et al. clarify that the above mentioned internal measuring category reflect the single
firm (or network) competencies in areas such as manufacturing and logistics (e.g., cost, delivery
speed and reliability, quality, flexibility). The authors continue their explanation by clarifying
that while internal performance measures aspects which are more often than not under the
control of the firm, hence providing a clearer indication of the relationship effects between
strategy, structure and logistics. External performance measures, on the other hand, reflect
factors outside the firm’s boundaries. Some of these later measurements could be; market
share, return on investment or sales growth. Moreover, the authors point out that beside those
measurements named before, firms (and networks) may even measure non-financial factors
such as customer satisfaction for example.
18
The figure below gives a graphic representation of Stock et al. (1998, p.39), conceptual frame-
work, this study point of departure.
Figure 3-2: The Conceptual Framework (Stock et al., 1998)
Stock et al. suggest that the competitive environment besides reflecting economic and technolo-
gical trends affecting the global market, it includes aspects such as the market demands; i.e. the
variability and the location of demand or characteristics of the product like the price. Moreover,
in their framework, Stock et al. (1998) treat logistics as one of the variables, or tools, an organi-
zation has at its disposal in order to gain competitive advantage. The authors mean that, like
technology or management techniques capacity, the existence or not of effective logistics,
which have become a primary mechanism for integration and coordination, may determine the
achievement (or not) of these same competitive advantages. Furthermore, the authors’ connect
a firm’s organizational design (its strategy and structure), with its logistics capacity and explain
that the strategic choices made will affect the balance between the building blocks and hence
determine how the company will perform. Hence, once the logistics environment is seen as a set
of variables, logistics activities such as; transport, warehousing, procurement and so on, can be
conceptualized. Thus, the competitive advantages to be gained will depend on the efficiencies
each firm will achieve on these specific activities in relation to the others firms within the indus-
try.
3.1.2.1 Strategy
Stock et al. (1998) explain that in the context of their study, strategy relates in first place to
business strategy. While the competitive scope relates to the range of activities, in which the
organization decides to excel, the geographic scope establishes the location of supply and de-
mand and its spread. Because companies also purchase abroad, for the purpose of this study,
the strategic geographic scope includes both, the supplier and the customer base. For instance,
enterprises in order to achieve economies of scale may outsource part of their production to
suppliers based in different countries, where manpower is cheaper. Once, the different modules
are assembled into a product and hence adding value to it, organizations may then later distri-
bute these products worldwide. Additionally, when it concerns logistics, companies may follow
different strategic approaches, for inbound, internal and outbound logistics. The latter can in its
turn be further divided into business to consumer (B2C) and business to business (B2B) which in
turn more often than not imply the need for different logistic strategic approaches.
Competitive Environment
Logistics Environment
Strategy
Competitive Priorities
Competitive Scope
Geographic Scope
Structure
Network Organization
Geographic Dispersion
Enterprise Logistics
Integration
Performance
19
Stock et al. (1998) explain further that there are a number of possible strategic logistics activities
where firms choose to excel in order to meet customer demand (competitive priorities). In gen-
eral terms, firms compete on cost, quality, flexibility (agility) or delivery. The latter, in turn, in-
cludes components such as stock availability, delivery frequency and reliability or order size-
constraints (Christopher, 2005). Moreover, whereas firms competing on cost leadership will
concentrate on achieving the lowest producing cost within its industry, firms competing on for
example; quality, flexibility or speed, will focus on differentiation. Stock et al. (1998), suggest
that both, quality and flexibility can be defined in several different ways. When it comes to the
concept of quality, the authors divide the quality concept in; performance quality and confor-
mance quality. While the former relates to the performance and features of a product, the latter
addresses issues such as conformance to product specifications or the absence of defects.
Flexibility, as previously mentioned, also has several possible definitions, depending on the con-
text in which it is used. However, for the purpose of this paper, and in accordance with the con-
ceptual framework chosen as basis for this research, flexibility will refer respectively to design
and volume flexibility (Stock et al., 1998). Miller and Roth (as cited in Stock et al. 1998, p. 41),
suggest that while volume flexibility refers to the capacity to respond rapidly to changes in real
demand, design flexibility, on the other hand, relates to the “capability to make rapid design
changes and/or introduce new products quickly”. Parthasarthy and Sethi (1992), as cited by
Stock et al. (1998), suggest that innovation both in product or process development can be seen
as a part of flexibility.
Besides competing on the above competencies, firms compete on time. The importance of time
as a competitive tool has been recognized for a while. Customers (both consumers and industri-
al) are increasingly more time-sensitive, thus demanding products to be delivered faster than
ever before (Christopher, 2005). Moreover, and in accordance with the old say, ‘time is money’.
Hence, the question is what is the cost of time? According to most of the business literature, the
cost of time is the additional cost a customer is willing to bear whilst waiting for a delivery. Na-
turally these factors, together with shorter product life cycles, have put additional pressure on
logistics management. Christopher (2005) points out that the risks attached with having lengthy
and slow-moving logistics pipelines have become unsustainable in today’s competitive environ-
ment.
3.1.2.2 Structure
According to Stock et al. (1998), there are several definitions and classifications have been given
for the concept of organizational structure.
The authors explain that while Ghoshal et al. (1994) describe organizational structure as the
dimension of centralization or decentralization different companies have, Habib and Victor
(1991), on the other hand, categorized multinational corporations as “pure” structures. These
included worldwide functional, international division, worldwide product division, geographic
region and matrix (Appendix 2), hence introducing a relationship between the corporate head-
office and the foreign operation. This view is shared by Daft (2007) who besides the above men-
tioned organizational structure forms (i.e. functional and functional with cross-functional teams
and integrators) adds three other possible organizational structures; divisional, matrix and vir-
tual networks. Daft explains that the concept of “virtual network structure” is an extension of
the concept of horizontal coordination and collaboration, as it goes beyond traditional organiza-
tion boundaries.
Daft (2007, p. 193-226), develops on Ghoshal’s et al. view and explains that vertically structured
(centralized) organizations are designed for efficiency and stability, while horizontally structured
(decentralized) organizations are most suitable for learning, innovation and flexibility. According
20
to the author, each firm has specific needs in what regards the degree of centraliza-
tion/decentralization required and thus firms may have to experiment different combinations
until they find the balance which best fits the company’s needs. The author continues his expla-
nation by clarifying that vertical linkages are first and foremost designed to control the organiza-
tion and are used to coordinate organizational activities between the top and the bottom of the
organization. Moreover, vertically structured firms have a wide range of structural tools (i.e.
hierarchical referral, rules, plans or formal management information systems). Horizontal infor-
mation linkages, on the other hand, refer to the amount of communication and coordination
across organizational departments (or networks). Furthermore, Daft (2007) suggests that a rele-
vant method to achieve horizontal linkage in organizations is through the use of cross-functional
computerized information systems which enable managers or frontline employees to exchange
information, on a regular basis, about problems, opportunities, activities or decisions, through-
out the entire organization. According to the author, besides using direct contact through the
creation of a liaison role (i.e. an employee placed in one department but with the responsibility
to communicate and coordinate the activities with other department), horizontally structured
firms may use other devices such as temporary task forces (representatives from each of the
organizational units affected by a problem) or a full-time integrator in order to achieve horizon-
tal linkages. Daft explains that unlike the liaison person, mentioned above, the integrator does
not report to one single functional department. Instead the integrator, which could be a single
position or even a department, is located outside the departments and has the responsibility to
coordinate several departments. Additionally, full-time integrators may also be responsible for
innovation or change projects (i.e. coordinating new product design, financing and marketing).
The table below describes the differences between these two organizational structure forms
(Daft 2007, p.193).
Organizational Structure
Vertical Horizontal
Specialized tasks Shared tasks, empowerment
Strict hierarchy, many rules Relaxed hierarchy, few rules
Vertical communication and reporting systems Horizontal communications, face-to-face
Few teams, task forces, or integrators
Centralized decision making
Many teams and task forces
Decentralized decision making
Figure 3-3: The relationship of organizational design – Efficiency vs. learning outcomes (revised)
An alternative to the traditional organization chart built of lines and boxes is Mintzberg’s five-
sector model as explained by Bolman & Deal (2003, p.73-77) (appendix 2). This model is com-
posed by at the very top by the strategic apex. This includes the executive and the board of di-
rectors who focus on the competitive environment surrounding the firm and thus defining the
strategy and shaping the grand design. Right below is the middle management who supervises,
control and provide resources for the operations. At the bottom, one finds the operating core,
i.e. those workers that produce products and/or services to customers/end-users. As one can
depict from the picture two more components complete the model. These are the techno-
structure and the support staff. The former relates to specialists and analysts who take care of
standardization and of the measuring and inspection of outputs and processes. According to
Bolman & Deal (2003) this could be for example accounting and quality control, departments
within industry, or airlines technical support. The latter relates to support staff, these as the
name implies perform support tasks that facilitates others’ work. From this model Mintzberg
21
derived five structure configurations which have become to be named as simple structure, ma-
chine bureaucracy, professional bureaucracy, divisionalized form and adhocracy.
This study focuses on the professional bureaucracy and divisionalized form (appendix 2); the
reason being the importance these give to the operating core, where the core competence lays.
As one can see from the picture (same appendix as above) the operating core is much larger
than the other structural parts in the model. Professional bureaucracy is characterized by having
few managerial levels and thus is flat and decentralized by nature. The authors above explain
further that even though there are benefits in enabling professionals to freely use their exper-
tise and allowing for control to rely mainly on professional training and indoctrination, this or-
ganizational design creates problems related to co-ordination and quality control. On the other
hand, the divisionalized form is categorized by the bulk of the work being done in quasi-
autonomous groups. Within this structure each division serves a distinct market and supports its
functional units. Division managers are responsible for business unit results as well as on its
return on investment. As long as the results are positive the divisions run autonomously. The
advantages with this structure are the economies of scale achieved, resources and responsive-
ness. One disadvantage, as pointed out by Bolman & Deal (2003, p.78), could be the “cat-and-
mouse game between headquarters and divisions.”
Stock et al. (1998), also bring an important dimension to the concept of structure. The authors
explain that their views on structure follows a framework of two constructs; the first relates to
the extent to which the individual firm is part of a larger network (supply chain), the second
aspect it relates to the geographic dispersion of the different partners within the supply chain
(i.e. suppliers, the firm itself as well as distributors and customers).
3.1.2.3 Structure - Network organization
Once the permeability and openness of the firm’s boundaries have changed (increased), firms
are able to pursue different forms of hybrid cooperation with other companies. Examples of this
are joint ventures, franchises or the strategic alliances that can be witnessed in today’s car man-
ufacturing (Helper 1998) as mentioned by Weiss (2007).
Weiss (2007) introduces the concept of ‘clustering’ in relation to product research and devel-
opment (R&D). The author explains that one of the main driving forces for R&D is the combina-
tion of knowledge and proximity to come up with innovative products. By placing their offices in
strategic locations (clusters), i.e. Silicon Valley (USA) for information technology, but even Kista
in Sweden, firms allow for ideas to be exchanged across the boundaries of the firm. The author
explains that by having at their disposal a pool of knowledge (both external and internal) firms
are able to leverage their positions and resources and thus gain advantage when introducing
new products into the market. Finally, Weiss (2007) suggests that organizational designs based
on a hub with a central coordinating management (i.e. in the case of a virtual company) or a
network of interdependent companies working together for their own benefit and for the bene-
fit of the network as a whole, are the most appropriate to be able to capture the returns of su-
per-modularity.
Stock et al. (1998), in turn, suggest that even though ‘network structure’ is a concept that can be
somewhat easy to grasp, is difficult to define, explaining further that there is not an absolute
consensus on the definition of network. The authors who did a literature review on the subject
could, however, identify three dimensions where network structure differentiates itself from
other forms of organizational structure; vertical integration, flexibility and cooperation.
The first dimension, vertical integration, refers to the extent to which firms have ownership over
the different stages of the supply chain (from raw material to distribution). The second, flexibili-
22
ty, refers to the ability to react to changes in customer demand. The final and third dimension,
cooperation or relationships between firms, is according to Stock et al. (1998), both the most
important characteristic of a network but also the most difficult to define.
Taking the above into account, one would expect hierarchies to show high levels of vertical inte-
gration, as opposed to networks and market firms which would show lower levels of vertical
integration.
According to Stock et al. (1998), there are a number of attributes which characterizes the ‘coop-
eration or relationship’ dimension, these are;
Control of power – it relates to the degree a firm has influence over the others.
Information exchange – it relates to the level firms (in the relationship) share informa-
tion about their production processes, technology or costs.
Interdependence – Refers to the extent a firm is dependent on others to achieve suc-
cess.
Time-horizon – it relates to whether transactions are one-off or ongoing
Goal consistency – it relates to the degree to which firms in the relationship align their
objectives.
Formality – it relates to how transactions are between firms (i.e. formal contracts vs. in-
formal arrangements)
The table below describes the expected differences between three basic types of organization,
being these; hierarchy, market and network (Stock et al. 1998, p.44).
Hierarchy Market Firm Network
Vertical integration High Low Low
Flexibility Low High Medium
Relationships
Control of power High Low Medium to Low
Information exchange Low Low High
Interdependence Low Low High
Time horizon Long Short Medium to Low
Goal consistency Low Low High
Formality High High Low
Figure 3-4: Organizational structure differences
Other studies such as those of Thorelli 1986; Powell 1990; Nohria and Eccles 1992, as cited by
Boyce (2000), have tried to bring light into the concept of business networks. In general, one
could say that networks, as opposed to bilateral agency relationships, are characterized by mul-
tilateral and co-operative relationships that rely on trust to provide governance, hence lacking a
central coordinating power. According to these authors, networks members, which could either
be individuals or firms, besides influencing one another in an interdependent manner, promote
long-term relationships which enhances the possibility of mutual exchange of knowledge and
mutual growth. Additionally because network members share risks, networks show some de-
gree of exclusiveness which may guard them against opportunism.
As one can infer from the above, the concept of horizontally linked networks is highly correlated
with the concept of the supply chain integrator, more so, when the trend for outsourcing has
kept its initial popularity. With that I mean that as companies continue to contract out (out-
source) non-strategic activities to other companies, which can perform these more efficiently;
23
the role of the supply chain integrator in these supply chains becomes more evident. Services
such as accounting, manufacturing or logistics, for example, are outsourced to different compa-
nies being these connected electronically to a central office. According to Daft (2007), Accen-
ture, for example, the consulting company that created the concept of 4PL, handles all aspects
of information technology for the well known British food retailer J. Sainsbury’s. The author
suggests that virtual network organizations can be seen as a central hub surrounded by a net-
work of outside specialists.
3.1.3 Strategic blueprints of the firm
Developing his thoughts on organizational design and strategy Weiss (2007 p.73-85), explains
that firms can follow different strategic blueprints; market-based and resource-based views are
some of the possible examples. The author elucidates that each of these possible alternatives of
strategy offer both different and complementary views on strategy.
3.1.3.1 Market-based view
This view has its grounds in economics and in the industrial organization field. There are several
models, some of those using game-theory, analyzing aspects of the interface between the firms
and the markets; however in general terms one could say that the market-based view is more
concerned with aspects related to business level strategy than it is with issues relating to the
distribution of economical rents or the internal allocation of power. This perspective’s main
concern is to understand the existing structure within the industry/market the firm is operating
in; after all this structure will establish the competition rules within these same markets, and
thus determining the performance of the firms in that industry. Because it focuses mostly on
aspects related to business level strategy, the theory suggests different forms on how to reach
unique market positions, where surpluses and the power associated with it can be achieved. By
applying marketing and other instruments, such as differentiation or market segmentation, firms
or individuals are able to increase their power and the surplus generated by a resource (or a
bundle) over its rate of return in a perfectly competitive market (Weiss, 2007). According to the
author, by differentiating themselves from competitors firms can obtain unique market posi-
tions; i.e. by investing in manufacturing products and services of higher quality. Moreover, if
consumers perceive the firm’s product as being better than those of the competitors, monopo-
listic advantages can be generated. Market segmentation, on the other hand can be applied as a
strategic tool as long as it motivates more people to buy the product or service; otherwise the
purpose looses most of its meaning. By differentiating consumers by age group or financial sta-
tus, companies can charge higher prices and hence achieve additional surpluses. Hence, market
segmentation and differentiation have somewhat similar effects.
24
3.1.3.2 Resource-based & Core-competencies view
This relatively recent view in economics focuses on competitive advantage aspects for the or-
ganization as a whole rather than on strategic positions of a specific business unit (market-based
view). The resource-based view enhances the importance of a firm’s resources, competencies
and capabilities and suggests that if a company has either better resources or has developed
better competencies (or both) than the competing firms, the company has a competitive advan-
tage (Weiss, 2007 p.80-81). The author introduces Porter’s (1996, p.64) explanation of competi-
tive strategy. According to the later, “Competitive strategy is about being different. It
means…choosing a different set of activities to deliver a unique mix of value”.
Moreover, Weiss (2007) elucidates that there are several possible explanations for the concepts
of resources, competences and capabilities. However, it seems that has mainly to do with the
way different authors describe the concepts rather than has got to do with the content in itself.
Weiss continues his explanation by clarifying that what distinguishes the views, described below,
is that the ‘core competences and capabilities’ perspective is more process oriented than the
resource-based view is. In common these views have the fact that they share the notion that
uniqueness through the leveraging of resources, competencies or capabilities across business
units and product markets, translates into competitive advantages. Amit and Schoemaker
(1993), as cited by Weiss (2007, p.81) defined resources as “stocks of available factors that are
owned or controlled by the firm”, i.e. property, plants, equipment or tradable know-how in form
of patents or licenses, as well as knowledge embedded in human capital. The authors explain
that the capabilities of a firm are shown by the firm’s capacity to manage resources in combina-
tion with organizational processes so that the pre-established goals and objectives are achieved
and that a firm’s capabilities are information based and are built on the long run. Prahalad and
Hamel (1990), in turn, define core-competences as the “organizational capability to combine
and renew the firm’s assets and capabilities in such a way that the firm obtains and sustains a
competitive advantage” (as cited by Weiss, p. 81) and suggest that competitiveness emerges on
the long run through the ability a firm acquires in manufacturing more cost effectively and faster
than its competitors. Furthermore, the resourced-based view establishes that resources (i.e.
knowledge) can be of strategic importance to a company, after all the scarcer the resource is,
the larger the surplus it will generate.
Weiss (2007) explains that if these specific resources or competencies are needed for efficient
production, then those companies who either own or have access to those resources have a
competitive advantage over the other contenders in the market. The author explains further
that there are several views on which conditions a resource must have in order to be considered
of strategically importance for the firm. The amount of criteria used varies amongst researchers;
while Amit and Schoemaker used eight others use less. Weiss (citing Peteraf 1993), introduces a
list of four conditions that a resource has to hold to be considered as ground for a firm’s sus-
tainable competitive advantage. These are;
Resources must be heterogeneous, scarce or unique (only these generate surpluses)
Difficult to imitate in order to maintain sustainable competitive advantage
The resource should not be fully mobile, that is some barriers should exist in order to
restrict entry/exit so that the rent generating resource is hold within the boundaries of
the firm
The resource must not be tradable.
