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Perspectives on the Use of Information Technology at Third Party Logistics Service Providers in Singapore
by Rajesh Piplani,Shaligram Pokharel ,and Albert Tan,Center for Supply Chain Management,School of Mechanical and Production Engineering,Nanyang Technological University,50Nanyang Avenue,Singapore 639798Abstract
The use of information technology (IT)in the logistics area is growing all over the world and so is the number of third party logistics providers.In this article a specific case of interrelation between the uses of IT at the third party logistics service providers (3PLs)in Singapore is rmation collected through a randomly selected sample of 3PLs indicates that more and more service providers are either planning to incorporate IT in their op-erations or are benefiting from their use.Towards this end,the providers are acquiring new knowledge,skills and technologies.
The survey results showed that respondents are also concerned about their investments in IT as they feel that with rapidly changing technol-ogy,their equipment,skill and processes could become obsolete before any tangible benefits could be derived from them.The providers indicate that fi-nancial justification is another key barrier to full-scale IT implementation.These constraints hinder the implementation of strategic IT projects,which require significant investments.Therefore,a package program for skill de-velopment and equipment incentive could be initiated for 3PLs in Singapore.Keywords:Third party logistics,logistics service providers,information technology.
Background
The Logistics industry’s contribution to Singapore’s GDP is 7%;it employs almost 92,000workers,and the value-added per employee in this sector is nearly SG $116,000per year.Singapore also prides itself on having the world’s busiest container port:last year alone the ports of Singapore handled over 15million TEUs.Gartner Group estimates that the value of worldwide E-commerce by the year 2005would be about US$2.5Trillion.With Asia-Pacific accounting for nearly 20%of this,Singapore’s position in the inter-national logistics industry can not be over-emphasized.
Volume 16Number 1200427Biographies Dr.Rajesh Piplani is an asso-ciate professor in the school of mechanical and production en-gineering at Nanyang Techno-logical University,Singapore.He is also the director of the Center for Supply Chain Man-agement.Dr.Piplani obtained his Ph.D.from Purdue Univer-sity,Indiana,and prior to join-ing NTU,worked for Texas Instruments as a Senior Sys-tems Analyst.His research in-terests are in the areas of supply-chain design and coor-dination,logistics planning,and design and analysis of manufacturing systems.Dr.Shaligram Pokharel is an assistant professor in the school of mechanical and pro-duction engineering at Nan-yang Technological Univer-sity,Singapore.Dr.Pokharel obtained his Ph.D.in Systems Design Engineering from the University of Waterloo,On-tario,Canada.His current re-search is on engineering management and decision sup-port system.At the time of the study,Albert Tan W.K.was an assistant di-rector with the Info-comm De-velopment Authority of Singapore.He was responsible for exploiting IT in supply chain management for manu-facturing and logistics sectors,as part of IDA’s IT2000vision to build a national information infrastructure for companies.Albert received his Masters de-gree in manufacturing and lo-gistics management from the National University of Ireland and is a Certified member of Production and Inventory Management (CPIM)from APICS.
