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Effective Supply Chain Management: Insights from the UAE

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 Effective Supply Chain Management
– Insights from the UAE
Mohammad Hussein Oweis, Project Engineer, Petrofac Engineering & Construction, Petrofac House, Sharjah, United
Arab Emirates, and Balan Sundarakani, Assistant Professor, Faculty of Business and Management, University of
Wollongong in Dubai, United Arab Emirates

Third-party logistics providers (3PLs) are under pressure to keep abreast of updates
to information technology applications to meet market requirements. Electronic data
interchange, interconnected networks and enterprise resource planning systems are
essential information technology tools that help service providers to compete in the 3PL
industry. This article includes a case study of Company XYZ, a major 3PL player in the
United Arab Emirates, which is trying to sustain its competitive advantage by offering total
transportation solutions to meet the increasing demands of customers.

Introduction (3PLs). Globalisation is the other

significant factor influencing the
The need to
Logistics management has
witnessed a rapid growth in implementation of 3PL services. reduce product
Market development strategies
complexity in recent years. The
life cycles,

Middle East
need to reduce product life cy- that are adopted by major com-
cles, inconsistency of customer panies to expand their markets inconsistency
behaviour and the instability beyond local boundaries have
of the business environment required more sophisticated of customer
as a whole all create problems
for manufacturers trying to
functions in the transporta-
tion and inventory management
behaviour and
push their products down to sectors. Using multi-modal the instability of
customers in the supply chain. transportation systems, 3PLs
As such, flexibility and speed have developed the competences the business
to market are key factors to required to effectively distribute environment as
succeed. To achieve the desired products across the globe.
flexibility, information has to a whole all create
flow smoothly throughout the A new generation of e-logistics
supply chain. To ensure the de- companies has emerged due to
problems for
sired sustainability of the sup- the rapid growth of the internet. manufacturers
ply chain is achieved, constant These web-based logistics play-
analysis and improvement are ers aim to bring together distrib- trying to push their
required. uters, 3PLs and other parties to
enhance collaboration. They are
products down to
Increased focus on core compe- considered as complementary customers in the
tences and increasing complex- service providers and together
ity of the logistic function have with conventional 3PLs they supply chain.
led to activities such as invento- integrate effectively to meet
ry management and transporta- end-customer needs. They can
tion handling to be outsourced be used by 3PLs to help provide
to third-party logistics providers many value-added services such

Maximising Business Opportunities in Asia, Africa and the Middle East – a Treasurer’s Guide
191
 Effective Supply Chain Management Effective Supply Chain Management
– Insights from the UAE – Insights from the UAE

In response as cross-border transportation

and international trade settle-
complex structure of transpor-
tation management are:
capacity planning could in-
clude loading carriers on their
and the percentage of over-
time hours.
In addition to
to customer ment. return journeys rather than warehousing and
• Carrier performance evalua- having them return empty. • Picking analysis: This type of
demands for Role of 3PLs in the tion: This can be as achieved analysis helps to establish the transportation,
integrated Supply Chain by focusing on delivery times,
compliance to vendors’ stand-
• Vehicle and driver perform-
ance analysis: 3PLs need to
optimum number of a prod-
uct to pick and which prod-
3PLs provide
The 3PL industry is broad and
solutions, 3PLs varied. On one hand, there are
ards and cost. Quality points monitor and measure the per- ucts can be grouped together other services that
are assigned to carriers to formance of their drivers and during the picking process.
are expanding the conventional freight-forwarding
help select the best one for a vehicles to identify problems This can be used to improve can add value,
companies that are involved in
range of services the transportation and ship-
project. and ensure maximum per-
formance.
warehousing efficiency and
the layout of the warehouse.
including packing
ment of goods and products
they provide. from one location to another
• Mode cost analysis: Sev- and labelling,
eral costs are associated with Warehouse Value-added Services
within a specific geographical
each mode of transportation. Management In addition to warehousing and
custom broking
area, using limited modes of
transport. On the other hand,
Analysis of these costs helps Warehousing management is transportation, 3PLs provide and reverse
identify the optimum mode for another primary 3PL service other services that can add
3PLs can execute complex end-
to-end supply chain activities
a particular project. and facilities can be owned by value, including packing and logistics.
across multiple countries using 3PLs or outsourced. Many 3PLs labelling, custom broking and
• Supplier compliance analy- offer in-warehouse manage- reverse logistics. Business intel-
different modes of transport.
sis: Delays in shipments of ment services such as meter- ligence tools can play a signifi-
products can occur if sup- ing, cross-docking, inventory cant role in modifying and en-
In response to customer de-
pliers fail to deliver in time.
Middle East

