THE DEVELOPMENT STAGE OF THE LOGISTICS ORGANIZATION IN LARGE BRAZILIAN COMPANIES

The objective of this work is to analyze the logistics structure of large Brazilian companies, leaders in their sectors. For this purpose, ten case studies were carried out, based on data collection and analysis and a model developed by Bowersox (1992).

According to that model, the level of development of a company's logistics structure can be analyzed from three basic dimensions: formalization of the logistics function; performance monitoring; and technology adoption. Companies that have these three well-developed dimensions tend to have a more flexible logistics system.

In order to carry out this study, some modifications were made to the Bowersox model, the main one being the incorporation of the logistic complexity dimension in the analysis model.

In general, the results indicate that the logistics structure in large Brazilian companies is evolving towards more formalization and greater use of performance indicators, which, however, still lack quality and adequacy to the needs of logistics managers. As for information technologies, there are still huge shortages, although there are plans for rapid adoption.

Thematic Area: Industrial and Services Production

1. INTRODUCTION 

Traditionally seen as a simple set of activities, without any managerial glamor, and therefore relegated to operational levels as a necessary evil, logistics is beginning to conquer a new space in the strategic agenda of companies. The traditional view has a strong technical bias. In it, logistics is understood as a set of technical disciplines, which deals with the flow of materials, from raw materials to the finished product, within a perspective of economic rationality. In this approach, storage and transport activities are treated as means to achieve efficiency in the use of resources, without further consideration of their impacts on the competitive capacity of companies.

The growing intensity of the competitive environment in recent decades, combined with technological changes in information technology and telecommunications, has favored the development of logistics in conceptual and technological terms. Market pressure for a greater variety of products and better service levels, without jeopardizing productivity, has encouraged the adoption of business strategies based on logistical solutions capable of reversing the threats generated by the inevitable increase in operational complexity.

In this sense, the adoption of sophisticated approaches to managing the logistics process within companies has represented a key point for the implementation and support of promising marketing strategies. In this context, logistics evolved in its conceptual basis, starting to consider in a systemic way all the activities that are directly and indirectly related to the physical and information flows of the supply chain.

In a country of the continental dimensions of Brazil, as well as in the United States, the role of logistics grows enormously in importance. According to estimates made by the Council of Logistics Management, annual expenses in logistics activities represent around 15% to 20% of the North American GDP, that is, something around US$ 700 billion. Considering this same proportion for Brazil, we would be talking about a set of activities that move around US$ 80 billion annually.

Recent articles published in the magazines Fortune and Exame give examples of companies that admit huge losses generated in their logistics systems. In the case of Compaq, the world's leading manufacturer of microcomputers, it is estimated that it lost approximately US$ 1 billion in 1994 because its products were not available when and where customers were willing to buy them. In the same year, Nestlé's Brazilian subsidiary accounted for losses of around US$ 1,3 million due to damage to its products on the roads. Refripar estimates that every month 10% of the glass patterns for its horizontal freezers break on the way between Cumbica airport, in São Paulo, and Curitiba.

As in relation to losses, there are many news about investments in resources, which foreshadow a reversal in the current scenario. However, little is investigated about how the management of logistical resources should evolve to ensure the proposed advances. In Brazil, there are few publications that deal with the development of business logistics. Even more worrying, there is a complete lack of information on how Brazilian companies organize their logistics processes. This observation served as an incentive for the elaboration of research developed by COPPEAD, which had as its main objective to obtain information about the logistics management practices adopted by leading companies in various sectors of the Brazilian economy.

The conceptual model developed by Bowersox (1992) and adapted for this work served as a reference for formulating the research questions. The blocks of questions are related to the dimensions of the basic conceptual model, namely: Formalization, Performance Monitoring, Technology Adoption and Flexibility. The script sought to enable the collection of information capable of answering 4 main questions, listed below:

1. What is the degree of organizational formalization of logistics activities in the companies surveyed?
2. How are the surveyed companies monitoring their logistics performance and what is the quality of the indicators used?
3. What information technologies are being used by the surveyed companies and what is the level of satisfaction with them?
4. What is the degree of flexibility of the logistics system of the surveyed companies?

