Studia Mundi - Economica
Vol. 2. No. 1.(2015)
77 10.18531/Studia.Mundi.2015.02.01.77-84
DEVELOPMENT OF COMPANIES OPERATING LOGISTICS SERVICE CENTRES
BY EMPLOYING THE RESULTS OF NETWORK RESEARCH
György Karmazin
(1)
, Gergely Ulechla
(2)
(1)
Ph.D., Assistant Professor, College of Szolnok, founder-owner, BI-KA Logisztika Kft
(2)
Ph.D.-student, Szent Istvan University, Faculty of Economics and Social Sciences,
Doctoral School of Management and Business Administration, Regional Leader (Eastern-
Europe& Emerging Markets), Arrow Electronics Inc.,
E-mail: karmazin.gyorgy@bi-ka.hu, gergely.ulechla@gmail.com
Abstract
Logistics centres of huge capacity and having the ability to create added value have emerged in
recent decades. These centres have become network nodes between the co-operating
organizations which accomplish the management of supply chains (networks) by connecting
different modalities and networks with their infrastructure and informatics. The effective
operation of logistics centres presented in business networks are usually managed by logistics
supplier businesses (3PL/4PL). Defining the supply net as a complex network, logistics centres
may be called hubs, the routes and relationships connecting the centres or – by borrowing the
term used in network theory – may be called edges. Hub management provides core supply
chain execution and visibility. Taking into consideration earlier results of network research we
are searching for correlations between its proven principles and the growth possibilities of the
centres (hubs) operated by logistics service providers. In addition, the results concerning cell
networks provide further, new insights and increasing opportunities to consider the logistics
systems within the field of theoretical network science. The present paper has developed as a
result of the logistics supplier companies’ strategic responses to the challenges of a rapidly
changing environment, both on local and global level.
Keywords: business networks, corporate size, logistics service provider, hub, supply chain
strategy
JEL classification: L14
Introduction
Each era has particular periods which determine what can be and what is worth for research.
The concept of networks is a challenge which deserves undertaking now. As well as our
biological existence, our communication and also our professional and social life depend on
networks. Understanding them is not only necessary for scientists and laymen alike, but also
indispensable since in one way or another we need to navigate the 21st century. The
technologies of the future, our would-be communication and our whole biological existence
will depend on networks. Networks are already present in the 21st century and we completely
depend on them, are embedded in them in such a way that they have become an issue of such
importance that without networks we are not able to “wonder about” the world anymore
(Barabási, 2014a, based on interview).Man lives in symbiosis with nature surrounding him,
although we tend to continually abuse it (environmental pollution), for which we are getting
punished ever more often (natural disasters).Our personal experience shows that the longer we
stay in nature, the more observations we make about the life of animals for example, the more
principles we will discover that can be utilised for mankind as well.
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The same applies to our inland scientists doing research in network theory, who are able to draw
conclusions from the movement of pigeons and the relationship of individual specimens of the
bird species examined that can be employed in the development of human communities
(Vicsek, 2014), as well as solutions supporting the trends of future technological development
(e.g. experiments with drones within the frames of Alibaba, Amazon, Google and UPS
companies operating in the logistics market).It is interesting to note that Google’s drone testing
is not allowed by the administration on the territory of the USA, so they are obliged to conduct
them in (Világgazdaság, 2015). In nature the overwhelming majority of animal species live in
groups just like we humans live our days in different communities.
The conclusion has almost become a commonplace today that a coherent (working) community
is able to give stronger and better responses to the new challenges of a changing world than the
individual. In the interest of corporate competitiveness it is inevitable to deal with this issue
since “the employees also constitute vital foundations of a corporation” (Reszegi-Juhász, 2014,
pp 14).However, we Hungarians are not doing very well in our work with our faith in the
success of team work and our productivity. According to the results of a recent survey, only
50% of domestic employees show a higher performance when working in a team than working
individually. Furthermore, the variegation of the composition of domestic team workers
characteristically differs from the accepted norms in other cultures (Adó Online, 2014).
