Global Business and Management Research: An International Journal
Vol. 10, No. 1 (2018, Special Issue)
Logistics Performance Analysis and Improvement:
A Case Study of a Building Materials Company
Rosly Othman *
Graduate School of Business, Universiti Sains Malaysia
Email: rosly@usm.my
Wong Sze Voon
Graduate School of Business, Universiti Sains Malaysia
* Corresponding Author
Abstract
Purpose: This study investigates the challenges faced by the logistics department of a 3PL
building materials company.
Design/methodology/approach: A qualitative case study approach was adopted. A total of 15
semi-structured interviews were conducted with *Best Malaysia’s internal management. Best
Malaysia was chosen as it is among the largest building materials producer in Malaysia. Interviews
were transcribed and analyzed through thematic analysis. Document reviews were added to the
information obtained from the interviews.
Findings: Best Malaysia faced significant challenges arising principally from late delivery, high
volatility orders, insufficient communication and information, and negative attitudes among
drivers. These problems were found to negatively affect customer satisfaction and business
performance.
Research limitations/implications: Future studies in the form of a quantitative study measuring
logistics performance and identifying constraints are recommended to help improve building
materials companies’ performances.
Practical implications: The study highlights the importance of key logistics challenges that can
affect logistics performance. Detailed descriptions of key challenges offer a guideline for managers
to understand challenges surrounding logistics operations.
Originality/value: The present paper offers some insights on challenges of 3PL’s logistics
performance. Results from this research contribute to the existing body of knowledge on logistics
(as part of supply chain management) in the construction industry, particularly building materials
companies.
Keywords: Cement Manufacturing, Third Party Logistics, Logistics Performance, Supply Chain
Management, Challenges on Logistics Department
*not an actual name
Introduction
Within the supply chain network, logistics is considered the point where acquisition, movement
and storage of materials, parts and finished inventory (as well as the relevant information flows)
are properly managed through the organization and its marketing channels. Companies like those
in the building materials sector usually assign logistics department to be responsible for tasks such
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as planning, organizing, coordinating, and controlling the materials flow from the extraction of
raw materials to the incorporation into ready-to-deliver end materials (Ülgen & Forslund, 2015).
The success of the logistics arrangement heavily depends on the coordination of the onsite and
external logistics in all its aspects. It is imperative to address logistics issues in any company
because it can influence customer service levels as well as the economic and environmental
performance of supply chains. Logistics provide customer service by ensuring materials and
resources are appropriate and available for construction operations (Vasco, Andrew & Mohamed,
2010). However, if it not properly managed, logistics operations may be unable to ensure efficient
deployment of materials as well as proper information management among the supply chain
network members. Thus, the scope and role of logistics have significantly changed in recent years.
Logistics has become more prominent and is increasingly recognized as a critical factor in a
company’s competitive advantage and no long limited to merely transportation and warehousing
(Ying, Tookey & Roberti, 2014).
Given the significant investment involved in transport-related activities and the unique
environment of the building material industry, it is important for the sector to have an efficient and
effective logistics capability within the construction supply chain management. Although logistics
operations is one of the important aspects of supply chain management, the challenges faced by
management of logistics operations in the construction industry has only started to grow recently
(Islam & Olsen, 2014; Ülgen & Forslund, 2015; Vasco, Andrew & Mohamed, 2010; Ying, Tookey
& Roberti, 2014).
However, due to the inherent fragmentation of the building materials industry, a lack of
coordination and communication, inefficient planning and lack of suitable manpower within the
logistics area, further exacerbated the problem of logistics operations in the industry (Ülgen &
Forslund, 2015). Being as efficient and effective as possible is always desired in logistics
operations. Unfortunately, this is usually unachievable either because there is not enough detail
information about the operations, or there are considerable variations during the delivery of the
products.
