INFLUENCING OF SUSTAINABLE FACTORS ON LOGISTICS PERFORMANCE IN THAI PALM OIL INDUSTRY

by

Chayanun KerdpitakFaculty of Business, Ramkhamheang University

Email: chayananmail@yahoo.com

Kamon BudsabaFaculty of Science and Technology, Thammasat University

Email: kamon@mathstat.sci.tu.ac.th

and

Ungul LaptanedLogistics Engineering Department, School of Engineering

The University of the Thai Chamber of Commerce Email: epxull@yahoo.com

ABSTRACT

Although the principles of logistics management and the supply chain have been used in solving problems in organizations, this in itself does not ensure success unless actual problems have been correctly addressed using logistics principles. In this light, then, the researcher has investigated actual factors affecting logistics performance in the palm oil industry. Examining these factors will prove useful in solving existing logistics problems and putting logistics on a better footing in the palm oil industry. Accordingly, the researcher considers the importance of the factors of internal collaboration, external collaboration, information sharing, personal relationships, and information technology. The researcher divided the study into three steps. Firstly, reviewed were relevant theories and literature in connection with an examination of the general conditions and the problem situation of the palm oil industry. Then, in-depth interviews were conducted with twelve entrepreneurs and high-ranking administrators of these organizations in order to determine just what were the actual problems so as to be able to generate guidelines that can be applied to solutions. Secondly, in the next step, the information gathered in the first step was used in conducting group interviews with twelve administrators and entrepreneurs. The purpose of this step was to allow for the synthesizing of information concerning phenomena which significantly adversely influenced performance. This synthesis could thereupon be used to formulate guidelines for providing solutions to problems which arise in connection with performance. The information gathered was then used to construct an apposite questionnaire. Lastly, copies of the completed questionnaire were used to survey the opinions of 100 administrators and entrepreneurs of organizations belonging to four groups of palm oil industry factories and Path Analysis modeling was used to examine the causal hypotheses. Findings indicate that external collaboration and internal collaboration As such, this dual system of collaboration fosters harmonious organizational management and obviates working at cross purposes. This will lead to reduction of organizational costs and risks. Also, appropriate collaboration will lead to the solving of organizational problems. In addition, it was also found that information sharing ensures speedy and correct responses. Using information technology in organizational departments will allow better control of performance and to the capacity to make quick contact. Personal relationships cultivate Guanxi on the basis of local culture also play a very important role in performance. All of these areas must be taken into account when solving organizational problems. Consequently, in this research undertaking, using 4 indicators, the researcher addressed 26important areas in connection with organizational problems.

KEYWORDSLogistics Performance, Logistics Management, Palm Oil Industry, Guanxi

INTRODUCTION

The palm oil industry is a very high value industry. It is important to the national and world economies because it is a food and energy industry.[24] In Thailand, however, this industry is faced with many problems in the aspects of raw materials, the production process, and marketing. This diminishes competitive potential in comparison to competitor nations. In addition, all extant problems are rooted in logistics. In trying to solve problems, organizations unwittingly adversely affect other operational areas, which in turn lead to unsuccessful performance. Therefore, by applying principles and methods of logistics, the researcher hopes to provide solutions to problems in this industry by fostering successful logistics practices. [22,23]

The researcher has investigated factors influencing logistics performance in order to formulate guidelines to be applied to the successful solving of palm oil industry problems. The research questions for this investigation are as follows:

1. Which factors influence logistics performance for these organizations and what are their roles?2. Which factors can be used in solving organizational problems?

LITERATURE REVIEW

External and Internal Collaboration External collaboration in the supply chain involves supplier, industry, distributor, retailer and customer. A supply chain is operationally successful not only because of speed of execution and sufficient lead-time. Success also depends on responsiveness to customers and planning and controlling costs even at the lowest level. These factors will give an organizational competitive edge and are of course dependent on effective external collaboration. [14,15,1]

In any event, it is paramount to consider work-connected problems in the present connection. Improvement and correction of problems must be continuous and should involve the application of an array of methods of control and solution. Under such circumstances, external collaboration must be grounded in principles governing good collaboration.[7,21] Thus, it is crucial to examine the questions of (1) connections; (2) performance improvement; and (3) explicit sharing in benefits. [7,6]