25
3.2 The Value Chain – Shifting the boundaries
(Outsourcing / Deconstruction/ Disintermediation)
According to Weiss (2007), while the value chain concept is the result of the integration of dif-
ferent assets and activities into a single organization; deconstruction of the value chain, as the
name suggest, refers to the process of splitting apart the value chain but at the same time pre-
serving the identity of its individual parts. The author explains that the increasing confidence on
industry-wide standards has motivated firms to transfer activities which were previously per-
formed in-house to the market (e.g. IT, manufacturing or logistics) focusing the firm instead on
their core competences (principle of outsourcing). Moreover, according to Weiss (2007) “the
manufacturing activity for a mature product or service is best performed when the costs of pro-
duction are lowest” (p.87). Thus in order to take advantage of this fact companies outsource
modules of their own production to specialized companies who bundle the production require-
ments for many other companies and thus enabling creating this benefits from economies of
scale.
Deconstruction takes the concept of outsourcing a step forward. The deconstruction of the
whole value chain implies, not only, the slicing of the value chain into small distinct modules, but
also and perhaps more importantly “the shifting of a set of resources or assets previously em-
ployed or owned by one firm to another firm on a grand scale” (Weiss 2007 p.96).
The concept of disintermediation is intrinsically connected with the principle of modularization
of systems (i.e. information technology) which reduces complexity and costs. By creating links
between all the supply chain activities, the organization (network) can modularize the whole
value (supply) chain and thus create competitive advantages (Weiss, 2007). The coordination of
logistics is one good example of this concept where efficiency can be increased by bundling the
logistic needs for many firms operating within many industries together into just one firm in the
value chain that is a specialist in that activity, for example a 4PL service provider. Moreover,
disintermediation implies the elimination of a level within the supply chain. By eliminating a
series of intermediaries (i.e. wholesalers, warehouses and retailers) which in less perfect mar-
kets appear between the producer and customer and thus inflating the value chain (Weiss,
2007). From a logistics perspective Christopher (2005) suggests that synchronous supply chains
are able to reduce end-to-end pipeline times, increase market responsiveness and lower total
costs considerably.
26
3.3 Enterprise Logistics Integration
Despite the central role logistics has in the overall economic activity, where logistics’ total costs
as a percentage of the gross domestic product (GDP) is estimated to be in average ten per cent
in US as well as in other highly industrialized countries (Christopher, 2005), traditionally organi-
zations have paid little attention to their logistics function. This was due to misaligned account-
ing procedures, ad-doc approaches and the apparent lack of underlying systematic ideology, the
whole area of logistics costing was clouded and misleading (Waters, 2003). This approach has
however changed considerably and from being considered an uninteresting business overhead,
relating to warehouse and transport, logistics is today used by many companies as a strategic
tool to achieve competitive advantages over their competitors (Aronsson et al., 2006).
3.3.1 Logistics & Supply Chain Management Theory
There are several possible definitions for the concept of logistics, however I believe the defini-
tion below describes this concept quite comprehensively:
“Logistics is the process of strategically managing the procurement, movement and storage of
materials, parts and finished inventory (and the related information flows) through the organiza-
tion and its marketing channels in such a way that current and future profitability are maximized
through the cost-effective fulfillment of orders.” (Christopher, 2005, p.4)
According to Christopher (2005), supply chain management is a wider concept than logistics; it
builds upon it and aims to achieve integration and co-ordination between the processes of the
different entities in the logistics pipeline (i.e. suppliers, intermediaries, 3PL providers and cus-
tomers), so that superior customer value is delivered at less cost to the supply chain as a whole.
Traditionally, firms have been organizing themselves (vertically) around functions such as; pro-
curement, purchasing, production, marketing, sales and distribution. The movement and sto-
rage of materials was considered an unavoidable overhead, companies knew that logistics was
expensive; however few could precise how expensive it actually was.
Companies having been working (wrongly) with complete functional independence. That is, each
function did its own thing and was little concerned with the other functions or even the business
as a whole. Purchasing, for example, would be more interested in buying large quantities in or-
der to obtain lower purchasing and transport costs, than they perhaps would be concerned with
quality. This quite often created conflicts of interest between purchasing and manufacturing
departments. Manufacturing concern, on the other hand, would be to obtain long production
runs in order to achieve large economies of scale (low cost per unit). Unfortunately, both of
these approaches create inventory build-up on the warehouses (raw materials and finished
goods respectively), hence neglecting costs relating to inventory holding. Waters (2003) explains
that the problem with this management approach is that it focuses inwards, putting emphasis
on the use of resources rather than on the creation of outputs which achieve customer satisfac-
tion at a profit.
There were several reasons behind the need for change; firstly, rising oil prices were affecting
tremendously manufacturing costs. Secondly, advancements had been made both in manage-
ment theory and in information systems. Hence, with market conditions changing, companies
started to recognize that it was required some sort of internal integration.
According to Stock et al. (1998), internal integration reflects the degree to which logistics activi-
ties interrelate with other functional areas within the firm, as well as by the extent to which
logistics is seen or not a separate functional unit. According to these authors, companies with
high levels of internal integration will show coordination of logistics activities with other de-
27
partments within the firm, increased communication, both electronic and interpersonal, be-
tween logistics and other departments and finally the recognition of the importance of logistics
in the overall business strategy followed by a blurring of the formal distinction between logistics
and other areas of the firm.
The figure below, which is an extract from Aronsson et al. (2006, p.26), represents the stages of
evolution from functional to process orientation.
Level 1: Point of departure
Level 2: Functional Integration
Level 3: Internal Integration
Level 4: External Integration
Figure 3-5: The stages of evolution; functional to process orientation (revised)
Level 1, is characterized by lack of integration within the different functions of the company.
Departments have ‘silo’ type mentality, own management and information systems. Due to this
there are several storerooms, represented in the figure by the colored triangles, creating this as
a consequence extremely high inventory holding costs. Christopher (2005, p.102) explains that
inventory costs can be divided into several different items i.e. the weighted cost of capital, man-
agement costs, storage and handling costs as well as costs related to obsolescence, pilferage or
shrinkage and last but not least insurance costs. Moreover, at level 1, planning is made for the
short-run only and companies react upon impulse. According to Aronsson (2006, p.27), several
small and medium size companies are still today operating at this level.
At level 2, even though the number of inventory buffers have been reduced, the problems relat-
ing to communication persist and has a result customer demand is still not visible across the
entire supply chain. In order words, the firm functions still concentrate very much on them-
selves rather than on the whole business picture (Aronsson et al. 2006). As the figure demon-
strates, some of the functions have been integrated. For example, purchasing and material con-
trol were integrated into a process (Material management), while Sales and Distribution were
integrated into Distribution (Christopher, 2005).
With level 3, comes the need for the establishment and implementation of an ‘end-to-end’
planning framework. The amount of inventory buffers is reduced even further and although the
different functions still exist, they now work with an overall perspective. Internal information
systems are standardized and thus communication flow between functions becomes much more
efficient (Christopher, 2005).
Finally, the external integration (level 4) is directly related to the area of this study, the concept
of supply chain integrator (see appendix 1), as it refers to the integration of logistics activities
across firm boundaries. The degree of external integration is reflected by the extent to which
Material
Management
Production Distribution
Material
Management
Manuturing
Management
Distribution
Suppliers Internal
Supply Chain
Customers
Purchasing Material
Control
Production Sales Distribution
28
logistics activities of a firm are integrated with the logistics activities of the firm suppliers, cus-
tomers and other relevant actors operating within the supply chain. At this integration level
important information is shared amongst the different actors within a supply chain and more
often than not, companies have information systems that are standardized and integrated
across company boundaries and hence information and communication flow besides being fast-
er is much more cost effective. For example, companies using ‘just-in-time’ delivery strategy
have created dedicated ‘inter-firm logistics’ relationships that link their manufacturing functions
with specific suppliers of components (Christopher, 2005).
The figure below depicts the concept of extended enterprise and virtual supply chain, which is
“based upon the value-added exchange of information” (Christopher 2005, p.179). The picture
aims to show that it is through the use of shared information between the different partners
within the supply chain that cross-functional, horizontal management becomes possible.
Figure 3-6: The extended enterprise and the virtual chain (revised)
The above author suggests that the supply chain becomes then a network of organizations
which share common goals and thus bringing strengths to the overall value creation and its deli-
very system. Most importantly, in the context of this study, the author points out that this
process of external integration is moving forward rapidly in line with the continuous trend of
outsourcing and that at times the best way to describe what is happening to called it ‘in-
sourcing’, particularly when one refers to the concept of partnering that virtual supply chain
requires.
Sources
Converters
Retailers
Product and service flow
Information flow
Financial flow
Supplier
s
Distributors
Consumers
29
3.3.2 The supply chain integrator
In order to pursue this study, I felt that I needed to know more about this new sort of business
organization that acts as the integrator between the different partners within the supply chain
(e.g. suppliers, 3PL companies and the client company). During my literature research on the
subject, I came across many different theories as to what will be the next generation of logistics.
Frazelle (2001, p.11), for example, explains that some logistics gurus believe that “collaborative
logistics” (logistics models built with continuous and real-time optimization and communication
between all supply chain partners) will be the next step. Dawe (2001), on the other hand de-
scribes this new type of organization as “Total Service Providers” (TSP). The author explains that
TSPs arise from the development of e-business technology and assemble the competencies of
Logistics Service Providers (LSP), plus those of Application Service Providers (ASP)e.g. IBM, Mi-
crosoft etc., as well as consulting, contract manufacturing and procurement services through e-
business utilities called portals. Living examples of TSP are the alliances of Federal Express with
SAP and the alliance of Ryder Integrated Logistics with both i2 and IBM. Finally, Christopher
(2005) suggests that the next phase will be virtual logistics or fourth-party logistics (4PL). This
latter view suggests that logistics activities will be outsourced to 3PL service providers who in
turn will be supervised by a logistics control tower mastering or 4PL contractor. The author clari-
fies that the 4PL concept was originally coined by the consulting company Accenture (please
refer to appendix 1 for a more complete view of the four key components of a 4PL service pro-
vider), and explains that regardless of the 4PL is a joint venture or some other organizational
form there are four components that this new business must provide being these (Christopher,
2005 p.296);
Systems architecture and integration skills
A supply chain ‘control room’
Ability to capture and utilize information and knowledge across the network
Access to ´best of breed’ asset providers
As the reader certainly understands from the above, the concepts do not vary so much in con-
tent. In common they share the view that this new sort of organization brings together the core
competencies within logistics and IT solutions, so that end-to-end connectivity within the supply
chain is improved, resulting reduced costs through operational efficiencies and process im-
provement which in turn hopefully will lead to competitive and enhanced end-customer service.
For the purpose of this thesis, I will use the 4PL concept when referring to the concept of supply
chain integrator. According to Christopher (2005), the 4PL is often a hybrid organization, formed
as a joint venture or a long-term contract, by several different entities in order to assume the
responsibility for the management and operation of the entire supply chain as well as its related
information flow.
Moreover, according to Richardon (2005), Reed Carr did a study on logistics professionals who
had used 4PL companies, and found that successful relationships between the 4PL and the client
company often included companies or business units that did not have the logistics know-how
or the assets in house. According to the researcher it could be that these companies did not
have either the IT or the physical infrastructure, and did not want to invest in these either. On
the other hand, companies which had all the capabilities in-house and who view supply chain as
a competitive asset were less likely to find the 4PL model desirable. Another issue brought up by
the author is that the client company needs to be willing to give up some of the control over the
supply chain operations. An issue previously addressed in the introduction chapter, as Christo-
pher (2005) also suggests that in this new era of network competition it is required more than a
re-drawing of the organization chapter.
30
3.3.3 Information and the synchronous supply chain
Christopher (2005) points out that the importance of an effective information system has been
recognized for a long time by top leading organizations as a key element in successful supply
chain management. However, information allied to the developments in the use of information
technology, the Internet and its applications are having a major impact on how organizations
communicate nowadays and thus are acting as a driving force for competitive logistics strategy.
The author explains that the term marketspace was first used in 1994 by Rayport and Sviokla to
describe the new era of the internet, electronic commerce and virtual supply chains. In this so
called marketspace, besides supply chain members being able to communicate cost-effectively,
it also enables manufacturers to capture data on demand direct from the point-of-sale (POS).
Additionally, customers are able to reduce dramatically search time and transaction costs. The
use of some of the IT solutions now existent enable companies to respond to real demand ra-
ther than having to forecast demand through the use of historical data.
Moreover, the concept of ‘Extranet’ and virtual supply chain starts to takes form; enabling or-
ganizations with rather different internal information systems to access customers’ data on sales
or product usage for example, and use that same information to manage replenishment, while
simultaneously warn suppliers of near future requirements.
In the fast moving consumer goods sector there are several examples of supply chain synchroni-
zation; Tesco, for example, one of Britain’s largest retailers is using an extranet link (Tesco In-
formation Exchange) with its suppliers to share point-of sale data. By being able to capture cus-
tomer demand earlier, firms besides being able to improve customer responsiveness are able to
plan and schedule both production and transport capacity better and hence more cost-
effectively. Additionally, by partnering with suppliers firms can reduce in-bound lead times sig-
nificantly, for example by adopting Vendor Managed Inventory (VMI) practices. In VMI or Co-
managed Inventory systems (CMI), customers no longer place orders in the traditional way, in-
stead customers share previously considered firm exclusively owned information with vendors.
Examples of the information shared could be; actual usage, product sales, inventory on-hand or
the upper and lower limits of inventory they want to hold on-hand (Christopher, 2005). This
creates advantages for both, the customer and the supplier. For the customer the advantages
are significant. Besides being able to reduce the inventory levels and hence cut costs (i.e. cost of
capital, pilferage, obsolescence, etc), more often than not customers will not have to pay for the
inventory until it has been sold or used, which evidently creates cash flow benefits. The supplier,
on the other hand, will gain because by having direct access to real demand, via Electronic Data
Interchange (EDI) or web-based systems, they are able to improve capacity utilization while at
the same time reduce their own safety inventory levels.
Information goes both ways thus bringing in both supplier and customer perspectives. There has
to be a balance between what the customer demands and what the supplier can offer. One im-
portant aspect is that information about the order should be assembled and sent to the cus-
tomer. This could be information about perhaps delays and quantity related issues. Today, two-
way information exchange has made possible automatic control of all operative activities
(Aronsson et al., 2006)
31
Christopher (2005, p.177) continues his explanation of synchronous supply chains by pointing
out that supply chain partners need a high level of collaboration for the network to be truly
agile.
Below, you will find some of the key processes that need to be linked (both upstream and
downstream) so that the foundation for supply chain synchronization is achieved.
Planning and scheduling: Material positioning/visibility, advanced planning, scheduling,
forecasting, capacity management.
Design: Mechanical and electrical as well as supply chain design.
New product introduction: Bill of materials management, prototyping, design valida-
tion, testing, production validation, transfer to volume.
Product content management: Change generation, change impact assessment, product
change release, change cut-in/phase-out.
Order management: Order capture/configuration, available to promise, order tracking,
exception management.
Sourcing and procurement: Approved vendor management, strategic sourcing, supplier
and component selection.
Furthermore, Christopher (2005) suggests that in today’s competitive environment where
supply chains compete against other supply chain chains, agility cannot be seen as a concept
that only concerns the individual firm. Instead, agility as a concept should extend itself from one
end of the supply chain to the other. According to the author the different partners within a
supply chain network need to synchronize their activities through shared information and
process alignment so that a single schedule for the entire supply chain is achieved. Moreover,
supply chain networks need to work smarter so that ‘non-value adding’ processes within the
supply chain are eliminated or reduced. It has been established that a large proportion of the
time spent in the processes that together form the end-to-end a supply chain pipeline is ‘non-
value-adding’, thus these processes that instead of creating customer benefits only create costs
(i.e. time in inventory). Aronsson et al. (2006) explain that by re-engineering business processes
some of the activities can for example be eliminated, simplified, integrated or even done simul-
taneously (instead for linear), so that the total lead time (end-to-end) can be reduced.
According to Christopher (2005) another way of achieving agility within a supply chain is by re-
ducing complexity (i.e. different packing sizes, great differences between the Bills of Material for
each product within a product family etc). Hence, supply chain networks should ask themselves
if the level of product variety is greater than customer demand actually requires. The author
suggests that more often product proliferation is driven by the sales or marketing departments
and that in actual fact the total sales volume does not increase; instead the same total demand
is just spread over a larger number of SKUs. Moreover, supply chains should manage processes
not just functions. Even though function oriented organizations may be able to efficiently use
their resources, they are often focused inwards which causes this type of organizations to be-
come slow in reacting to market changes. Processes, on the other hand, are cross-functional by
definition both across the organization itself but even across a wider supply chain, thus creating
higher value for customers. According to the author processes such as innovation, supplier and
customer relationship management are good examples of the critical business processes that
most likely would cut across the organization. From a supply chain perspective, process man-
agement is vital to agility because the verticality of the function oriented organizations slows
down the speed and the quality of the information. Hence, because processes are horizontal,
process alignment amongst the different supplier chain’s partners is clearly facilitated.
32
3.4 Logistics and Competitive Advantages
3.4.1 Delivering customer value
The main goal of a market-driven logistics strategy is to achieve ‘service excellence’ in a cost-
effective manner. However, this has not always been the case, because as the reader may recall
from the previous chapters, traditionally “supply chains were designed to optimize the internal
operations of the supplying company” Christopher (2005, p.56). The new perspective does not
any longer see the customer at the end of the supply chain pipeline, but at its start. Moreover, it
is noticeable that successful companies have gradually recognized the importance of customer
service to the point of using it as a tool to achieve competitive advantages over competitors.
This goes in line with the above author’s view which suggests that a possible way to define com-
petitive advantage is that “successful companies will generally be those that deliver more cus-
tomer value than their competitors” Christopher (2005, p.47).
The increasing number of ‘commodity’ type markets, where there is no significant technological
differences between products (e.g. cars, personal computers) has reduced the power of the
brand. Nowadays customers are willing to accept substitute products e.g. in situations such as
out-stock (Christopher, 2005). The author explains that a recent study on the impact of out of
stock has showed that both manufacturers and retailers suffer significant cost penalties when a
stock-out occurs on the shelf. According to the study, when customers are faced with a stock-
out, over 25 per cent admitted that they would buy a different brand, while 31 per cent of the
interviewees said they would purchase the product elsewhere. Naturally, continuous stock outs
will eventually drive customers not only away from the product brand but eventually from the
store altogether.
Customer service can be divided into three categories, before, during and after delivery. When
these integrate the concept of customer service starts to take form. Before delivery is about
taking customer needs into consideration, during delivery is about keeping what has been prom-
ised to the customer and in the event of lags give the proper information to the customer with-
out haste. The third category, after delivery, is about the handling of spare parts, guaranties,
complaints etc. in good manner.
As introduced by Aronsson et al. (2006, p.40-41) presented in 1996 seven elements of delivery
service; lead time, delivery reliability, delivery security, information, customer adjustment, flex-
ibility and stock availability. Below I will develop on some of these elements, namely on those
that have not been addressed yet on the document.
Lead time concerns the time from order to delivery; transmitting and handling of the order,
stocktaking, packaging, transporting and finally the receiving of the order. Examples have shown
that over 90 percent of the time to delivery is connected to non-productive time i.e. unneces-
sary costs which prolong capital binding.
Delivery reliability is about having reliability in the lead time. Increasingly, the adaption to JIT-
delivery has increased the demands for reliable deliveries at the cost of higher lead times. It has
become important that the product is delivered on time thus actually disregarding if the product
is delivered quickly or not. The rate of delivery reliability is monitored throughout the supply
chain with the use of electronic surveillance. In this process bar codes are often used. This way
high reliability is achieved and the need for holding stocks is reduced.