Consequently, there appears to be a significant need for an enhanced understanding of the
challenges faced by the logistics departments in a building material context in order to deliver the
full benefits from adoption of efficient logistics operations. The purpose of this study is to gain
detailed understanding of the challenges and obstacles in efficient logistics performance at the
operational level. It also seeks to recognize the challenges to efficient delivery, as well as questions
of how such behavior occurs. Taking into consideration the importance of this issue, the present
study is motivated by the need to understand the major challenges faced by Best Malaysia’s
logistics department and is guided by the overarching research objective of identifying the major
challenges faced by the firm’s logistics department.
Literature Review
Vasco et al. (2010) stated that main factors impacting logistics operations are delays of delivery,
supply constraints, lack of coordination, variable demand, and poor information. The consequence
of these variations is the reduction of efficiency in managing transport operations.
Insufficient communication and Delays in deliveries
Ying, Tookey, and Roberti (2018) conducted a study on subcontractors and their ability to deliver
products. In the study, it was found that one of the main challenges in providing good logistics
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services was a lack of planning of material deliveries and unloading among the subcontractors and
their site workforce.
The lack of communications between them can be attributed to nonexistence of formal procedures
for purchasing. The staffs of the subcontractors have to deal with various procedures when
ordering materials. Apart from that, it was also found that suppliers seldom updated their ability
to deliver ordered materials on time to the site staffs. This has greatly affected the efficiency of the
logistics activities within the companies.
The same situation can also be found in the Nordic supply chain (Ülgen & Forslund, 2015). Only
little evidence of collaborations can be found with regards to their ability to commit to any
deliveries. In addition, lack integrated IT support has contributed to the little personal
communication taking place between the supply chain members. Ülgen and Forslund, (2015) also
found that the low level of collaboration in the Nordic supply chain may be related to the lack of
exchange and communication in the relationship as well as shifting priorities and focus from top
management
Drivers’ Attitude
Studies showed that drivers’ poor communication skills or negative attitude may reflect on their
performance and impacts their ability to do jobs given to them (Dubey & Gunasekaran, 2015). In
addition, Dubey & Gunasekaran (2015) also believed that the behavioral skills of truck drivers
require urgent attention, including communication, teamwork, leadership, positive attitude,
community feeling and environmental responsibility.
In many countries truck drivers usually do not possess higher education level and were found to
be unhappy with their job environment. In some situations, this fact has negative impact on their
commitment towards their jobs and the assigned responsibilities (Williams, Garver, & Taylor,
2011). This could also be linked to the specific country’s culture, which may further impact on
driver education level (Min and Emam, 2003). Education may be regarded as a major constraint
in Malaysia due to popular perception of low skilled, manual labor truck driving.
In a study by Dubey and Gunasekaran (2015) on truck drivers in India, it was found that due to
poor communication skills and inappropriate attitudes, drivers often end up in direct confrontation
with regulatory authorities, especially when different languages are spoken. Therefore, truck
drivers might find it difficult to communicate with the logistics companies’ staffs and as a result,
might misunderstood instructions.
High Volatility Orders
The success of construction project depends on the coordination of the on-site and external
logistics. The numbers of vehicle movements is therefore capable to interpret the competence of
this coordination by providing a rational base line for loading bay and crane management to
facilitate logistics efficiency. As a result, the numbers of vehicle movements, in a way, links
transportation, inventory and warehousing that are essential elements of effective construction
logistics.
Even though this is something that many companies know and have firsthand experience, Ying, et
al. (2018) uncovered that little attention has been paid to vehicle movements by companies and in
many situations; it was not measured and managed by the practitioners. In fact, coupled with
individual uncertainties faced by each operation at the suppliers’ site, the orders fulfillment
becomes unreliable and this renders the logistics operations to be difficult to perform smoothly
(Islam & Olsen, 2014).
