Running head: Impact of logistics challenges on RSA
Today, the logistics industry has had an evolution marketed by an increase in internationalisation and competitiveness business environment. The companies have changed their supply chain strategies, which outsource the company’s logistics activities to third-party logistics (3PL) providers. To stay competitive, the companies have to increase their capability in the supply chain, which to reduce logistics cost and improve the efficiency in delivering goods to customers (Gold, Seuring, & Beske, 2010; Trent & Monczka, 2003).
In the preceding paper, three main factors that make UAE retained its third positions in Logistics Performance Index and an international logistics hub were explored: strategic geographical location, innovative infrastructure and processes, and free-market economic policy. Furthermore, a critical analysis of four logistics challenges in the United Arabs Emirates (UAE) was conducted. These issues were road freight transport problems, sustainable logistics, fuel price fluctuations and warehousing challenges. Traffic congestion and inexperienced drivers in the UAE weakens the logistics efficiency, increases the operational costs, and reduce the logistics security. Next, high demand for air freight in UAE increase the logistics responsiveness, but less sustainable in logistics. Furthermore, crude oil price fluctuation presents both positive and negative impacts on cost and responsiveness in the UAE logistics. Last, manual warehouses in the UAE are less efficient and low levels of innovation compared to the automation warehousing in other counties.
This study will present an overall literature review of third-party logistics and RSA Logistics’s background. Moreover, it will critically analyse four impacts of global logistics changes that affect RSA’s logistics and supply chain network. These changes are road transportation challenges, fuel price fluctuations, sustainable logistics and virtual warehouse challenges. Last, recommendations will be provided for the topic analysed to improve RSA Global logistics outcome. By reducing the risk of these external issues, RSA Global will be better equipped for future challenges.
Section One: The literature review of third-party logistics
Third-party logistics (3PL) is defined as outsourcing logistics process, or selected activities with to external service providers which traditionally been performed within the company (Marasco, 2008). In the past, 3PL was referred to logistics outsourcing (Abdur, & Chen,1998; Knemeyer, Corsi & Murphy, 2003; Maltz, & Ellram, 1997). Today, 3PL no longer refer to outsource a single element, logistics activities, the role of 3PL has significantly evolved from providing logistics operational activities towards a complex supply chain solution of integrated operations, warehousing, customs brokerage, and transportation services (El Baz & Laguir, 2017). The 3PL market has been on the rise for the past few decades due to an increase in demand for 3PL service, and this trend is expected to continue growth (Selviaridis & Spring, 2007). Four categories of 3PL providers including standard 3PL provider, the service developer, the customer adapter and the customer-developer, these 3PL providers differ in problem-solving ability and customer adaption (Hertz and Alfredsson, 2003). Three primary reasons that the companies outsource their supply chain activities to 3PL providers: cost reduction (Ji, Wang & Zhang, 2018), service improvements (Leuschner, Goldsby & Rogers, 2014), allow companies to focus on their core business.
Section Two: RSA Background
The overall contribution of the transport and warehousing sector increased 5.7%, and it contributed 15.8% to Dubai’s GDP in 2015 (Government of Dubai, 2016a). RSA Logistics (RSA) is the flagship business of RSA Global and the first logistics company to start operations in Dubai in 2009 (RSA Global, 2016a). RSA is a multi-award-winning third-party logistics (3PL) in UAE, which contributes to the economic growth and has a strong reputation in the Middle East. The core business of RSA is offering supply chain solution, which including international and national transportation services, warehouse services, distribution, and custom clearance services to different industries such as retail, FMCG, automotive, power generation and manufacturing (Personal communication, 2018). The company has always emphasised on creating sophisticated and tailor-made process and technology solution to enhance its customers’ logistics and supply chain network value and customer service experience. With time, RSA has expanded its business to Kenya to serve international customers that will significantly influence the profitability and reputation of the company (Government of Dubai, 2016b).
As RSA is one of the 3PL pioneers in UAE, thus it has the opportunity to create a proper and unique positioning in the market which later contributes to the success of the company. A dynamic market positioning strategy can be a useful tool to understand competitive, and consumer behaviour in industries, which create competitor advantages for long-term and sustainable susses to the company (Parnell & Lester, 2008). The company is consistently adapting the external challenges in operations, processes, and techniques to ensure its competence in logistics and supply chain network (Personal communication, 2018). Thus, enhance and fulfil the customers’ need and stratification. The company that connects with its customers closely will gain competitive advantage compared with its competitors in supply chain effectiveness and better market performance (Shah, Rust, Parasuraman, Staelin, & Day, 2006).