It was also intended to establish some considerations about the strategic context that governs the organization practices of the logistic process. In this case, we tried to determine the relative importance of customer service within the marketing strategy of the surveyed companies.

2. THE MODEL USED

Bowersox (1992), based on research results published in his book “Leading Edge Logistics: Competitive Positioning for the 90's” developed a model that offers a conceptual framework to present the relationships between the organizational dimensions that explain the improvement of logistics performance. As it is based on field research, this model is supported by the experience of companies that demonstrate superior logistical performance compared to market practice.

Figure 1 presents the basic model adopted in the work, which lists the essential attributes for the integrated performance of the logistics system, which consequently leverages the company's ability to satisfy the customer.

According to the model, the simultaneous development of the attributes Formalization, Performance Monitoring and Technology Adoption generates the Flexibility of the logistic system, flexibility that allows a competitive differentiation, considering the economic aspects. Formalization presupposes an integrated organization of logistical functions and established operating standards. However, in its dynamics, the company needs effective monitoring of its performance to measure and determine course changes. In turn, given the large amount of associated data, an adequate system of indicators is only viable with advanced technology for the collection, manipulation and transmission of management information to support the decision. This cycle closes once a logistical plan, a basic item of the formalization attribute, demands information in sufficient quantity and precision to achieve it. Flexibility is generated from the moment that this cause-and-effect cycle translates into high managerial capacity to deal with non-routine situations and market opportunities.

The formalization of the structure in an integrated manner makes it possible to fully orchestrate the routine process, freeing top management to dedicate itself to strategic issues and to mobilize logistical efforts in extemporaneous situations with great precision. Senior management's fundamental responsibility is to create an organizational environment within which the operating executive is best able to achieve corporate objectives. In this sense, the organizational structure plays a vital role in the art of management. Traditionally, responsibility for managing logistical processes has been fragmented, creating vulnerabilities to duplication of effort, waste of resources, conflicts of authority and incompatibility of objectives.

The adoption of appropriate technology, by making it possible to provide accurate and timely information, allows for a more realistic assessment of the situation, which consequently minimizes the response time and increases the company's possibility of success. The decision-making process becomes more agile; shorter operating cycles; and the less traumatic adaptations in the system.

Permanent monitoring of the performance of logistical processes makes them more stable. The systematic analysis of indicators, such as costs, customer service and product quality, results in greater knowledge of the process as a whole, which in turn enables greater flexibility in operations. Benchmarking, a very popular monitoring method, assumes that there is no reason to reinvent the wheel; Observing how other organizations carry out similar activities or deal with adverse situations can save time and resources.

The company that has flexibility in its operations can benefit in special situations, either by the greater ability to satisfy the customer, or by the ability to perform them at a lower cost. The central idea is to remain creative, taking advantage of market changes. A company with flexible operations is able to customize its services and capitalize its efforts on the most profitable opportunities. In some cases, logistical flexibility can be used to take advantage of fluctuations in demand, in others to respond positively to the unique demands of key customers. Regardless of the reasons, superior performance is related to the company's ability to quickly identify and respond to market opportunities.

3. THE FIELD RESEARCH AND THE MAIN CHARACTERISTICS OF THE SAMPLE

In order to analyze the stage of development of logistics management in large Brazilian companies, it was decided to carry out 10 case studies in companies belonging to different industrial sectors. These companies were personally interviewed between October 1993 and August 1994 based on a questionnaire that mixed open and closed questions, including quantitative and qualitative information, the latter generally collected using Likert-type scales. Table 1 below presents some general characteristics of the surveyed companies and their logistics systems.

In the first place, it is important to draw attention to the fact that the sample is made up of large companies, which have a strong market share and whose median revenue is US$ 600 million per year. The smallest of them earns US$ 100 million and the largest US$ 4 billion. Most of the companies surveyed, that is, 60%, are multinational companies of different nationalities, namely: Swiss, North American, Argentinean, German, Dutch and Anglo-Dutch.

