System Optimization in a Small Freight Forwarding Company

Company Description 

Cargologistix &Forwarding is a small forwarding company in Bucharest, Romania looking for growth and ways to achieve it. The company was open in 2011 and has been functioning slowly until 2016 when it started booming and looking for growth possibilities. Their main goal is to enlarge their customer base and therefore increase cash inflow and profit to handle the growth financially. 

The company operates in a highly competitive market in the logistics industry. The whole industry is highly competitive, however forwarding companies have an advantage. Especially Cargologistix&Forwarding, it being part of a large network CGLI. This is the biggest advantage, as the company already has many partners they can cooperate with, as well as giving them the chance to offer all possible logistics services, added value for customers. The Romanian market is highly competitive, and the political situations being corrupt, instability dominates the external environment of the company. 

The company is structured in a very easy way, The CEO and hierarchically lower, the rest of the employees- The sales manager, the transport manager, the referend transport agent, and the external development manager. The company culture is very friendly; they believe good working of a business comes from human connection too. Therefore the atmosphere is very warm, and the leader is very supportive with its employees, listening to them as humans as well not only as his subordinates. 

To clearly visualize the internal situation in Cargologistix & Forwarding a 7S Analysis will be made. 

Strategy: 

Shared Values : integrity, hard-working, involved, teamwork, trust 

CEO-MARKETING, OPERATIONS, SALES, TRANSPORT, DEVELOPMENT 

Systems: At the moment, there is no system used for data organization and analysis. Customers are followed manually, documents are sent manually and asked for manually, documentation is done manually, and everything is kept on computer memory. Bill of Lading and other documents are created in the main partner company in Antwerp. 

Skills: team working abilities, professionalism, communication, IT 

Staff : 1 transport manager, 1 sales manager, 1 operations manager, 1 development manager, CEO. All staff works from the comfort of their own home. 

Styles: the leadership style of the CEO is coach style, a new style of leading, aiming to continuously improve the competences of the employees, allowing them to grow, which motivated them. 

Project Description 

Problem Description 

Cargologistix & Forwarding is a small forwarding company situated in Bucharest, Romania. Forwarding is considered part of the logistics industry; the market is extremely competitive all around the world. The company has and does work with close, loyal customers, keeping its good reputation and being known for their close connection with their network and other partners, connection based on good communication and personal relationship creation. Cargologistix & Forwarding is part of a worldwide network called CGLI, with headquarters in Antwerp, Belgium. 

The problem is, however, the company invested money in growth strategies, and it started to grow more than expected. As forwarding is that part of logistics that deals with documentation and the documents needed to connect parts of transports and to keep the supply chain going, more and more documents that need to be created by the company as more and more transports need to be dealt with, more and more documents need to be fulfilled on time and correctly. Part of the documentation needed includes important documents and market analysis that must be presented in time to carriers and for example for cargo deliveries or other important parts of transports, and knowing which client is profitable and on which files. The problem is that this needs to be resolved without enlarging the team and paying more employees as the company is not looking for that. Therefore the company is looking for an automated system to help them fix their problem. Without this happening clients will be lost as the workload is too much to be dealt with manually by the hired employees, and this will also affect in the regards of no time to look for actual new clients because the volume of work right now is already high therefore we do not want to lose customers. The clients should not be lost because this automatically means sales go down, means that income will go down and profit, that can be used for more growth or expansion. 

Main problem question is “Which automated system would be the right solution to eliminate excessive manual processes, provide real-time visibility and increase visibility and increase efficiency in Cargologistix &Forwarding without high extra costs to keep their client portfolio , without hiring new employees?”. 

Project Aim 

The aim of the project is the following. In order to improve the administrative issues of Cargologistix &Forwarding and eliminate the need for new employees needed to be hired for managing all the documents, an automated system will be chosen that matches the needs of the company and that the current employees can use to make everything for effective and efficient, therefore not losing clients and income. Firstly, the current process of creating certain documents like BL, a bill creating, file organization and lastly keeping evidence of clients focusing on the procedures and how to improve them will be shown. Next, research regarding what existing automated systems exist for this context. Lastly, a suggestion on which best system matches the company’s needs and financial position will be given. 