Section Three: Critical Analysis Impact of Logistics Challenges on RSA
Increasingly competition in the business environment, the companies are hard to achieve and maintain their competitive advantage. Implementing and developing an effective logistics and supply chain management strategy is a crucial source of competitive advantages to ensure business success (Gold et al., 2010). RSA has collaborated with large multinational companies in transportation and facilities that allow them to provide effective and efficient logistics solution to difference industries (Andragogy, 2015). Although RSA has a unique positioning in UAE, it still strongly influenced by the global logistics changes in four different aspects.
1. Road transportation
Road transportation is playing the most vital role in the social, growth of economic and industrial in the UAE. More than a million trucks are currently delivering goods from airport and seaport across the region to the end users (Ventures Onsite, 2017). As a 3PL provider in the UAE, road transportation is a crucial element in its supply chain network and business. Within transportation, road freight transport is a vital role to RSA due to cost-efficient, flexibility and easy access to remote areas. The change of autonomous trucks in the logistics industry is a latest global trend. Autonomous trucks operate independently with a new technology that contributes significant potential benefits to UAE’s logistics industry. However, RSA is facing challenges that not implementing these new technologies. Compare with driverless trucks; conventional trucks have negative influences on the cost and innovation in RSA’s logistics outcome. Although autonomous require a high initial investment, it has the cost advantages in long-term (Wadud, 2017). As RSA is not adopting the autonomous truck's technology (Personal communication, 2018); thus, it has a high operational cost and opportunity cost in routine truck maintenance cost, recruiting and training expats driver, and struggle with long distances issues. Moreover, RSA has a low level of innovation in its logistics as not adapt to the latest technology in driverless trucks. Thus, it reduces the competitor advantages in its logistics and supply chain network. Enhance the existing innovation in the company’s supply chain management has the impact on developing competition advantages (Chang et al., 2008).
Besides the autonomous trend, the UAE road transportation problems also impact RSA’s logistics efficiency and cost. One of the challenges that the UAE is facing are traffic congestion, increased motor vehicle, transportation pollution and high road accident rate. It was reported that 8.2 per cent average annual increase of vehicles in Dubai in 2016 and AED 4.6 billion were lost as the value of time and fuel due to traffic congestion in Dubai (Tesorero, 2016). A key component in calculating congestion costs is the estimation of vehicle operating cost on the hourly basis. When RSA’s trucks are moving slowly or caught in traffic jam, it operating costs per km are exaggerated. During the traffic jam drivers’ time is wasted, more fuel is consumed per kilometre and the resources are underutilised. It is assumed that if traffic congestion were eliminated, RSA would be able to utilise all the vehicles and drivers’ time in its supply chain network efficiently. Opportunity cost is another cost of congestion to logistics operations (McKinnon, Edwards, Piecyk, & Palmer, 2009). Goods arrive late in
RSA’s distribution centre because of traffic congestion might not able to cross-docking the material on time and may affect the next delivery schedule.
Moreover, regulation imposes on traffic law in UAE exacerbate the adverse effect to RSA logistics outcome. Department of Transport in the UAE imposed the new traffic laws: heavyduty vehicles and trucks will not be permitted on internal and external roads during peak hours (Abdullah, 2017); limit truck drivers’ driving hours and require them for an adequate break every two hours of driving (Ruiz, 2014). Since there is a constraint in travelling hours, it affects RSA supply chain flexibility in scheduling. This inflexibility schedule does not allow RSA to respond quickly to the emergency request from the customers. The regulation on rest time reduce the possibility of accident happen, but it increases the operation cost and reduces the efficiency of RSA’s logistics performance as drivers require more extended hours for a singles delivery. Thus, managing new regulation is the current concerns of RSA. They need to balance the efficiency of their operations with regulation considerations.
There are several ways in which RSA can reduce the vulnerability of its logistics operation in road transportation. RSA could invest in automotive logistics, especially autonomous vehicles, to enhance its logistics outcome to be more innovative, sustainable, and responsive, simultaneously reduce the operating cost. Although, technological advancements such as automotive trucks could optimise RSA supply chain efficiency and differentiate from competitors, with a consideration of whether the UAE is ready for these technologic in term of customer demand, and rules and regulation. Thus, RSA needs to evaluate its internal capacity and capability, as well as the external factors before implementing this strategy.
2. Fuel price fluctuations
The crude oil market is the largest commodity market in the world, and it is one of the significant macroeconomic factors that affect the world economy. The price fluctuations in the crude oil market as compared to other goods because of disrupting crude oil supplies (Wang & Sun, 2017); seasonal change in demand (Kochaphum, Gheewala & Vinitnantharat, 2013); geopolitical crises (Zeynalova, 2018); and market sentiment. The UAE oil consumption has increased since 2010 (Andragogy, 2017a), this is because fuel is an essential commodity. Crude oil is a finite and non-renewable resource, and there is only a limited supply (Hamilton, 2009). As a 3PL, RSA daily operations on transportation highly depend on fuel, and this is the most significant operating cost for RSA (Personal communication, 2018).