Delivery security is having “the right product in the right amount and with the right quality”
(Aronsson et al. 2006, p.40, own translation). According to these authors most customers take
this for granted. Aronsson et al. point out some of the reasons that might affect deli very securi-
33
ty, these are; administrative wrongdoings, mistakes in the delivery, product damages during
storing or transporting as well as using the wrong packaging.
Customer adjustment concerns fulfilling the slightest requests from the customer; this could
include decreasing lead time, express transports and deliveries, re-packing or perhaps branding
of the different products. (Aronsson et al., 2006)
Stock availability, also known as service level, is “the probability that the product is in stock
when it is requested.” In other words, stock availability refers to if products can be delivered
straight away (from the shelf) and thus has nothing to do with products that need to be pro-
duced when ordered. (Aronsson et al. 2006)
3.4.2 Customer service objectives and priorities
According to Christopher (2005) the easiest way to understand the idea of customer service
objectives is by using the “perfect order” concept. As the name indicates, the perfect order is
achieved when the customer’s service requirements are fully met. The author explains that by
grouping customers into different requirement segments the company can define and evaluate
the level of service delivered on each specific segment (age, country or distribution centre) and
adds that by definition the measure of service is the percentage of instances on which the cus-
tomer requirements are met in full; this is normally measured over a period of time.
Moreover, the author above elucidates that an often used measure of the perfect order concept
is ‘on-time, in-full’ (OTIF), having this measure been upgraded more recently with the ‘error-
free’ factor which includes elements such as documentation, labeling and damage to the prod-
uct or its packing. Hence, if for example the customer service performance for an organiza-
tion/network across all orders is; On-time 90%, In-full 80% and Error-free 70%, the actual per-
fect order achievement is equal to the product of the above three factors (90x80x70), that is
50,4% (Christopher 2005, p.66).
Even if organizations would like to be able to provide excellent customer service to all clients
that is not be possible due to the highs cost involved with that type of service. Hence, compa-
nies have to sort out the weight of the customers in the overall operation. By using for example
profitability as the variable that distinguishes customers and the so-called Pareto Law and its
80/20 rule, which says that in general 80 per cent of the profits of the business, come from 20
per cent of the customers. Furthermore, it is also true that 80 per cent of the total costs to serve
the totality of the customers are generated by 20 per cent of the customers, however these are
probably not the same, adds Christopher (2005). The author makes clear that the challenge to
customer service management is to not only to be able to identify the real profitability of the
customers but even to continuously develop services strategies that will improve the profitabili-
ty of all customers.
34
3.5 The bullwhip effect
The negative impact of the ‘Bullwhip effect’ on supply chains has been under scrutiny for a long
time. Christopher (2005) explains that the bullwhip syndrome is also called “Forrester effect”,
because of the name of its founder, Jay Forrester. The latter developed a set of techniques that
become known as Industrial Dynamics. The researcher used a specially developed computer
simulation language named Dynamo to build a production/distribution system which involved
three echelons (levels) in the distribution channel; that is a retailer’s inventory, a distributor’s
inventory and the factory inventory. By using a model based on real world data and relation-
ships, where these levels are interconnected through information and goods flows, manage-
ment is able to examine the effects that changes (i.e. prices changes, production levels or policy)
have on the overall system. According to Christopher (2005) what becomes noticeable from
using modeling is that small disturbances in one part of the system are very quickly spread and
magnified throughout the supply chain.
Nienhaus et al. (2003) go further and suggest that the bullwhip effect is one of the major rea-
sons for inefficiencies in supply chains. The authors, who did a study on how the human beha-
vior amplifies this effect, explain that the bullwhip effect describes “the phenomenon that the
variation of demand increases up the supply chain from customer to supplier”. The authors
mean that the misperceptions about information cause humans to over-react. In other words,
the further away a supplier company is from the end customer, measured in terms of lead time,
the larger the variation will be.
In the example represented in the figure below (Nienhaus et al. 2003, p.2), the supply chain
consists of a so called ‘original equipment manufacturer’ or OEM, and suppliers ranged from 1
st
tier to 3
rd
tier. As shown on the graph, while the OEM has the lowest variance, the 3
rd
tier sup-
plier, as expected, has the largest.
Figure 3-7: The bullwhip effect – Increasing demand variation in a supply chain
The authors above identify the lead time of information and material as the primary reasons for
the existence of the bullwhip effect. Moreover, they explain that the reasons why supply chains
reactions to changes in real end-customer demand can be delayed is due to the time it takes for
the information to move across the supply chain (i.e. from OEM to 3
rd
tier supplier) and secondly
because the different suppliers need to adjust their capacities and deliveries and that takes
time. Nienhaus et al. (2003) continue by clarifying that the bullwhip affects supply chains nega-
tively in three different aspects (logistics capacity, variation in inventory levels and safety stock
levels), leading this to increased logistics costs and reduced competitiveness. The first aspect
relates to the dilemma companies face when dimensioning their logistic capacity. Because varia-
tion in demand affects capacity usage, if companies dimension capacity based upon average
35
demand, they will most likely face delivery difficulties when there is an abrupt upward change in
demand.
For example, assuming that the human behavior misperceptions about information causes over
reaction (Sterman 1989, as cited by Svensson 2001), one can depict from the picture above, by
looking at bottom part that a peak in real demand (top part- orders) is not perceived as high by
the OEM as it is further down the supply chain (i.e. 3
rd
tier). However, if the OEM forecasts pro-
duction (and its preceding orders of materials and components) based on historical data rather
than real demand, there is a risk that it would face logistic capacity problems, leading this in turn
to stock-outs and to what that implies. In case this would happen, the bullwhip effect would also
be seen across the supply chain. Meaning that the 3
rd
tier supplier would even face larger stock
out because of the time it takes to react and adjust capacity to real demand. This can be de-
picted on the bottom part of the picture (stocks).
The second aspect affected by the bullwhip effect is the variation in inventory levels within the
supply chain. According to Nienhaus et al. (2003), if a company delivers more than the next tier
passes on, inventory levels within the supply chain raise. Contrarily, inventory levels are reduced
when a company delivers less quantity than the next tier passes on. As per the above authors,
while high levels of inventory increase the costs of capital employed; low inventory levels in-
crease the risk for unreliable deliveries, hence affecting customer service.
The third aspect affected by the bullwhip effect is the level of safety stock. Nienhaus et al.
(2003) explain that safety stocks (or inventory) are required to ensure specific levels of demand,
hence when variation in demand increases so it does the levels of safety stock required which as
previously explained, brings additional capital costs.
Svensson (2001) referring to several different researchers points out possible ways which either
help to minimize or to fully eliminate the negative impact of the bullwhip effect. Below the
reader will find a summary of these different alternatives.
reduce lead times
limit price fluctuations (i.e. through marketing campaigns)
align planning with suppliers and co-ordinate pricing, transportation, inventory planning,
and ownership between the upstream and downstream actors in the supply chain
review re-ordering procedures
allow for sharing of knowledge with suppliers and customers to better capture real-
demand (instead for ordering on forecast)
co-operate with supply chain partners to establish what factors are causing disturbances
within the supply chain and thus act upon it
Use the Internet and its applications to speed up communication and thus reduce trans-
action- and administrative costs
The bullwhip effect and its impact on the supply chain’s total operating costs and competiveness
(reduced), is naturally very relevant to this study. In fact by reading the above listed lines of ac-
tion, one can understand why there is a market demand for companies with core competencies
within the logistics and supply chain management and IT integration (i.e. 4PL).
36
3.6 Logistics and the Return on Investment
In today’s financial-oriented business environment there are three financial dimensions behind
the decision making process, being these; firstly the so-called ‘bottom line’, secondly strong
positive cash flows and thirdly the efficient resource utilization particularly the use of fixed and
working capital (Christopher, 2005). The author alerts that in some cases the extreme focus on
the bottom line, often determining the direction of the company, as led companies to potential-
ly dangerous short-term focus, curtailing investment in brands, R&D and capacity as these do
not give immediate payback.
Christopher (2005, p.85 ) continues his explanation on how logistics affects the financial perfor-
mance of the organization by first introducing a variation of the Du-Pont model in order to de-
scribe the effects logistics have on ‘return on investment’ (ROI), and secondly by sharing his
views on the effect that logistics and supply chain strategy have on shareholder value. For those
not familiar with the model, the model has its origins in 1910s, having been created by a busi-
ness controller employed by DuPont Powder Company in USA. Despite its ‘age’ the model is still
very much used today (Aronsson et al., 2006). The authors explain that the model is built in two
parts as it can be depicted from the figure below. The top part leads to the net profit with ac-
counting data obtained from the income statement, while the bottom part of the model gets its
information from the company’s balance sheet.
Figure 3-8: The Du-Pont model revised; return on investment (ROI)
Christopher (2005) explains that return on investment is the ratio between the net profit and
the capital employed to obtain that same profit. The author continues by introducing the expan-
sion of the above formula where; ROI = (Profit / Sales) x (Sales / Capital employed). Hence, in
order to improve ROI it is necessary that one or both of the above ratios increase.
Moreover, even if traditionally companies have placed their main attention on increasing the
margin (Profit/Sales) as they attempt to raise the return on investment, often it is actually more
effective to use the leverage of improved capital turnover to achieve that (Christopher, 2005).
According to this author several successful retailers have since long recognized that even very
small net margins can lead to attractive ROI if the productivity of capital is high. For that it is
required that for example premises are leased rather than owned, that inventories are kept to a
minimum and finally that sales are high per square foot/meter.
37
Again, as it can be depicted from the figure introduced above, besides affecting the operating
income that is, revenues minus the costs, logistics also has an impact on a company’s balance
sheet. Below you will find some examples of this impact.
Cash and receivables - The shorter the order cycle time the sooner the customer’s payment will
be made. There are at least two other very important aspects affecting the inflow of cash, the
first is the order completion rate, concept which has been introduced on the previous chapter
and as the reader may recall it relates to the perfect order concept and its on-time, in-full and
error-free. The second aspect is the accuracy of how invoices are done. If these are made incor-
rectly, more time will be spent until the customer finally makes the payment (Christopher,
2005).
Inventories - As previously explained on this paper, the levels of inventory are one of the major
concerns of logistics. One should bear in mind that inventory does not only refer to raw material
or finished goods but also the subassembly or work-in-progress inventory buffers. Christopher
(2005) points out that it is not unusual that companies tie up approximately fifty per cent of
their current assets in inventories.
Property, plant and equipment -Christopher (2005) clarifies that more often than not businesses’
logistics systems are responsible for the use of large part of fixed assets. It ranges from the net-
work plants, depots and warehouses (when not leased or rented) to the materials handling
equipment, vehicles as well as other equipments used in storage and handling. Moreover,
transport or the cost of the fleet can also be considered to the total sum of fixed assets. As pre-
viously mentioned many companies have outsourced the physical distribution of their goods to
third party logistic providers, partly to take off fixed assets away from their balance sheet as well
as all other costs incurred by running their own fleet (maintenance, personnel, insurance etc.)
Warehousing is another good example of the processes that have been outsourced.
Current liabilities - From a logistics perspective, the current liabilities refer to the accounts pay-
able and the debts that must be paid due to the purchasing of bought-in materials, components
etc. Christopher (2005) points out that this is an area where through a greater integration be-
tween purchasing and operations management, networks can yield significant dividends. Ac-
cording to the author the problem is that the economic order quantity (EOQ) concept often used
leads to excessive levels of inventory. The main reason being the fact that these economic order
quantities are prognoses of historical data rather than based on real demand.
Debt/Equity - Even though the balance between debt and equity has many ramifications for
financial corporate management (and thus not part of this study) is still interesting to look at it
from a logistics strategy perspective. The author means that as the trend for the outsourcing of
different logistic activities to 3PL companies (and more recently to 4PLs) continues, and allied to
that the fact that ever more companies are leasing plant facilities and equipment instead of
owning them, is naturally changing the funding requirements of the business and consequently
the capital structure chosen by the organization, i.e. debt instead for equity. Christopher ex-
plains that the ratio of debt to equity, usually referred to as ‘gearing’ or ‘leverage’, not only in-
fluences the return on equity but also influences cash flow in terms of interest payments and
debt repayment.
38
4 Practical Method
In this chapter the reader will find a description of the different steps taken in order to select the
sites leading to the method of data collection and the interview guide. I will finish the chapter
with an evaluation of the research.
4.1 Initial steps
After having decided that I wanted to research on logistics and supply chain management latest
developments, and while doing the initial literature review, I came across the concept of fourth-
party logistics. Simultaneously, I had started to talk with different people, trying to get informa-
tion and access to companies in Sweden providing this type of service.
During one of these conversations, with Sverker Brännström, a friend and CEO of SSC Öhns
Snickeri (a joinery), he told me that one of his old-friends from school worked for Adritro Logis-
tics AB, a logistics service provider to Volvo, here in Umeå. At this stage, I was not sure if this
would be the type of company I was looking for (a 4PL), but I was certain that it would give me
an excellent opportunity to get in contact with some of the concepts I have studied about. It was
the kick-off of the study, an opportunity I could not deny.
After questioning Sverker a bit more about the company, I understood that he could not answer
if, Aditro Logistics was or not a 4PL service provider. Nevertheless, Sverker called his old-friend
from school, Harry Uddståhl, a Key Account Manager for Aditro Logistics, Umeå and arranged
for a meeting. At that time I was naturally very eager to be able to get in contact with the logis-
tics environment and to explore this new organizational paradigm which recent supply chain
management literature have been referring as the “next generation” of logistics. I was very well
received by Harry Uddståhl, who promptly enabled himself to show us around their facilities.
Mr. Uddståhl explained that they were a 3PL provider, and that their main customers, in the
region, were Volvo Trucks, Ålö and Komatsu Forest. During my visit at Aditro, Mr. Uddståhl de-
scribed during two hours their operations and talked about concepts such as Procurement and
Material Planning, Pre-assembling and JIT deliveries (i.e. knitting and sequential) to the assem-
bly lines. Moreover, Mr. Uddståhl briefly talked about other aspects such as Vendor Manage-
ment Inventory and relationships between them and their clients.
The above mentioned informal interview provided new insights into the area of research. For
instance, enough information was obtained to come to the conclusion that Aditro Logistics is a
3PL provider, and thus not comparable to a 4PL. According to Opie et al. (2004 p. 12), business
research besides requiring hard work and commitment, is time consuming and problematic,
thus requiring careful planning. It was understood that for future research and selecting of com-
panies, I needed to have some sort of overview of the four key components of a 4PL. That way I
would be able to start looking for companies that fit the description and that way is able to de-
cide whether to pursue a deeper case study with that company.
This interview had also been fruitful in a sense that helped me to realize the importance of
access. This goes in line with Opie (2004, p.27-28) views who suggest that one needs to reflect
upon what under common terminology is identified as access. A significant factor to consider is
Introduction
Theoretical
Method
Theory
Pratical
Method
Empirical
Data
Analysis &
Discussion
Conclusions
39
how the first contact is going to be made and under what assumptions. The author argues that
the ideas one has about the different procedures of data collection needs to be well reflected
upon. For example, one should look critically at the questions one is planning to place and ask
oneself; are these questions relevant? Why? Would I like to answer these questions myself?
Meaning, ‘don’t do to others what you don’t like others to do to you’. Furthermore, the author
above presents a code of conduct for scientists that originates from Milgram (1963). This code
includes the importance of presenting all information as well as making the information unders-
tandable to those involved in the research, and giving them the possibility to decline the offer to
participate. Thus, access is about having the right to use data and/or information (Johansson-
Lindfors, 1993, p.135-137). The author suggests that it is vital to prepare a thorough explanation
of the research, be honest about the estimated time that is needed as well as be clear about
how helpful their participation would be. Moreover, Bryman & Bell (2003, p.317) state that the
formal process of gaining access to selected sites can be lengthy and one of the hardest steps
the researcher takes. The reason for this is that it is not easy to get access into companies, either
because they are not willing to release company data or because they feel that they do not have
the time or the willingness to participate. Hence if possible, the use of an internal link is always
recommendable as it may work as a bridge to the insides of the organization.
I took the above in consideration while approaching the potential 4PL companies. After a initial
contact made by phone, and once directed to the right person, I sent that employee an e-mail
where besides presenting myself and the purpose of the study, I forwarded an attached file
which described the four key components of a 4PL (appendix 1). The idea was not that the com-
pany needed to fulfill all of the principles, instead was to give the guide line of the concept, and
at the same time help me to establish how close the interviewed companies are to the concept.
4.2 The selection of sites
As previously established in the theoretical method chapter, this study will follow the pragmatic
view. For the researcher the underlying problem is of more importance than the method one
uses. This implies that the researcher used the research method that best would solve the re-
search question.
While doing my literature research I come across Dag Ericsson’s (2000) article on e-logistics,
where the author introduced Sonat (a Swedish company) as being “the first company to offer
high growth European companies a comprehensive e-logistics solution, assuming responsibility
for the entire extended demand chain” (p.10) I knew then what I was looking for. According to
Ericsson (2000) in order to facilitate integration, Sonat has formed diverse partnerships with
market leaders within IT and information flow. The following are examples of some of these
partnerships; with Oracle for applications and data-warehousing, SEMA Group for operations,
communication and security and finally with Viewlocity, a global provider of B2B integration and
online trading community solutions for integration of systems and information. Viewlocity´s
flagship product, AMTrix, is used to ensure a seamless flow of information across enterprise
boundaries, connecting Sonat´s customers with their suppliers and distributors, so that end-to-
end e-logistics solutions are achieved.
Initially, I was considering doing a single-case study based on the ´modus operandi´, of Sonat.
However, during one of the meetings with my thesis supervisor, I was given advice about the
risks for the lack of trustworthiness which may occur when one interviews just one company
within the network and try to draw inferences about the supply chain as a whole. This advice
was obviously very important, and made me reconsider. Moreover, a single-case study would
imply that I would have to spend more time near the company and thus the distance factor
would have to be considered.
40
Hence, rather than performing a case study based on a single location or a person (biographical
approach), I decided to proceed by performing a multiple case study (Bryman & Bell, 2003). By
performing a multiple case study, I would be able to gain a broader understanding of the 4PL
companies operating in Sweden, their different strategies and structures. But most importantly I
would hopefully find an answer to the research question and understand how these companies
believe they can provide competitive advantages not only to their customers but to the supply
chain as a whole while enhancing end-customer service. As per Bryman & Bell (2003), when
conducting a multi-case study research, one should bear in mind that it is required for the re-
searcher to have some sort of structure, as this will enable easier cross-case comparability. This
aspect was taken also taken into consideration; themes were created to structurally connect the
theories chosen with the interview guide, the respective empirical data and the consequent
analysis.
I proceeded by using Umeå university electronic library resources to gain access to the database
Affärsdata, which provides information and a registry of the number of companies per sector
registered in Sweden. After I searched for fourth-party logistics companies by using the respec-
tive Swedish word (fjärdepartslogistik), so that I would establish how many companies were
registered in Sweden under this category. Result: none.
I found however a link to an article about the company and consequently to a link within the
database with information on the company. Sonat is registered under the code 70220 which
relates to consulting companies within process organization (konsultverksamhet avseende före-
tags organisation). After obtaining the required information about the company, i.e. telephone
number, the first contact was established.
While browsing through the database Affärsdata using the same search word (fjärdepartslogis-
tik), I saw also a link to the well known logistics company DHL and decided to find out where
that link would take me. I looked at DHL’s home page and learned about UAE Logistics, a com-
pany which part of the DHL group and that is they introduced as being a 4PL company. However,
when accessing Affärsdata, I found out that UAE Logistics is registered under the code 52290
which relates to other support services to transport (övriga stödtjänster till transport). The pre-
vious procedure that had worked well with Sonat was initiated, and consequently I initiated
telephonic contact with UAE Logistics.