Middle East
analysis, performance analysis hancing these services to create
mands for integrated solutions,
Supplier compliance analysis and assigning costs. an integrated service model that
3PLs are expanding the range of
helps 3PLs to keep a record of help sustain a 3PL’s competitive
services they provide. In order
problems and select suppliers • Inventory analysis: Key per- advantage. Value-added services
to acquire and sustain a com-
accordingly. formance indicators (KPI) for include:
petitive advantage, all logistics
inventory can be measured
activities and processes within
• Carrier relationship manage- and analysed to track per- • Reverse logistics: This refers
this increasingly complex chain
ment: Carrier relationship formance. Such indicators to all the different operations
must be analysed and the best
competency programmes can include inventory turnover, that are concerned with the
way to achieve this is through
strengthen the capabilities of which is calculated by tak- reuse of goods and materials
access to information technol-
carrier companies as well as ing the cost of goods sold within the supply chain, in-
ogy (IT).
helping 3PLs in their selec- and dividing it by the average cluding remanufacturing and
tion. amount of inventory. Low in- refurbishing processes.
Transportation ventory turnover can indicate
Management • Cycle time analysis: The time deficiencies in production, • Cost-benefit analysis: Cost is
Transportation management is between the placement of an but it can be favourable when the main profit driver since
an essential service provided order and the acknowledg- prices are rising. the main aim of the sup-
by 3PLs. Using multiple modes ment of receipt of the ship- ply chain is to minimise the
of transportation, 3PLs can ment can be analysed using • Warehouse performance anal- total cost associated with the
provide a wide range of services a combination of factors such ysis: Warehouse performance various activities being imple-
including inbound and out- as modes of transport, routes, data needs to be compared mented.
bound traffic control and route goods and weather conditions. to establish how effective the
optimisation. operators and managers of • Assembly analysis: 3PLs of-
• Capacity planning: Capacity the warehouses are. KPI can fer a wide range of assembly
Some of the business intel- issues need to be identified be used to compare lines per services to their clients, which
ligence approaches that com- and preventive or corrective hour, percentage of on-time need to be well managed and
panies can use to control the actions applied. Responsive shipments, picking accuracy continuously improved.

192 Standard Chartered Insights 2011 Maximising Business Opportunities in Asia, Africa and the Middle East – a Treasurer’s Guide
193
 Effective Supply Chain Management Effective Supply Chain Management
– Insights from the UAE – Insights from the UAE

Many studies Information Technology the logistics and distribution

of finished goods or products
tegrated services, and operates
primarily in the Middle East and
shipments at any point in time,
ensuring on-time delivery of
Porter’s five forces
Services
have shown that Access to accurate and timely to the client. South Asia. Company XYZ has products and service offerings. framework, a
recently expanded its operation The company is using a focused
customers show information has a major impact
on supply chain performance. 3PL Key Challenges and in the United Kingdom, Ireland differentiation strategy to com- method of industry
a high degree of Information about transporta- Risks and the Netherlands., The com-
pany now has more than 240
pete in the Middle East region, analysis and
tion, inventory and facilities While the 3PL industry has suc- which provides a high level of
initial satisfaction must be shared effectively ceeded in improving its integrat-
facilities in 35 countries and perceived product/service ben- business strategy
had 6,000 employees in 2009. efits (see Figure 1). This strategy
when their basic throughout the different stages
of the supply chain. IT, such
ed range of services, gaps still
Company XYZ offers a wide has proven to be beneficial dur-
development,
need to be filled in the following
needs are met, as electronic data interchange areas:
range of modified services and
products and is considered to
ing the past decade and can be defines five forces
(EDI), interconnected networks modified and continued for the
but as those and enterprise resource plan- Ability to Develop Advanced
be a total transportation solu- coming three years. that determine
tions provider.
needs evolve ning (ERP) systems, enhances Services the competitive
communication and facilitates While 3PLs have managed to Porter’s Five Forces
and become coordination. satisfy customer demand for ba-
With a strong presence in the
UAE, Jebel Ali is one of the Framework intensity and
more complex, Due to the need for synchro-
sic services such as warehous-
ing and transportation manage-
essential centres of Company Porter’s five forces framework, a
method of industry analysis and
therefore
XYZ’s network. The centre in
customers nisation and collaboration
through the internet, 3PLs have
ment, ongoing improvement of
Jebel Ali offers many custom- business strategy development, attractiveness of a
skills and capabilities is still defines five forces that deter-
indicate that 3PLs developed integrated IT-based imperative. Many studies have
ised services such as warehous-
ing, inventory management, mine the competitive intensity
market: the threat
services to satisfy customer
do not keep pace. shown that customers show a
supply chain management, cus- and therefore attractiveness of a of substitution,
Middle East