Primary and secondary research will be executed to understand what is the current ways that document creation is being dealt with. Next, research done on which systems exist in the world at the moment, ending with which choice is the correct one, including how exactly it will help the company. 

The geographic scope will be Cargologistix &Forwarding in Romania working internationally , as the company is in Romania, however in close relation with the Belgian company and other international companies. The target reader of this project is the CEO of the company and the administrative department. 

Research Approach 

For what kind of information does the company need a new system? 

What is the current system/method used for dealing with document creation? 

Why is this system used failing for the requirements of the business? 

What needs to be changed? 

What systems exist that can replace the current system and match the company’s needs? 

Which system can be used at an international scale? 

What are the costs of the systems? 

How does this system work? 

4.Which choice appears to be the best for the company? 

Is the choice appropriate for the budget? 

. How will this system improve the administration issues of Cargologistix &Forwarding? 

. How will the system help Cargologistix &Forwarding serve their clients with the best quality services? 

Theoretical Framework 

The primary objective of a freight forwarder is to organize transportation on behalf of shippers and carriers to move a commodity from one spot to another. A forwarding company, therefore, has a contract with carriers to move and guarantee a safe loading capacity at a reasonable price. Therefore, a forwarding company, like Cargologistix & Forwarding, facilitates consolidated invoicing without any interaction between the shippers and carriers. Over the years, the freight forwarding company has become an expert in the supply chain, warehousing, packaging, and documentation. Currently, Cargologistix and Forwarding provides manages all its activities using a manual documentation system. However, in the recent years, as the company continues to grow, there has become the need to incorporate digital information and communication systems to optimize operations and promote communication between the company, the partners, and its business partners (Pavlo, Svitlana & Ninel, 2016). The company’s need to transit to a new automated system can be explained using two concepts: the Systems Theory and the Theory of Constraints. 

Figure 1:Interaction of a freight forwarding company with the various components of a forwarding system (Pavlo et al., 2016) 

The Systems Theory 

System theory is relevant to the research because the company deals with logistics. Generally, logistics is considered as a system made up of multiple components, which makes the systems theory a suitable theoretical framework that can be used to explore this problem (Abdallaoui, 2009). The theory focuses on the relationship and arrangement between the various components of the particular freight forwarding system. A system is a set of dynamic elements that are maintained together through mutual interactions. The decision about a system should not be made based on individual components of a system. This is due to the complex inter-relationships between various the various components. Therefore, a decision should be made depending on the final outcome of the existing system, and not with individual phenomenon along the way (Abdallaoui, 2009). For instance, the company is currently dealing with various activities, including warehousing, packaging, transportation, and documentation. Therefore, to come up with a decision that will positively impact on the current state of the entire company, it is essential to address the company as a unit instead of looking at individual aspects of the company. The primary concept is to focus on the relationship between the component parts, instead of disintegrating the system into its constituent elements. 

When an automated system is introduced, the impact of the technology will not be restricted to the immediate sum of the constituent parts (Abdallaoui, 2009). Instead, the added value of the system comes from the results of a relationship. Ideally, one can select either an open or a closed system. With an open system, there is a high level of interaction with the hosting environment. Due to the high levels of interaction, the changes occurring within the system will be manifested on the environment. Equally, the changes in an environment will also impact on the system. However, if one opts for a closed system, the system will work in isolation from the environment (Abdallaoui, 2009). All in all, system theory considers logistics operation as an interconnected system, which requires a centration communication system to enhance effective communication and documentation. A suitable system must always satisfy every party involved, as well as the activities involved. 

The Theory of Constraints 

According to the theory of constraints, the maximum overall performance of a given system is dependent on the constraint of that particular system. The theory is made up of two components, namely the logistic paradigm and the thinking process. The constraints of a system can also be referred to as bottlenecks, which incorporates a variety of constraints ranging from managerial and policy-related constraints; the bottlenecks are not restricted to physical objects. Thinking process, which is the second component of the theory, is key to ensuring that the company successfully implements a proposed automated system. Goldratt came up with a model to determine the most suited model to fit a system and provide an organization with a constant business improvement tool (Abdallaoui, 2009). The five-step process includes activities including: 

Determine the system’s constraints 

Constraints, which can be physical, managerial, or regulatory in nature, must be identified in the system. Consequently, with the goal of the company in mind, address these constraints in their order of importance. In the case of the freight forwarding company, the primary objective is to optimize the system through the digitization of the documentation and communication process. 