I needed however at least one more company as this would help me to increase the study’s
trustworthiness. I believe is worthwhile to explain that when I searched the database for third
party logistics companies, I also did not find any companies registered under that code. Moreo-
ver, when searching for companies registered under ‘logistics’, I found 484. Obviously, I had to
choose a more practical way of finding a company providing consulting services within logistics
without being a traditional third party logistics company, which as previously explained are
more related to just-in-time deliveries (JIT), cross-docking, etc. At that point Aditro came to my
mind, and I questioned myself, if Aditro is a 3PL supplier to Volvo Trucks here in Umeå, and
there is more than one (3PL) here in Umeå doing the same, then the chances would be that Vol-
vo Group would have a supply chain integrator company within (or outside) the group that
would control the entire supply chain. I then browsed through Volvo´s Group webpage and
noticed that there was a company within the group called Volvo Logistics as well as another
called Volvo IT. Somehow this sounded familiar, a combination of logistics and IT operating
across the group. It seemed evident to me that Volvo Group had in some way deconstructed and
the value chain into different companies operating within different core competencies. Once
again, I accessed the above mentioned database and confirmed when searched for Volvo Logis-
tics that the company was also registered under the same code as UAE Logistics, i.e. 52290. In-
teresting I thought.
41
4.3 Method of collecting data
The concept of access has also been addressed earlier in the document Bryman & Bell (2003,
p.318) argue that one should attempt to gain support from an employee within the organization
and that way gain access to top management executives. Hence, with this in mind the first con-
tact was established via a phone call to the company’s head-office (i.e. Sonat, UAE Logistics and
Volvo Logistics) and from there try to get connected with the person who could answer the
questions I had. These phone conversations started naturally with a short introduction of the
researcher and of the purpose of the study; this was then followed up by email and correspon-
dence that led to the final interview. The interviews with Sonat, UAE Logistics and Volvo Logis-
tics were conducted using Skype as means of communication. This besides being a cost effective
way of conducting the interviews (lengthy), enabled to save the conversation into MP3- audio
format. This prove to be right choice as I was able to access the saved information whenever it
was required to better understand the different companies operating mode. After all the
amount of information received is such that needs to be worked upon during several hours.
I chose to adopt a semi-structured style of interviewing since it allows for more flexibility than
the normally structured interview. Rather than just touching the surface, it enabled me to probe
the interviewee´s responses and in real-time allow me to deviate from the established questions
This is in accordance with both Opie (2004) and Bryman & Bell (2003, p.343), who believes that
this method of interviewing enables the researcher to have an interview guide with topics that
at the researchers discretion can be alternated. Moreover, what is identified as interviewer-
administrated interviews brings advantages to the research; the ability to obtain detailed an-
swers on open-ended questions, adjust misunderstood questions as well as the ability to provide
a brief explanation in real-time, if any uncertainty about the question asked exists. This also puts
pressure on the interviewer to be able to, if needed, clarify the meaning of the questions asked.
It is however equally important that the respondent does not get encouraged to answer in any
particular way because of the interference just explained. The interviewer-administrated inter-
views can be applied to both face-to-face and telephone interviews (Brace, 2004, p.24).
Regardless of where the interview takes place, it is important to reflect on the implications that
the milieu can have on the interview. Bryman & Bell (2003) alert for the fact that it can be diffi-
cult to find a quiet place to conduct the interview, being this naturally important as it otherwise
may affect the quality of the data collected. Again this aspect was also taken into account, by
giving enough time to the interviewee to schedule the interview himself upon his/her own sche-
dule. That way commitment from both parts was achieved. Hence noise disturbances were nev-
er an issue during the interview process.
4.4 Method of analyzing data
As the reader certainly notice the theory chapter was divided into three different themes; Or-
ganization design, Enterprise Logistics Integration and finally Logistics and Competitive advan-
tages. These same themes were also applied to build the interview guide used to collect the
empirical data. Once the data was collected, was then coded into the above mentioned themes,
so that one could analyze the empirical data in light of the themes chosen for theoretical back-
ground. This is in line with Bryman & Bell (2003) explanation of grounded theory and its tools.
42
4.4.1 Interview guide
In relation to the interview, it is important to have prepared questions that will provide a sound
basis for the analysis. According to Bryman & Bell (2003) qualitative interviews are characterized
by having a high variability in the way questions are formed. Some examples would be those
listed by the authors above (p.350) when citing Kvale (1996) e.g. introducing questions, follow-
up questions as well as direct and indirect questions.
As above mentioned, the interview guide was divided into three different sections: Organiza-
tional Design, Enterprise Logistics Integration and Logistics and Competitive advantage. The or-
ganizational design section has some introductory questions, as well as questions which are
related to the structure and the strategy of the individual firm (i.e. Sonat, UAE Logistics and Vol-
vo Logistics). The second section, enterprise logistics integration, it has questions relating to the
company’s role within the different supply chains, it touches aspects such as the virtual supply
chain, information flows, integration and advantages. Finally, Logistics and Competitive advan-
tage, concerns topics such as costs, customer service and lead-time analysis, and questions that
will enable the interpretation how these can later produce financial benefits not only for the 4PL
customer, but even to other actors within the supply chain.
The three sections complemented each other well, giving an overall sound balance to the inter-
view guide. Nonetheless, the answers of interview questions often went in to long outlays, the-
reby answering many questions at the same time. This gives the impression that the interview
guide was adequate and well structured. After all, the semi-structured questionnaire became
more of a checklist. The focus was put on the interviewee, hence the researcher tried not to be
leading, instead because the interview guide had been provided in advance, the researcher
could take more of a listening role, naturally prompting or giving feed back when required.
4.4.2 Presentation of the interviews
The figure below provides an overview of the interviews conducted with Sonat, UAE Logistics
and Volvo Logistics.
Figure 4-1: Interview table
43
4.5 Evaluating the research
Qualitative, as opposed to quantitative, research is not interested in finding results that can be
quantified and generalized and thus it does not make sense to talk about external validity (Bry-
man & Bell 2003, p. 288). Trustworthiness, on the other hand, refers to the combination of fac-
tors such as credibility, transferability, dependability and confirmability. According to Bryman &
Bell (2003), this alternative stance for evaluating qualitative research defends that qualitative
studies should follow a different valuation criteria than those used when quantitative studies
are performed. In the context of quantitative studies, researchers are concerned with aspects
such as internal and external reliability and validity.
Credibility is seen as a parallel to internal validity. It relates to how the study is carried out,
checking for aspects such as good practice and submitting. The latter would imply that research
findings should be submitted to those studied for confirmation that the ethnographer unders-
tood the social world researched (Bryman & Bell, 2003). This view is shared by other academics
such Creswell (2007, p. 208-209) or Stake, who in 1995, stated that research study would gain if
participants would “play a major role directing as well as acting in case study”. Transferability,
in turn, relates to the possibility of relating the findings of the study to other areas than the par-
ticular area studied. This becomes particularly important in qualitative studies because these
concern much smaller samples than quantitative studies. The dependability factor, which paral-
lels the reliability in quantitative research, is also very important. Access to information be-
comes a very important aspect in order to be able to review all phases of the performed re-
search. Therefore, to increase the dependability of this study, the process on how the research
participant was selected as well as how the transcription was processed was included (Bryman
et al, 2003, p.81 & 289). Opie (2004, p.5) shares this view; that the dependability is of more im-
portance than being able to generalize. Confirmability concerns the aspects in which the inter-
viewer might have influenced the research and the importance of awareness that complete
objectivity is not achievable (Bryman & Bell 2003, p.289).
From a credibility perspective, I believe the study has followed good practices and even submit-
ting. The author, as previously explained, has tried to keep in mind during the important aspects
such as the accurate interpretation of the empirical data, for example. In order to do this, the
interviews recordings were saved into an audio file, which were accessed whenever was re-
quired. Worthwhile to point out that during the interview with Sonat there were some technical
problems with the recording of the interview. Furthermore, the transcription of interviews as
well as the audio files from where the transcriptions originated were sent to the interviewees
for validation. The aim of this study was never to achieve transferability; however I am con-
vinced that parts of the findings could probably be used in other social settings. When it con-
cerns the dependability factor, this study has tried to follow the requirements of good practice.
All the documentation (e.g. interview guides, audio and transcription files) relating to the differ-
ent phases of the research have been kept and are available for peer review. Finally from a con-
firmability perspective, even though I had previous preconceptions on the subject, I have tried
to keep neutrality an open mind, so that I would not allow personal values or theoretical inclina-
tions to overly affect the research.
44
5 Empirical Data
In this chapter I introduce the reader to the summary of the interviews conducted with the se-
lected companies. As previously explained the semi-structured interview guide was divided into
three different themes. Being these; a) the single firm (4PL) organizational design, from a struc-
tural and strategy perspective, b) the enterprise logistics integration, which relates to the role of
the firm within the supply chain, and c) logistics and competitive advantages.
5.1 Sonat
The interview with Jan Conradson, VP Sales at Sonat took place on the 3
rd
of June. Mr. Conrad-
son has a degree in engineering from KTH (Royal Institute of Technology) in Stockholm. Moreo-
ver, he has several years of working experience within sales, logistics business process develop-
ment and was one of the pioneers of knowledge based outsourcing within SCM in Sweden. The
interview was held in Swedish and the text below summarizes what was discussed.
5.1.1 The single firm
Sonat was established in 1999, aiming to provide high quality logistics solutions to its customers.
The company, with offices in Stockholm, Örebro and Norrköping, has a very clear strategy in that
they aim to supply “high quality, value creating service” to their customers based on six guiding
values; co-operation, professionalism, integrity, humanism, customer focus and development
(Sonat, 2008). By taking responsibility for the customers’ logistics processes, Sonat aims to cut
costs as well as to provide increased business value.
Conradson explained that since Sonat’s establishment the company has been growing steadily,
both concerning the number of employees and turnover. Conradson continued by telling us,
very proudly, that Sonat had been nominated by the Swedish daily newspaper Dagens Industri,
in November 2007, as one of the Gazelle companies of the year. In fact, the company employed
12 people in 1999, between the years of 2003 and 2006 Sonat have developed significantly and
in 2007 the company employed 52 people, while the turnover was 67.5 MSEK.
According to Conradsson, Sonat works with more or less all varieties of companies that have
large flows of goods. He explained that the company concentrates, however, on businesses that
have most of their logistics activities in Sweden, i.e. Apoteket, Lantmännen and Svenska Retur-
system whom have 90 percent of their logistics flows concentrated in Sweden. However, Con-
radson emphasized that whenever their clients need to expand globally, for instance during the
ordering or distribution process, Sonat will provide them with the know-how and guiding
needed in order to complete that process. At that stage Conradson gave Sandvik as an example
of a situation where they follow a customer in their global operations. According to him Sonat
controls Sandvik´s purchasing of machinery, equipment and tools for rock-excavation.
According to Sonat’s VP Sales, the company has a large competence within its 75 employees.
Conradson stressed that somewhere around 15 of them are former logistics managers and many
have been in the branch for quite some time and have had high positions before starting to
work at Sonat. Conradson said as logistics is their core competence they are continuously trying
to develop and improve their competence. Sonat’s management team is composed by the CEO,
Introduction
Theoretical
Method
Theory
Pratical
Method
Empirical
Data
Analysis &
Discussion
Conclusions
45
the VP Sales, a Development Manager, a Quality and Environment Manager as well as five key-
accounts managers which are responsible for the main customers accounts, above mentioned.
The fact that Sonat is in business with many companies within different industries makes our
expertise and know-how well established within the market, said Conradson. Sonat works a lot
towards the transport industry and handle for instance cargo freights today worth 1.2-1.3 MSEK.
This has a positive impact not only in the achievement of substantial economies of scale at op-
eration level but also economies of scale in regards to competence.
5.1.2 Enterprise Logistics Integration
According to Jan Conradson, what differentiates them from their competitors is that Sonat
works closely with their customer base and thereby fading organizational boundaries. In fact,
and using Mr. Conradson’s words, they consider themselves an “insourced” logistics department
rather than an outsourced one. When asked about what type of services Sonat offers to their
customers, Conradson answered that Sonat provides a long-term logistics partner that offers
logistics functionality and development. Furthermore, Conradson explained that the supply
chains that Sonat takes control over varies a lot between the different companies/clients. Alto-
gether, Sonat can work over a broad spectrum of services; for example, within Operations the
services offered are Replenishment (planning and stock management, transport booking and
monitoring), Order fulfillment (receipt and order planning, customer service and capacity plan-
ning) and Distribution (transport booking and documentation, customs processing and daily
problem-solving). More simply, one could say that we provide everything from the most opera-
tive functions, like for example, printing shipping documents to performing strategic supply
chain changes, resumed Conradson.
While discussing the different ways of establishing a new cooperation with a firm, Conradsson
said that “once an agreement is reached between us and the customer that we will take respon-
sibility over a logistics function or a logistics platform, an implementation project group is set
up.” When speaking about the implementation process, Conradson believed that it traditionally
was a lengthy one. Moreover, Conradson believed that sometimes it is hard for their new cus-
tomers to understand and thus take full advantage of the “knowledge database” (using Conrad-
son’s words) that they have at their disposal. Conradson pointed out, however, that Sonat had
developed a few uncomplicated services with the purpose of quickly establishing collaboration
in that way starting with the small things and later deal with the larger issues at hand. Some-
times, pre-studies are conducted. When discussing the advantages of long-term partnerships,
Conradson said that their competence increases every day and thus new firms that Sonat estab-
lish partnerships with will eventually, to some extent, benefit from this. According to Sonat’s VP
Sales, they work with their customers as if they were their employees; Conradson admitted that
they tend to be regarded as that company´s logistics function entirely or to a certain extent. It is
not uncommon that Sonat reports to the logistics or purchasing managers, he said, and that
they are viewed as a section of their customer company. For instance, Sonat is known as the
“Transport unit” at Apoteket and thereby it could be assumed that most of the employees at
Apoteket are unaware that an external company provides that function.
According to Conradson, Sonat are experts at logistics and by outsourcing to them, companies
will be able focus on their core competencies while Sonat do what they do best: “What some-
one else can do better than us one should not continue doing.” Conradson went on and ex-
plained the classical arguments about outsourcing, that it should lower costs, liberate time and
enable the possibility to focus on the core competencies. This will create flexibility in the sense
that one should be able to increase or decrease production more rapidly, to become more effi-
cient and naturally secure/safeguard competence. When talking about outsourcing, in accor-
46
dance with Conradson, this implies that companies give away a process to another company,
hand over the responsibility. At Sonat this is instead called in-sourcing since they believe that
something is added; Conradsson explained “you add something to the company, add compe-
tence and resources to a company and the way they do things” Once the implementation stage
is finished, the project passes on into a so called, management phase. To quote Conradson: “At
that stage, we form a group that will specifically manage the needs of that particular company.”
5.1.3 Logistics & Competitive advantage
According to the company their plan of action varies according to the specific customer needs.
As previously mentioned, Sonat helps customers to change and develop their logistics processes,
so that they for example improve their IT-systems for the effective follow-up over their inbound
or outbound logistics or both. Moreover, Sonat achieves better control over often decentralized
logistics which lack cost control, improve quality, as well as assist customers to better structure
their operating procedures. Thus, they help customers to reduce operational costs, but also to
increase their delivery reliability. For example by having a better and more structured transport
schedule Sonat can help customers to reduce the amount of suppliers as well as to reduce
transport- as well as administrative costs substantially. Furthermore, through process re-
engineering adequate platforms are created so that the customer can increase its sales capacity
and thus become more profitable. Another important aspect is the quality of end-customer ser-
vice. Through improved information flow Sonat is able to help reducing lead times, an extremely
important factor, as well as increased delivery reliability and security.
47
5.2 UAE Logistics
During the study of UAE Logistics, I had contact with three different employees, each of them
very helpful, professional and eager to help, which culminated in a very fruitful two hour long
interview, on September 22
nd
with Henrik Höglund, Consulting Manager. Mr. Höglund has a
Master of Science degree from Chalmers University of Technology in Industrial Engineering and
Management. Höglund has a broad international working experience having worked previously
not only in Europe but also in the United States. Höglund has been working with UAE Logistics
since 2003 and according to him it was then he first came in contact with the concept of fourth
party logistics (4PL).
5.2.1 The single firm
UAE Logistics is a company specialized in logistics services. The company offers a wide range of
services varying from logistics consulting, development as well as administration of Logistics
Control Towers (LCT). The latter, in turn, is divided into two business units; a) Ericsson’s Control
Tower ECT (picture below) which as the name indicates, handles the administration of Ericsson’s
logistics and b) Logistics Control Towers (LCT) which manages the logistics processes of custom-
ers such as SAAB or Alfa Laval, for example. The other main business area of services within lo-
gistics is Developing & Consulting.
Below you will find the organizational chart of the company (Berg & Choroszynski, 2008).
Figure 5-1: UAE logistics organizational chart (revised)
According to Höglund, UAE Logistics vision is “to be recognized as the best logistics partner in
the Nordics”. Currently UAE Logistics has offices in Stockholm, Helsingborg, Linköping, Dubai and
Dallas. According to the interviewee, UAE Logistics was bought by Air Express International,
which was one of the largest American freight forwarders. Later, AEI was bought by Danzas
which then merged with DHL. Today, UAE Logistics is a subsidiary and fully owned by DHL, which
in turn is a part of the Deutsche Post Group.
Höglund continued by explaining that it was actually customer demand that was the reason
behind the creation of UAE Logistics as a fourth party logistics provider. The history is that UAE
was one of the biggest air forwarders in the Nordics and in Europe during the 1990s. At that
point they got a contract with a customer (Ericsson) who requested that they would not only
manage their own freight forwarding agencies and so on, but also to manage the customer’s
complete supply chain. According to Höglund, what differentiates them from the more tradi-
tional logistics service providers (i.e. third party logistics companies) is that they are neutral and
that they are a non-asset provider.
Business Area
ECT
Quality &
Environment
Business
Controlling
Managing
Director
Business Area
LCT
Development &
Consulting
Sales &
Marketing
Human
Resources
48
When asked about how much the company has developed in terms of the number of employees
as well as in terms of turnover Höglund answered that since the establishment of the company
in 1999, they have increased to about 130 employees. When it comes to the turnover of UAE
Logistics, he believed that it was around 1.6 billion SEK. Furthermore, when I prompted and
asked if he believed that there is a market demand for this type of services, he said he definitely
feel that there is. Höglund explained that “what we try to see is where the challenges are and
what the demands are and if we have a fit, if we have a business case, then we can make life
easier for the customer.”
Höglund continued by explaining that traditionally distribution and export have had a larger
weight on the total services provided. However, this trend has been changing and “these days I
believe that importing of raw materials is growing at a fast pace”, thus requiring their services
to expand into this area. Höglund explained that one reason for this occurring could be the pa-
radigm shift, i.e. customers have realized that if they can control more of the supply chain then
they have better abilities also to control costs, income- and balance sheets. The customers of
UAE Logistics operate at a global market, and thus UAE Logistics controls supply chains both
exporting from and importing to Sweden, but also importing to other countries, like cross-flows
Höglund added.
