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Optimizing logistics efficiency and expanding operations: case study of Lineja Transport Corporation

The Lineja Company is one of the largest logistics operators in Lithuania. As part of the company mission and vision, the company is always looking for new ways to expand their service quality, accessibility and flexibility for better competitive advantage (Lineja Transport, 2018). The company is committed towards achieving growth and expansion in other European regions and beyond. The purpose of this report is to evaluate some of the expansion possibilities for Lineja Company and an analysis of how the company can optimize their logistics efficiency.

Company Analysis

Lineja Transport Limited began their logistics operations in 2011 by Gediminas Norkus, Vytautas Gliaubicas and Jurgita Norkiene. The company was able to position itself as a consumer oriented, accountable and organized company which made market penetration much easier. The cargo and freight transportation is mainly land transport with destinations being: Poland, Lithuania, Latvia, Estonia, Finland and Western Europe. The company is founded on the values of quality customer service, professionalism, team work, knowledge, quality, communication and integrity. The current number of employees is thirty.

SWOT analysis

Strengths

Expanding transport industry that grew by 12% in 2017 alone.
Pattern of urban development creating more demand for logistic services (Ministry of Transport and Communications, 2018).
Offer transport for full loads, partial loads, bulk loads and oversized cargo (Lineja Transport, 2018)
Investments in up to date trucks
Well developed road networks in Lithuania
High level quality public transport network
Adherence to the Lithuania emissions legislations
Use of bio fuels (Lineja Transport, 2018)

Weaknesses

Lack of access to sea
Very little workers – the company has 30 workers while competitor company employ over 50 workers (Lineja Transport, 2018)

High unitary costs
Lack of consistent systematic and scientific planning

Opportunities

Expansion into new markets
Develop potential for intermodal logistics
Potential to increase efficiency
Potential for hybrid vehicles

Threats

Outdated infrastructure
Volatile fuel prices
Competition from companies like Bastata
Tariff and non-tariff barriers create obstacles for international expansion (Nežerenko & Koppel, 2017)
Cold weather limits navigation
Changing consumer demands
Economic shocks

 

Value chain analysis

The value chain reflects the operations of the business. The basic operations of the value chain include: “internal logistics, production and management, external logistics and marketing”. These processes mainly include warehousing, transport and distribution, packing, loading and offloading and information management (Bozarth & Handfield, 2019). The smaller activities in the value chain include: the system design, communication, coordination of activities and inventory visibility. A comprehensive value chain analysis of the logistics company can be shown by the figure below:

Source: Zhou (2013)

Porter five generic strategy analyses

A strategy guides organizations to superior market performance. The five generic strategies established by Michael Porter helps to understand the business environment in order to help develop a strategy that is relevant to a company’s needed to become competitive. The competitive environment of Lineja can be depicted by five competitive forces:

Entry of new competitors – the Lithuanian cargo transportation industry is open for entry to any new investor, making competition from new entrants a major threat to Lineja. However, the high capital investment required to establish a logistics company discourages the entry of too many participants into the market. The company has also established itself as a quality and consumer oriented company which has led to a lot of brand loyalty.

Threat of substitutes – There is a low threat of substitutes due to the unique characteristics of road transport. The buyer propensity to substitute is low given that some of the goods are too bulky and expensive to transport by air. Air transport is not accessible to all consumers making it reasonable for most logistics suppliers to go for land transport. Ship transport is slow and does not offer the level of flexibility, accessibility and convenience offered by the land transport modes and is only preferred for international transport (Ministry of Transport and Communication, 2018). Railway transport on the other hand is underdeveloped and very outdated and is not a preferred mode of transport for most consumers.

Bargaining power of buyers

The bargaining power of buyer is high due to the large number of operators. Consumers are very vigilant of timely delivery, customer service and level of professionalism which warrants logistics companies to mould their transport models to suit consumer needs (Mačiulis Jakubauskas 2007).

Bargaining power of suppliers

Suppliers do not have a high bargaining power since they are considered partners to the cargo transportation. The logistics industry of Lithuania is based on collaboration with suppliers, making their bargaining power low.

Rivalry among existing competitors- The high capital investment required to establish and run a logistics company discourages a lot of investment, making competition among operators low. Currently, the main competitor for Lineja is Balstata Transport Company.