Decide how to Exploit the System’s Constraints 

Depending on the constraint in question, there is an option to exploit or eliminate it. If a constraint is non-physical in nature, for example, managerial policy or techniques, exploitation is not an option. Therefore, elimination or replacement on the constraint in the system is the best option. To improve capacity at a relatively lower cost, the replacement of the manual system with a digital documentation system is the best option. 

Subordinate Everything Else to the Above Decision 

While the second step addresses the constraints, this step will look into the non-constraints. This step will facilitate the actualization of the result from the second step, through the adjustment of various non-constraints of the system for better performance of the system. 

Elevate the System’s Constraints 

The improvement of these constraints will lead to the better performance of the non-constraints resources such as the current workforce in the freight forwarding company. In the long run, the overall performance of the system will improve. 

Address the Issue of Inertia 

Being an open system, every time a change is made, there is a possibility of other changes in the system. Therefore, after completing every step, it is important to revisit previous stages to test the effects of the current step. 

Figure 2: Goldratt’s 5 steps process of an improvement tool (Abdallaoui, 2009) 

When using Goldratt’s Thinking Process, it is essential to ask yourself the following changes: 

What to change; 

What to change to; 

How to cause the change; 

From the two theory discussed above, the following steps can be used in the analysis section of the paper: 

Figure 3: Theoretical model based on System Theory and Goldratt’s Bottleneck concept (Abdallaoui, 2009) 

Transaction Costs Theory 

The transaction cost theory considers the structure of the company as a source of explanation for outcomes. Transaction cost is analogous to the costs associated with the management of the imperfections available in the business. In other words, the transaction cost model depicts the exchange process with reference to the resources need to complete the exchange (Cordelia, 2006). Ideally, the transaction cost should round to zero. However, when imperfection occurs, these cost increase. Due to these market failures, information and behavior-related problems arise. The company will, therefore, be required to mitigate the effect of these imperfections by incurring the transaction cost. Some of the information-related cost include during the transaction life cycle include (Cordelia, 2006): 

The search costs : These are costs related to locating information on the opportunities for exchange 

Negotiation costs : These are the costs related to the terms of the exchange 

Enforcement costs : These are the costs of enforcing the agreement. 

It is always the objective of a business to work will the lowest transaction cost possible. Therefore, an organization will strive to adopt a system that will facilitate access to information at the lowest cost possible. Apart from moving from a manual system to an integrated digital system, the company will strive to adopt the cheapest of the many available information systems. 

Main Analysis 

Cargologistix & Forwarding Company is a logistics specialists that are responsible for the storage and delivery of goods. As an expert in the industry, the company should be able to organize, control, and optimize the activities related to both transportation and customs procedures. The company should be able to maintain a smooth supply chain that can link the carrier and the shipper. The company also has a partnership with another company in Belgium, Cargo Login. Currently, a manual system is used to handle every process in the company’s operations. However, with the existing system, the seven R’s of logistics cannot be met. An ideal freight forwarding company should be able to handle the right quantity, at the right time, to the right customers, at the right cost, and at the right place, with the right conditions (Lim et al., 2013). Also, the system should ensure that each customer receives the right product. 

As Cargologistix & Forwarding continues to grow, the level of demand cannot be met by the existing manual system. This necessitates the need for the digitization of the communication and documentation system. A digital system will optimize the productivity of the company at a relatively lower cost. The incorporation and integration of IT systems and solutions between cooperating partners as well as in the day-to-day operations, are of special significance (Lim et al., 2013). The adoption of advanced information systems in the supply chain means sharing and analyzing a large amount of data among multiple actors. In addition to the primary IT integration, a digitized system has an additional advantage of organizational integration. The product quality, as well as the profitability of the freight forwarding company, can be increased through the application of better information systems. With a better information system, one is also able to keep track of the location of commodities on transit in real-time. 