Furthermore, enhancing collaboration between such important organizational units as the production and marketing units will conduce to greater efficiency in logistics performance. [7,16] Successful organizations foster principles of mutual understanding in collaborative work. Teamwork approaches are essential in solving problems involving both in-bound and out-bound logistics. In these cases, collaboration is necessary in securing quality raw materials, in collectively solving problems, in evaluating performance by reference to what was antecedently planned, improving performance methods, in aiding in the search for new performance methods leading to cost reductions, and fostering the exchange of performance knowledge to all employees on an equal basis.[4,20]

H1 : Internal and External collaboration has a positive effect on logistics performanceInformation Sharing The principle of information sharing is strategically important to organizations. Used

effectively, this principle will conduce to organizational success. [10,15] Of utmost importance, however, is whether the information conveyed is accurate. As such, information utilized must be constantly validated. In addition, it is imperative to disseminate information to all units with alacrity. The speed with which information is disseminated depends on a number of supportive factors, notably, the use of the Internet. Information sent should be terse, concise, accurate, and entirely germane to the situation. Information sent to all units must be identical and immediately applicable to work performance. The modernity of a management system and having highly qualified employees are of no avail if identical information is not conveyed to all of the employees in each unit. [8,9 10,15]

H2 : Information sharing has a positive effect on logistics performanceGuanxi \ Connections Business organizations must adopt and adapt an array of methods to ensure

organizational success. Organizations in China pay attention to personal relationships in conducting business with trade partners. The system of personal connections or guanxi facilitates continuous and long-term trade. Attention is paid to cultivating good relationships and closeness with customers over long periods of time. [10,25] Such relationships are developed to facilitate interactions between suppliers and customers, thereby bringing in their wake business benefits for all concerned. All employees are allowed mutual contact without being impeded by the positions they hold. Organizational activities are planned and fostered to the end of enhancing personal relationships. All of this has been well studied and it is clear that factors such as these could be highly beneficial to maintaining long-term trade relationship which could easily become even more encompassing over time. [10,11,12]

H3 : Guanxi / Connection has a positive effect on logistics performanceInformation Technology The use of e-commerce and the Internet in trading in the seafood industry helps to

shorten the supply chain. Organizational efficiency and reliability comes with the use of information technology (IT) in recording information pertaining to the performance of all units, in conducting business with other component organizations in the supply chain, and intra-organizational use by all units. IT is also used to control the work process, to send information, and in trade-related communication. It is important to improve IT systems on a continual basis so as to better link organizations and to ensure expeditious work performance. Nonetheless, high-quality IT systems alone are insufficient in ensuring organizational success. In fine, an organization must consider how appropriate is its intra- and extra-organizational use of IT.[10,15,17,18,26]

H4 : Information technology has a positive effect on logistics performanceLogistics Performance There are two aspects measuring logistics performance: efficiency and effectiveness.

Efficiency focuses on the use of resources or input to the end of the maximization of benefits. Mostly, it involves the measuring and controlling of costs. Effectiveness focuses on achievement as set by performance output. Mostly, it involves measuring matters related to customer service in the aspects of time, quality, and responsiveness as indicated by levels of customer satisfaction. Accordingly, measuring performance engages five important indicators as follows: (1) reductions in logistics costs; (2) reductions in risks incurred; (3) responsiveness; (4) agility; and (5) quality. [2,313,16,19]

FIGURE 1A PROPOSED MODEL OF LOGISTICS PERFORMANCE

Hypotheses Testing Logper = β0 + β1 Collab + β2 Inform + β3 Guanx + β4 Infortech …….(1)

RESEARCH METHODOLOGY

In the current investigation, the researcher employed qualitative research and survey methods using a questionnaire. The study was divided into three steps.

Firstly, studied were current problems and conditions of problems of the palm oil industry. Thus, used were data collected from actual areas of production and in-depth interviews of twelve high-ranking administrators of the production division, the marketing division, the purchasing division, and entrepreneurs of the palm oil factory groups. Interviews were conducted to determine genuine problems so as to be able to frame guidelines that could be used to solve existing problems. Guidelines to solving problems were then extrapolated to answers to the items on the questionnaire.