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Method
Research Design
A qualitative research method was used to optimize the understanding, expand knowledge and
explore a situation that has little research undertaken (Creswell, 2003). More precisely, a
qualitative, single-case was chosen to explore the challenges faced by the logistics department of
a building material company. Yin (2003) highlighted that qualitative methods are also
recommended in order to obtain knowledge and understanding about the meaning people invest in
specific situations or phenomena, such as logistics staff experiences of managing logistics
processes in this company.
The Study Setting
This paper is based on a qualitative case study at a leading building material production company.
Best Malaysia Berhad (not a real name) is a public-listed company on Bursa Malaysia. The
company has several integrated cement plants in northern and central Malaysia, two grinding
stations in the southern region, more than 30 ready-mixed concrete batching plants, and several
aggregates quarries throughout Peninsular Malaysia.
Best Malaysia’s Logistics team operates in a centralized organizations structure. As a third party
logistics (3PL) company, Best Malaysia has 99% of its products delivered and the remaining 1%
is collected by customers. Mostly dealing with customers, Best Malaysia is using Net Promoter
System (NPS) to measures customer loyalty and experience based on direct simple questionnaire.
The system provide customer feedback on the areas that need to focus for resources and
investments. Based on the current results, the overall customer experience was mostly rated as
passive. The survey also indicated that Logistics/Product Delivery was rated consistently low with
average score 7.45 out of 10.00. Low NPS score can cause a loss of current, potential, even the
most loyal customers due to poor reputation. This is despite the fact that Logistics Department
spent more than 20% of the overall operating cost in the entire company.
Data Collection
On average, the semi-structured interviews conducted with all the respondents lasted about 75
minutes. A total of 15 respondents were interviewed. These interviews were carried out from
January to February 2018. The interview guide was designed on the basis of the literature review
and previous research (Wolf and Seuring, 2010). The interview questions were mostly centered on
the challenges faced by logistics of Best Malaysia.
Respondents were directors, general managers, senior managers, managers and executives across
the entire firm – all with specific functional responsibilities, roles and deep process understanding
of their own processes and logistics such as Director Logistics & Supply Chain, General Managers
of Sales, Sales Manager, Area Logistics Managers and logistics Executives. Researcher agreed to
keep their names as anonymous to encourage open responses. The list of all respondents is
presented in Table1.
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Table 1: Respondents’ Profile
Characteristic
Position
Respondents
General Sales Manager
Sales Manager
Logistics Senior Manager
Area Logistics manager
Logistics Executive
Sales Account Manager
Plant Manager
Total Respondents
No of respondent
1
2
2
2
5
1
2
15
All the interviews were recorded and then transcribed. Documentary evidences such as company
annual reports, company websites, statistic reports obtained by logistics team, result of
performance survey, records of customer complaints, articles published on cement industry and
store in a case study database were also added to the information obtained as suggested by Yin
(2003). Information collected from the interviews was matched with the secondary data to enhance
comprehension of the research (Yin, 2003).
Data Analysis
The method of data analysis chosen for this research was thematic analysis. The process of
analyzing the interview transcripts started with coding and it was based on terms used by
respondents or derived from the data themselves (Bryman and Bell, 2007). After the coding
process completed, the identified codes will be organized into subthemes that shed some ideas in
understanding the research issues (Easterby-Smith et al., 2012). At the end of the analysis process,
the subthemes will be arranged into over-arching themes. The development of these overarching
themes, several sub-themes and their associated concepts that came from codes are fundamentals
in identifying the challenges faced by the Logistics Department of Best Malaysia.
Findings
Logistics Performance of Best Malaysia
Most of the management team perceived Logistics department is playing a major role for managing
the order to delivery process. Logistics department in Best Malaysia is a centralized group that
directs logistical planning and execution, involving order management, order processing,
inventory management, material handling, warehousing, third-party transportation, distribution,
and customer service center. Best Malaysia is doing 99% delivery business and 1% customers’
own collection; hence their sales performance is depending heavily on logistics performance. With
the strength of Best Malaysia that have wider coverage on supply network, whenever there is a
short supply from one plant, logistics will divert the balance orders to another distribution channel
to avoid any supply disruption for customer. Indeed this action indirectly incurred additional
logistics cost.