According to the Ministry of Transport and Communication (2018), the European logistics market has grown tremendously due to increased exportation and favorable terms of trade between European Union countries and other states. The Lithuanian transport services grew in response to increasing export demand to Northern and Western Europe countries. The domestic land cargo transportation grew by 13.4%, generating a gross value added rate of 12%. Lithuania presents a desirable environment for expansion, given that the country is crossed by two European Transport corridors that make it possible for logistics companies to take advantage of trade between European countries and Asia. As a result of the expansion, Lineja Transport is currently exposed to expansion opportunities in desirable markets such as Denmark, Germany, France and Russia. The existing transport network provides possible routes for freights movements. The demand for transport services in these countries based on statistics released by the Ministry of Transport and Communication (2018) grew by 40% in 2017. Denmark, Germany and France are well developed countries with increasing industrialization, population and market demand, which makes reliable cargo transportation an important element of economic growth and development. Providing cross-border road transport will be critical in supplementing the free movement of goods from one economic power house to another. To do so, it will be important for Lineja to increase their potential for intermodal logistics. Intermodal logistics refers to an approach of moving cargo that involves more than one kind of transportation. Intermodal logistics allows a company to use special types of containers to move their goods from trucks to shop or rail without repacking. The company should invest in their own individual intermodal service networks or collaborate with intermodal logistics operators to ensure that consumer goods are professionally handled and delivered as required.

Russia presents a viable expansion opportunity for Lineja given the strategic location. Russia is one of the countries neighboring Lithuania. Russia is the fourth largest trading partner of the European Union in both export and import activities. Russia exports energy products ranging from gasoline, diesel fuel, crude oil and coal. Russia also exports steel, copper, wood, ammonium and fertilizers into the E.U. The EU is Russia largest trading partner with 90% of the imports to Russia being manufactured goods (Visenescu, 2018). Lithuania already has a transport network connecting the country to Russia due to the Pan-European corridor, North-south corridor as well as the Trans-Siberian railway and the Pan-European corridor IX. Lithuanian transport links have already been using the Pan-European transport corridor IX to get cargo to and from Russia (Povilanskas et al, 2015). These routes provide strategic opportunity for Lineja Transports to facilitate the ongoing trade between the EU and Russia by allowing professional and reliable multimodal transport of cargo between the two destinations. The increasing freight flows from Russia to the Baltic ports will be a lucrative opportunity for Lineja in future if they decide to expand operations to cover Russian foreign trade.

The transport flows extend accessibility to Germany, Sweden and Denmark also presenting an expansion possibility for Lineja Transport. The motorways of the Baltic sea provide trans-European networks that help provide accessibility to the four countries. The West- East corridor II, the Trans-Siberian railway and the North- South corridor links Lithuania to the rest of the Eurasian plate (Povilanskas et al, 2015). Over the last five years, the German government has been involved in various initiatives towards improving road safety, accessibility and convenience. Due to the strategic location of Lineja in Lithuania and the well established reputation of the company, the growth in the German transport system presents a strategic opportunity for Lineja to provide value added logistic services between Lithuania and Germany (Nežerenko & Koppel 2017). Lineja transport is already operating in areas like Poland and Latvia, which like German have direct rail road’s to Lithuania. Germany is also connected through a port terminal to Lithuania, which would make it possible for Lineja to access the German market.

Denmark constituted the second largest export market in 2016, also making it a strategic possibility for the expanded operations by Lineja. The figure below shows Denmark as the second leading export market from Russia, proving the increasing demand for freight services in Denmark.

Source: Nežerenko & Koppel (2017).

In 2014, Denmark generated revenue worth 446.2 million Euros from export trade. The export of transport services was 12.4% and was a 10% increase from the previous year demand for export transport services (Nežerenko & Koppel, 2017). The increasing demand presents Denmark as a viable option for Lineja to expand and increase their consumer service.