When I asked Henrik Höglund if he considered UAE Logistics to be a 4PL company, he answered
affirmatively. However, he pointed out that one should be careful when using expressions with
three characters (abbreviations). According to him the academic world see the 4PL concept
more as a management fade rather than a new management paradigm. In his words, for the
academics’, the 4PL concept is more like a marketing thing. At that point I explained to him that
I only use the term 4PL because it is simpler to use this jargon word than it would be to use the
expression supply chain integrator all the time, as we believed this would make the reading of
the thesis tedious. Moreover, I explained to him that during the research I had come across oth-
er definitions for somewhat similar concepts (i.e. demand chain integrator or total service pro-
vider) and that in order to avoid confusion to the readers these different concepts had been
explained in thesis.
Höglund added that UAE Logistics as a company very seldom uses that terminology (4PL) when
they introduce themselves to customers; instead they use the concept of “Logistics Control
Tower”. At that stage Höglund provided me with a graphic presentation of the LCT concept
which the reader can find below. However, he added, when comparing the services that UAE
provides with the overview of the four key components of a 4PL that was previously sent to him,
then yes, he believed that UAE Logistics is a fourth party logistics company.
5.2.2 Enterprise Logistics Integration
In accordance with Höglund what differentiates the Logistics Control Tower (LCT), depicted in
the figure below, from the Consulting Services is that the LCT puts more focus on UAE Logistics
to be proactive and to have the driving force to constantly evaluate the customer and come with
new recommendations. The Consulting Services on the other hand focuses on the customer and
what they want help with, i.e. the service originates from the customer. It was also stressed that
both new and existing customers need help to monitor and measure existing suppliers.
49
Figure 5-2: Logistics Control Tower (courtesy of UAE Logistics, revised)
According to UAE, they take operational responsibility for the entire supply chain through the
use of LCTs. Höglund explained that LCTs primarily focus on the administration but also on the
continuous development of both inbound and outbound deliveries. This includes providing ex-
pert services in areas such as; planning and call off (consolidation, direct deliveries and route
optimization), document handling (both transport and other logistics related documents), cus-
toms handling (both on import and export), as well as monitor and handle information so that
visibility is increased within the supply chain. When prompted about the influence UAE have on
their customer internal logistics (e.g. manufacturing processes), Höglund explained that, be-
cause they work very much with Exception Management together with their customers, if an
internal process is creating problems on the efficiency of the LCT then, together with the cus-
tomer they will analyze the process so that is corrected.
Moreover UAE deals with invoice handling. According to Höglund, “this is a big thing”. UAE pro-
vides automated control and consolidation of logistics services invoices into one invoice.
Höglund continued his explanation by saying: “imagine if you have a company with thirty or
forty different distribution service providers and you get different invoice formats from all of
these that you need to match and you need to ensure that these are correct…” This is an impor-
tant aspect because companies need to match the costs of the transport against a specific order
so that the cost price of each individual product reflects the transport costs for that same prod-
uct. Finally, UAE Logistics help customers minimizing their overall logistic costs by using BI appli-
cations, by generating different types of statistics as well as different key performance indicators
(KPIs), added Höglund.
Höglund went on by explaining the Developing and Consulting Services business which is turn
divided into four different categories: a) process & system development, b) supply chain devel-
opment, c) supplier development and d) outsourcing.
Höglund explained this business area is autonomous, and is not used as a marketing tool in or-
der to lead customers to sign a LCT contract, however if there is a fit, that UAE will obviously
suggest to the customer a LCT type solution. Moreover, Höglund explained that the idea of hav-
ing a business is to always prioritize the customer i.e. to not sell Logistics Control Towers by sell-
ing Consulting Services. It was explained that some customers may not benefit from having a LCT
because 1) they might not benefit from outsourcing and 2) because of strategic choices not to
outsource business processes. Therefore, UAE Logistics best option in these cases would be to
provide Consulting Services, emphasizing the importance of “having a joint trust”, Höglund add-
50
ed. Thus, UAE Logistics conducts pre-studies where they analyze and identify areas that could be
improved within logistics and then make recommendations either based on Consulting Services
solutions or if needed, suggestions which will imply LCT-solutions. According to Höglund, UAE
Logistics can manage projects related to for instance outsourcing across the entire supply chain.
Process and System Development is like his baby, said Höglund and laughed. It relates to the
analysis, design and implementation of both logistic processes and system solutions within logis-
tics administration. Moreover, UAE’s consulting manager explained that the services provided
within supply chain development are for example the optimization and implementation of dis-
tribution structures (i.e. delivery setups). He explained that in order to do that, UAE uses a po-
werful software tool that enables them to make simulations which then leads them to the opti-
mization of the resources. Höglund explained that first of all UAE maps out what the customer
operation currently looks like. After that and through the use of the above mentioned simula-
tion tool they will create different scenarios to measure the changes. For example, he contin-
ued: “If you have a company with multiple warehouse structures or ERP system set-ups or triple
organizations in place, what happens if we cut down this into one for the whole organization?
What happens if we would like to go into a new market like Russia? What are the implications of
that and so on?” Moreover, Höglund said that UAE Logistics can map out both costs (warehouse,
transportation, labor) and measure current environmentally hazardous emissions. To quote
Höglund: “So we can actually both analyze the costs, the environmental impact and the lead
time impact today”, this way UAE can find the aspects that can be improved. Thus, the simula-
tion tool previously explained helps UAE Logistics to set-up different scenarios that can later be
used as basis for discussions with their customer and the final decision-making.
Developing on the concept of supplier development Höglund went on by explaining: “UAE fol-
lows a methodology, you can say, it starts with the analyses of the market and of the customers’
demands as well as their logistics requirements.” Based on this UAE Logistics may help custom-
ers to design so-called request for quotation (RFQ) if they do not already have one. A RFQ is a
document (standard) normally used by companies to ask suppliers or potential suppliers infor-
mation about prices of the product or other relevant aspect about the purchasing contract (e.g.
Incoterms). Sometimes customers might already have an RFQ on their hand, requiring different
sorts of supplier information. UAE helps them to gather all the answers. Moreover, UAE also has
a database with all the different supplier ratings, costs and other relevant information that has
been used for previous customers. According to Höglund, UAE analyzes this information in two
different ways.
One way is cost analysis, where UAE uses the customers’ historic information, for example facts
related to previous shipments, individual shipments or orders or something that symbolizes
where they have traffic, from where UAE can draw statistical inferences. Another type of infor-
mation UAE uses is the price lists, or the response in the RFQ from the different suppliers.
Höglund explains “…we try to price each and every row here in statistics, to find out which sup-
pliers that have the best costs for different markets, for different products, different transport
methods and so on. That’s the first thing that we do, we make a cost analysis.”
Another thing UAE does, Höglund explained, is a quality analysis. UAE may question suppliers if
they are ISO 9000 or ISO 14000 certified and what kind of IT-systems they use so that UAE can
establish how to connect themselves to these same suppliers, i.e. can they use EDI or XML or if
suppliers can report via different IT platforms. There are also organizational aspects that UAE is
interested in, i.e. local presence. The fourth thing could be laws and regulations, how do suppli-
ers follow up on that and so on.
51
Once UAE Logistics has performed both cost- and quality analysis the company weights between
the most important quality factors and those that relate to costs. Based on the findings, UAE will
then make a recommendation to their customer, suggesting a smaller list of suppliers that they
believe are the most suitable to satisfy the customer requirements. After having visited on-site
this smaller group of suppliers, UAE picks perhaps one after negotiations and then set the pilot.
Höglund explains, “…we start with one or several flows and then together with this we also doc-
ument standard operational procedures (SOP’s) which serves as a quality manual between the
customer and the supplier and if we have a Control Tower in place…”, it will also serve the Con-
trol Tower. According to Höglund, these SOP manuals establishes all the rules that must be fol-
lowed within the supply chain, i.e. how follow up is done, and how invoices, reporting and meet-
ings should be handled and so on. Höglund stressed that the company focuses a lot more on
continuous improvements than the ISO 9000 standard requires; that UAE “need to understand
the how and also the why we do things, because…then we can also improve it.” To have conti-
nuous improvements or Kaizen as Höglund puts it; “built into the Control Tower that´s our bread
and butter, that´s what we live with…but what we also see is that we can have the ability not
only to sell Control Towers but we can also sell stand alone consulting services.”
Outsourcing refers firstly to the implementation of a LCT, the other thing adds Höglund, is “that
we can also manage projects of outsourcing of anything else within the supply chain, meaning
the different logistics activities (warehousing, transportation, but even supplier assessment).
Höglund said that the main impediment for UAE Logistics when implementing 4PL service for a
new customer is “change management.” The Consulting Manager explained that “the customer
must have the resources in place, dedicated budget, IT experience, they have to have a mind-set
that this is going to be a change, they have to realize the benefits and they have to work with us
and to be on the same side as us. I think in order to do that it is really important to work with
change management.” That is, the customer needs to realign their strategy in a sense to fit into
the service; otherwise they will not be able to take the full advantage of the service. Höglund
added that the customer should not outsource everything. Instead, one reason they should keep
qualified competence in-house is so that requirements on UAE Logistics can be set. After the
implementation phase UAE Logistics educate the key personnel for the customer, i.e. the per-
sonnel that are going to work with them on a daily basis. Höglund said that everything is written
down in SOPs (standard operating procedures) that “…are continuously revised, so it´s not a
document that we develop in 1995 and then we don´t do anything about it.” Whenever there are
improvements or changes the SOPs will be updated, “so we live after our SOP´s” Höglund added.
When I asked Höglund if he could describe the network IT system integration, he answered that
UAE Logistics work both with standardized systems and with their own systems. He continued
by explaining that UAE can build a solution based on modules rather than for example an “Euro-
pean system that carries out everything but is not very flexible to set up different customers”.
UAE’s Consulting Manager explained the customer should not have to worry about what system
to use. In essence they should have the benefit to have all information at their disposal at any
given time. Höglund went on and explained that this means that their customers should work
with their own SAPs, when they update their order lines from ‘pick to pack’ then an EDI file
should be sent to the LCT for further processing. To quote Höglund: “If they need to have docu-
ments…they should find that in their SAP system created by the Control Tower.” Since different
actors in the supply chain might work with different applications, continuous improvement is an
important aspect at UAE Logistics. Moreover, the diversity of standards or even the lack of it
puts additional pressure on the LCT. The LCT is considered as the integrator, which according to
Höglund has the big challenge of translating “…different types of messages and the contents of
the message…but also to make sure that we can transfer it all in the supply chain.”
52
KPI &
Statistics
Shipping
Invoice
handling
Monitoring
Planning
Customs
Integrator
SAP Movex
Log 2000
...
Baan
The figure below depicts UAE’s role has the integrator.
Figure 5-3: System platform Worldgate (courtesy of UAE Logistics)
I then asked if customers can capture information in real-time. To that he answered, “it must be
more often than daily”, in fact continued Höglund sometimes “we talk rather about minutes
than hours and never talk about days.”
When it comes to the information flow UAE Logistics measure how fast they are at reporting.
However, Höglund added that “it depends on the requirements on each individual customer but
when it comes to sending back information then we talk about minutes… we are a non-asset
provider so we are dependent on reporting back from our suppliers and if they are bad in report-
ing then we are bad in reporting, so we need to set the requirement not only ourselves but also
on our suppliers.”
Another example, provided by Höglund, of the importance of time was at times of delivery. UAE
Logistics might have service technicians at the customer site “ready to start working as soon as
the shipment arrives, then we have requirements not only to be there on a Tuesday, and not only
to be there at twelve a clock, but twelve plus or minus 15-30 minutes…” Höglund said that de-
pending on the supply chain those kinds of solutions might be too expensive. To quote: “You
don´t say that we only use that the whole time because that would cost enormous amounts. We
need to have an optimized mix between cost, lead time and service.”
As per Höglund the advantage with having long-term partnerships is that due to the transparen-
cy that exists, UAE is able to support their customers in their investment decisions when it re-
lates for example the development of logistics operations or processes.
On the other hand, the disadvantages with having long-term partnerships are trust related is-
sues. This could be, quoting Höglund: “obstacles to go in to an outsourcing…you have to have an
understanding with the customer.” Höglund said that it is always easier to conduct improve-
ments in the beginning of a process; “in the beginning it is easy to pick the low hanging fruits.”
However, it becomes more difficult to measure improvements at later stages because “it take
more to realize the benefits…it takes a lot of creativity and skills to manage a long-term partner-
ship with the customer”, added Höglund.
The Consulting Manager of UAE Logistics said that when talking with 4PL companies or logistics
providers most likely “most of them will say…that they want to climb in the value chain, they
don´t only want to ship goods for the companies, they want to have an effect on the logistics
strategy…” However, Höglund added, “…if you want to climb in the value chain then you need to
have more trust and you need to really show the customer that we are a very skilled and compe-
53
tent player here, we can form alliances together.” Once climbing up the value chain UAE Logis-
tics would be able to offer different Consulting Services such as supply chain development.
Höglund continued by saying: “The more dependent a supplier is of its customers, the more in-
fluence the customer will have on the suppliers processes, mindset and business idea.”
5.2.3 Logistics & Competitive advantage
When asked what, in UAE’s perspective, is the best way to reduce cash-to-cash cycles, reduce
capital binding or increase customer service levels, Höglund answered that UAE Logistics uses a
common project methodology on structure within DHL that is called First Choice. To quote: “The
whole idea with First Choice is that the customer should choose DHL as number one, and within
First Choice which is based on lean production, kaizen and continuous improvements we have a
specific tool that we use”, called DMAIC which has the following phases:
Define (to define the problem, to set the scope), Measure (to start to measure everything within
this process, with statistics, with surveys etc). The third step is the Analysis phase where the
problem is sorted out. During the Improvement phase, as the name indicates, UAE tries to put in
place improvements in order to gain efficiencies, to put it differently: “we try to do things bet-
ter”, Höglund added. Finally, in the Control phase UAE puts in place the Standard Operation
Procedures (SOP), train people and make sure that bottlenecks are not going to happen or re-
occur in the future. Höglund believed this way of working, using models like DMAIC, simplifies
procedures since it provides clear steps to follow, makes it easier to know in what phase one is,
as well as it lays down the actions that need to be implemented. A plus is that their customers
will be able to follow the different steps, have a good perception of the work that has been tak-
en and in the process learn and obviously in the end help UAE Logistics do their job.
When it comes to increased growth profits Höglund said that lead time and logistics integrations
are the two major things; to shorten the lead time to the market as well as decreasing the va-
riance of the lead time. One customer service in relation to this is that when dealing with the
LCT, the customer does not need to talk to the different suppliers, instead UAE Logistics takes
care of that. Höglund explained that emphasis is on lowering the cost of goods sold and that the
above “…has an implication on the increased growth profits in the DuPont-Schedule.” To lower
the operating costs, then, to quote: “you need to find a optimized mix of service costs and lead
time, it is a lot about IT and processes…increased share of consolidated shipments, improved
handling of customer returns and claims, accurate freight charging, invoicing of customer or-
ders…continuous identification and elimination of bottlenecks, improved physical distribution
and supply chain monitoring…track-and-trace.”
Höglund said that there is nothing like real-time in logistics since everything has to pass a miles-
tone in order to be ordered. However, if UAE Logistics can be on top of the information, to “take
action before the flight is canceled or the ship has sunk” then according to Höglund “…when it
comes down to reduced working capital then…the cure is to be transparent to reduce inventory
through improved reliability.” Höglund added that focus should be on having “less warehouse
facilities, shorter cash-to-cash cycles, focus on payables and then of course finally to focus on the
core competence.” Examples to clarify this were the companies Kellogg’s and Dell, “world lead-
ers that have become so successful because they have realized what is my bread and butter,
what do the customers expect from me?”
54
5.3 Volvo Logistics
The interview with Volvo Logistics occurred on October 15
th
. The interviewee as previously men-
tioned was the Project Manager at Global Logistics Development, Henrik Erkfeldt who has been
working for Volvo Logistics during the past six years. His previous working experience includes
working for another division within the Volvo Group, as well as for other companies, for instance
a supplier to Volvo Cars, and a consulting company.
5.3.1 The single firm
Volvo Logistics is a wholly owned subsidiary of the Volvo Group. At the Volvo Logistics webpage
(www.volvologistics.com) it is stated that; “Volvo Logistics designs, handles and develops com-
prehensive business logistics systems for the automotive industry worldwide.” Moreover, accord-
ing to Mr. Henrik Erkfeldt, Volvo Logistics vision is “to be recognized as the leading partner with-
in the automotive commercial transport industry.” The company is active in the different areas
of inbound, outbound and emballage (packing).
Within Volvo Logistics each of the divisions, i.e. inbound, outbound and emballage (packing),
have their very own logistic development group. Erkfeldt explained that previously Global Logis-
tics Development had belonged to Inbound but nowadays is considered to “stand on its own
legs” so to speak. What this division of Volvo Logistics does is that they handle support functions
such as logistics development of different supply chains in regards to for instance environment,
purchasing, insurances and IT. Thus, the idea with this group is that they should handle large
projects, projects that could include both inbound, outbound and emballage (packing). Moreo-
ver, the division works with key areas within the Volvo Group; areas such as optimizing, network
analyzes, geographical information systems i.e. programs and systems that can be connected to
different logistic services. Thus within the above mentioned area Volvo Logistics is the compe-
tence centre and not Volvo IT.
As mentioned above, Volvo Logistics vision is according to Erkfeldt; “To be recognized as the
leading partner within the automotive commercial transport industry.” Moreover, this implies
the underline and the reason why they have no customers outside the automotive industry. It
was believed that commercial industries reflect the task they perform for Volvo Aero; handling
spare parts for their customers, e.g. Boeing and Airbus. So what Volvo Logistics did was that
they bought stocks of used spare parts. Moreover, within the Volvo Group there is a division
called Volvo Construction Equipment that manufacture excavators, wheel loaders, pavers and so
on, and the division is thus also seen as part of the commercial industry. To be recognized as the
leading partner stands for the ambition to be logistics provider to at least one more automotive
company. However, as the large automotive companies already have established strong rela-
tions it has been proven to be quite difficult to enter this market.
Since the start of Volvo Logistics the company has gone from being a company based in Gothen-
burg, Sweden, primarily for Volvo Cars and Volvo Trucks, to a company situated all over Sweden,
for example in Umeå. According to Erkfeldt the company has during the last six years grown
approximately 40 percent. When Erkfeldt started to work at the company, 2002-2003, an agent
logistics division that belonged to Volvo Cars was reorganized to Volvo Logistics, and it was not
until then that the company became a big player in Europe. At this stage the company had offic-
es in the US, but still considered themselves as being a very Swedish company.
During the last four to six years Volvo Logistics have established offices at many locations, pri-
marily those that traditionally were not as strong; North America, South America, Asia and even
Southern Europe. Erkfeldt stated that; ”We are at Renault in France, we are at Volvo Trucks in
USA, Boeing in USA, Volvo Trucks in South America, the car manufacturers in Peru, Asia and so
55
on.”. Still the different offices are quite small with the exception of USA, thus, perhaps offices
located by the clients consists of three to five people. Having this expansion in mind, still most of
their employees are located in Gothenburg, Sweden (Volvo Logistics Corporation) and Gent,
Belgium (Volvo Logistics Europe). There are also quite a lot of people located throughout North
America at two-three locations. “Out of roughly 1,000 people, 350 are located in Gothenburg,
200 in the US, 150-200 in Gent, and the rest in South America, Asia, locations in Sweden (Umeå,
Skövde, Arvika, Fredriksberg) and so on.”