On a scale of 1 to 5, where 1 represents a performance in a few segments, 80% of the companies claim to cover a wide spectrum of market segments (4 or 5), with 6 companies reporting that they serve the entire market (5). The other two companies, B and C, focus on a limited number of markets (2). On the other hand, the companies surveyed are present in practically the entire national territory. Considering a scale of 1 to 5, 70% of the companies indicated that they had operations throughout the country (5), while the other three reported having a wide geographical presence in the market (4).

The companies' market share varies greatly, between 1% and 70%, with a median of 25% giving the companies under study a prominent position in their respective sectors.

Although there are great differences in operational complexity between companies, in general they have complex logistical systems. Large number of customers, suppliers, stock items (SKU's), or warehouses, determine the logistical complexity of these companies. It is also verified that companies use the most varied logistic structures, that is, everything that concerns the level of vertical integration, the number and level of control over warehouses, and transport practices.

4. MAIN RESULTS

The characteristics of the companies and their logistical systems serve as benchmarks for a better interpretation of the main findings related to the previously mentioned research questions. It is worth mentioning that, as a whole, companies perceive the growing importance of customer service in their competitive strategies, an importance that should grow by 15% over the next two years. Of the 10 companies studied, 50% perceive that customer service will gain ground in relation to other marketing variables, namely: product, price and promotion and advertising. Three other companies, that is, 30% of the total, do not expect changes in the relationship between these marketing variables. Finally, the 2 companies in the fuel distribution sector, that is, 20% of the total, perceive a reduction in customer service priority compared to the other variables.

4.1 Formalization

The degree of formalization of logistical activities was analyzed through three basic dimensions: the level of centralization of managerial control over logistical components; the hierarchical level of the main logistics executive; and the existence of formalized logistics planning and mission.

The five basic logistics components, ie warehousing, inventory, order processing and purchasing, as well as customer service, exhibit varying degrees of centralization and control (see Table 2). In all ten companies analyzed, storage and transport activities are totally or partially under the control of logistics management. The stock component presents an interesting situation, in the sense that its control is generally shared between logistics management and some other management. This is true in 50% of companies. In 20% of the companies the logistical control is total, and in 30% it is none.

Processing of orders and purchases have the same pattern of centralization; they are never shared between logistical management and other management. That is, there is no partial control exercised by logistics. In 50% of the companies, the logistics management completely controls them and in 50% there is no control. Customer service, in turn, is the component over which there is the lowest level of control by the logistics organization. In 70% of cases, this control is exercised by other functional areas.

The main executive in the logistics area tends to occupy a high position in the companies examined. In 60% of cases, he reports directly to the main executive of the company, that is, he is on an equal footing with executives from other functional areas, such as commercial and financial. In 30% of the cases, the logistics manager occupies the 2nd step (2 levels below the main executive) and in only one case the 3rd step (3 levels below the main executive). However, this high importance given to the logistics executive does not seem to be reflected in formalized logistics planning processes. In 80% of the companies there is no definition of the logistics mission, and in 70% there is no formalized logistics planning.

These data indicate that the process of formalizing the logistics function in Brazilian companies still has a good way to go. Apparently, the aspect that advanced the most was the hierarchical level of the main executive. However, its control over the various logistical components is still limited, as it is concentrated in the areas of storage and transport. Even more important is to verify the almost non-existence of planning and formalization of the logistics mission in the analyzed companies.

4.2 Performance Monitoring

The second characteristic of the logistics system concerns how companies monitor their logistics performance (see Table 3). When faced with a list of 49 indicators (representing 6 performance dimensions) and asked which of those were used, the companies revealed a high degree of use of them. On average, the ten companies claim to use around 85% of the listed indicators. Two companies use 100% of the indicators and only one uses less than 69%. From the point of view of the 6 dimensions, the most used is benchmarking indicators with 88% and the least used is customer service with 82%.

This high level of utilization seems to indicate a strong concern with improving performance. This hypothesis is reinforced by data that indicate the importance attributed by companies to the set of indicators. Considering the average of the 49 indicators, on a scale of 0 to 5, the group of companies assigns 4 points, or 80%, to their importance. The most important indicators are related to the benchmarking dimension, with 4,4 points, and the least important ones to the productivity dimension, with 3,6 points.