Current System Performance and Stability 

The manual system is unstable and has a long response time. The process of preparing, auditing and finalizing the business documents take a significantly longer time. Also, since human beings are heavily involved, there are high chances of errors that can be economically detrimental to the company (Brahe et al., 2007). Moreover, the multiple paperwork required in the current business model makes the storage of data hectic. The decentralized information and communication in the manual system make business collaboration difficult. The sharing of information among the relevant partners is relatively difficult as compared to when a central integrated system is adopted. 

The Enterprise Resource Planning Systems 

Cargologistix & Forwarding can incorporate IT technology into its systems through a sophisticated model, called the Enterprise Resource Planning (ERP) systems. The system incorporates a scheduling module, which facilitates the automation of various parts of the decision process to better the way a company runs its business by increasing the level of efficiency and reducing human mistakes (Osnes et al., 2018). Through the use of software, the freight forwarding company can analyze and determine with precision how, where, when, and how many commodities should be transported. In addition to that, such a system will compare the different actors in the system; the system will be able to compare the different carriers, modes, routes, and freight plan, to scrutinize its options in a much better way and come up with the best solution that promises increased profitability (Zapata et al., 2013). Some of the tasks that can be advanced through the digitization of the system include: 

Pairing up a load with a specific carrier : The shipper and the carrier must be connected to successful transportation of cargo. The freight forwarder, through an internet-based load bidding, ensures that the transaction between the shipper and the carrier is completed. 

Order acceptance : Order acceptance is necessary to make the transaction mentioned above legally binding. Therefore, a dated record of the carrier to which the load is assigned, which is known as a bill of lading, must be prepared. Although the procedure can be completed manually, electronic forms have the potential to quicken the procedure. 

Dispatching : This application involves the selection of the direction that a vehicle will use to reach the final destination. Technologies such as GPS and bar code scanning have been used to monitor the location of their cargo in real-time provided a person has access to the internet. 

Transmitting shipping documentation : Currently, Cargologistix & Forwarding uses a manual system that basically employs paper documentations in most instances. However, the adoption of an electronic data interchange or a cloud-based platform 

The Electronic Data Interchange (EDI) 

An Electronic Data Interchange is a standard method of transferring commercial information between computers. The EDI files have information in various formats pertaining to commercial documents. Depending on the commercial document in question, an EDI file will have a pre-defined format, which is easy to conceive; a person will only be required pass such information into his or her own in-house system regardless of the system he or she is running (Narayanan, Marucheck & Handfield, 2009). The EDI has three logical levels that include the communications standards, syntax standards, and the message standard. The structured approach to the interchange is supposed to facilitate flexibility. The communication standard defines how the relevant information is to be transferred from the sender to the receiver. The syntax standards explain the basic standards formats the file will be in. Finally, the message standards define how to fill in the pre-defined form. 

Computer-to-computer communication has replaced postal mail, email, and fax. Although email is electronic, the documents sent via email requires human effort. However, in the case of EDI documents, the process is automatic through the relevant application on the receiver’s computer and the processing will continue immediately (Narayanan et al., 2009). The standards maintained by the National Standards Institute (ANSI X12), and the United Nations (EDI for Administration, Commerce and Trade, EDIFACT), facilitates better international interactions, as in the case of Cargologistix & Forwarding, where language can be a barrier. 

Cloud-based Platform 

Today, with the advent of cloud computing, even small companies can handle big data. With an internet connection and a reliable cloud storage provider, Cargologistix & Forwarding can manage its documentation through a cloud-based system. Once the necessary access authentication is shared, the company’s partner in Belgian can access the necessary information through the system (Lim, 2019). A cloud-based database will ensure that the partners can share documents and communicate better. 

Central Dispatch 

The company can run a web-based platform to facilitate cargo owners to keep track of their commodities while on transit. A shipper will only be required to provide relevant information including destination, commodity description, owner’s name, and the type of container, to be able to access details about the location of the carrier (Zapata et al., 2013). Once the shipper has filled in the appropriate information, the information will be redirected into the company’s mainframe system and become accessible to other actors, including the terminal and vessel operators, among others. 