Middle East
requirements. These services high degree of initial satisfaction toms brokerage, order fulfilment market: the threat of substitu-
include shipment tracking,
automatic invoicing, forecasting,
when their basic needs are met, and many other value-added tion, the threat of new entrants, the threat of new
but as those needs evolve and
online ordering and automated become more complex, custom-
services. Warehousing manage-
ment is a very sophisticated
the bargaining power of buyers,
the bargaining power of sup-
entrants, the
warehousing. The core services
that can be regarded as suc-
ers indicate that 3PLs do not
keep pace. In order to sustain
service provided by Company pliers and competitive rivalry. bargaining power
XYZ, utilising world-class stand- The framework was applied to
cessful value-added IT services
are:
customer satisfaction, 3PLs ards tracked and monitored on Company XYZ, as a major 3PL of buyers, the
must develop their capabilities
and core competences as cus-
a daily basis. Company XYZ
uses its website to keep track of
player in the UAE and Middle
East.
bargaining power
• Customised reports and anal-
yses: Data can be captured by
tomer needs evolve. of suppliers and
Figure 1: The Strategy Clock
3PLs and presented to clients
to keep them up to date with
A key factor to satisfying evolv- competitive rivalry.
ing customer needs is to have High Differentation

Perceived product/service benefits

the location, time and status 4
more day-to-day exposure to Focused
of shipments. Hybrid 3
and interaction with custom- 5 differentation
ers, to address integrity issues.
• Forecasting: This must be
While this approach requires
handled with care as mistakes
in-house training, it can lead Low price 2 6
can lead to serious problems
to profitable long-term relation-
with inventory levels, which
ships with customers. Strategies
can increase the costs of hold- destined
ing and handling stock. This 1 7 for ultimate
‘No frills’
issue can be addressed by Case Study: Company failure
8
building a sophisticated model XYZ, a UAE-Based 3PL Low
based on inventory movement Company XYZ provides freight Low High
data to optimise inventory forwarding, logistics, express Source: Adapted from Exploring Corporate Strategy: Text and Cases, 8th
levels, and therefore optimise package delivery and other in- edition, G Johnson, K Scholes and R Whittington, Prentice Hall, 2008

194 Standard Chartered Insights 2011 Maximising Business Opportunities in Asia, Africa and the Middle East – a Treasurer’s Guide
195
 Effective Supply Chain Management Effective Supply Chain Management
– Insights from the UAE – Insights from the UAE

Suppliers are • The threat of substitution is

low: The substitution force
with larger, better-estab-
lished companies.
attractive since three forces out
of five are low. Distribution net-
3PL players, allowing them to
respond to the requirement for
Though 3PLs
hampered by does not have power or influ- work design and the geographi- timely delivery by customers. offer a wide range
ence in this market since 3PLs • Legislation and government cal spread of warehouses and
the volatility of are applying one-stop shop- action: Invariably govern- routing are the main competi- Using Porter’s five forces frame- of integrated
fuel prices, which ping tools and offering an in-
tegrated range of solutions to
ments are supportive of the
3PL industry, especially in
tive factors in this industry. A
low-price strategy should be
work, the 3PL industry in the
UAE has potential. However,
services that are
fluctuate during customers. Competitive rivals the UAE market with the applied with great care as low companies need to plan for clustered together,
within the 3PL industry can continued growth in build- prices can be associated with expansion, as the industry is
times of economic easily substitute airfreight for ing and initiating free zones low benefits from the customer’s facing a period of continued warehousing and
crisis and are ground-freight shipments or
even ocean-freight shipments.
all over the region. perspective. growth over time, and establish
methods to deal with increas-
transportation
dependent on • Bargaining power of buyers is Conclusion ingly sophisticated customer management are
Regardless of what they are high: It is cheap and easy for The 3PL industry is experienc- requirements.
political and shipping, 3PLs can use any customers to switch from one ing rapid growth. As customer
the two essential
governmental mode of transportation as
long as they apply just-in-time
3PL to another. demands increase, 3PLs must References
1.Exploring Corporate Strategy:
service offerings.
understand how to use IT tools
issues. (JIT) delivery and meet clients’ • Bargaining power of suppliers and apply them effectively to Text and Cases, 8th edition, G
demands. is low: Suppliers are ham- meet customer needs. Though Johnson, K Scholes and R Whit-
pered by the volatility of fuel 3PLs offer a wide range of inte- tington, Prentice Hall, 2008.
• The threat of new entrants is prices, which fluctuate during grated services that are clus- 2.“FedEx in the Global Market”,
low: Potential entrants do not times of economic crisis and tered together, warehousing and M Al Khamy and Y Golubov,
pose a threat to existing 3PLs are dependent on political transportation management are 2005, www.mcafee.cc/Classes/
Middle East

