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Logistical Outsoucing of SMEs in papua New Guinea

CHAPTER 1 INTRODUCTION

1.1 Overview

The aspect of logistics refers to the management of operations as well as the flow of materials for an organization from supply of raw materials to that of supply of finished products to the final consumer. It can be said as the management of the flow of resources from one point to another or between their point of origin and at their consumption.

The logistics of physical items include integration of information along with handling of production, packaging and inventory as well as transportation (Chopra and Meindl, 2010). It is important for each and every organization to have proper management of logistics and this is specific according to the regions in which the organizations function.In addition to this, it is also important for companies to not to incur much of the cost of the company in their logistics operations and try to have minimum costs as much as possible (De Boer, Gaytan and Arroyo, 2006).

It is also possible that due to various geographical constraints various companies might suffer problems in the proper management of logistics. On such country that faces the problem of logistics is. Papua New Guinea (PNG) is officially named as the Independent State of Papua New Guinea and the country is situated in Oceania and this occupies the eastern half of New Guinea Island (5th Annual Analysis of Third-Party Logistics Provider (3PL) Customers Identifies Trends and Market Segments, 2005).The country has been facing various challenges regarding their logistics owing to its geographical constraints. This is also added by the lack of infrastructure that is faced by the country. The country does not have all its national roads connected and a lack of efficient transport system add to further problems in logistics for the companies in the country. Though tow main ports of PNG are situated in the capital city but there are not proper roads that connect the industrial centers of the tow ports (McKinnon, 2003). Because of these reasons, the country faces several problems regarding its logistics.

1.2 Structure of the research

In order to ensure that dissertation has been clearly presented to the readers it is important to clear about structure of dissertation done on part of the researcher. For this, it is important to follow an ordered pattern so that research can flow in the correct manner. Each dissertation must initiate with chapter of introduction followed by theoretical background of various authors who have conducted researches and studies on aspects of problems in logistics and initiation of outsourcing in logistics. The structure of dissertation will flow in following manner –

Introduction –This is the first chapter of dissertation and the research work starts with it. This contains synopsis of the entire research along with defining of topic of research and giving an insight on aims and objectives of study being conducted. It also contains within it various aspects like that research questions along with focus and purpose and research methodology to be adapted during the dissertation (Marie and Hauser, 2007). The main focus here will be on problem of management in logistics that Papua New Guinea is facing and how various solutions can be provided like outsourcing in logistics.

Literature Review –The second chapter is that of literature review which contains the various literature and theoretical background written by various authors earlier related to the topic of logistics management. This will include articles from journals and online articles. All authenticated articles from journals will be referred by researcher so that study done earlier on this topic of logistics and its outsourcing and management can be referred and information can be gathered.

Research Methodology –This is the third chapter that contain the various methodologies and research strategies that is to be implemented by the researcher in order to collect as well as analyze the data (Hassan, 2003).

Data Analysis & Findings – Following the research methodology is that of data analysis and findings in which information gathered is analyzed and evaluated. This will be done by application of various techniques like qualitative or quantitative (Massingham, Massingham and Diment, 2012).

Conclusions & Recommendations – This is the final chapter of the dissertation in which the findings of the previous chapter will be evaluated so as to reach at results. Here, predetermined aims and objectives are matched so as to match with final outcomes of research study. On the basis of conclusions, various recommendations are provided.

1.3 Focus and Purpose

The main aim of the research is to determine, and recommend a solution that will enable the companies in Papua New Guinea to lessen the bottlenecks and cut cost in their current logistics operation.In order to reach at the final aim, some objectives have been framed as follows –

  • To evaluate whether SMEs and other firms in Papua New Guinea should outsource their logistics and overall supply chain.
  • To assess the gains and risks logistics outsourcing can bring to the companies of Papua New Guinea.
  • To analyze the conditions of business environment that would affect the decision of outsourcing of logistics by the companies in Papua New Guinea.
  • To explore on the type of logistics functions that can be outsourced by SMEs in Papua New Guinea.

1.4 Research questions

  • Should SMEs and other firms in Papua New Guinea outsource their logistics and overall supply chain?
  • What will be the gains and risks that logistics outsourcing can bring to the companies of Papua New Guinea?
  • What are the conditions of business environment that would affect the decision of outsourcing of logistics by the companies in Papua New Guinea?
  • What type of logistics functions should be outsourced by SMEs in Papua New Guinea?

1.5 Framework and Analysis

Framework and analysis give the precise details regarding the research methodology that will be adapted while conducting the research. This is as follows-

  • Research Approach – An epistemological approach will be adopted by the researcher so as to produce a subjective and objective framework in order to find the answer the research questions and the topic of study can be presented in the correct manner.
  • Research Type – The types of research is both qualitative and quantitative so as to have an in depth understanding of the dissertation.
  • Research Design – Research design chosen for the study is exploratory so that the subject matter of dissertation can be examined accurately.
  • Research philosophy – Research philosophy is that of constructionism by use of which more and more knowledge can be appraised with help of more and more of interaction and use of social sciences (Constructionism, social, 2013).
  • Data collection – Data has been collected by use of both primary and secondary methods. In primary method, data is gathered by conducting interviews with various companies of Papua New Guinea. For secondary information, information is collected from various scholar articles in published journals and books and online articles and websites.
  • Data Analysis – Data will be gathered with help of both qualitative and quantitative techniques. The data will be translated into a qualitative form and statistics of the company reports will be quantified and the final result will be represented in the qualitative form.