Information Sharing among Collaborators 

Currently, Cargologistix & Forwarding has partnerships with online logistic service providers. Therefore, it is essential to share various information among collaborators. In most cases case, this information and documents are shared through an Electronic Data Interchange (EDI), which necessitates that the information system of the collaborating companies to be integrated to successfully accept information from each other (Narayanan et al., 2009). In addition, this information must be shared with the carriers to facilitate efficient intermodal transfers. Therefore, digital communication through EDI protocol or web-based tools must be incorporated into the company’s system to optimize the performance. 

Communication with the Governments 

Freight forwarding companies handle custom documents. Therefore, a company such as Cargologistix & Forwarding are required to have multiple electronic links, whether compulsory or voluntary, with governments within the operating jurisdiction. These links include manifest filing, operating authorities, and permits, electronic fund transfer, and route filings, among others (Pavlo et al., 2016). The carriers and shippers are therefore required to participate in the Customs’ Automated system. However, on before of these freight forwarding company clients, the logistics service providers must ensure that their system incorporates a section that links the government’s system and the freight forwarding company system. 

Cost of Changing from a Manual to a Digitized System 

The transition from a manual system to a digitized system will require an investment in infrastructure. While some devices, such as computers, would have to be procured by the company, Cargologistix & Forwarding can outsource other services required for the successful implementation of an integrated information system. In addition to that, the development process will require great effort and time. In the beginning, the ordinary staff members of the company will not be in a position to operate the system (Brahe et al., 2007). Therefore, the company will also incur expenses in training its staff members on the use of the system. Finally, an additional cost will be required for the maintenance of the system. 

Conclusion 

The growth experienced by Cargologistix & Forwarding necessitates the implementation of a digitalized information system. The current manual system cannot cope with organizational and customer demands. The new digitalized system should put every actor (Consigner, the freight forwarder’s employees, and the carrier) into consideration. The relationship between these actors must not be compromised by any outcome arising from the transition. The information system must ensure a smooth flow of information and documents between these players. Moreover, the time taken to complete these transactions should be reduced significantly with this transition. 

The Enterprise Resource Planning system is one of the main options that Cargologistix & Forwarding can consider. With such a scheduling module, the processing time for most transactions will be reduced significantly. The system can be used to pair the primary actors (consigners and carriers), accept the order, facilitate effective dispatch, and enhance better sharing of documents with clients and partners (Osnes et al., 2018). With such a system, the freight forwarding company can make better decisions about various carriers, modes, routes, and freight plan, and increase profitability at a relatively lower cost. Besides, the ERP system facilitates real-time tracking of commodities while on transit. The system will facilitate government compliance as it supports communication with the government. 

The Enterprise Resource Planning system provides the organization with more than one options for sharing documents and communication. The freight forwarding company can share the necessary documents such as the bill of lading and other customs documents with its clients and partner in Belgium using the Electronic Data Interchange (Osnes et al., 2018; Narayanan et al., 2009). The incorporation of EDI into the system will eliminate human actions and automate the transfer of business documents across multiple jurisdictions. The use of EDI will also eliminate the language barrier for the forwarding company, which operates internationally. Alternatively, a cloud-based platform can be employed in the system. This will facilitate the handling of big data at a relatively lower cost and effective sharing of documents with Cargo Login. Aside from sharing documents, EDI technology also supports general communication between parties. EDI can be used by the freight forwarding company to communicate with carriers and cargo owners, as well as its collaborators. Cargologistix & Forwarding company can alternatively adopt a web-based communication tool to provide a platform for clients to communicate with the company (Olah et al., 2018). 

Recommendation 

Generally, logistics activities are integrated into nature. In other words, it is a joint venture enterprise to bring together and control the processes aimed at achieving the primary objectives, which are making profits and customer satisfaction. Therefore, the system upon which these activities are run must be able to optimize profit-making while ensuring quality service delivery. Therefore, Cargologistix & Forwarding company must implement an integrated information system if it is to survive its rapid growth. Therefore, the adoption of an Enterprise Resource Planning system will aid in achieving better performance at a relatively lower cost. 