Internal and Guanxi /External Connection

collaboration H1 H3 (Guanx)(Collab)

LogisticsPerformance

(Logper)

Information InformationSharing H2 H4 technology(Inform) (Infortech)

Internal and Guanxi /External Connection

collaboration 0.260** 0.223** (Guanx)(Collab) R square 0.186

LogisticsPerformance

(Logper)

Information InformationSharing 0.194** 0.233** technology(Inform) (Infortech)

Secondly, the data gathered in the course of executing step 1 were then used in group interviews in order to synthesize results and to confirm what were the real factors that affected the logistics performance of the palm oil industry. Then, the results were summarized and put into questionnaire format.

Lastly, 100 copies of the questionnaire were distributed to high-ranking administrators and entrepreneurs of twenty-five factories consisting of four factory groups: the factory group extracting palm oil, the factory group extracting oil palm seed, the refining factory group, and the commercial bio-diesel factory group. Using techniques of descriptive statistics, the data collected were analyzed by means of applications of the techniques of mean and standard deviation.

FINDINGS

On the basis of the findings derived from in-depth interviews and the study of general conditions and problems in the palm oil industry, the following three significant problems in the industry’s supply chain were isolated:

1. The problem of raw materials. The raw materials for manufacturing palm oil can be obtained at differing seasonal rates. The availability of raw materials is at high, moderate, and low rates. It is patent that this state of affairs has profound affects on organizational costs. Organizational risks are incurred when raw materials are in short supply. Factory production processes must be hastily executed on pain of oil products being damaged. When extracted as raw palm oil, the material can only be used for a short period of time. If not immediately sold to refineries, the raw palm oil will be ruined. This state of affairs affects production and trade costs, as well as affecting product quality. Most raw materials are purchased through middlemen. Therefore, factories do not have direct knowledge of raw material quality, what species of palms have been used, and even when the raw materials are harvested. When such untoward factors are taken into account, it becomes obvious that the production process can easily produce damaged goods.

2. The problems of production. The production period involves damages because the large machines used are imported. Persons operating the machinery lack knowledge and expertise. The control of machinery is not integrated. The production division does not exercise satisfactory control over work performance.

3. The problem of trade. Trade agreements govern constant adjustments in market price. Prices are volatile, and so constantly move upwards or downwards. Products are traded only after production has been completed. This leads to the need to store products in warehouses which in itself heightens costs and the possibility of risks from damages and reduced quality. In addition, long periods of time in transit and long transportation routes can also lead to product damage.

Such problems affect all organizations conducting trade in the same supply chain. However, it remains the case that the internal management of individual organizations can bring about success. But essential is it to manage such problems through internal and external collaboration in addition to paying heed to other significant factors in the effort to achieve organizational success.

The analysis of intra-organizational problems 1. Most intra-organizational problems stem from management failing to foster collaboration. Each unit has its

own work plans and is determined to work in accordance with its own goals. Performance lacks continuity. Personnel cannot substitute for one another.

2. The trade in raw materials and products depends on personal relationships and acquaintance. Any organizations deficient in these respects will experience obstacles in trade and in effectiveness.

3. Intra-organizational conveyance of information is discontinuous. The information received is not uniform. Employees in each unit do not have the same information, a situation bringing in its wake confusion.

4. Overall, a factory may have a high quality IT system, but the system is deficient in linking components because components differ in quality.

TABLE 1FACTORS DERIVED FROM IN-DEPTH INTERVIEWS TO BE USED IN FORMULATING GUIDELINE FOR THE SOLUTION OF PROBLEMS

Variable N Mean S.D. result

Internal and External Collaboration

Joint securing quality raw materials 100 3.94 0.708 most

Joint collectively solving problem 100 4.48 0.577 mostly

Joint evaluating performance to antecedently planned 100 4.13 0.580 mostly

Joint improving operation methods 100 4.22 0.561 mostly

Joint new operation leading to cost reductions 100 4.19 0.581 mostly

Joint exchange of new knowledge to all employees 100 4.15 0.609 mostly

Information Sharing

Information sent should be accuracy 100 3.59 1.045 most

Information sent should be speed 100 3.58 0.843 most

Information sent shoud be the used of the internet 100 4.07 0.432 mostly

Information sent to concisely and clearly 100 3.25 0.770 most

Information sent to all unit must be identical 100 3.74 0.645 most

Information dent to all unit must be immediately to work process 100 3.47 0.731 most