“No Delivery equals to No Sale! It shows how important Logistics
team means to us. Our sales volume is highly dependent on the
despatch performance. ” (Sales Manager 1)
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In summary, Most of them commented that there are still have rooms for improvement despite
logistics team has been established with technology infrastructure for business process. Table 2
will summarize the uncovered subthemes as well as the over-arching themes from this research.
Development of Subthemes and Themes
The single theme that this research managed to identify was revealed after much consideration.
The theme represents the chaotic aspects of the logistics management within Best Malaysia. Apart
from that, it was also found that the uncovered theme was built upon human factors. The subthemes
and theme are presented in Table 2. Discussions related to them are outlined and interpreted in this
section.
Table 2: Development of Themes
Sub themes
Delay in delivery of orders
High volatility of orders
Insufficient Communication
Bad Drivers’ attitude
Themes
chaotic internal operations
Delay Delivery
Customer satisfaction is very important to manufacturing business and in many situations; the
physical products with services are being paid close attention by the end customers. Late deliveries
are mainly caused by disruptions in the entire supply chain processes, production, storage,
shipping, facilities and transportation (Vasco el at., 2010). Delivery delays are considered the key
challenges in achieving a high level of logistics performance;
“Most of the late deliveries caused by supply disruption from plant
and not enough truck capacity during order surge.” (General Sales
Manager 1)
Sales Manager 2 also concurred with the situation and commented;
“…We always run out of stock during our high order surge… ”
The situation was further elaborated by one of Logistics Executive 3;
“Usually our truck turn around affected when our plant down
because we are diverting the orders to other distribution center”
The comments by Best Malaysia’s managerial team showed that delays are mostly caused by plant
breakdown, packing plant issue, problems in unloading and loading facilities, stock constraint due
to high order as well as no extra truck capacity. The supply chain disruptions caused by plant
breakdown in production have a significant ripple impact on the inventory level and delivery
process.
Delays have affected the turn over truck (trip per day) and led to insufficient trucks to run for the
next order. The low truck utilization has eventually brings up the overall freight cost. In addition,
customers’ operational issues also indirectly impacted the delivery of the orders such as long
waiting time for unloading, limited receiving window at customer site, bad road condition, and
high risk on night deliveries.
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Apart from that, delivery planning will also be disrupted when last minute same day arrival orders
come into the picture. The company may not have adequate numbers of available trucks to cater
for the orders. In addition, small load arrangements requested by customers are also becoming one
of the main constraints due to the limited truck capacity for small trucks. Transporters are getting
bigger truck for cost saving, while customer site getting smaller in the city center or small town.
Meeting customer’s expectations and delivery requirements is a top priority for every business.
OTIF (On Time and In Full) is considered as a KPI for Logistics department because it especially
looks into all deliveries from the point of view of the customer. Low OTIF score is undeniably
damaging to the customer relationships and possibly increasing customer dissatisfaction as well.
OT score is measured based on comparing the actual time of arrival to customer site versus
requested date and time by customer; whereas IF score is measured based on the actual received
quantity versus customer requested quantity on each transaction. As for Best Malaysia’s
performance, its Logistics Senior Manager 1 said;
“We are targeted to achieve above 92% of OTIF score indeed we
achieved averagely 85% in year 2017 and still it was 7% below the
target…”
The managerial team agreed that if delays continue to happen and their OTIF score deteriorate,
they could lose significant numbers of their customers.
High Volatility Orders
This subtheme is considered the second biggest challenge to achieve a high level of logistics
performance for Best Malaysia. Customer demand is highly volatile and can suddenly change due
to seasonality promotions and unexpected rebate price adjustment based on market trend.
Respondents commented that the sale trend can be predictable in some cases but totally random
and unexpected in others. However, some events such as disruption in production are not
predictable at all like competitor’s plant breakdown. This situation usually increases the order
twofolds. Other uncertainty factors like the weather can also have an impact on demand volatility.