The fuel price fluctuation in the UAE has a regularly impact on RSA. A sudden increase in fuel price can have an overwhelming effect on RSA profit and freight operation. As the cost of petroleum rises, RSA is forced to raise prices or take losses. In addition, a rise in fuel price has increased the price gap between air freight and ship cargo, thus make air freight more expensive. Due to the high air freight cost, RSA might deliver international cargo via ship. This alternative solution reduces the operating cost with the sacrifice of responsiveness and flexibility in its logistics outcome.
In contrast, an unexpected fall could result in a short-term decrease in operating cost, thus boosts in profit during that period. Fall in fuel price also creates an unhealthy competition in the market to provide the lowest price to customers. With the low fuel cost, RSA can adjust its network and router to better serve the customer on speed and convenience. Moreover, low fuel price increases RSA logistics responsiveness by facilitating unexpected customer demand. Fall in fuel cost allows RSA to streamline the operation strategy, rather than save fuel consumption. Although RSA gains logistics advantages during low fuel cost, the management should understandably react with caution as it is unclear whether the low fuel price will last.
With the continual unpredictability in the crude oil price, RSA is forced to restructure and strategies its operations to ensure continued the logistics outcome balancing. RSA should invest in fuel-efficient vehicles to reduce oil consumption. By taking advantage of the new technology, RSA can reduce the operating cost and more sustainable in logistics. Also, RSA could focus on time management to avoid driving in congested traffic, which is crucial to minimise fuel usage and also lower the environmental impacts of road transportation. Driving in congested traffic resulting in longer travelling time, increase the quantity of fuel consumption and also affect the quality of CO2 emission from vehicles (McKinnon et al., 2009). Last, RSA could optimise the route, by optimising the schedule it could minimise the time taken by trucks this will reduce petroleum consumption and improve the efficiency of the logistics.
3. Sustainable logistics
Increasingly in the consumer pressures and environmental regulations have inspired the companies in improving environmental performance in their systems, processes, functions, and operations. Logistics activities are the fundamental sources of environmental pollution and greenhouse emissions, which have the negative impact on human health and the ecosystem (Hazen, Cegielski & Hanna, 2011). Green logistics is one of the critical goals of RSA, and the company has adopted different approaches and strategies in its supply chain network to ensure sustainability (RSA Global, 2016c). Three reasons encourage RSA to implement environmental sustainability: sustainable logistics services required by customers, pressure from competitors and rules and regulation in the UAE (Personal communication, 2018).
Today, many companies are expected their 3PL to be committed to sustainability and aware from ISO 14001 certificate, Environmental Management System, as it improves the company’ reputation and shares the same strategy and core value with the company. Buyer requires the supplier to have ISO 14001 certificate to agree with the company standards (Eltayeb, Zailani, & Ramayah, 2011). Moreover, pressures from the competition is another cause RSA integrating sustainable supply chain practices in order not to risk the company being in a disadvantaged position to its competitors (Personal communication, 2018). Last, environmental law in UAE, including emissions to air and water, environmental impact assessments, waste management promote sustainability practice in RSA.
The green logistics is referring to environmentally friendly activities in product design, raw material sourcing, manufacturing, packaging, transportation and reverse logistics to ensure environmental sustainability (Hazen et al., 2011). By implementing green logistics, RSA gains some benefits in its supply chain network. These benefits are including increase efficiency efficient of using resources, reduce overall cost in long-term, and increase valueadded save energy (Rad, Gülmez, 2017). Moreover, RSA also strengthens the reputation with its environmental image and improving market share. One of the projects implemented by RSA was to install solar panels on the warehouse rooftop (Andragogy, 2017b). Renewable energy significantly changes the traditional business model, which provides cost and risk benefits across the supply chain (Cucchiella & D’Adamo, 2013). By installing these solar panels, RSA lowers the long-term energy cost and provide uninterrupted power with storage devices to the operations and supply chain functions.
4. Virtual warehousing challenges
The UAE warehouse demand slowdown in 2016, but it is predictable that growth in retail industry and e-commerce in 2018 might increase warehousing demand (Knight Frank, 2017). Thus, the UAE government invested in and developed warehousing infrastructure such as Dubai Logistics City, Jebal Ali Free Zone and Dubai Investment Park (DIP) to attract global investors.
Warehousing is one of the most crucial elements for RSA’s supply chain. In 2017, RSA expended its new warehousing facility to DIP (Andragogy, 2017c). This new warehouse complements established facilities in Dubai South and Jebal Ali warehouses and its strategic location to serve the customers with quicker distribution within UAE. The expansion of new warehouse was due in part to anticipated demand from the Expo 2020 project. In August 2018, RSA has announced to implementing a virtual warehouse system (VWS), an advanced system in warehouse management, in the DIP facility (Andragogy, 2018). Donk and Vaart (2005) state, some customers are reluctant to share their demand forecast to suppliers. Moreover, it is difficult to control the inventory level, due to a shorter delivery lead-time was given by customers and unpredictable market demand (Fung, Cheung, Lee, Wang & Kwok, 2005).