The company handles multiple customer relationships, although rather many of them belong to
the Volvo Group in one way or another, such as subsidiaries. A few of their customers have been
provided to them via Volvo Cars. As Erkfeldt previously explained, their vision “…within the au-
tomotive…industry.” effectively reduces the segments that their clients are operating in. All their
different customers have a connection to the automotive industry and thus have not so much to
do with the building or retail trade. Volvo Logistics has customers both importing raw materials
and exporting finished goods. Inbound logistics deal with all the material that goes into the fac-
tories i.e. the raw material and different components. The turnover from inbound is larger than
that from outbound and the reason for this is that they do not have control over the distribution
of vehicles in the USA. So, the penetration is better within inbound where Volvo Logistics have
approximately 100 customers, covering from the steel going in to the manufacturing in Umeå to
the final distribution of cars. Volvo Logistics both own and rent warehouses. The fact that they
own warehouses is more or less a tradition according to Erkfeldt as those warehouses are lo-
cated in Gothenburg. Thus Volvo Logistics almost does not own any transport assets by them-
selves apart from the occasional warehouse and cross-docking facilities that they do own. The
company has had manufacturing but due to the historical turning towards outsourcing within
their branch, the automotive industry, today it is limited to small scale operations. During more
recent years the trend has become something more like in-sourcing, he added.
Erkfeldt had obviously heard about such as supply chain integrator and control tower, supply
chain engineering, business process analyzing, development of activities and also recognized the
pressure towards IT and business development. However, the interviewee felt that the concept
of fourth party logistics (4PL) is yet not as well-known as the concept of third party logistics
(3PL). After having looked into the file with the “four key components of a 4PL”, which was pre-
viously sent to him, Erkfeldt believed that even though Volvo Logistics Corporation has the am-
bition to be become something in the frame of a 4PL, there are some areas where they still are
not there yet. Erkfeldt suggested that one of these areas would be the transparency i.e. that
Volvo Logistics do not have yet the transparency that he believed a 4PL should have. To quote;
“We do not have the overview of the entire supply chain, all the different supply chain activities,
and we are short of this firstly because we do not have the systems for it and secondly because of
our clients requests; they already possess a lot of the functions one could say and do not want us
to have that responsibility.”
Volvo Logistics handles not only transport procurement but also provides long-distance ware-
housing for different global suppliers; for instance providing the suppliers located in China with
warehouses in Europe. Volvo Logistics purchase all the different transport and warehousing
solutions and later packages this in different packages that are located closely to the different
Volvo factories.
56
5.3.2 Enterprise Logistics Integration
According to Erkfeldt, the company has better integration in outbound logistics than in inbound,
being this very much due to the application for distribution (A4D) system. This system gives up-
dated information about the order-production-distribution sequence. For instance, all the dif-
ferent Volvo cars come with A4D. Moreover, Erkfeldt said that when it comes to inbound their
base system is not as good. Perhaps when the new system ATLAS is in place things will change,
he said. ATLAS is an application that they are currently developing currently and will eventually
be used as a transport-management system. For example, it will enable new services that facto-
ries and suppliers will be able to use. Today, parts of the system are in use more or less with the
purpose of conducting pilot studies and only as a booking and planning system. On the other
hand, there are examples where they are very connected (on inbound) with their customers. For
example, in certain countries trade on behalf of customers is invoiced to Volvo Logistics. In this
aspect, Erkfeldt believed that they had gone very far. Continuous innovation lay within the re-
sponsibilities, their projects and developments, of Volvo Logistics.
The problem that Volvo Logistics is having with the current set-up is that globally they are using
three different systems, i.e. in Sweden, in Europe and in the US. Moreover, they use yet another
system as a few of their clients are using a fourth system. Thus, even though the different sys-
tems are noteworthy by themselves, Volvo Logistics, according to our interviewee, has a prob-
lem with sharing information between these different platforms. Implementing ATLAS will bring
them to the next level; to quote Erkfeldt: “the consolidating step.” The ambition is that the new
system will replace the four systems currently in use. Different customers have different de-
mands. At outbound, as above mentioned, Volvo Logistics is using A4D which in turn, if required,
can be connected to GPS-functions, i.e. providing the possibility to follow every truck in real-
time. Using so called milestones is also common, e.g. when the goods come into a harbor signals
might be sent to a controlling entity within the supply chain.
There is a difference when it comes to the handling of information between inbound and out-
bound. While at outbound the A4D system allows for track-and-trace, taking the system care of
the flow of information, at inbound it works in the opposite way; everything that is not reported
is regarded as on-track. As a consequence, only information about what is reported as out-of-
track is shared throughout the supply chain; information about congestions, incidents or strikes.
Erkfeldt willingly admits that this puts pressure on the different transport providers, that they
“…conduct transports the likelihood of them doing that is higher than vice versa. It builds a lot on
established relations”. Volvo Logistics thus suffers from not having the different service portals
up and running. Instead flows of information many times circulate throughout the supply chain
(service department via the customer and the customers’ counterpart) with use of Excel spread-
sheets. The company has a lot of back office functions and service functions that their clients
can make use of at an operational level to achieve a track-and-trace, however as pointed out by
Erkfeld, things are still done half manually.
Erkfeldt said that Volvo Logistics has a budget responsibility (transport and logistics wise) within
a number of companies, towards a number of clients, where the company conducts all follow-up
of transports but they do not do for example Warehouse data mining and that kind of follow-
ups that the clients do themselves. Within the Volvo Group, Volvo Logistics has procurement
services of the purchasing of all transport and logistics services. Thus, per definition, Volvo Logis-
tics clients whether belonging to the Volvo Group or not are not allowed to procure transports
on their own.
57
One of the services that Volvo Logistics offer their customers is insurances. According to Erkfeldt
insurances are a very big business. One of the examples mentioned was the insurances that
Volvo Logistics had saved the Volvo Group when a cargo ship sunk in the English Channel. Fur-
thermore, Volvo Logistics have customs handling. Their expertise in this area functions as a
competence center within the Volvo Group; that is, the handling of customs, value added tax
and so on. As one can realize from the above areas there are a lot of money involved and the
insurances are covered by different insurance companies.
When asked about the barriers that might occur when Volvo Logistics implement services for a
new customer the answer was “politics”. First and foremost because there is often need for
radical changes. Volvo Logistics take over a lot of people from the customers and that in turn
naturally have a large effect on both the ones that are being transferred and those that are left
at the company. From Erkfeldt’s experience it was generally hard to say if there is certain re-
sentment against changes. Though, what was distinguishable was that it differs depending on
where in the world one conducts business. When talking about Europe and the company Re-
nault they have had some struggles, whereas Erkfeldt’s colleagues in the USA have been very
successful. Generally speaking, he believed that the markets in Europe are more difficult than
the markets in the USA, Brazil and the so-called new world.
Volvo Logistics often work within different projects and have well established methods for doing
so. The projects duty is to deliver improvements or solutions for new development, as well as to
integrate themselves with new customers. The interviewee said that personally he only works in
project form. If a customer would like to cooperate with Volvo Logistics the first step is almost
always to map that customer’s recent activity. For instance, which different areas can be trans-
ferred to Volvo Logistics, what is their KPI (Key Performance Indicators) today, and which cur-
rent suppliers are they using? This leads to the establishment of a road map which in turn is
expanded as the different products comes in. To quote: “Is it inbound, outbound or emballage
(packing) that goes in first, or what is to be carried out? This is followed by different sub-
projects.”
Erkfeldt explained that naturally it is easier to grasp what needs to be changed in the beginning
of a project, those are the big changes. After the implementation is done, Volvo Logistics lets the
project roll for a couple years, and then already at operational level, they go back and start
working with continuous improvements. Erkfeldt explained that Volvo Logistics is currently run-
ning the integration for Nissan in Japan with the purpose of taking over the logistics companies,
a lot of warehouse companies that Nissan owns today. In essence it is about giving Nissan ade-
quate support. Suppliers such as Volvo Powertrain will establish themselves in Japan and thus
Volvo Logistics will support the logistics structure. Erkfeldt said that “one project will be to sup-
port Volvo Powertrain, another to support Nissan with European suppliers which have nothing to
do with Volvo Powertrain, and another project is for example dealing with the distribution of
Nissan stuff in the USA. That is, some sort of Control Tower for this client will be established as
an initial phase and later it will be phased out.” Moreover, a project such as this would perhaps
last for five years with most of its activities executed during the initial phase.
When it comes to formulating deals Erkfeldt said that they affect the different supplier at an
operative level; that Volvo Logistics decides when they should deliver, however, this is the only
thing that they could have an influence on. Thus, the impact that Volvo Logistics has have noth-
ing to do with production planning, instead what the company can shape is how the deliveries
should be packaged (emballage). When talking about the logistics pipeline Erkfeldt said that
Volvo Logistics chooses the transport and logistics providers but never the suppliers of material.
What Volvo Logistics does is that they evaluate transport and logistics costs and later it is the
purchasing department that decides, that handle the order process. However, Volvo Logistics
58
would sometimes make a recommendation to switch between different suppliers. For instance,
if the purchasing department is wondering how much the costs would be effected if the produc-
tion was placed in China instead of the one here in Sweden, Volvo Logistics would evaluate that
and perhaps come to the solution that a hub in China needs to be set-up. Thus, that would be
the recommendation. When it comes to the extended enterprise and the virtual supply chain,
the project manager said that Volvo Logistics see it as if they widen the scope; “the ordinary
Volvo companies are very focused on the three Islands (so to speak) of manufacturing, selling
and purchasing. What Volvo Logistics does it that we integrate these three different aspects.”
Erkfeldt admits that the integration with their customers could be better in order to really suc-
ceed with the virtual supply chain and even the extended enterprise, that the customers would
see the consequences throughout the chain.
Volvo Logistics position themselves as being neutral because as Erkfeldt puts it himself; “We buy
100 percent of our transport capacity and as stated almost 100 percent of the warehousing ca-
pacity. We do not have any proprietary interests in anything and we use I do not know how
many different transport providers and 3PLs.”
After briefly introducing the different concepts Vendor Managed Inventory (VMI) and Co-
managed Inventory (CMI), Erkfeldt said that they are leaning more towards CMI, Especially Vol-
vo Powertrain (the world´s largest producer of heavy diesel engines). Although Volvo Powertrain
identifies it as VMR, vendor-managed replenishment, it is similar to VMI; the difference is that
Volvo Powertrain owns the material. A few key suppliers have been selected where they work
with CMI, which they also do quite often when it comes to large flows of goods. On the other
hand, a normal supplier would be using VMI, e.g. an ordinary supplier somewhere in a small
region where development is not part of the operations.
When discussing the selection process of the customers’ suppliers, the response was that if talk-
ing about suppliers of material then Volvo Logistics do not check for their quality and/or quality
of products. However, when it comes to transport and logistics companies then they actually do
these things. As supply chains are becoming more global, Volvo Logistics have for instance
started to work with insurances. Erkfeldt said that the company works with knowledge, i.e. they
try to attend to upcoming strikes and that sort of things. However, financial risks are not part of
Volvo Logistics operation as it is the purchasing department’s liability. What Volvo Logistics do is
that they work with set solutions so that they in for example China can set up hubs and logistics
solutions with the goal to support and minimize certain risks. These risks could be transport
risks, that the suppliers provide the transportation the whole way. What this comes down to is
that Volvo Logistics at an earlier stage in the supply chain will create control.
Volvo Logistics see advantages with having long-term partnerships with their suppliers because
then they will be able to build relationships, and thus ensure capacity if they ever should fall
short of it. Erkfeldt explained further that “it is about system and relation integration with their
suppliers. Towards the customers it is very much about confidence, long-term relationships; we
build confidence so that we get these inquiries of supporting them with supply chain develop-
ment, an area which is not under our ordinary operations”. Moreover, the interviewee saw the
need for their customers to grasp the ideas that Volvo Logistics brings in from other customers,
i.e. that Volvo Logistics becomes a sort of bridge of knowledge. Lastly, Volvo Logistics establish a
rigid system for invoice handling, customer relationships, and so on. When discussing the possi-
ble disadvantages with having long-term partnerships the immediate response was that one
could get lazy. According to Erkfeldt “there are a number of examples showing perhaps that we
do not develop, are sufficiently quick, and thereby our customers drive us because we do not
really see the market due to focusing too much on the customer. Many times it might be that the
customer sees the market better than us, i.e. the logistics market.”
59
5.3.3 Logistics & Competitive advantage
When asked if Volvo Logistics provides competitive advantages to their customers Erkfeldt rep-
lied; “We hope so, that is the whole idea.” One competitive advantage, he said, is “naturally
when we do procurement we have the benefit of being a large actor because we cover so many
factories”. Due to their purchasing power Volvo Logistics are able to achieve economies of scale.
Another competitive advantage is that the company can have an influence over especially trans-
porters or the market in a certain direction. Volvo Logistics also has exchange of competence
between different clients. An example of which is that Volvo Cars affects Volvo Logistics which in
turn affects others. Volvo Logistics have observed that the smaller companies within the Volvo
Group have an immense benefit from them, being able to acquire competence that they other-
wise would not obtain.
The company’s supply chain knowledge provides their customers with high service levels. For
instance, Erkfeldt said that quite often when they have discussions with their smaller clients
they are given requirement specifications. The reply from Volvo Logistics could be: “it is very
good that you have done this, but we can deliver 20 percent better on everything except this
which we actually can deliver 30 percent better.” This implies that the smaller clients cannot
really contribute i.e. they are not in the game. Because of this Volvo Logistics will be able to
have a dialogue from a totally different perspective than what a normal supplier would be able
to. Erkfeldt said that since they are not going to be profitable it implies that Volvo Logistics can
be more transparent. Volvo Logistics will be able to work a lot with the customer’s development,
the logistics functions and so on.
In Volvo Logistics’ perspective the best way to reduce cash-to-cash cycles is all sorts of lead time,
i.e. both transport lead time and administrative lead time. Erkfeldt said; “Terms of payment and
stuff like that is after all only tricking oneself. Only lead time can provide additional savings.”
When talking about capital binding, once again a lot of it is connected to lead time, to reduce
lead time and first and foremost ensure that it is stability in that lead time. When it comes to
this, Volvo Logistics has proven to be quite tough. Sometimes they might have systems that are
not connected to lead time but instead have the highest stability, i.e. if it is two days then it is
two days. Volvo Logistics has undergone radical changes to create robust systems. There are
always ways to improve, for instance the cost that their transporters and logistics providers bill
them for, how can that be reduced? What if Volvo Logistics set-up something differently, what
would happen then?
In order to achieve reduced cash-to-cash cycles and capital binding Volvo Logistics admits that
they do not work so much with lead times. Quite frankly, they have certain contracts and set-
ups and accordingly, their clients should deliver the lead times that are stipulated in the differ-
ent contracts. Then, Erkfeldt states that one way of achieving the above is to look at the market
and see if there is anyone that is better. The main lead times of Volvo Logistics are the adminis-
trative ones, and that is where they have things that can be improved.
Moreover, Volvo Logistics conducts ABC-analyzes. Erkfeldt believed that the key is to conduct
mapping of flows, to find working standards. Volvo has VPS (Volvo Production System) and ac-
cording to our interviewee, Volvo Logistics need to implement this in their administrative
processes; this way a production process throughout the entire organization (the Volvo Group)
will be created.
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6 Analysis & Discussion
In this chapter I will analyze and discuss the empirical data obtained through the interviews. In
order to do that, I will use three different themes being these; Organizational Design, Enterprise
Logistics Integration and Logistics and Competitive advantages.
6.1 Theme 1 – The single firm
In order to analyze this theme, I will be using the theories that relate to organizational design
and its building blocks, in particular the strategy and structure perspectives, which were those
mentioned in Stock et al. (1998) conceptual framework. Moreover, I will analyze the single firms
from the market-base and the resource-base views of the firm.
6.1.1 Sonat
When analyzing Sonat from the market-based perspective of the firm (Weiss, 2007), one notices
that the company uses both differentiation and market segmentation techniques, being these
two aspects in line with Weiss’s presentation of the above theory. Sonat differentiate them-
selves strategically from their competitors by marketing themselves as an ‘in-sourced’ logistics
department rather than an outsourced one. Furthermore, by emphasizing that they are a non-
asset provider, Sonat also differentiate themselves from the traditional 3PL companies. Addi-
tionally Sonat give emphasis to the importance of a close daily co-operation with their custom-
ers and on each customer specific demands, going to the extent of sharing office spaces with the
most important partners within the supply chain. An example of this is the office Sonat shares
with Posten and Apoteket in Örebro, which can be related to the concepts of blurred firm boun-
daries and clusters introduced in the theory chapter (Weiss, 2007). Thus co-operation platforms
are tailored to meet customers’ predefined conditions, needs and demands. The other relevant
aspect when analyzing Sonat from the market-based perspective of the firm is the clear evidence
of market segmentation. This is confirmed by the fact that Sonat’s customers have 90 percent of
their logistics flows within Sweden.
Moreover, because the company’s core-competencies are within logistics and supply chain
management it is evident that Sonat, even though a non-asset provider, emphasizes the impor-
tance of the firm’s resources, competences and capabilities, particularly when it refers to the
knowledge embedded in the human capital of the firm (e.g. the firm employees and their logis-
tics know-how). This fact can be related to the resource-based view of the firm (Weiss, 2007),
which as the reader may recall from the theory chapter, suggests that if a firm has either better
resources or has developed better competencies (or both) than competitors, the company has a
competitive advantage.
When analyzing the single firm (Sonat) strategy from Stock et al. (1998) conceptual framework
perspective, which includes aspects such as the firm’s competitive priorities as well as its geo-
graphic and competitive scopes; the fact that 90 percent of the logistics flows controlled by So-
nat are in Sweden gives a clear evidence of the firm’s geographic scope. However, it was not as
obvious to establish the firm’s competitive priorities and scope. The reason for this it might be
that as a supply chain integrator or 4PL, Sonat has to align their strategy with that of their client
(s) and thus depends very much on which strategic logistic activities the client company chooses
to be best at (e.g. cost, quality, flexibility or delivery). For example, even though there were no
Introduction
Theoretical
Method
Theory
Pratical
Method
Empirical
Data
Analysis &
Discussion
Conclusions
61
indications that the Sonat aims to be the cheapest 4PL service provider, Sonat helps customers
to gain a better control over their logistic processes and thus reduce costs substantially.
From an organizational structure perspective, I would say the company resembles both
Mintzberg’s professional bureaucracy and divisionalized form (appendix 2). As the reader may
recall, the former organizational structure is characterized by a much larger operating core than
the other structural parts, few managerial levels and is flat by nature (horizontal). However,
Sonat is also divisionalized as it has different autonomous business units (e.g. Apoteket,
Lantmännen and Svenska Retursystem), with own business unit managers.
Moreover, when analyzing Sonat’s organizational structure from the perspective of Stock et al.
(1998) framework, namely regarding the firm geographic dispersion, one would say that they
are within Sweden, after all the company does not have offices abroad. Finally, when looking at
Sonat’s roll on the network structure (e.g. cooperation or relationships between firms), using for
that Stock et al. (1998) third dimension of organizational structure, I would say the company
shows high levels of information exchange, interdependence and goal consistency. However,
when it concerns aspects such as ‘control of power’, ‘time horizon’ and ‘formality’, these are
medium to low, thus in line with the authors view on organizational structure differences, intro-
duced earlier in the theory chapter (figure 3:4).