According to Best Malaysia’s Logistics Manager 2;
“The unpredictable demand rises, increase additional variables to
the complexity of delivery process. This will have a negative impact
on transport utilization and increase costs.”
Vasco el at. (2010) revealed that poor demand accuracy have a knock-on effect on the high
volatility of demand transport volume. However, in many instances, transport planning is not easy
to manage. For example, many of Best Malaysia’s customers are providing lots of unconfirmed
orders in the system, mainly to capture the best contract price. As a result, the system is overflooded with orders that customer do not want to receive and this leads to the difficulties in
processing orders. In this situation, the transport planning will be unable to increase its deliveries
in a dramatic way and as a consequent, the failure of the delivery process could happen.
Logistics performance is highly dependents on delivery of products from sales, which in turn rely
heavily on the accuracy of demand forecast. Inaccurate demand forecast will be reflected in the
ineffectiveness of delivery scheduling, increase of inventory cost, reduce productivity of plant
performance.
Patil et al. (2012) identified that some factors such as resources, time, advertising, unusual weather
conditions, promotions, price, events, public holidays, vacations, input and output components that
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affect the forecast accuracy. Best Malaysia is practicing Sales & Operation Planning (S&OP)
process, which routinely reviews sales demand and supply capacity.
However, sales forecast accuracy only at an average of 65% which was way below the target of
85%. Some of the contributing factors could be due to the supply network of Best Malaysia that
also involves sea-freight transfer. This mode of transport needs Best Malaysia to plan at least three
months ahead to ensure that it has enough capacity to ship material on time. If any mistake happen
on the planning it could incur huge amount of damages that cost in millions of USD.
Insufficient Communication & Information
Lack of information visibility especially plant performance has also reduces the dispatch planning
accuracy, poor stock management, increases uncertainty and unnecessary material movements. A
lack of coordination within the logistics and transporters can impacts on logistics performance.
Mentions about this subtheme represent just over 20 per cent of the total frequency from Logistics
Department’s respondents. The respondents also agreed that there is not enough coordination and
communication within the internal people in sales, logistics, distribution, and production team.
The main factor is functional barriers between production and logistics departments at the
company level and lack of integration between transporter and logistics. Indeed, people are not
willing to share sensitive information on unsecured platforms. However, some are reluctant to
share information because they do not wish to admit their mistake. For example, in some cases,
transporters somehow have over committed extra truck capacity, which they not able to provide
on time in the end. As a result, Best Malaysia may not have the transport to ship its products to
customers.
Production plant may not be able to supply the products if there is any unpredicted breakdown.
Equipment breakdown happens when no proper major maintenance or upgrade given. Poor
production performance impacts on stock availability to customers and at the end of the day,
delivery may not be possible. A Sales Account Manager 1 stated;
“In the recent years, our plants keep having major and minor
equipment breakdowns which lead to supply disruption to customer
sites. We faced several times of loss sales during stock out periods.
It is worst when this info is not being passed to the transporters”
In order to optimize capital and improve overall equipment effectiveness (OEE), production needs
to real time monitor the utilization thresholds which it helps determine the optimal production rate,
human error and operation inefficiency factors. Burgoon et al. (2012) suggested that manufacturers
usually spend up to 40% of their operating costs on maintaining plant equipment. Equipment
downtime causes this percentage to spike even higher. Reliability of loading facilities also impacts
on production performance as well because any failures leads to longer time spent inside the plant
for truck. In addition, a Plant Manager 1 explained that;
“We are operating one of the oldest cement plants in Malaysia, Old01 Plant was established in 1950s which is almost 70 years old.
Ability to know whether the resources are available is one of the
biggest challenges now for Production team.”