With this system, RSA can facilitate to meet volatile market and customers’ demand.
Traditional inventory planning which is an advanced planning and scheduling system is insufficient to deal with volatile demand. In contrast, VWS which can refine stock planning to streamline product planning and control if there is an unforeseen change in order (Fung et al., 2005). Moreover, this system also helps in supporting decision making and monitoring the stock allocation when supply deficiency happens (Fung et al., 2005). As a third-party warehouse facility, RSA requires information technology to plan and control its customers’ inventories. Lai, Zhao and Wang state (2006), “information technology can improve logistical efficiency, effectiveness, productivity, flexibility, cost, and service quality” (p.1250). This system benefits RSA’s warehouse inventory planning, but also has some challenges to its supply chain.
RSA will be facing two challenges in implementing VWS: faulty reporting and data accuracy. In a virtual warehouse, data is coming from many different sources from a company. RSA warehouse management incorporates multiple departments to access the system, including sales, customer service, accounting, and logistics (Personal communication, 2018); this will be a challenge if the person inputs the incorrect data in the system, when the system combines inconsistent data from a different department, the encounter errors. The weak data quality affects the accuracy of the report and inventory level. To validation the data, it requires manual research and evaluates; thus, it resulted in the decrease of the supply chain efficiency.
Next, with the inaccurate and redundant data, it may lead to miss delivering, and miss pick.
Therefore, it reduces the efficiency in the flow and waste of works’ time. To minimise these issues, RSA needs to standardise the police and procedure of the data input.
In response to growing competition and rising customers’ demand, third-party logistics (3PL) providers need to effective and efficient in their supply chain. That is particularly true in the UAE, as a third largest international logistics hub worldwide. The report analyses four logistics challenges that influenced RSA Logistics’s supply chain network and logistics performance.
Moreover, recommendations will be provided to improve RSA logistics outcome to equipped for future challenges.
RSA, a 3PL provider in the UAE, road transportation is a crucial element in its supply chain network due to cost-efficient, flexibility and easy access to remote areas. Autonomous trucks are a new trend that contributes significant potential benefits to UAE’s logistics industry. RSA is facing challenges that not implementing these new technologies, which is a low level of innovation, a high operating cost in routine truck maintenance, high commitment in recruiting and training expats driver and struggle with long distances issues. Besides, the UAE traffic congestion problem cause inefficiency and a high cost of RSA logistics performance. Moreover, regulation imposes on traffic law in UAE exacerbate the adverse effect to RSA logistics outcome. The constraint in travelling hours and control on drivers’ rest time, affected RSA supply chain flexibility in scheduling, increases the operation cost and reduce the efficiency logistics performance as drivers require more extended hours for a singles delivery. RSA could invest in autonomous vehicles; however, external factor and internal capability need to be considered.
Next, the price fluctuations in the crude oil market are because of disrupts crude oil supplies, seasonal change in demand, geopolitical crises, and market sentiment. The fuel price fluctuation in the UAE has a continually impact on RSA. Increase in fuel price negatively affect RSA profit and increase air freight operation cost. Deliver international cargo via ship could reduce the operating cost with the sacrifice of responsiveness and flexibility in it logistics outcome. In contrast, low fuel price increases RSA logistics responsiveness by facilitating unexpected customer demand. Fuel-efficient vehicles and excellent time management can reduce the fuel consumption and cost in a sustainable way.
Moreover, the companies are encouraged to improving environmental performance due to consumer pressures and environmental regulations. The reasons RSA implement environmental sustainability because of requiring by customers, pressure from competitors and rules and regulation in the UAE. A green logistics implementation by RSA, rooftop solar project, has strengthened RSA’s reputation, market share, reduce overall cost in long-term, and increase valueadded save energy.
Last, warehousing is one of the most critical section for RSA’s supply chain. Thus it requires a sophisticated method in planning and controlling its customers’ inventories. Traditional inventory planning is insufficient to deal with volatile demand. Therefore, RSA is implementing a virtual warehouse system, which is able to streamline inventory planning and control for the unexpected change in demand. However, RSA will face challenges in faulty reporting and data accuracy in this system, which may lead to an inefficiency in the supply chain network.
In 2020, the UAE’s economic integration and 3PLs will be likely to work on a more significant scale with the winning of Expo 2020 in Dubai. The UAE distribution and logistics will be a free market with increasingly complex supply chains, cost and processes differences.
Moreover, the 3PL industry will be shaped by technology and expertise in dynamic ways in 2020. The company who are flexible and adopt these changes to provide best practices and service will a be the industry leader.
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