Middle East
due to the following: and governmental issues. the two essential service offer- BEM106/Papers/2005/FedEx.
This volatility often results in ings. pdf.
• Scale and experience: It is increased service prices. As 3.“Third Party Logistics: Results
hard for new companies to for the vehicle manufactur- Low-price strategies are the and Findings of the 10th An-
compete with existing com- ing companies, there are too main long-term concern of 3PLs nual Study”, CJ Langley, E van
panies and their strategic many players in this industry in this competitive industry. Dort and A Ang, 2005, www.
acquisitions and partner- so they will not have bar- Companies must have access us.capgemini.com/DownloadLi-
ships. gaining power over the 3PL to major distribution channels brary/requestfile.asp?ID=482.
companies, which are their es- and must build comprehensive 4.“Business Intelligence and
• Access to supply and distri- sential clients. infrastructure with facilities Logistics”, R Srinivasa and S
bution channels: Growth of that make use of IT. JIT is one Saurabh, 2008, www.idii.com/
the logistics industry is de- • Competitive rivalry is very of the main capabilities of major wp/bilogistics.pdf.
pendent on effective access high: Price is the primary
to distribution channels. It competitive factor between Figure 2: Porter’s Five Forces Framework – UAE 3PL Industry
is difficult for new entrants major 3PLs. The strongest
to compete with existing companies are those that have Threat of potential entrants
companies that have com- established powerful struc- LOW
plex structures and have tures and facilities networks
designed their distribution with warehouses all over the
Power of suppliers Competitive rivalry Power of buyers
networks based on the stra- region to provide total logistics LOW HIGH HIGH
tegic methods available. solutions.

• Expected retaliation: New General Analysis Threat of substitutes

market entrants tend to Using the results of Porter’s five LOW
focus on specialised services forces framework it is clear that Source: Exploring Corporate Strategy: Text and Cases, 8th edition, G
to avoid direct competition the UAE 3PL industry is very Johnson, K Scholes and R Whittington, Prentice Hall, 2008

196 Standard Chartered Insights 2011 Maximising Business Opportunities in Asia, Africa and the Middle East – a Treasurer’s Guide
197
 Effective Supply Chain Management
– Insights from the UAE

5.“Essentials of Supply Chain moisture monitoring systems. He

Management: Text and Cases”, is an active member of the Jorda-
2nd edition, M Hugos, John nian Engineering Association.
Wiley & Sons, Inc., 2005.

Balan Sundarakani
Balan Sundarakani is an assist-
ant professor at the University
of Wollongong in Dubai. Before
assuming his current role, Dr
Sundarakani was a programme
manager at The Logistics Insti-
tute – Asia Pacific, National Uni-
versity of Singapore in Singapore
and a Lecturer in the National In-
stitute of Technology, Trichirap-
palli and Hindustan University,
India. Dr Sundarakani has
published 53 research papers in
referred international journals,
national journals and confer-
ence proceedings. He holds a
Middle East

Bachelor’s degree in Mechanical

Engineering from Manonma-
niam Sundaranar University,
a Master’s degree in Industrial
Engineering from the National
Institute of Technology and a
PhD in Mechanical and Indus-
trial Engineering from the Indian
Institute of Technology, India.

Mohammad Oweis
Mohammad Oweis is a project
engineer for Petrofac Engineering
& Construction, a leading oil and
gas service provider. He earned
his Master of Engineering (with
distinction) from the University of
Wollongong in Dubai. His areas
of research and interest were
operations management, supply
chain management, engineering
project management and engi-
neering logistics. He has a BSc
in Electrical Engineering from the
University of Jordan where his
research focused on standalone

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