This concern with the indicators seems, however, not to be matched by their quality, according to the interviewees themselves. Asked to give their opinion on the desired quality and the perceived quality based on a Likert scale ranging from 0 to 5, the interviewees pointed out a substantial quality gap. Considering the average of the 49 indicators, for the 10 companies interviewed, there is a gap of 35,4% between the desired quality and the perceived quality. Even more interesting is to verify that the indicators with the greatest quality gaps are exactly those considered the most important, that is, benchmarking, costs and customer service.
4.3 Use of Information Technology

The third characteristic of the logistics systems analyzed in this study concerns the use of information technology by companies (see Tables 4 and 5). Therefore, 5 different aspects were examined. The first two are related to the use of software/information systems, considering both their importance and the level of quality perceived by users. The third is related to the use of hardware technology, the fourth addresses the satisfaction of the logistics user with the IT area of ​​the researched companies, and the last one deals with the use of EDI.

Twenty-four different logistics software application areas were considered in this analysis. On a Likert scale of 0 to 5, where 0 means no importance and 5 high importance, the group of companies attributed an average of 3,8 points, that is, 76%, to the overall importance of having software for the 24 areas considered. This means that companies believe in the importance of information systems for logistics

Considering the 12 information systems identified as the most important, 4, that is, 33% of the total are related to commercial management, 3 to materials/supply management, 2 to transport management, 2 to performance analysis and 1 to management of storage (see Table 4). In a way, this proportion indicates the most priority areas for the management of the logistics system of the surveyed companies. That is, the commercial and materials and supply areas are those that receive the greatest attention from logistics executives in terms of information and planning.

However, according to the interviewees, the quality of the existing information systems in the 10 companies surveyed is below the level desired by logistics professionals. The quality level of the 24 information systems, measured by the gap in relation to the desired level, shows large discrepancies between companies, and an average value of 35,4%, as shown in Table 5.

When we examine the quality of the software/information systems implemented in the companies under study, it is clear that there is much room for improvement. It is interesting to note that 5 out of 12 priority software have above-average quality gaps. Even more revealing is the observation that all systems aimed at the commercial area and within the most important set are not among the worst quality (ie, with gaps above average). On the other hand, all those systems related to performance analysis, in the list of the most important ones, are cited among the most needy for improvement. When examining the 3 materials/supply management application systems listed among the 12 most important, it is observed that 2 are also among the lowest quality. In short, there is clear evidence that systems with a direct interface with customers are the most privileged in terms of quality.

The temporal analysis on the level of adoption of hardware information technology revealed two very different, but promising situations (see Chart 6). The types of hardware listed were divided into two groups: 8 computational and 7 operational. In the case of computational hardware, the 26 technologies currently implemented in companies will be increased by 12 over the next two years, reaching a total of 38. This represents a growth of 46%. On the other hand, companies intend to increase the number of existing operational hardware from 2 to 28. This represents an explosive growth of 1.300% in two years. The most targeted operational hardware is bar code and optical scanning, while in the case of computational hardware, companies are migrating from computers to manual data collectors.

Another aspect in the analysis of technology adoption concerns the level of satisfaction of the logistics user with the IT area of ​​the companies (Chart 7). Respondents were asked to respond, on a scale of 1 to 5, about their level of satisfaction with the development of information systems and the quality of information available. In general, companies revealed a median level of satisfaction with the IT area, with 3 points, that is, 60% of the maximum level of satisfaction.

Finally, the level of adoption of EDI (intercompany electronic data exchange) was examined as part of the analysis on the level of use of information technology (Exhibit 8). Overall, surveyed companies intend to increase their use of EDI by 123%, from 13 to 29 applications. It was also important to note a trend change in the adoption of EDI among companies for the next two years: from the financial sector to those activities related to logistics.