6.1.2 UAE Logistics
When analyzing UAE Logistics from the market-based perspective of the firm, one finds evidence
of both market differentiation and segmentation (Weiss, 2007). UAE Logistics differentiate
themselves from their competitors by selling the concept of logistics control tower (LCT), offer-
ing to its customers the total administration of their logistic activities. In fact, as per the inter-
viewee it was customer demand the reason behind the creation of the company. Moreover, and
still according to Höglund, UAE also differentiate themselves from the more traditional logistics
services providers (e.g. 3PL) by maintaining neutrality and by being a non-asset provider. The
company’s goal is “to be recognized as the best logistics partner in the Nordics”. When it comes
to market segmentation, the company does not operate in any specific industry or market.
However, besides offering customers the complete administration of their logistic activities, UAE
Logistics also offers logistics and supply chain management development and consulting servic-
es, as a form of reaching other segments of the market. As Höglund pointed out himself, a) LCTs
may not be appropriate to all customers, and b) there are companies that do not want to out-
source the totality of their logistic function to another company. UAE Logistics core-
competencies are also within logistics and supply chain management, and thus it is within this
business area the company has decided to make the difference. Being this is in line with the
resource-based and core-competence views of the firm.
Looking at UAE from a strategy perspective, one can infer from the empirical data presented in
the previous chapter that UAE Logistics not only controls global logistics flows, but also has of-
fices in Dubai and Dallas, determining these factors the company’s geographic scope. Moreover,
and as expected it was difficult to ascertain the single firm’s competitive priorities and scope.
This, as previously explained, most certainly has to do with the fact that while acting as supply
chain integrator within different supply chains, UAE has the responsibility to assist their clients
in achieving the competitive priorities (cost, quality, flexibility or delivery) that these aspire
(Stock et al. 1998).
From an internal structural perspective, UAE shows similarities with Mintzberg’s divisionalized
form. This can be confirmed by looking at the company’s organizational chart which was pre-
sented on the previous chapter (empirical data). The geographic dispersion of the firm’s struc-
ture, is shown by the fact that UAE has offices outside Sweden, namely in Dubai and in US.
62
Finally, when looking at the firm’s roll on the network structure and its cooperation or relation-
ship with the other partners within the supply chain, I believe the company shows high levels of
information exchange, interdependence, goal consistency but even formality. As the reader
may recall from the empirical data, the well functioning of a LCT is very much based on standard
operating procedures, which should be followed from both UAE’s customers but also by the
customer’s suppliers. When it concerns aspects such as ‘control of power’ and ‘time horizon’,
these are medium to low, and thus in line with the Stock et al. organizational structure differ-
ences table (figure 3:4).
6.1.3 Volvo Logistics
From the market-based perspective of the firm, Volvo Logistics differentiate themselves from
their competitors by having specialized themselves in logistics solutions for the automotive in-
dustry (inbound, outbound and packaging). Although a large part of the customers come from
within the Volvo Group, the company stands on its “own legs” and thus many of the automotive
suppliers are part of their customer base. Moreover, as stated above, the company’s core-
competency is within logistics and supply chain management, and thus is within this business
area the company has decided to make the difference, with the particularity that their core-
competence is within the automotive industry which even more difficult to imitate. Again, this is
in line with the resource-based and core-competence views of the firm (see page 26).
Strategically, Volvo Logistics with its ca. 1000 employees and offices spread worldwide, namely
in Europe (Sweden, Belgium, France and UK), US, Brazil, China and Australia for example, is of
the three interviewed companies the one which has the widest geographic scope. Moreover,
due to its close relation to the Volvo Group, the company’s competitive priorities and scope are
to a certain degree dependant on the group goals, however as pointed by the Volvo Logistics
respondent because they are a large actor, they take can advantage of their purchasing power
when doing procurement and thus are able to achieve economies of scale.
From a structure perspective, Volvo Logistics as a single firm can be compared to Mintzberg
divisionalized structural form. The company, as previously mentioned in the empirical data
chapter, has three well indentified divisions (inbound, outbound and packaging), having each of
these divisions own business units managers and own logistics developing groups. However, one
need to bear in mind that Volvo Logistics is a company that perhaps because is fully owned by
the Volvo Group operates primarily within the group. Thus in relation to the group, Volvo Logis-
tics is part of a matrix structure (Daft 2007), taking the logistics function across the different
business areas of the group and integrating these in terms of logistics operations. As the reader
may recall from the theory chapter, Habib and Victor (1991), as cited by Stock et al., categorized
multinational corporations as pure structures, which include worldwide functional, international
division, worldwide product division, geographic region and matrix. This can be confirmed by
looking at Volvo Group organizational chart (appendix 3). Moreover, when analyzing the firm’s
roll on the network structure and its cooperation or relationship with the other partners within
the supply chain, and here I mean not only those within the Volvo Group, I believe the company
shows high levels of information exchange, interdependence, goal consistency but even formal-
ity. When it concerns aspects such as ‘control of power’ and ‘time horizon’ and ‘formality’, these
are medium to low, and thus in line with the Stock et al. organizational structure differences
table.
63
6.1.4 Theme discussion
As explained above, when analyzing Sonat, UAE Logistics and Volvo Logistics strategic blueprints,
namely from the market-based view of the firm, all these three companies show signs of using
market differentiation and segmentation techniques. First of all these companies differentiate
themselves from traditional 3PL companies in that they do not own any transport assets. Volvo
Logistics, on the other hand, differs from Sonat and UAE in that they own, although not many,
some warehouse and cross-docking facilities, which according with the respondent (Erkfeldt) is
closer to the concept of 3PL. In fact, it seemed to me that Volvo Logistics is in somewhat a tran-
sition period; the company aims to become something in the frame of a 4PL but is still not there
yet, as Erkfeldt explained himself.
Moreover, from a resource-based view of the firm, which according to Weiss (2007) offers either
a different or complementary view on a firm strategy, one can infer that all these companies put
emphasis on logistics and supply chain management know-how as the core competency as well
as on the knowledge embedded on the firm’s human capital.
All three interviewed companies have well defined geographic scopes. While Sonat have as
clients companies which have the majority of their logistic flows within Sweden, Sonat and Vol-
vo, on the other hand, have wider geographic scopes in that they operate globally. Furthermore,
as previously explained it was difficult to establish each of these companies’ competitive priori-
ties (e.g. cost, quality, flexibility or delivery) because their role as supply chain integrators is to
assist their clients in achieving these competitive priorities, which may vary between different
clients. Most likely one would find a mix of the above mentioned competitive priorities.
From an organizational structure perspective, as single firms Sonat, UAE Logistics and Volvo
Logistics do not vary so much. These companies’ organizational structure, as previously men-
tioned, can be compared to Mintzberg divisionalized form. However, Volvo Logistics besides
being significantly larger and having a much wider geographic dispersion play a total different
role within the network organization. One needs to bear in mind that Volvo Logistics primarily
functions within the group taking the logistics function across the different business areas of the
group and integrating these in terms of logistics operations. In fact Volvo Logistics is perhaps of
the three companies the one that is closer to Stock et al. concept of manufacturing enterprise,
where the logistic function creates the balance between the enterprise structure and strategy.
Sonat and UAE Logistics, on the other hand, are companies that have emerged on the market as
a result of the outsourcing trend. As companies started to outsource different parts of their lo-
gistics activities (warehouse, transport etc.) to different 3PL service providers, they lost the lo-
gistic knowledge and thus the competence not only to integrate the different activities but even
the capacity for continuous development.
64
6.2 Theme 2 – Enterprise Logistics Integration
In order to analyze this theme, I will be using the theories that relate to logistics and supply chain
management as well as the concept of 4PL, which the reader may find in appendix 1.
6.2.1 Sonat
Sonat, as previously established in the empirical data operates as though they were an in-
sourced logistics function. Moreover, Sonat offers a wide range of logistics services within
supply chain development, and management and operation of costumers’ logistics activities.
Examples of these are; replenishment, which includes activities such as planning and inventory
management, order fulfillment (e.g. receipt and planning of orders, customer service and capaci-
ty planning), and finally distribution and its related activities such as transport booking, respec-
tive documentation, customs related issues and daily problem solving, as pointed out by Con-
radson. These activities in turn can be linked to the concept of synchronous supply chains intro-
duced during the theory chapter (3.3.3), where Christopher (2005) introduces some of the key
processes that supply chain partners need to link (both upstream and downstream) so that
supply chain synchronization is achieved. One can recognize some of these processes (e.g. plan-
ning and scheduling, order management, sourcing and procurement etc).
When comparing Sonat’s structure and the services the company provides against the concept
of 4PL (appendix 1) and its four key components, the company satisfies many of these require-
ments. For example, Sonat acts sometimes, if not always, as the supply chain visionary. By work-
ing in close contact with their client company, in project form as described during the empirical
data section, Sonat assists their clients in the re-engineering of their logistic processes as well as
its continuous innovation and development. This aspect can in turn be related to the theory
chapter and Aronsson et al. (2006) explanation on the re-engineering of business processes.
Where the authors explain that by eliminating, simplifying, integrating or by performing activi-
ties or processes simultaneously the total lead time can be substantially reduced. This in other
words is the same to say that a large part of the non-value adding time existent in the value
chain will disappear. Furthermore, Sonat employees are in general experienced logisticians and
by maintaining neutral positioning they are able to manage multiple 3PL service providers. The
company is however a non-asset provider in a sense that they do own assets such as transporta-
tion, warehouse or cross-docking facilities, manufacturing outsourcing or co-packing services,
these are instead outsourced to 3PL logistic companies which, as explained above, are super-
vised by the company in name of their customers. Meaning Sonat has access to the ‘best of
breed’ of service providers (Christopher, 2005). This can also be related to the empirical data;
according to Conradson, the fact that Sonat is in business with many companies within different
industries makes their expertise and know-how well established in the market. From this one
can perhaps infer that the company is able to achieve economies of scale for example on out-
bound logistics.
Moreover, when it comes to be the supply chain informediary (Christopher, 2005), as previously
mentioned, Sonat has formed diverse partnerships with market leaders within IT and informa-
tion flow (e.g. Oracle for applications and data-warehousing, and with Viewlocity, a global pro-
vider of B2B integration and online trading community solutions for integration of systems and
information (page 37). Thus the company assists their clients in achieving IT system integration,
as well as in converting data into information that can later be used to support managerial deci-
sions. Moreover, the IT integration is intrinsically related to aspects of supply chain management
which were addressed during the theory chapter, e.g. Vendor Managed Inventory (VMI) practic-
es, point of sales (POS) systems or electronic data interchange (EDI/EDIFACT) which can be used
for electronic invoicing (Christopher, 2005).
65
6.2.2 UAE Logistics
UAE Logistics, as previously explained in the empirical data section, also offers logistic services
which range from the complete administration of a customer’s logistic operations through the
use of so-called logistics control towers (LCT), to supply chain developing and consulting. The
latter is in turn divided into four different areas; namely Process and System Development,
Supply Chain Development, Supplier Development and Outsourcing. The logistics services that
UAE provides are in many ways similar to those offered by Sonat; as per the empirical data these
may vary from procurement, inbound and outbound logistics (e.g. planning and call off, trans-
port planning and booking as well as documentation and customs handling), invoicing etc. Fur-
thermore UAE also performs logistics diagnoses as well as assists customers minimizing their
overall costs by using Business Intelligence applications in order to draw statistical inferences as
well as different KPIs as explained by UAE respondent.
Once again these activities can be linked to the concept of synchronous supply chains intro-
duced during the theory chapter (3.3.3) and some of the key processes that supply chain part-
ners need to link (both upstream and downstream) so that supply chain synchronization is
achieved (Christopher, 2005). Namely, planning and scheduling, order management and sourc-
ing and procurement, but even to the concept of reduced non-value adding time and the points
brought up by Aronsson et al. (2006) which lead to reduced lead times (e.g. elimination, simplifi-
cation and synchronization).
When analyzing UAE Logistics in light of the 4PL concept (appendix 1) and its four key compo-
nents, one can infer that the company satisfies several aspects of the criteria. For example,
competencies are within logistics and supply chain management and thus the core of its person-
al is formed by experienced logisticians. Moreover although UAE Logistics is a non-asset provider
(physical) they have access to the best-of-breed of service providers, where the relation to DHL
and Deutsche Post World Net cannot be ignored. An example of this connection could be given
by the fact that UAE Logistics uses a common project methodology within DHL, called First
Choice and that is based according to the respondent on lean production, kaizen or continuous
improvements (see section 5.2.3).
Moreover, UAE Logistics and their concept of Logistics Control Towers LCT is very close to the
idea of ‘Supply chain infomediary‘ (see appendix 1) introduced in the theory chapter (Christo-
pher, 2005). I found particularly interesting that both suppliers and customers can log them-
selves in into the company website. Customers, in turn can use Worldgate portals, track-and-
trace and web-order services.
Finally, as in the previous case, the IT integration is closely related to other supply chain man-
agement techniques which were addressed during the theory chapter, e.g. Vendor Managed
Inventory (VMI) practices, point of sales (POS) systems or electronic data interchange
(EDI/EDIFACT) (Christopher, 2005). Aspects such EDI and electronic invoicing were aspects which
were brought up by Höglund during the interview.
6.2.3 Volvo Logistics
Volvo Logistics, which as the reader understands not only from the empirical data but even from
the analyze made on the firm from an organizational design perspective, both using Weiss and
Stock et al. theories, has a very different structure within the network organization. This was
actually one of the reasons why the company was studied. I wanted to analyze the concept of
4PL from a different perspective, meaning one where the interpretation of the 4PL may take
another perspective. This is also in line with Christopher’s (2005) description of the concept of
4PL and his suggestion that the 4PL can take different structural formats
66
As the reader may recall from the theory chapter, Carr suggests that “companies with all in
place…were less likely to find the 4PL model desirable” (Richardsson, 2005). However, in the
same article there are examples of companies that because they had in-house all the resources
required to become a 4PL, instead of outsourcing the logistics function to another company, the
company becomes the 4PL for its customers instead. This thought can in turn be linked to the
introduction section of this theme, particularly to the example given of deconstruction of the
value chain. And with this I mean, by transferring assets as well as the know-how embedded in
the human capital to Volvo Logistics, Volvo Group may have created its own model of 4PL. As it
can be understood from the empirical data, Volvo Logistics does not only have costumers from
within the group but even from outside the group, namely suppliers from within the automotive
industry. This way Volvo Logistics brings competitive advantages to the Group, but even to other
partners within the supply chain.
Furthermore the company is specialized and has its origins within the automotive manufacturing
industry. That in my opinion makes Volvo Logistics a good example of the concept of enterprise-
logistics integration which Stock et al. (1998) introduces in their study. As the reader may recall,
the authors suggest that logistics, like any other activity that provides competitive advantages
(e.g. technology or manufacturing), is the key to achieve a proper balance between the structure
and the strategy chosen by the enterprise. This can be confirmed by looking at appendix 3,
where the process oriented role played by Volvo Logistics is very clear. However, the company in
my opinion is still changing or perhaps adjusting to the continuous changes in the competitive
environment.
The company has several aspects that can be related to the concept of 4PL and its characteris-
tics. Erkfeldt himself is the project manager for the global logistics development group, with all
that means…
As Erkfeldt explained, Volvo Logistics works continuously to reduce lead times and thus costs,
aspects which can be linked to the concept of synchronous supply chains (Christopher 2005 and
Aronsson et al. 2006). Moreover Volvo Logistics works actively with inbound, outbound and
packing logistics and without doubt has access to the best-of-breed of service providers within
the automotive shipping industry.
From an IT perspective, as the reader could understand from the empirical data, Volvo Logistics
as a better controlling system on the outbound (A4D) then on inbound logistics, however realiz-
ing the importance of inbound logistics, the company is working intensively to achieve the stan-
dardization and integration level desired, which hopefully will happen when the company will
implement the system ATLAS. These integrations problems can in part be justified by the fast
growth rate of the company (40percent in the last six years) as well as by the sheer size of the
company with several offices dispersed worldwide. Moreover Volvo Logistics work with the con-
cept of Co-managed inventory introduced on the theory chapter, as explained by Erkfeldt.
67
6.2.4 Theme discussion
As previously mentioned in the theory chapter, whereas the value chain concept is the result of
the integration of different assets and activities into a single organization, deconstruction on the
other end, refers to the dismantling of the value chain while maintaining the identity of its indi-
vidual parts (Weiss, 2007). Once companies have dismantled their value chains, which were
vertical by nature, they started to outsource some of these activities to the market, focusing
instead on their core-competencies. The result is that the value chains become dispersed and
thus difficult to control.
The above is in my understanding what created the need for enterprise logistics integration. And
here logistics should be seen not only as the flow of products and services, but also from the
perspective of information and financial flow. Moreover, enterprise logistics integration can be
looked upon from two different dimensions; deconstruction and disintermediation. These as-
pects which as the reader may recall were brought up during the theory chapter (3.2) are in my
opinion directly related to the structure of the interviewed companies, explaining in my opinion
the differences between Sonat and UAE Logistics on one hand, and Volvo Logistics on the other.
Sonat and UAE Logistics are in my opinion two typical examples of companies that have ap-
peared on the market to satisfy the need of companies that either have decided to outsource
their logistics and supply chain management function or the staff that these client companies
employ simply do not have the sufficient logistics know-how (Richardsson, 2005). Even though
as pointed out by Höglund (UAE), it is required that the client company keeps some level of lo-
gistics knowledge in-house in order to be able to take full advantage of the services provided by
the 4PL. Moreover, and linking to the previous theme Sonat and UAE Logistics role in the net-
work structure, it seems to me that can also be related to the concept of disintermediation,
which as the reader may recall from the theory chapter, is intrinsically connected to the prin-
ciple of modularization of systems, which reduces complexity and costs (Weiss 2007). As ex-
plained, the coordination of logistics is a good example of this concept; “…efficiency can be in-
creased by bundling the logistic needs for many firms operating within many industries together
into just one firm in the value chain that is a specialist in that activity…”. Both Sonat and UAE
Logistics handle different logistics activities to client companies which in turn operate within
different industries.
Finally Volvo Logistics, on the other end, resembles more an example of a deconstruction of a
value chain, which has the reader, may recall from the theory chapter, “it implies the slicing of
the value chain into small distinct modules”, as well as “the shifting of a set of resources or as-
sets previously employed or owned by one firm to another firm on a grand scale” (Weiss, 2007).
This aspect can be linked to the empirical data collected during the interview with Erkfeldt in
what regards the position of Volvo Logistics as an independent company but also as part of the
Volvo Group.
The above mentioned difference between Sonat and UAE on one end and Volvo Logistics on the
other can in turn be linked to Christopher’s (2005) description of the 4PL in that the author sug-
gests that the concept of 4PL can take different formats for different supply chains, meaning the
formats may vary from a joint ventures, to long-contracts or some other hybrid formats (Chris-
topher, 2005). Having said that, one can perhaps infer that when analyzing the concept of 4PL
perhaps is not as important to look at the structural format but more on its content, and by that
I mean the cornerstones that Christopher (2005) brings up in the presentation of the model (i.e.
a) systems architecture and integration skills, b) a supply chain ‘control room’, c) ability to cap-
ture and utilize information and knowledge across the network and d) access to ´best of breed’
asset providers. Which in my understanding all three companies do.
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6.3 Theme 3 – Logistics and Competitive advantages
In order to analyze this theme, I will use a slightly different approach. The motivation is that the
companies have now been analyzed from two different themes and thus it is clear by now that
the services they provide are somewhat alike. Hence instead of analyzing each company indivi-
dually, I will pursue a more generalist analyze, where I will use examples from the three inter-
viewed companies.