Business networks
The quasi structure of the global economy is made up by business networks (Gelei, 2008),
which have developed in response to the ever-changing economic environment and as a result
of their network building these companies have also gained considerable competitive edge. „A
network – and so business networks as well – is a structure in which several nodes are linked
to one another through several lines. In business networks these nodes are formed by the
individual business units like production companies, buyers, logistics or even financial service
providers. The linking lines can be interpreted as the connections between these nodes”. (Gelei,
2008, p 4)The roots of business networks can be traced back to Japan where the keiretsu operate
with the support of a major bank and clustered around a large company possessing massive
supplier contacts (Fukuyama, 2007). In view of the international models and knowing the
distribution of domestic companies by their size (Central Statistics Office, 2014), we can only
hope that the Hungarian small and medium-size enterprises will be successful as part of
globalising business networks. (Gelei, 2008) „According to the figures of the CSOon corporate
added value published for 2013, in Hungary, similarly to international experience, productivity
was much higher with companies in foreign ownership. In 2011, companies in Hungarian
ownership produced 4,461 thousand forints added value, while the figure for companies in
foreign ownership was 11,334 thousand forints. The latter figure is two and a half times bigger”
(Reszegi-Juhász, 2014.p 14).This is one of the reasons why it is so important for domestically
owned SMEs to find those success factors (e.g. logistics solutions based on the results of
network research or strategic decisions resulting from the integration of business networks),
which could significantly narrow the currently existing gap.
Logistics processes in the supply chain
In recent years or rather decades, due to the impact of increasing globalisation, competitiveness
and customer needs, there has been a significant development in the logistics methods and
solutions that are based on a systematic approach of material flow.
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This trend has been detectable at the production and consumption sites, the direct transport links
between companies and later in the complex supply chains and networks. It also results from
the fact that product life cycles have rapidly shortened in the industrialised countries in the last
two decades. Because of the shorter life cycles the time spent on purchasing, production and
sales has become more dominant, the part-processes have shortened and stock levels have been
reduced. Logistics is an inter-sector activity, encompassing the whole supply chain from the
producers and manufacturers to the end users.
Therefore, logistics must not be examined only in a narrower sense, in the context of goods
transport and warehousing, where at the micro-economic level it basically determines business
success, but in a wider environment where it plays a complex macro-economic role and assists
a competitive industrial background. Generally speaking, the trends and objectives of logistics
point towards achieving high standards in forwarding services and low costs in the
transportation of goods. Transport on international or inland routes, to, from or through the
hubs, ensures and effective flow of goods all over the world. This leads to the necessity of
developing intelligent and smooth-passage linking corridors between industrial or logistics
clusters resulting in creating stable and safe infrastructure, real-time connection, the sharing of
information, reduction in the administration load, highly intelligent management and flexible
services. Logistics service providers do all this in order to cope with the growing demand of
end users and to provide for the consumers precise, reliable, fast, sustainable, but most
importantly, more favourable transport services. In order to achieve this, co-operation and joint
efforts are needed to make the most effective use of the knowledge and technology available
and ensure operative implementation. Apart from these, information and communication
technology also makes a significant impact on the development of the ever-growing complexity
of logistics, especially by improving the visibility and efficiency of the supply chain which is
well-illustrated by Figure 1.
Figure 1. Logistics models in customer service
Source: author’s own design, 2015
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Logistics and the networks
„Acquiring the competitive edge nowadays is gradually shifting from resource-type advantages
to process-type advantages when the integration level of processes ensures the advantage in the
market. The processes of logistics therefore need an integrated approach not only by
themselves, but must be harmonised with other processes and also made measurable”. (Gyenge-
Kozma, 2005) Naturally, this applies not only to relationships in production, but since the
appearance of the logistics approach, the whole economy must be treated as a network.(Chikán,
2002 in Egri, 2014) With the emergence of the large product stopping and added value
producing logistics centres, such network nodes came into being within the co-operating
organisations that by connecting different transport routes and sub-branch courses with the help
of infrastructure and informatics can achieve the management of supply chains (networks).The
flow of information within these systems is greatly supported by the Internet, and their
efficiency is significantly increased by the application of innovations and technological
development. The effective operation of logistics hubs appearing business networks is normally
ensured by logistics service providers (3PL/4PL) that in their strategic planning also favour the
network arrangement forms.(Duleba, 2009)By interpreting supply nets as a complex network,
logistics hubs can be considered as nodes and the connecting paths, borrowing the term used in
network theory, can be called edges. If we accept the claims of Barabási that „behind the
existence of complex networks there must be some laws” (Barabási, 2013, p 82.), we need to
find the correlations between the laws already proven by him and the growth potential of the
hubs operated by service providers integrated in logistics systems. Leaving behind the
description of static, randomly constructed networks, let us turn our attention to the examination
the results of the dynamically growing, scale-independent networks.
