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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.
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.
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 –
Framework and analysis give the precise details regarding the research methodology that will be adapted while conducting the research. This is as follows-
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).
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.
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).
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).
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 follows –
Papua New Guinea has been a growing economy but still it is facing the lack of infrastructure and proper road networks. Most of the manufacturers are facing the problem of high costs in their operations as they do not have the appropriate reach to the raw materials and also to the target market. The companies require that they need to have their business closer to their target market for Papua New Guinea which they need to have an appropriate logistics function. In this context, it is important for enterprises of to consider their business internal and external environment (Power, BonifaziandDesouza, 2004).
According to Lonsdale, 2001 one of the internal factors includes the availability of labor within the enterprise. It is often seen that large projects comprises of smaller parts which require labor with different skills. In addition to this, small medium enterprises are also influenced by availability of experts in the logistics function who can manage it in the correct manner. Such an environment factor is often a drive for SMEs to go for the decision of logistics outsourcing (Lonsdale, 2001). Sometimes internal political environment also influence the decision of outsourcing and especially for the SMEs. In such enterprises, opinions of influential people play quite a significant role and affect the decision of the outsourcing of logistics. In addition to this, the perceptions of unions and employees also influence the decision of a firm (Deepen, 2007). However, it can be said that it is not necessary that the influential or strong people with power in an enterprise may always take the right decision and possess all knowledge about the outsourcing of logistics. Thus, it can be said that internal environmental factors that are important to the enterprise only need to be considered while taking the outsourcing decision (Transportation Outsourcing: Factors affecting decisions, 2011).
If the companies in Papua New Guinea go for the decision of outsource logistics then they will gain a lot from this decision. The gains that the enterprises can have by acting on this function of management are as follows-
From the literature review it can be concluded that logistics is an important function of management within an organization and with time outsource logistics is gaining significance. Companies now prefer to outsource this function and transfer logistics to a third party logistics or service provider as various it is possible that production and consumption point for companies are diversified geographically (Rushton and Walker, 2007). The major economy of PNG consists of small and medium enterprises and since it is a growing economy and the infrastructure is such that there is the need of outsourcing. Gap has been found in the literature review as it suggests that most of the enterprises in Papua New Guinea have not adopted the practice of outbound logistics and is used only to a very small extent. It can be said that now for making decision regarding outsource of logistics various crucial factors need to be considered by them (Parashkevova, 2007). These include assessment of both internal and external environment of the company. There is gap in the literature as studies suggests that industries in PNG still do not understand which factors to consider so as to go for the decision of third party logistics.In addition to this, they also should consider the risk and benefits of outsourcing of logistics and take the final decision. Thus, it can be concluded from the findings that Papua New Guinea still need a lot of investment to go for logistics outsourcing (Sollish and Semanik, 2007).
The following chapter to literature review is that of research methodology. This is the most important part of a research as this lays down the framework for methods that are going to be adopted in conducting the study (Ireland, Webb and Coombs, 2005). In the present research study, data has been collected and analyzed by keeping focus on scope of logistical outsourcing for small medium enterprises in Papua New Guinea (PNG). The research will lay focus on finding that whether it is feasible for manufacturers to undertake outsourcing of their logistics which is still an in-house function of their business. The main issues associated with this and main advantages as well as limitations have been included in the study and data has been collected on all such matters. Data has also been gathered on finding the future growth prospects for enterprises of PNG if decision of outsourcing in logistics is taken by them. On the basis of aims and objectives of the research and its purpose, facts and figures have been collected from various sources available to the researcher.
Aim – The main aim of present research is 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.
Research philosophy as a part of research methodology refers to a comprehensive idea that is related with various approaches and methods being adopted by the researcher for conducting an entire process of investigation. This forms the investigation pattern that enables the researcher to carry on the research in the appropriate manner and with the selection of correct philosophy there are very less chances of study being deviated (Research philosophy: towards an understanding, 2013).
In the present study, the research philosophy that has been adopted by researcher is constructionism which refers to social construction of reality. The particular philosophy has been adopted for the present study because it is on the assumption that there are no universal laws and people make their own reality. Logistics outsourcing for enterprises in PNG in not based on any universal law and decision that whether business should go for outsourcing of this function depend on the various factors available to them (Constructionism, social, 2013). The philosophy is also taken here as the present study is an ongoing and dynamic one that is produced by people or respondents taken for the study acting on their knowledge and interpretations. The analysis of idea that whether manufacturers should make their logistics outsourced or not depends on their way of looking into the issue and facets of reality that they and PNG have been facing and the decision is not based on any law or theory (Babbie, 2010).
A research design is an important part of research which is a framework of the way in which data is collected and analyzed by the researcher. This helps the researcher to determine the various sources of information and data that can be collected by the researcher. There are mainly three types of research designs, namely, exploratory, descriptive and causal designs.