In addition to excellence in business processes and focus on industry-specific markets,IT systems are considered to be the new competi-tive weapons for the logistics industry.In this study,IT systems refer to any hardware or software system that automates the basic operational processes (such as order entry,order tracking,order scheduling etc.)of a logistics serv-ice provider.The trends indicate that more and more customers want con-tinuous updates on the status of their cargo and that 3PLs will take over their entire procurement and/or distribution functions so that they can concen-trate more on their core competency .Such a trend requires 3PLs to have state-of-the-art IT systems,systems that will allow them to manage and share up-to-date information on cargo and inventory status of their custom-ers.Moreover,with E-commerce set to achieve a significant share of the global commerce,IT systems can become even more crucial to a company’s future.In 1998,Andersen Consulting (Singapore)in conjunction with Sin-gapore’s Trade Development Board (TDB -Since renamed as International Enterprise (IE),Singapore)and Info-Comm Development Authority (IDA)studied the logistics industry in Singapore (Andersen Consulting,1998).Their study identified four core logistics businesses (warehouse operations,container depot operations,land transport operations,and freight forward-ing)and the processes that define the functions of the logistics industry in Singapore.As a follow-up to the study,a national survey was conducted jointly by IDA,Nanyang Technological University (NTU)and TDB in 1999to evaluate the use of Information Technology (IT)in the four core logistics businesses within the logistics industry in Singapore.The three main objec-tives of this survey were to determine the status of IT implementation in the logistics industry,ways in which IT could help improve the performance of the Singapore’s logistics service providers (LSPs),and opportunities and barriers to using IT in logistics operations.For the purpose of analysis in this article,the four core logistics businesses are defined as the following:•Warehouse Operations companies that offer public,shared use,and/or dedicated storage services;•Container Depot Operations companies that process,store,repair and release containers;•Land Transport Operations companies that provide local haulage using prime movers and trailers;and •Freight Forwarding companies that coordinate freight movement and documentation for containerized cargo.Research Methodology A stratified random sampling was adopted for the survey.The database of LSPs is available in the Green Book published by Promedia (1999),Singa-pore and industrial directories.However,in order to be consistent with the earlier study conducted by Andersen Consulting,TDB was approached for 28Asia Pacific Journal of Marketing and Logistics
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information on LSPs.TDB has a database of LSPs,whose core businesses fall within the above mentioned four core logistics businesses.From the col-lected information,a total of 398logistics companies based in Singapore were randomly selected for the survey.The selected companies included Government linked companies (GLCs),overseas multinational corporations (MNCs),and local companies.
Questionnaire Design
A set of three-part questionnaire was designed for the survey,with about 60questions.A glossary was provided to help the LSP management understand the terms used in the questionnaire.
The first part of the questionnaire dealt with company information such as core business area,average response time for customer order inquiry,customer base in and outside Singapore,ownership and revenue,the number of employees,IT functions,commitment to IT investments and status of IT implementation to support their logistics operations.This data is required to understand the characteristics of the company against their use of IT for vari-ous logistics operations.
Questions were also related to barriers to and motivating factors for adopting IT to support logistics operations and future directions of the logis-tics industry in response to changes in the market.Altogether fifteen ques-tions,mostly multiple-choice,were grouped in the first part.It was believed that the answers to this part would help in understanding the functions and profile of an LSP.
The second part consisted of 32questions dealing with the status of current IT deployment and expected IT needs in the near future.LSPs were also asked to identify the benefits and difficulties encountered in each of the processes within the respective core logistics businesses.The authors believe that such information is useful in determining the prospects of IT expansion in the logistics industry.
In the third part of the questionnaire,transaction information for all four core logistics businesses of LSPs was covered.The information solic-ited was aimed to help us understand the current cost structure in the logistics industry.
In the experience of the authors,due to the time required to fill in the form and the sensitivity of the questions,many companies would like to pro-vide the information within a broader range.For example,the revenues should be asked within a revenue rger the band,more comfortable the management is.Also due to time limitation,companies prefer more
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multiple-choice type questions than subjective ones.Therefore,these as-pects were clearly reflected in the questionnaire design.Questionnaire Pre-testing and Survey After the design of the questionnaire,it was pre-tested by mailing it to the past NTU graduates working in LSPs and current NTU faculty and graduate students having working relation with LSPs.Pre-testing showed that most of the formulated questions were within the expectations of LSPs.This feed-back was used to modify the original questionnaire.The questionnaire was sent to the pre-selected LSPs by snail-mail,along with a pre-paid envelope.The companies were requested to return the questionnaire in a month’s time.By the final count,65valid responses were received,yielding a response rate of 17.0%.The low response in this survey could be due to several reasons such as a lack of follow up from our side,which was done primarily to avoid soliciting unnatural information from the companies,change in LSP’s office location and problem with the manpower in LSPs.On the positive side all the responses received could be used for analysis.Therefore,although the response rate is low,we believe that it still represents the fundamental characteristics of LSPs in terms of IT usage in Singapore.Analysis and Results Statistical tests were done to all data to identify significant differences in re-sponses.The differences found significant are noted in the paper;those found non-significant are not identified.Various important parameters con-sidered for analysis are discussed below.Respondents Profile Of the total respondents,39(34percent)LSPs had core business in freight forwarding,36(31percent)in warehousing operations,28(24percent)in land transport operations,and 13(11percent)in depot operations.Most of the respondents indicated that they were operating in more than one core lo-gistics business;therefore the total number of responses in each key area was more than the received number of responses.Almost 70percent of the respondents were local private companies and 8percent GLCs,making it a total of 78percent for Singapore-origin LSPs.In terms of foreign-owned companies,13percent of the respondents were from Europe,6percent from Asia and the rest from the USA.Revenue of LSPs is shown in Figure 1;two thirds of the respondents’revenue was less than S$10million a year.The LSPs in Singapore seldom offer a single core service to their customers because of the need to distinguish themselves in the competitive market.More than 46%of the LSPs offer freight forwarding (especially 30Asia Pacific Journal of Marketing and Logistics
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sea-freight)as their main business.However,they consider warehousing as a major part of their logistics operations too.Similarly,container depot opera-tors are more likely to offer transportation services (as a supplementary serv-ice)to move containers into and out of Singapore ports.