Edward et al. (1996) stated that functional capabilities are necessity interdependent in creating
value for customers. Since organizations cannot work in silo, Logistics must work closely together
with Production team to integrate their cross functional activities. These strong relationships
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between Logistics and Production team are understandable, since logistic depends on products
available for delivery. Likewise, logistics is important for production on support of inbound raw
material, change of source of supply, product transfer to distribution center, and other emergencies
matter.
However, if one of the functions is not as efficient as the other, disruption may occur like the
inability of the production to provide products for the logistics to transport like what has happened
in Best Malaysia. The communications between departments are not as efficient as it should be
and lack of information being relayed to one another has negatively affected the running of the
logistics department.
Bad Driver Attitude
It is common sense that poor driver behavior leads to poor customer service, bad company
reputation, and low customer retention. One of the respondents revealed that it is very hard to get
competent drivers in cement industry compared with other sectors because of the poor working
environment in which drivers often exposed to dusty condition, hazardous equipment and noises.
Best Malaysia’s drivers have daily challenge even on the basic essentials like eat well, sleep well
and find a decent place to have a shower. Some of the respondents explained that attitude problem
of drivers could be overwhelmed by their negative work related influences such as low pay, poor
benefit, no rest time, time away from home, and lack of respect for family.
Major concern to be considered before deciding on a 3PL company is the degree of control. The
business needs to be particular about the degree of control over activities of the transporters for
getting the desired service by the customer. Most drivers of Best Malaysia are not highly educated
and they lack of proper skills to recognize and deal with the operational issues. With effect of flexitime working environment, some irresponsible drivers have no sense of urgency after loading the
cement; eventually make the delivery performance worst.
It is not possible to have direct control over the activities of the transporters but they should ensure
timely availability of information to monitor activities. However, in some situation faced by Best
Malaysia with regards to the drivers’ attitudes, some of the transporters do not pay adequate
attention to their drivers and have caused Best Malaysia inability to delivery products on time.
Logistics Senior Manager 1 stated that;
“We have total number of 20 transporters providing their
transportation service, more than 1000 trucks are running in the
entire nation. Of course some of these people will create problems
for us”
Alkhatib et al. (2015) has stressed that companies need to review Logistics Service Provider
performances. In the case of Best Malaysia, bad driver’s attitudes become one of the main issues
that affect the ability of logistics department to serve customers effectively. Taking that into
consideration, one of Logistics Executive 1 of Best Malaysia revealed that;
“There are many factors that affect order fulfilment rate of
transporter such as truck capacity, numbers of competent drivers,
truck trip per day made by drivers, etc…”
Based on that, logistics operation center should revise their order allocation if that respective
transporter is not performing in the consequence days. This can helps managers to avoid taking
the risk of selecting inappropriate transporter.
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Conclusion
The aim of this paper is to gain an understanding on the challenges faced by logistics department
of an organization in the building materials production, particularly the cement industry. In
response to the research objective, this study has undertaken an in-depth interview with the
respondents from a building material company to identify challenges faced by logistics department
perspective.
The findings corroborated with those of past scholars (Andreas, 2016; Brian, et al., 2010) and
based on the findings, there are several challenges that might have contributed to the performance
issues of the logistics department. Figure 1 shows a diagram that summarized on what have been
found and discussed earlier. There are four major problems or challenges faced by Best Malaysia.
Late Delivery
Bad Driver
Attitude
High Volatility
Orders
Insufficient
Communication
Figure 1: Summarized Diagram for Findings & Discussions
The present study can help practitioners have a better understanding of the challenges faced
logistics departments for developing more efficient and effective transportation and logistics
systems. The findings here might also attract much-needed attention from management to focus
on these key areas for future improvement. Existing logistics department operations are found to
be plagued by several challenges such as constant prospects of late delivery, unprofessional
attitudes among drivers, volatile orders that need to be fulfilled, as well as insufficient
communication between supply chain members to facilitate more efficient movement of materials.
The logistics departments and other members of the supply chain network must work together to
overcome the challenge in order to create a better performance.
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