For the present study on logistics outsourcing in PNG exploratory design as not much research has been done on the subject of scope or possibility of logistics outsourcing for enterprises in Papua New Guinea (Exploratory, Descriptive, and Causal Research Designs, 2011). The subject of discussion is new as most of the manufacturers in PNG still carry on in house logistics and more in depth investigation is required to be done in this case to reach at a final outcome. In addition to this, the present study rely both on qualitative data such as in-depth interviews as well as secondary literature available on the subject of study. With this research design, researcher is able to gain familiarity with the issue of imparting function of logistics to third party providers in PNG (Love, 2005).
Speaking about research approach, it is a method of producing new knowledge and increasing the understanding related to the topic of study being conducted. It is about complying with the methodology that has been decided by the researcher.
The research approach that is applied in the present study is epistemological approach as this help to produce an objective and subjective framework so as to find appropriate answers to the research questions framed for this study (The four main approaches, 2013). The approach enabled the researcher to have an in depth understanding of the issue concerning the logistical outsourcing in PNG and its possibilities. The outcome of the present study is based on collection of practical facts and figures and on possibility, origin along with limits and truthfulness about process of logistical outsourcing. This also includes application of gathered data into acquisition of practice which is achieved with help of epistemological approach (Keitsch, 2008).
The particular study is a mixture of both qualitative and quantitative type of research. The nature is qualitative as it involves collection of data with help of qualitative methods like interview method of manufacturers of Papua New Guinea. Data analysis has also been done with this method with help of thematic analysis in which themes will be formed (Qualitative research methods, 2013). The nature of the present research is quantitative also as data is also gathered from financial reports and will also be analyzed in quantitative form which will be represented in qualitative form at the end.
Data collection is the most significant aspect of any research as this need to be the most accurate one. This is so as the entire data analysis is based on methods that have been adopted for collection of data. There are mainly two methods of gathering data that have been adopted in the present study. Primary data is the data that is collected and used by the researcher for the first time and includes interviews, surveys and observation and focus group discussion methods. Primary method of data collection that has been used in the present research is interview of FMCG wholesalers and retailers along with manufacturers and distributors of Papua New Guinea (Bryman and Bell, 2003). Interview was also conducted of third party logistics providers and freight forwarders in PNG. In order to conduct the interview in a well systematic manner, set of questionnaires has been prepared by the researcher that consists of well defined set of questions to be asked to the respondents.
Data analysis after collection of data is the most important and crucial part of a dissertation. In this chapter, researcher analyses and appraises the data that has been collected from various sources and is represented in an appropriate manner. The final results and conclusion also depend on the data analysis being conducted. In the present dissertation of logistical outsourcing in Papua New Guinea (PNG) data is analyzed on the basis of information gathered through both primary and secondary sources. Analysis has been done by methods of both qualitative and quantitative analysis. Qualitative analysis of data has been done with help of thematic analysis wherein themes are formed from data gathered through interview process. Interview has been taken from FMCG manufacturers or retailers or wholesalers in PNG and also third-party logistics providers. There also has been the use of MS Excel for making charts and graphs in order to represent the data in an appropriate manner. Quantitative analysis includes collection of financial reports of some of the FMCG companies and is represented and analyzed.
The sample size taken for the interview include 30 manufacturers and distributors or retailer of FMCG companies and 5 third party providers or freight forwarders of PNG.
The financial analysis has been done of a Company-A, which is one of the largest small medium enterprises in Papua New Guinea (PNG). The financial data for two years, 2010 and 2011 is taken and it can be interpreted that the enterprise has increased its sales from 2010 to the following year. It has also been able to reduce its cost of goods sold within a time period of two years, which has influenced its operating profit. Though the company has shown an increment in its custom duty, which means that it takes more of goods from outside PNG but its freight and handling charges has shown a reduction from 2010 to 2011. Reduction in freight charges indicates that company does not incur much cost in hiring a freight agent so as to carry its logistics operations and most of it is being carried out in house on its own. The expenses related to motor vehicle of Company-A has increased within two years which shows that enterprise does not practice much of logistical outsourcing and is still into in house operations of logistics through its own vehicles. It can be interpreted that being one of the largest small medium enterprises in PNG also, it is does not use service of third party for its logistic services and carry on the function itself within the enterprise.
The financial statement of another Company-B is given, which operates wholesale retail trade with various supermarket branches in PNG and also maintain large volume of inventory of FMCG. The company relies on imports from Asian markets. Form the data, it is analyzed that freight and handling cost for it has increased from January 2013 to December 2013 which means that the company is making more use of freight forwarding service and use a third party for managing its supply chain. Since the scope of business of company is large and is a wholesaler retailer it uses outsourcing for its logistics to some extent.