LSPs in Singapore provide thirteen different value added services,such as order processing,product assembly,inventory control and reverse logistics.However,almost 42%of them provide only five services and al-most half of them provide 6to 10logistics services.There are less than 8%of LSPs that provide more than 10services.This clearly indicates that the ma-jority of the suppliers provide less than 10services and that LSPs providing more services need to use better technology to keep themselves competitive in all areas of service.
As the businesses grow,the breadth of services offered by third-party logistics companies would also expand.Most of the client companies prefer to out-source to a single vendor for ease of ordering,developing,con-trol and reporting.Therefore,to remain competitive in such a scenario,LSPs would increasingly adopt IT systems to better manage their business.
The highest percentage of revenue (using mean score)comes from freight forwarding business but its deviation is also the largest.This means that while most freight forwarders are offering forwarding as their main serv-ice (those with high mean score),other service providers are also offering it as a secondary service (those with low mean score)in order to provide a total logistics solution to their clients.
In the area of IT investment,companies with less than S$10million as their annual revenue do not allocate any money for the purchase of hard-
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ware or software.(Figure 2).Fifty-seven percent of the respondents allo-cated a small percentage of their revenue (5%)for IT investments,mainly for transactional applications (e.g.accounting,order processing systems).MNCs tended to invest more on IT as they considered it part of their core ca-pability.Table I
Employee profile in logistics and IT functions
Companies with revenue <S$10million,(n=40)Companies with
revenue >S$10million,
(n=25)
Average total number of employees
40200Average number of employees in lo-
gistics function
22110Average number of employees in IT
function
23Average percentage of employees in
logistics function with university
education 2%11%
There are some distinct differences in employee profile between companies earning S$10million or less and those earning more than S$10million (Table I).Companies with revenue of S$10million or less had fewer employees (about 40)and the percentage of employees with university edu-cation was also low (2%).On the other hand,companies with more than
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S$10million in revenue have more employees (about 200on average)and the percentage of employees with university education was also higher (11%),apparently because of the complexity involved in running their busi-ness.
Logistics Services:Types and Markets
Transportation,warehousing and freight forwarding are the most common logistics services offered by LSPs (Figure 3),while order processing and management of IT operations for the clients are two areas where respondents are planning to expand their services over the next two years.As more manu-facturing companies outsource their logistics functions,LSPs will need to offer more value-added services in order to secure the business.This de-mands faster data (or order)processing in LSPs and IT obviously plays a greater role in it.The inevitability of IT expansion in LSPs can also be seen from the fact that almost 20%of LSPs are currently serving the electronics,telecom-munication,and food and beverage industries (Figure 4)and are planning to expand their operations to chemical,automotive and healthcare industries.The general trend is that the out-sourced logistic volume by these industries is increasing every year mainly due to competitive pricing offered by logis-tics providers and increased competition in their own core business.There-fore,LSPs need to be ready to grab a bigger share of this growing market through the use of IT in their operations.
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In Singapore’s manufacturing sector,electronics and engineering contribute more than 80%of the value added services and chemical indus-tries contribute another 15%(Economic Survey of Singapore,1999).As a result,the demand for logistics services in these sectors is also higher,and is comparable to that reported in Lieb and Peluso (1999)for the USA.
In Singapore,business for the chemical industry is growing at about 25%per annum due to increasing demand of such products in the USA and Europe (Economic Survey of Singapore,1999).Therefore the logistics mar-ket to support these industries is also growing fast.Also,with the comple-tion of a physical link to Jurong port Island (in the western part of Singapore)from the main island,containers would have to be transported between the clearing ports and the Jurong Island.This has again created additional busi-ness for LSPs.