Growth of network points
Barabási’s first conclusion stipulates the principle of „linkage on the basis of popularity”
accepting the fact that we are more likely to choose the node which has twice as many links as
another one.Due to the continually increasing, dynamic, scale-independent networks and the
popularity linkage principle, “a few central points with multiple links come into being”.
(Barabási, 2013,p99) This can as well be called the second conclusion the consequence of which
is that „with the growth of the network the earlier points have more time for acquiring new
linksthan the ones coming later” (Barabási, 2013, p 99). We may consider it the advantage of
„joining in time”, which thanks to the effects of the two rules described above can significantly
contribute to the growth of a central point. Returning to the world of business, Reszegi & Juhász
point out that “in principle, if the market functions flawlessly, the differences between
individual companies within one sector tend to level off. This can be the result of several,
sometimes contradictory processes” (2014, p 16.). However, markets generally do not work in
an optimal way consequently „resources tend to flow towards the more productive ones, they
employ more means and labour than previously and so their weight increases”. (Reszegi-Juhász,
2014, p 16) In his research into the behaviour of stress proteins, Csermely has concluded that
„stress proteins stabilise the network of the cell of which they form a part” (2004, p 7).
During his research he discovered the formation of nodes, their importance and necessity, but
also found that with the removal of these modes the complex networks generally fall apart.
His main interest concerned the observation of the habits of stress proteins and he noticed that
„when I block the stress protein, the lack of stability causes a difficult situation, but it does not
mean death by itself”. (Csermely, 2004, p 7) During his observation he realised that the bonding
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in the cell network „is stabilised by the elements which are weakly linked to one another. It is
neither the element nor the number of interactions which are important here, but the strength of
their interactions” (Csermely, 2004, p 7).
But what will happen to the latecomers who because of their age or idea enter later into an
already functioning business network? By examining the process that separates the winners
from the losers, we can see that the competition manifested in complex systems gives a chance
to the better adapting companies (in our case points) to gain advantage over their competitors
(possibly the older points) due to their “fitness”.(Barabási, 2014b)We can call this the rule of
competence which basically “does not eliminate the mechanisms regulating growth and
popularity linkage”. (Barabási, 2013, p 109)Returning again to the business relationships, the
results of the research by Reszegi-Juhász show that „those lagging behind show little or no
affinity to accommodate positive impulses (affecting competitiveness, productivity, etc. –
author’s comments). Consequently, there is a chance that the weak will remain weak in the
future as well”. (2014, p 17) Returning to nature we can see that most living systems are capable
of staying alive even in very diverse environmental conditions (Barabási, 2013), whereas in the
systems operated by man it often happens that due to minor malfunctions the whole man-made
structure becomes unserviceable. Therefore, the study of robustness (error tolerance) may yield
important conclusions regarding operability since the operability of every system „is guaranteed
by a complex, closely related network”. (Barabási, 2013, p 125) Applying the above rules,
Barabási and his team are able to day to undertake to determine of a dynamic, scale-independent
network whether it follows „the rich will get richer” or “the winner takes all” scheme.
Let us see what parallels we can draw between the above rules and the strategy choices and
growth potentials of logistics service providers. „In the past, strategic decisions were typically
considered to apply for „long term” and „for several years” type of decisions. By now, however,
“long term” as a calendar term has lost its meaning in several branches of business. Business
and planning cycles are continually getting shorter so it does not seem practical to treat strategic
decisions as long-term ones, without the required flexibility. Instead, we should concentrate on
recognising the decisions that go beyond their own areas or the economic cycle in question or
even the given economic framework.” (Gyenge et al, 2013)
Parallels and recommendations
The unbroken growth in global goods turnover and the projections and undiminished popularity
of e-commerce – only in China an annual 20 percent growth has been forecast in this area until
2019 –(Forrester, 2015) continually ensures the dynamic development of logistics networks
interweaving the whole world, so the above conclusions can be applied to logistics systems as
well.
Table 1 summarises the results and general conclusions of network theory and the
recommendations concerning the logistics service providers operating logistics centres and
committed to growth and activities supporting business strategies.
The basis for these recommendations is provided by the results of an empirical, primary and
representative research conducted among inland logistics service providers (Karmazin, 2014),
and the author’s practical experience gained with his own logistics company as well as the
conclusions drawn from the results of national and international research and scientific
publications utilised in writing the present paper.