After having completed with section of data analysis and interpretation next part is that of conclusion which is related to the previous chapter. Conclusion is drawn from the analysis of data that has been gathered by the researcher. In this dissertation, primary data has been collected by interview method of manufacturers and wholesalers or retailers and also of third party logistic providers. Secondary data is accumulated by going through various research articles in journals and online materials available along with published industry reports. From both sources of data collection, it can be said that at present enterprises in Papua New Guinea (PNG) do not have much information about function of logistical outsourcing and most of them are moderately aware about this. Because of less amount of knowledge available to the companies there is less use of logistical outsourcing by these. Most of them prefer to carry on the function of logistics in house on their own without consulting any third party. The financial analysis of the two companies A and B also suggest that though they are one of the biggest small medium enterprise in Papua New Guinea (PNG) but the extent to which they use logistics outsource is not much and use only moderately. Both companies also make adequate profits but it can be concluded that they do not spend much of their expenses in hiring a third party for their logistics. They are using service of transport and also of fright but other services like warehousing and inventory management along with consultancy services are not used much. Thus, it can be concluded that this market is still in its early stage and developing phase and lot of measures are to be taken for its growth.
From the interview taken from manufacturers and retailers in Papua New Guinea, it was found that some of them do outsource a few of their logistics services to third party providers. It was known that there are various factors in business environment that affect their decision of outsourcing and choosing a service provider. They often face various difficulties making the final judgment regarding utilization of this service. One of the most significant factors that affect decision of outsourcing is of opinion and judgment of management and expertise belonging to the enterprises. It can be said that views of experts within the enterprise matters a lot and if they do not find preferable to outsource this service then enterprise would not go for it. Another factor in business environment that play a key role is the legal environment which consist of various rules and regulations regarding imparting of function of logistics to a third party. The secondary data collected also suggests that companies have to consider all laws related to this before selecting a party. In addition to this, other factors include loss of control, theft and hijacking prevailing in PNG. Poor and high cost of infrastructure that is prevailing in PNG is also responsible for affecting decision of outsourcing. Likewise, if labor relating to this is not available with an enterprise in PNG then it can go for outsourcing to a third party.
After having concluded from data analysis chapter that small medium enterprises in Papua New Guinea (PNG) can go for making use of logistics outsource service and attain benefits from this, recommendations are being provided in this chapter regarding use of this service in future. It can be suggested to SMEs in PNG that by making use of third-party logistic services they will be able to get benefits of reduction in cost and enhancement of efficiency in their operations. Prior taking the final decision and selecting logistic service provider, advice can be given to them they should collect information related to various parties that provide their service in the country. After having adequate information about all the parties selection has to be made regarding the best one that can render best quality of service to them. For this, enterprises can take help of experts in this field and also of past data of third parties to review their performance. After having evaluated all the necessary factors, then only a third party should be selected by the enterprises.
In order to reduce the risk of leakage of useful information of the enterprises to competitors it is important for them to give only that information as required by the third party. It can be recommended to SMEs in PNG that they should provide data about their enterprise quite carefully and also take note that information is not leaked from third party to competitors. For this, it is to be ensured that no kind of extra details about the company and its processes are known to outside party and they should be given facts related only to its logistics.In addition to this, all data should be kept secured with secret passwords and should not be given access to all. In addition to this, the third party that is selected alsoshould be a reliable one on which enterprises can rely and trust upon (Windle, Chaodong and Dresner, 2008).
Another important risk that is associated with logistics outsourcing is that of loss of employee morale. It can be recommended to enterprises in PNG that they take useful steps in order to boost the morale of those employees who have been working in logistics department. The firms should make the workforce feel important by allotting them other additional duties and responsibilities and telling them that they are required by the company. Leaving of any of the employees would mean a big loss for a small medium enterprise so it is suggested that it should retain them by taking significant steps. Thus, recommendation can be given to small medium enterprises in Papua New Guinea that there are many benefits as well as risks if logistic outsourcing is used though risks can be mitigated up to a good extent if service is used judiciously.
The entire journey of this dissertation on logistical outsourcing of small and medium enterprises in Papua New Guinea was an important one for me in increasing my knowledge and learning related to the topic. The main focus of the study was to find the scope of using third-party logistics providers in PNG by SMEs and to recommend ways to remove shortcomings infunction of logistics. This led to an in depth understanding of circumstances in PNG and effect on use of enterprisesfunctioning in the country (Lowe, 2006).It also helped in getting aware about benefits and threats of appointing an outside party for one of the functions of the company.
In addition to bring in an increment in my knowledge base about the topic, the dissertation was also a source of enhancing my reading and writing skills. This is so as in order to search for the secondary data, I read huge quantity of reading material available related to logistical outsourcing and its gains and risks and finally selected the most suitable one according to the study (Monsen, and Horn, 2007).The study helped me to improve my presentation and writing skills as I tried my best efforts to present the most appropriate literature for the topic in a readable manner. With this, I was able to understand the importance of making a presentable report by using a proper cover page and charts and figures wherever required.
More in depth analysis of the research requires a lot of time and this was time consuming too. In order to make judicious use of time and keep myself on right track I developed an action plan or time line which was guidance for me through the entire research (Clear Objectives Can Improve Your Research, 2013).With this, I was able to complete each section of dissertation on allocated time and eventually the dissertation was finished as decided. Thus, it can be attributed that entire research was of great for me in increasing scope of my knowledge. Though there were many challenges but I overcome them with my best possible efforts.
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