Discussion
In the discussion above,it was noted that LSPs with higher annual revenue are more eager to expand their market and to adopt IT for competitive advan-tage.As LSPs are providing more than one service and their business pro-cesses are expanding,IT could be a potential feature to improve on the information flow between the supplier and the customer.
In the following sections,differentiating features of LSPs in Singa-pore are discussed to illustrate their business focus.The status of IT usage and opportunities and constraints to faster IT adoption in Singapore’s Logis-tics industry are also discussed.
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Logistics Industry in Singapore:Key Differentiating Factors
The majority of the LSPs have indicated that having expert knowledge or specialised skills was one of the key differentiating factors that gave them the competitive edge (Figure 5).Expert knowledge or skill could be in opera-tional efficiency,IT capability or effective management where employees play a critical role.Global coverage is another important attribute;it implies that the company is ready to serve the MNC clients when they expand the businesses in the region.The degree of importance given by LSPs to each at-tribute,however,depends upon their revenue levels mainly because higher levels of value added services can lead to new investments for facility expan-sion including new IT investments.Figure 5illustrates that,between the two groups of LSPs,global coverage is more important to those with less than $10m in annual revenue;however,expansion of their services is more im-portant to those with higher revenues.In either case,the volume of informa-tion and transaction would be greater and would justify the need for adopting appropriate IT systems.Breadth of services is considered crucial as more companies are transforming themselves into third-party logistics providers.Third-party lo-gistics providers are expected to provide a one-stop service for transporta-tion,storage and other value-added services.
These factors are similar to the results of Lieb and Randall (1996)with one major difference.The US companies had ranked IT capabilities (company expertise in IT)higher as shown in Table logistics compa-nies are installing sophisticated IT applications in order to differentiate themselves from the competition and are improving the quality of informa-tion flow with clients.
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Status of IT Implementation at the LSPs
The status of IT implementation at LSPs is shown in Table III.The data dif-ferentiate LSPs in terms of their current and planned IT system usage.Most of the LSPs are aware of the benefits of IT when used for faster data process-
ing.Table II
Top 3differentiating factors indicated by US logistics companies
(Lieb and Randall,1996)
Differentiating Factors
19951996(n=24)Company Expertise
57IT Capabilities
46Global Coverage 35
The breakdown by activities within LSPs shows that most of them are already using IT in network modeling and accounting.Depending upon the nature of their services at present and their planned expansion,LSPs are either adopting or planning to adopt IT for data exchange and data process-ing in various business processes such as freight management,transporta-tion,material management,project management and return material management.Detailed accounts of these aspects are illustrated in Figure 6.The figure clearly shows that most of the LSPs do not see a need to adopt IT for some business processes such as container depot operations,purchase
36Asia Pacific Journal of Marketing and Logistics Perspectives on the
Use of Information
Technology Table III
Status of IT implementation by logistics companies
Status of IT
Forwarding Warehouse Transpotation Container depot IT currently in use EDI
Workflow
Order processing
Order processing Workflow Bar-coding Order processing Accounting EDI Workflow Wireless communication IT use planned over next 3years E-commerce
E-commerce Wireless
Communication Optimisation Software Transport Management Network Modelling Workflow
PDT
E-commerce
Digital imaging
order management and proprietary systems management.This shows that there is a lack of exposure of these companies to the capability of IT in in-creasing business efficiency and ultimately projecting Singapore as the lo-gistics hub of the region.Therefore,programmes like incentives in equipment purchase and mass training programme by organisations like Trade and Development Board of Singapore and National Science and Tech-nology Board becomes important to these LSPs.
From Table III,the readers can see that wireless communication technology seems to be another important area for warehousing operators.The use of radio frequency technology for warehouse management is be-coming popular due to better data accuracy and lesser human intervention.For container depot operators,on the other hand,the use of digital imaging and portable data terminal technologies seems to be gaining ground,as these IT systems can lead to productivity improvement.