As a small freight forwarding company that is experiencing growth, the Enterprise Resource Planning system will provide the company with an integrated digital system that utilizes ICT to ensure effective communication and document sharing between the company and its clients, as well as partners and the government. The ERP system is reasonable financially for the organization since it is not very expensive to actualize; the cost of adopting and running the system is within the capability of the organization (Osnes et al., 2018). Moreover, the system is not complex. With adequate training, the staff members of the company can operate the system. The company will not be required to solicit the services of experts. 

While the ERP system will automate most decision making systems, the organization might also be required to incorporate EDI into the system. Although there are other alternatives, including the cloud-based platforms and web-based tools that can be used in document sharing and communication, respectively, EDI poses as the best option as it can be used for both purposes. With Electronic Data Interchange, you can both communicate and share business documents. Also, the process of sharing data is more automated as compared to the conventional use of the internet to send electronic mail or faxing. Therefore, with the incorporation of EDI, the company will be able to communicate and share documents with greater convenience. 

Alternatively, the company can simultaneously use EDI and the cloud-based platform for communication and documentation processes. EDI will be used to manage the communication and the sharing of documents between the company and its clients. Documents such as the bill of lading, among other custom and invoice documents, will be available through the Electronic Data Interchange (Narayanan et al., 2009). The consigners and the carriers will be able to access and fill in the standard documents instantly, irrespective of their physical location. However, as for the company’s collaborators, relevant documents will be accessible through the cloud-based platform. With an effective internet infrastructure and competent security, the collaborating organizations can easily share big data through the cloud-based database. The primary benefit of such a system is the elimination of the need for investment in in-house data storage. It also facilitates easy access to information by the authorized parties. 

Critical Appraisal 

The freight forwarding company has many actors involved in its operation. Therefore, a large number of parties, as well as interdependent information systems, necessitates an integration. The need for integration of systems and communication of information becomes even more evident when there are other interested parties such as the company’s collaborators, and the potential applications of such a system. The transition from manual to a digitized EPR system will help remove redundant operations, sort out ambiguity and cut back on secondary, administration overhead (Monteiro, 2003). The current manual system is poor; the economic contribution of a manual system and that of an optimized information system is incomparable. The EPR system promises a more process-oriented, with an off-the-shelf solution to the problem of business integration. Besides, such an optimized system will overcome the limitations of traditional hierarchical and function-oriented structure (Monteiro, 2003). The system will integrate all the functions into a workflow of business events and process across the various departments of the freight forwarding company. 

Multiple multinationals have managed to employ ERP systems as an important backbone of their businesses as they can control all organization resources and transaction through a single system. The success in the international business operations has been as a result of using an integrated system, which replaces the contemporary legacy systems, to avoid incompatible silo structures and data redundancy (Monteiro, 2003). In the long run, it leads to the establishment of one common platform for the entire enterprise at a relatively lower cost. Furthermore, the cost of maintenance is low. Therefore, for an organization like Cargologistix & Forwarding, which seeks to operate internationally as it continues to grow, an ERP system poses as the best solution as it serves multiple functionalities and comes with benefits including standardization, efficiency, and better communication. 

The adoption of EDI is mainly motivated by the anticipated benefits. The anticipated benefits attributed to EDI can be explained by the information-processing theory and transaction-cost economics (Narayanan et al., 2009). According to the information-processing theory, the reduction of information uncertainty and time delays in an EDI-based business transactions will reduce additional costs in the form of higher inventory levels and longer delivery lead times. Therefore, the adoption of EDI in the Cargologistix & Forwarding business system will result in improved resource utilization. On the other hand, based on the transaction cost economics perspective, EDI will facilitate closer coordination between the supplier and the customers. In the long run, the transaction for both parties will be reduced. In other words, the application of EDI will streamline the business process through the automation of the information exchange. 

The recommendations provided are reliable. Aside from observing the performance of ERP systems, EDI, and cloud-based platform, in other successful organization, the prospective outcome of the transition has also been based on reliable literature. Through the use of information from previous studies on the use of an integrated information system, as well as peer-reviewed articles in reliable online sources such as the International Conference on Enterprise Information Systems, the predicted success of the ERP system, if implemented, is reliable. 

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