4.4 Flexibility of the Logistics System

The last characteristic of the logistics system concerns the response capacity of companies in non-routine situations (Chart 9). It is worth remembering that Bowersox's model (1992) relates the level of flexibility of the logistics system to the level of sophistication of the other dimensions, namely: formalization, performance monitoring and technology adoption. The companies were evaluated, on a scale of 1 to 5, according to the answers obtained on the desired and actual level of flexibility, for each of the 11 situations listed. On average, companies perceive it as desirable to have a high level of response for the set of situations listed with 4,0 points, which represents 80% of the maximum value of the scale.

It is important to verify that 3 of the 4 situations in which flexibility is most desired refer to contingent issues in the operation of the logistics system, namely: computer failure, supply problems and product returns. The failure of the computer to appear as the most relevant item may indicate that there is a certain lack of reliability with the IT area of ​​companies on the part of logistics professionals.

It can also be seen that situations associated with the capacity of the logistics system to meet the specific needs of market segments do not appear in the top positions. This apparently indicates that the design of logistics systems is still not given priority to accommodate specific requirements of market segments. That is, in general, the projects of logistics systems are not given priority to be customer-oriented.

Despite the high average importance attributed to the flexibility of the logistics system, this fact does not seem to be reflected in the current levels of flexibility of companies. The average quality gap between the actual and the desired level, obtained for the 11 situations, is 22,48%. This implies that there is pressure to increase the level of flexibility of the surveyed companies' logistics systems.

5. CONCLUSION

As in the USA and in most developed countries, in Brazil the importance given to the logistics activity seems to be growing rapidly. The results of research carried out in 10 large Brazilian companies, based on the Bowersox model, and presented here in a summarized form, reinforce this assumption.

Four basic dimensions of logistics systems were analyzed: organizational formalization, performance monitoring, use of information technologies, and operational flexibility. The analysis of each of them indicates that Brazilian companies are becoming aware of the importance of these dimensions for good logistical performance and that they are already working towards improving their management. There are, however, large spaces for improvement and refinement.

Formalization, measured by the degree of centralization and control, by the hierarchical level of the main logistics executive, and by the existence of mission definition and long-term planning, seems to be evolving moderately. The main advance seems to be taking place in relation to the hierarchical level. In 6 of the 10 companies studied, the main logistics executive is at the top level, that is, he reports directly to the company's main executive. In 3 of the companies, he is in the second echelon, and in only 1 company he occupies a third echelon position.

As for the degree of centralization and control, there is still a long way to go, although there are companies where progress has already been substantial. In the group of 10 companies, what can be seen is that, of the 6 logistical components considered, transport and storage are the only ones that are always under the control of the logistical management, while customer service is the component where it is less common to control. In only 2 companies this control is total, and in 7 there is no control by the logistics management. But the least developed aspects of formalization are those related to the definition of the mission and the existence of long-term planning. In 80% of the analyzed companies there is no definition of the logistics mission, and in 70% there is no long-term logistics planning.

Performance monitoring is an aspect of logistics management whose importance has already been clearly perceived by the vast majority of companies. On average, the 10 companies analyzed claim to be using 85% of the 49 listed indicators, with 2 companies claiming to use 100% of them. There is, however, an important negative aspect with regard to the use of these indicators. Quality, measured by the difference between desired and perceived levels, still leaves much to be desired; the average gap is 35%. This quality gap seems to reflect some well-known problems: logistics managers are not very familiar with the use of management reports, while at the same time they have difficulties obtaining properly formatted information from the companies' IT area. It is interesting to observe that the indicators considered most important by the interviewees were those related to benchmarking, that is, those that seek to compare operational performance with other companies. On the other hand, these same indicators were also the ones that showed the greatest quality gaps (around 40%). As a whole, the productivity indicators, although considered the least important, reached an importance index of 82%.

Information technologies have been divided into software, hardware and EDI for analysis purposes. The application areas considered most important in terms of software were undoubtedly commercial and materials. Transport, storage and performance analysis were considered less important. Despite this, in global terms, it can be said that companies consider the use of software important. On a scale ranging from 0 to 100, the average importance attributed to the use of software to help with logistical management was 76. Likewise, as in the case of performance indicators, there is also a clear problem of dissatisfaction among respondents with the quality of software currently available in their companies. The average gap between desired and perceived quality was also 35%.