Network modeling system,including spatial location system,is get-ting popular in LSPs providing transportation services.These IT systems help to optimise vehicle routing operation.In case of freight forwarding Volume 16Number 1200437
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companies,E-commerce solutions are becoming popular as they provide on-line booking and on-line inquiry on the cargo status to their clients.IT in Logistics Operations:Key Motivations As the logistics business is becoming more competitive,acquiring,analys-
ing and reporting of correct data has also become more important.There-fore,more companies have to implement a sound and automated information system in the future.The top five motivating factors for adop-tion of IT in LSPs are shown in Figure 7,which shows that increasing data accuracy seems to be the prime motivation for IT adoption.LSPs are begin-ning to realise that with increased adoption of EDI and E-commerce,infor-mation received by one party can be directly fed into its in-house application systems for planning and execution.That way,LSPs would be able to en-hance the level of customer service and reduce operating costs on both sides.Another motivating factor for the use of IT is the benefit of easier in-tegration of supply chain activities among the various business partners.IT can be used to update customer companies on the status of cargo so that they can plan their production more efficiently.
Also,since many companies are implementing vendor-managed-inventory (VMI)arrangements with their suppliers,IT can be used exten-sively to monitor the level of inventory at the clients’premises.This type of monitoring helps the customers reduce the quantity of safety-stock needed and eventually leads to a reduction in inventory cost.With the use of IT,such a cost reduction would become effective for many years.
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IT in Logistics Operations:Key Barriers
The main barriers to the adoption of IT in LSPs are displayed in Figure 8,which shows that one of the main concerns for adoption of IT is the speed of IT development itself.More than half of LSPs feel that by the time they plan and execute IT programmes,the technology could become obsolete.At the same time,because of the obsolescence,it is difficult to justify the use of IT in financial terms as well.However,almost 20%of LSPs do not feel that ob-solescence needs to be of any concern because of compatibility of technol-ogy from one generation to another and the price competitiveness of the technology.Financial justification,however,can be tricky as many of the benefits obtained through IT could be intangible,such as improved customer service,or increased accuracy in data transfer and management.
In the logistics industry,implementation of new IT systems is often decided by a new business contract as the clients expect a faster and reliable information exchange system to be in place (if such a facility is not already available)within a very short time.However,due the limitation of IT staff strength (5-10%)and a learning curve for IT,such requests from the client could lead to longer implementation cycle or eventual loss of new business.
Almost half of LSPs have planned to adopt appropriate IT,but en-countered a difficulty in recruiting qualified people who are knowledgeable in both logistics operations and the IT systems.This gap will need to be ad-dressed with the help of training institutions to ensure that IT is taught as the integrator in other courses and as one of the core courses in logistics manage-
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ment education.Due to the importance placed by the Singapore government upon the growth of IT and logistics industry,there is a greater possibility to implement such courses on full scale.Concluding Remarks This study provides valuable insights into the current structure of the Singa-pore logistics industry and the status of IT implementation within the indus-try.A number of logistics companies are expanding their scope of services (to inventory management or order processing,for example)to become third party logistics providers,and are acquiring new knowledge,skills and technologies to differentiate themselves from the competition.They are also planning to move into future market segments such as chemicals and health-care industries set to grow in Singapore.Global coverage and breadth of services were the key concerns of the majority of LSPs surveyed.More and more logistics companies are in the process of taking ad-vantage of advances in IT,for example E-commerce,supply chain manage-ment,systems simulation and modeling.This approach should enable them to achieve significant improvements in productivity and effectiveness,and help to position Singapore as the premier logistics hub of the region.In this regard,the Singapore government already has quite a few subsidy schemes for SMEs to adopt and use IT.Some companies are,however,still tentative about the deployment of IT in their operations as they worry about the rapid advances in IT and a shortage of trained personnel.Towards this end,Singapore needs to build up a critical mass of lo-gistics professionals such as supply chain analysts,logistics and operations managers.New and integrated skills are required to support the new market structure the LSPs now face.One issue not addressed in this study,but equally important to IT adoption in LSPs,is the integration of their IT systems with those of custom-ers and suppliers.As more companies adopt IT systems,it would become imperative that they integrate them with the IT systems of their partners and customers in order to increase the effectiveness of the systems,and to get real value out of them.This integration,of course,has other issues associ-ated with it,which can be looked at in a follow-up study.40Asia Pacific Journal of Marketing and Logistics
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