Connection /GuanxiWe have paid to cultivating good relationships and closeness in supply chain 100 3.82 0.702 most

We have relationship developed to last long periods of time 100 3.91 0.753 mostWe have relationship developed to customers over long periods of time 100 3.97 0.502 mostWe have relationship developed to suppliers over long periods of time 100 3.83 0.473 most

We have relationship developed to increasingly important level 100 3.09 0.793 mostWe have all allowed mutual contact without being impeded to the positions 100 3.74 0.597 most

We have organizational activity to enhancing personal relationships 100 3.87 0.661 most

Information Technology

The use of information technology in recording of all units 100 3.74 0.645 mostThe use of information technology in conducting business in suupply chain 100 3.71 0.715 mostThe use of information technology in intra-organizational use by all units 100 4 0.512 mostly

The use of information technology to control the work process 100 3.99 0.502 most

The use of information technology to send information 100 3.95 0.520 most

The use of information technology to trade-related communication 100 4.03 0.521 mostly

The use of information technology to better link organizations 100 4.08 0.486 mostly

Logistics Performance

The company has achieced cost reduction control 100 3.73 0.664 most

The company has achieced risks reduction control 100 3.83 0.652 most

The company has achieced speed operation process control 100 3.85 0.702 most

The company has achieced quality operation process control 100 3.19 0.394 most

TABLE 2FINDINGS ON THE BASIS OF AN OVERALL ANALYSIS OF

THE FACTORS INFLUENCING LOGISTICS PERFORMANCE

Assumption� t - p -

Independent Dependent value value Result

H1 Collab Logper Positively 0.260 2.667 0.009 supportH2 Inform Logper Positively 0.194 2.059 0.042 supportH3 Guanx Logper Positively 0.223 2.135 0.035 supportH4 Infortech Logper Positively 0.238 2.320 0.023 support

DISCUSSION OF THE FINDINGS

Four factors affecting logistics performance are as follows:

(1) Information technology consisting of the use of IT in the work process and improving IT systems;(2) Information sharing, the components of which consist in the use of information, information accuracy, and

the speed with which information is conveyed;(3) Guanxi / Connections consisting of the building and development of relationships;(4) Internal and external collaboration consisting of connections between organizations, the improvement of

work systems, and the sharing of benefits. These two factors require quality teamwork, mutual planning, and mutual work improvement.

In addition, all factors involve significant subsidiary factors for a total of 26 factors. Each of these should be taken into consideration by the palm oil industry in solving problems in order to ensure success in logistics performance.

Indicators for the logistics performance of the palm oil industry consist of reductions in costs, reductions in risks, increased in speed control, and product quality. Altogether, there are four important aspects in this connection.

Guidelines to solve problems partly involve how to shorten the supply chain process through using various means to better logistics performance. In order to shorten the supply chain in accordance with the principle of cost reduction, the researcher would like to suggest the following:

1. Information Technology. The researcher urges the use of the e-commerce in conducting direct trade between agriculturalists, the factory extracting palm oil, and customers. This can conduce to the elimination of middlemen. The factories can thereby engage in direct trade with agriculturalists and customers.

2. Use the information technology for sending information both internally and externally in order to ensure accurate information is quickly sent.

3. Use the local culture system of connections or guanxi in the trade of raw materials in order to ensure large quantities of quality raw materials are available coupled with likely prospects for long-term trade agreements.

4. Use internal and external collaboration in the search for new methods for performances in respect to avoiding transportation damage. In this connection, it is recommended that collaboration be conducted through registration of oil palm orchards, transporting palm oil that is warmed so as to reduce damage, and improve transporting vehicles so that they can warm the palm oil by themselves.

CONCLUSION

Findings indicate that factors influencing performance and organizations can be used as guidelines in solving problems organizations are currently facing. The four main factors are the following: (1) information technology; (2) information sharing; (3) connections; and (4) external and internal collaboration. Each factor involves significant aspects with the total being 26. All aspects should be addressed if problems are to be successfully solved over the long haul.

In addition, it was also found that logistics performance can be judged by reference to four indicators as follows: (1) reduction in logistics costs; (2) reductions in risks; (3) speed control; and 4) quality. Each indicator involves significant subsidiary aspects, the total comprising

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