Hardware technologies were sub-divided into operational and computational. The results indicate a large discrepancy between these two classes of hardware with regard to the degree of adoption by companies. While computational hardware is already widely used by companies, operational hardware has not yet spread sufficiently. While all 10 companies analyzed use some type of computational hardware (mainframe, mini, micro computers, etc.), only 2 use some type of operational hardware. A single company claims to use automatic material handling equipment while another claims to use forklifts with a computer on board. There are, however, ambitious investment plans in operational hardware, which should result in a 1300% increase in its use. Big changes are therefore foreseen in this area.

As for the third and last item of information technology, EDI, already existing in a reasonable number of companies that use it, but this use is quite concentrated in applications in the financial area. Of the 13 existing applications, 6 interconnect companies with financial institutions. The 7 other existing applications are interconnecting companies with carriers, customers, suppliers, and warehouses. According to the interviewees, this picture should change substantially over the next two years, when 16 new applications will be implemented, with a view to increasing interconnections with customers (6 applications), suppliers (5), carriers (4), and financial institutions (1). .

The fourth and final dimension analyzed was operational flexibility. We sought to identify the desired level of flexibility, and compare it with the existing level, according to the perception of the interviewees. Despite the high importance attributed to the flexibility of the logistics system, this fact does not seem to be reflecting in the current levels of flexibility of the companies. The flexibility gap, equivalent to 22% of what is desired, is substantial.

With regard to flexibility, an issue of major importance, and which was not adequately discussed in this document, has to do with the possible relationship between flexibility, logistical complexity, and “sophistication” of the logistical organization. By logistical sophistication, it is understood the degree of structuring, measured by the level of formalization, by the performance monitoring system and by the intensity of use of information technology. The greater the formalization of the logistics function, the more complex the performance monitoring system, and the more intensive the use of information technologies, the greater the “sophistication” of the logistics organization.

Different companies have different levels of logistical complexity. The number of SKU's, suppliers, factories, warehouses involved, customers served, in addition to the geographical extent covered, are factors that contribute to this complexity. It is to be expected that the greater the complexity, the greater the need for flexibility. On the other hand, according to the Bowersox model discussed earlier, the greater the logistical sophistication, the greater the operational flexibility. Therefore, companies operating more complex logistics systems should need more sophisticated logistics systems in order to obtain greater operational flexibility.

In his master's thesis, Lavalle da Silva carried out an exploratory analysis of these relationships, based on the 10 companies that made up his sample. The results found seem to confirm the existence of some of those relationships. Companies with greater logistical complexity tend to want greater flexibility, and in fact work more flexibly. On the other hand, companies with greater logistical sophistication tend to have greater logistical flexibility. However, the analysis seems to negate the assumption that companies with greater logistical complexity necessarily have greater logistical sophistication. This would indicate the existence of sophistication gaps in the logistics organization.

Although it is still very exploratory, this analytical instrument indicates interesting paths that deserve to be pursued through more in-depth studies. A better development of the analysis instrument can be very useful for diagnosing the logistic structure of productive organizations.

BIBLIOGRAPHY

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BOWERSOX, DJ, DAUGHERTY, PJ, DRÖGE, CL, ROGERS, DS, WARDLOW, DL Logistical Excellence: it's not business as usual, Burlinton, MA, Digital Equipment Press, 1992.

BOWERSOX, DJ, DAUGHERTY, PJ, DRÖGE, CL, ROGERS, DS, WARDLOW, DL Leading Edge Logistics – Competitive Position for the 1990's, Oak Brook, Il., Council of Logistical Management, 1989.

Lavalle da Silva, Cesar R. The stage of development of the logistics organization in Brazilian companies – case studies, Master's Thesis, COPPEAD/UFRJ, 1995.

LAMBERT, DM “Strategic Logistics Management”, ED. Homewood, RD Irwin, 1993.

Authors: Paulo Fleury and Cesar Lavalle