In general terms, one could say that a 4PL company by providing customers with integrated or
standardized IT applications applied to logistics and business operations (e.g. Transport Man-
agement, Warehouse Management or Enterprise Resource Planning, see appendix 5) helps the
supply chain to achieve integration and thus reduce the risks of the bullwhip effect syndrome
(Nienhaus et al., 2003), which as previously mentioned creates a very negative impact on the
performance of the supply chain as a whole.
For example, as previously established in the empirical data as well as in the previous analyze
section, all three companies (Sonat, UAE and Volvo Logistics) provide services such as; sourcing
and procurement, planning and scheduling with suppliers (i.e. capacity management), co-
ordinate pricing and transportation, order management (e.g. order tracking, exception man-
agement) inventory planning and ownership between the upstream and downstream actors in
the supply chain. Moreover, Sonat, UAE and Volvo Logistics are able not only to speed up the
communication flow but also to improve inventory visibility (e.g. by using VMI or CMI tech-
niques) and thus enable for inventory reduction. This in turn will free capital which can be used
in a more profitable manner. As a result, the different actors within the supply chain (suppliers,
3PL and the client company) are able to not only reduce transaction- and administrative costs
(Svensson, 2001), but also the costs related to inventory holding (e.g. cost of capital, storage and
handling, obsolescence, damage and deterioration, pilferage/shrinkage and last but not least
management costs) which as previously explained are quite significant (Christopher, 2005).
Furthermore, as explained on chapter 3.1.2.1 Strategy, firms compete for example on cost, qual-
ity, flexibility (or agility) and delivery, which includes some of the aspects that are closely related
to the concept of customer service e.g. stock availability, delivery frequency and reliability etc.
(Aronsson et al. 2006). When it comes to cost advantages one could say, for example, that Volvo
Logistics as explained by Erkfeldt, due to its transport purchasing power is able to achieve econ-
omies of scale that result in extremely competitive prices. Moreover, by possibly assembling the
transport needs of Volvo Cars suppliers with their own, Volvo Logistics not only is able to
achieve economies of scale for themselves but also to the suppliers which if would purchase
transport on their own would pay a much higher price. Moreover these companies often per-
form supplier evaluation, measuring aspects such as ‘on-time’, ‘in-full’ and ‘error-free’ (Christo-
pher, 2005); meaning that there will be a guarantee that the suppliers, regardless if they are
suppliers of materials and components, transport or warehousing suppliers they need to have
higher quality. Hence, there will be a positive synergy within the supply chain. Additionally, and
on the same token by providing warehousing or managing warehousing through the use of 3PL
specialists, Volvo Logistics but also Sonat and UAE are able to achieve economies of scale which
also leads to cost reductions.
UAE Logistics as explained by Höglund in order to reduce costs or lead time, they first map out
how the customer operations looks like, and after they use a powerful software simulation tool
which will enable them to reach conclusions on the best way to use resources. When it comes to
increased growth profits Höglund said “lead time and logistics integrations are the two major
things; to shorten the lead time to the market as well as decreasing the variance of the lead
time”. The respondent as the reader may recall added that focus should be on having “less
69
warehouse facilities, shorter cash-to-cash cycles, focus on payables and then of course finally to
focus on the core competence.” These aspects can be related to the Du-pont Model theory as
well as to the section on Logistics and the return on Investment.
The other factor that leads to competitive advantages is time. As the reader may recall from the
theory chapter, Christopher (2005) suggests that customers (both consumers and industrial) are
increasingly more time sensitive, demanding products to be delivered yesterday if possible. Na-
turally by providing consulting in supply chain management and business processes, all three
interviewed companies help their customers to reduce the already mentioned non-value adding
activities which besides adding to the total end-to-end lead time, increases cost substantially. As
the reader may recall the importance of time and the constant fight to reduce lead-time was an
aspect touched by all three respondents.
The final aspect that leads to competitive advantages is customer service and customer reten-
tion. As previously stated, the main goal of a market-driven logistics strategy is to achieve ‘ser-
vice excellence’ in a cost-effective manner. All of the interviewed companies assist their clients
in reducing order lead times, as well as to achieve higher delivery reliability and security (Arons-
son, 2004). Not only on inbound logistics through supplier evaluation and supervision, as ex-
plained above, but also on outbound logistics where factors such as delivery reliability, delivery
security or stock availability, for example, are also present. Moreover, an efficient distribution
and high customer service levels may in turn lead to customer retention and increased sales
revenue.
Hence, the combination of reduced operating costs and increased sales will hopefully lead to
increased profits as explained through the Du-pont model theory (Christopher, 2005). Moreo-
ver, by increasing visibility within the supply chain, inventories levels as previously explained can
be reduced significantly. As a result firms are able to reduce their warehouse facilities, as ex-
plained by Höglund. Moreover, through efficient pipeline management and reduced cash-to
cash cycles, 4PL companies are able to assist their clients in receiving end-customer payments
sooner rather than later, thus reducing the risk for liquidity problems. This together with re-
duced inventories and asset deployment (e.g. property, plants and equipment) will lead to lower
levels of capital employed and thus to increased return on investment (Christopher, 2005).
70
7 Conclusions
In this chapter the author presents his final thoughts on the research.
The purpose of my study was to depart from Stock et al. (1998) framework which recognizes
that the competitive environment forms a firm’s organizational design and thus affecting its
strategy and structure. Moreover, the authors connect a firm’s strategy, its structure and its
logistics capacity with how the firm will perform; hence recognizing the increasing importance
that logistics/supply chain management is having in being the link between new manufacturing
strategies and organizational structures, which have emerged as a result of changes in the com-
petitive environment.
Furthermore, I was interested in exploring and understand if the recent business concept, the
4PL, is here to satisfy the needs for enterprise-wide logistics integration mentioned by Stock et
al. on their study, and if so how are these integrations bringing competitive advantages for the
different partners within the supply chain.
In order to accomplish the above it was necessary to find 4PL companies operating in Sweden,
which was not an easy task as explained during the practical method chapter. This difficulty
could be due to the fact that there are different terminologies used to describe this new busi-
ness organizational concept; e.g. total service providers (TSP), supply chain integrators or 4PL as
adopted in this study. Additionally, these concepts allow for a certain degree of flexibility in its
form, which in the case of a 4PL for example and as previously explained, can take the form of a
hybrid organization formed from a number of different entities, often establishing joint-ventures
or long-term contracts. Thus perhaps difficult to precisely pin-point what is a 4PL or not.
Nevertheless, I knew that there were companies operating in the field of logistics and supply
chain management which differentiated themselves from the traditional 3PL service providers
and the idea that logistics besides the manufacturing of goods was very much about transporta-
tion and warehousing. Today, as one could observe through the study, inbound logistics is seen
to be just as critical factor as outbound logistics. These companies were offering a different type
of service, something more in line with logistics and supply management consulting, where
processes and information flows are more in focus as opposed to traditional logistics which have
been very much about material things.
When comparing the interviewed companies against the concept of 4PL originally created by
Accenture, one can infer that the interviewee companies satisfy several of the cornerstones
required to be considered a 4PL that is; a) systems architecture and integration skills, b) a supply
chain ‘control room’, c) ability to capture and utilize information and knowledge across the net-
work, and d) access to ‘best of breed’ of asset providers. Demonstrating however the inter-
viewed companies slightly different interpretations of the concept.
Sonat, for example, it seemed to enroll in some sort of long-contract with their clients, position-
ing themselves as an in-sourced company. The concept of Logistics Control Towers (LCT) pro-
vided by UAE Logistics is in my opinion very close to the concept of control room intelligence
introduced by Accenture, something which was not as strongly emphasized on the other studied
companies.
Introduction
Theoretical
Method
Theory
Pratical
Method
Empirical
Data
Analysis &
Discussion
Conclusions
71
Moreover, it seemed to me that Sonat and UAE are examples of companies that have emerged
on the market to provide logistics services and business process consulting to firms (or networks
of firms) that do not have the logistics and IT-integration competence within the network. Thus
providing these companies, in my opinion, the logistics integration across the network and con-
sequently to a certain degree the balance between the structure and the strategy of that same
network. In turn and as a result of transferring the coordination of logistics to specialized com-
panies, the client firms are able to take advantage from the knowledge and the economies of
scale obtained by these specialized companies. These facts can be related not only to Stock et
al. model (1998), but also to Weiss (2007) and the concept of disintermediation previously men-
tioned (p.24), as well as to Christopher (2005) and the idea of ‘extended-enterprises’, which
according to the author firms need to become part of networks of specialist providers of re-
sources and competencies (p.7). Meaning that, firms with other core-competencies rather than
logistics and IT-integration, outsource these services to specialized companies within these fields
(e.g. Sonat and UAE).
Finally, Volvo Logistics is an example of a company that emerges from within the group in order
to provide logistics integration (inbound, outbound and packaging) and development within the
different product lines of the group as demonstrated by the matrix organizational structure pro-
vided by the company (appendix 3). As previously discussed in the analysis section, Volvo Logis-
tics it seems to me to be a good example of a deconstruction of a value-chain (p.24), but also
closely related to the Stock et al. (1998) conceptual framework in that, logistics (but also IT no-
wadays) makes the bridge between new manufacturing strategies and organizational structures
now globally dispersed. Moreover, one gets the impression that Volvo Group had the logistics
and the IT competencies in-house and thus did not need to outsource (in-source?) these compe-
tencies. Instead Volvo Group created small distinct modules which not only help the group to
achieve integration and thus competitive advantages, but also by enabling these different mod-
ules or firms (e.g. Volvo Logistics or Volvo IT) to specialize themselves, these are able to inde-
pendently sell their competence and services outside the group.
Perhaps more important than concentrating on how much the interviewed companies fully fit or
not the concept of 4P, is the fact that that companies are realizing the importance of logistics as
a tool to achieve competitive advantages. As previously mentioned, I found that the interviewed
companies provide logistics services such as procurement, planning and inventory management,
order fulfillment and capacity planning as well as other logistic activities related to the control of
distribution. Hence, by assisting their customers to take control of the different stages of the
supply chain from Inbound to Outbound, these companies are able to increase the visibility
within the supply chain, leading this to substantial cost reductions, shorter time to market and
hopefully improved customer service which in turn may lead to increased sales.
One should however bear in mind that the use of a 4PL is not on its own the solution for all the
logistics problems a firm or a network may have. There may be situations where the 4PL concept
is not the most adequate, an issue which was touched upon by the UAE respondent. One of the
reasons could be that the client companies have reduced the logistics personnel so much, or the
employed staff does not have the required competence, that the client companies have difficul-
ty to take full advantage of the knowledge embedded on the outsourced company. Another
important aspect that at times may hinder the success of the relationship 4PL/Client is that for
the concept to work the client company needs to be willing to give up some of the visibility into
the daily activity. This issue was bought up by Richardson (2005) on her article “What are you
willing to give up?” According to the author, a 4PL relationship can make the client company
more competitive however the firm needs to accept that they will not have full control over the
supply chain.
72
Summarizing, I believe that one can infer that as the result of the outsourcing trend, firms have
realized that they can no longer compete alone. Instead, in order to remain competitive and
afloat, firms need to become part of interdependent networks of specialist providers of re-
sources and competencies, which compete against other networks. Moreover, technology is
unfolding at a growing pace thus making it very difficult to individual firms to keep up with the
development and to continuously invest not only in new equipment and software but also in
highly trained personnel. As a consequence of this, firms or networks have started to share joint
strategies, aligning their processes and sharing open communication and transparency. Moreo-
ver, there was evidence that firms are leaving behind the traditional view of buyer/supplier rela-
tionships, which has been somewhat adversarial, in order to embrace a more win-win approach
characterized by co-operation between network partners leading this to improved performance
across the supply chain. Other relevant aspect present during the study was the overall concern
in increasing supply chain visibility so that both inventory levels and cash-to-cash cycle are re-
duced.
As a final remark, I noticed that all the interviewees mentioned during the interviews environ-
mental issues such as emissions for example, and they work they do on those areas. Perhaps
would be interesting to do further research in order to understand if the 4PL integrator can help
the supply chain network to become more environmental friendly, taking into account the man-
ufacturing and transportation that is continuously occurring.
73
8 Appendices
8.1 Appendix 1 – The 4PL concept (Accenture)
74
8.2 Appendix 2 – Structural configurations
CEO
VP Product
mangement
VP
Development
VP
Marketing
VP
R&D
VP
Finance
Techno-
structure
Support
staff
Middle
management
Strategic
apex
Operating core
Mintzberg’s Fives
(Bolman & Deal, 2003, p.74-79, revised)
Manager
Product 2
Manager
Product 2
Manager
Product 1
The matrix structure (own creation)
As per Daft (2007) the matrix is the best organizational structure for a company
that requires being multi-focused where both product and function or product and
geography are needed to be emphasized at the same time. The author points out
that matrix are unique in a sense that it gives both product division and functional
structures (horizontal and vertical) are implemented simultaneously. Moreover,
matrix structure besides being a strong form of horizontal linkage is similar to the
use of full-time integrators which again is very relevant in for the purpose of our
study.
Professional bureaucracy
Divisionalized form
75
8.3 Appendix 3 – Volvo Group organization chart
(Courtesy of Volvo Logistics)
76
8.4 Appendix 4 - Interview Guide
General Interview Guide
The single firm theme
1. What position do you have within the company?
2. Do you consider the company to be a 4PL company?
3. How much has the company grown since its start (year)?
(i.e. nr of employees, turnover and number of customers)
4. What is the company’s vision?
5. Would you say the company has more customers importing (raw materials) or exporting
(finished goods)? Do they operate globally?
Enterprise logistics integration theme
6. The company helps companies to develop logistics strategies. Can you develop on the
different business areas?
7. What major impediments does the company encounter when implementing 4PL services
for a new customer?
8. Does the company work in project form? If so, could you please briefly describe your line
of action?
9. Which activities within your customers’ logistics pipeline do you have control over?
inbound logistics
internal logistics
outbound logistics
10. As a Supply Chain Manager, how would you describe the concepts of the extended enter-
prise and the virtual supply chain?
What are the implications for a logistics manager?
11. Do your customers use Vendor Managed Inventory (VMI) / Co-managed Inventory (CMI)?
12. Could you please describe the network IT-systems integration?
Is the company involved in the selection process of the customers’ suppliers?
Do you check for their quality and the quality of products?
13. Supply Chains have become more global. How does the company help customers manag-
ing supply chain risks?
14. What are the advantages with having long-term partnerships? Disadvantages?
77
General Interview Guide
Logistics & Competitive advantages theme
During the last decade companies have realized the importance of Logistics/Supply Chain Man-
agement as a source of gaining competitive advantage.
15. In which way does the company help customers to achieve that?
Costs
Customer service
Time
16. In the your perspective what is the best way to:
Reduce cash-to-cash cycles?
What type of steps would you use?
Reduce costs i.e. capital binding?
Increase customer service levels?
17. What type of logistics tools do you use in order to achieve the above?
78
8.5 Appendix 5 - Graphic representation of IT integration with use of an LCT (own creation)
KPI &
Statistics
Shipping
Invoice
handling
Monitoring
Planning
Customs
Integrator
SAP Movex
Log2000
...
Baan
79
9 Reference List
9.1 Articles
Dawe, R.L., (1998) “A Case Study of Advanced Supply Chain Strategy: The Evolving Role of the
Total Service Provider”, Council Supply Chain Management Professionals, case study; EBusi-
nessCS, Golden Gate University, San Francisco
Ericsson, D. (2000), “e-Logistics – Key to Success in the Digital Economy”, Eurolog conference,
University of Skövde
Nienhaus, J., Ziegenbein, A., Duijts, C. (2003), “How human behavior amplifies the bullwhip ef-
fect – a study based on the beer distribution game online”, Centre for Enterprise Sciences (BWI),
Zurich
Richardson, H.L. (2005) “What are you willing to give up?”, Penton Publishing, Logistics today
Stock, G.N., Greis, N.P., Kasarda J.D. (1998) “Logistics, strategy and structure: A conceptual
framework”, International Journal of Operations & Production Management, Vol.18 No.1, pp.
37-52
Svensson, G. (2003), “The bullwhip effect in inter-organizational echelons”, International Journal
of Physic Distribution & Logistics Management, Vol.33 No.2, pp.103-131
Van Hoek, R.I., Weken, H.A.M., (1997), “SMART (car) and smart logistics”, FIER research insti-
tute, Erasmus University of Rotterdam
9.2 Books
Allen, L. (2005), ”The Global Economic System Since 1945”, 1
st
edition, Reaktion Books Ltd, Lon-
don
Bolman, L.G., Deal, T.E. (2003), ”Reframing Organizations: Artistry, Choice, and Leadership”, 3
rd
edition, US: Jossey-Bass – A Wiley Imprint
Boyce, G., (2000), “Co-operative Structures in Global Business: Communicating, transferring
knowledge and learning across the corporate frontier”, Routledge Publication
Bryman, A., Bell, E. (2003), “Business Research Methods”, Oxford University Press, Oxford
Corbett, M.F. (2004), “The Outsourcing Revolution: Why It Makes Sense and How to Do It Right”,
Dearborn Trade Publishing, USA
Creswell, J. W. (2007), “Qualitative inquiry and research design”, 2
nd
edition, Sage Publications
Inc, Thousand Oaks
Christopher, M. (2005), “Logistics and Supply Chain Management: Creating Value-Adding Net-
works, 3
rd
edition, Pearson Education Ltd, UK
Daft, R.L. (2007) “Organizational Theory and Design: Understanding the theory and design of
organizations”, International Edition, Cengage Learning
Duening, T.N. (2005), ”Essentials of Business Process Outsourcing”, John Wiley & Sons, Inc.
Frazelle, E.H. (2001), ”Supply Chain Strategy”, McGraw-Hill Education Group, USA
Hansson, B., (2004), ”Social konstruktion av vad?”, 1
st
edition, Thales, Stockholm
80
Harbhajan, K.S., Varinder P.S. (2006), ”Outsourcing and Offshoring in the 21
st
century: A Socio-
Economic Perspective”, Idea Group Publishing, Australia
Holme I., Solvang, B. K. (1997), “Forskningsmetodik: om kvalitativa och kvantitativa metoder”
(översättning av Björn Nilsson), 2
nd
edition, Student litteratur, Lund
Johansson-Lindfors, Maj-Britt (1993), ” Att utveckla kunskap: om metodologiska och andra
vägval vid samhälsvetenskaplig kunskapsbildning”, Studentlitteratur, Lund
Meyers, R. G. (2006), ”Understanding empiricism”, Acumen, Chesham
Opie, C. (edited by), (2004, “Doing educational research: a guide to first-time researchers, xvi,
SAGE, London
Oskarsson, B., Aronsson H., Ekdahl B. (2006), “Modern logistik: för ökad lönsamhet”, 3
rd
edition,
Liber, Slovenian
Waters, D. (2003), ”Global Logistics and Distribution Planning: strategies for management”, 4
th
edition, The Institute of Logistics and Transport, published by Kogan Page Ltd
Weiss, M. (2007), ”Efficient Organizational Design: Balancing Incentives and Power”, 1
st
edition,
Palgrave Macmillam, NY
9.3 Internet
Affärsdata,http://www.ad.se, 2008/09/10
DHL,http://www.dhl.se/publish/se, 2008/09/11
Sonat AB,http://www.sonat.se, 2008/05/20
UAE Logistics,http://www.uaelogistics.com, 2008/09/11
Volvo Group,http://www.volvo.com/group/global, 2008/09/11
Volvo Logistics Global,http://www.volvo.com/logistics, 2008/09/11
doc_343945587.pdf