1.6 Potential Significance of Research

The current dissertation holds significance both in practical and academic aspect. The existing theories and practices that exist in the business environment and the logistics operations of Papua New Guinea that will be known through the study will be a help to the industries. This is so as the study will help them to know the factors that could lead to the decision of outsourcing in logistics and how the companies can take the benefit of the decision.

In the aspect of academics, the report will be a help in having a pool of information to the researchers who want to do a further research in the current topic. The data gathered and analyzed will help the researchers in the way a research on the particular topic can be conducted (Chandes and Paché, 2010).

CHAPTER 2 LITERATURE REVIEW

2.1 Introduction

The chapter following the introduction is that of literature review. The chapter consists of theoretical background related to the logistics and its outsourcing decisions and activities. Various studies and studies done in the related field of logistics outsourcing of Small Medium Enterprises (SMEs) Papua New Guinea will be reviewed and views of researchers will be given and interpreted. The entire chapter is based on the secondary information collected through various sources available.

2.2 Logistics and Logistics outsourcing

Aron, Clemons and Reddi, 2005 has defined logistics “as the process of planning, implementing as well as controlling the effective storage and flow of goods and services form their point of origin to the point where they are consumed.” The purpose is to conform to the requirements of the customers and this includes inbound and outbound movement of raw materials and transfer of finished products to the consumers (Aron, Clemons and Reddi, 2005). Inbound logistics is the primary process of logistics that lay focus on purchasing and arranging inward movement of materials and finished products from suppliers to warehouses or retail stores. On the other side, outbound logistics is the process that lay emphasis on storage and movement of end product to the final point of consumption or to the consumer (Bowersox, Closs and Cooper, 2007).

The concept of logistics now involves another term known as the logistics outsourcing. Heikkilä and Cordon, 2002 defined “outsourcing as the act of transferring some of the recurring internal activities as well as decisions of an organization to some outside providers of the service.” Likewise, the process of involving some outside logistic service provider to the company and also taking decisions and controlling the function of logistics for it is known as logistics outsourcing (Heikkilä and Cordon, 2002). The service of outsourcing is being provided by logistics service providers (LSPs) and these will be in contract with an organization and agree to perform some or all logistics activities of the company. The service providers of logistic function include third party (3PL) and fourth party logistics (4PL). The former one involves hiring a third party organization for execution of that function that has earlier performed within an organization itself (Hoecht and Trott, 2006). These service providers provide full range of transportation and related services like inbound and outbound transportation, customs brokerage, warehousing and freight forwarding. These parties are responsible for managing the outsourced activities on behalf of customers or shippers whose business processes they support. The other service provider, that is, 4PL, is that where an external party is able to provide a solution of an overall supply chain by incorporating the experience and expertise of any number of third parties (Jennings, 2002). These provide services to the enterprises or their customers in form of knowledge and responsibilities on getting the process of logistics done in a smooth manner. These parties act as an integrator that assembles the resources and capabilities of their client to design and run a comprehensive supply chain. These mainly involve consultants, financial solution providers and IT service providers (Waters, 2007).

2.3 Logistics market in Papua New Guinea

Papua New Guinea (PNG) is a country that is situated in Oceania and can said to be a rising economy as Gross Domestic Product (GDP) growth of the country has been showing an increase in the nation. PNG is said to be a developing economy which has now been able to improve its infrastructure and economy to a good extent. Though the GDP of the country has been able to gain a high increase from 3.93% in 2006 to 11.1% in the year 2012 and thus it can be said that the country has been developing over the years (Papua New Guinea GDP Annual Growth Rate, 2013).

Speaking about the logistics market in Papua New Guinea (PNG), the country has many challenges associated with logistics even in house within the organization. It can be also said that it is in the early stage of logistics and still a lot of development is required. This is mainly because of the geographical constraints that are faced by the country. Though the infrastructure is developing but still there is a lack of enough of it that connects all the main urban centers. There is still the need to connect all the national roads of the country with one another (Kumar and Eickhoff, 2005). Though the country has two main ports that are situated in the capital district of PNG and their industrial hub but there are no roads that connect them. Because of lack of appropriate infrastructure and congestion at the ports it becomes challenging for the companies to carry on their logistics function. The trade products can only be transferred through air or sea freight which seems to be an expensive issue for the companies and especially the small medium enterprises (Arnold, 2000).

2.4 Need of logistics outsourcing in Papua New Guinea

The economy of Papua New Guinea is mainly characterized by large portion of SMEs functioning in the economy. It is also a fact that these enterprises contribute to the economic development in terms of output and employment of the nation to a significant extent. In spite of this fact, SMEs in PNG have the drawbacks of small size, underdeveloped capital markets and lack of finance and credit ratings (Leavy, 2004). There are various factors in the economy of PNG that make the manufacturers and especially the SMEs to think for the use of outsource logistics services. Some of the identified factors are as follo

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