Sweden business and export needs have also been increasing rapidly, presenting a viable opportunity for Lineja to expand their market operations. In 2017, Sweden experienced a significant demand increase in E-Commerce which made the demand for logistics space high. The E-commerce industry is expected to grow by a further 20% every year, which will make demand for international logistics highly important (Nežerenko & Koppel 2017). The Swedish and Lithuanian governments have transport between the two countries possible by building a terminal connecting the Lithuanian and Swedish ports (Olsson, 2015). The road network was also developed such that it takes a total of 38 hours and 16 minutes for a truck to move across from Lithuania to Sweden.

Increasing the level of efficiency at Lineja is based on five main areas of performance as shown in the balanced score card below

Areas of increasing efficiency based on the balanced score card approach

Financial perspective

Increase profitability and return on investment

Internal Operations perspective

Enhance the efficiency of processes and increase productive capacity

Customer perspective

Enhance the quality of logistics service and customer satisfaction

Innovation and learning perspective

Research and development
Employee training
Leadership development

To increase financial revenue and financial effectiveness, the organization must be willing to invest in viable business expansion options. To increase revenue, the company should implement an expanded transport system that will comprise of various transport nodes, namely: sea, inland ports, road and rail (Minsitry of Transport and Communication, 2010). By integrating all transport sectors either through direct control or outsourcing of intermodal services, the company will create new possibilities for freight mobility and customs services, thus expanding their revenue potential. The logistics industry of Lithuania is currently developing logistic centers known as “freight villages” (Nežerenko & Koppel, 2017). The freight villages are a new generation of logistic centers designed to integrate an organizations intermodal transport strategy. The freight villages are located in Denmark, Germany, Sweden and Italy, which will also allow Lineja to successfully establish their operations in these regions. The new generation logistic centers stimulate intermodal transport processes by encouraging the use of recent innovations of logistics and transport. The modern logistic systems also help to create efficiency by increasing the operational capacity of logistic companies (Ministry of Transport and Communication, 2010). The freight village system also encourages the use of door-to-door service deliver and manufacturer-consumer direct delivery to help eliminate the need for warehousing. This helps to eliminate all the intermediary costs associated with warehousing for more profitability.

Improving the internal operations also presents a strategic opportunity for increasing the efficiency of logistics in the company. Internal operations include the role of management, information management, risk management, quality assurance and effective monitoring processes. The management of Lineja has an important role to play to ensure that the business environment is favorable for improved performance. The management must be willing to provide the resources and information required for more coordinated and efficient performance in timely and relevant manner (Nežerenko & Koppel 2017). The management must also be willing to set the right organizational policies and procedural standards in consistence with industry standards, since this will help all the employees to develop an organizational culture of efficient operation and quality performance (Ministry of Transport and Communication, 2010). The right policies and procedures relate to audit processes that ensure internal organizational effectiveness, ethical standards of professional conduct as well as the role played by leadership in shaping better productivity among employees.

The management should also establish coherent and efficient information management system to support decision making, communication and safety of information. According to Zhou (2013), logistics companies should promote better internal processes by having a well integrated information infrastructure. The information infrastructure refers to “an integrated aggregate of informatics and communication means, standards, technical regulations and organizational procedures that enables electronic accumulation of major information resources of the transport system, their processing in a coordinated way and, with the help of computer communication means, immediate provision of reliable summarized information of different nature, form and purpose, which is necessary for technological activities of companies”( BV, 2016). The information infrastructure will allow for more coordinated movement of freights and customer communication. An efficient logistics system should ensure that an organization is able to track movement of cargo, track driver’s behavior and also maintain communication with the intended consumer. The information infrastructure should be designed to track the performance of all systems and processes to ensure that all system elements have the desired technical abilities for better information management (Ministry of Transport and Communication, 2010).

Innovation and learning are very important in creating a favorable logistics environment and ensuring increased customer satisfaction. The EU union recently introduced a transport policy aimed at making roads more safe, convenient and fluent in terms of traffic flow. Given that the TransEuropean transport network will continue to grow and expand, it is important that Lineja invests in intelligent transport systems. Intelligent transport systems include the use of hybrid trucks, bio fuels and use of renewable energy in management operations. The intelligent transport systems are more integrated and coordinated to provide fuel efficiency and cost minimization which will allow the company to build on economies of scale (Nežerenko & Koppel 2017). The intelligent transport systems are also characterized by larger trucks that will allow larger cargo volumes. Larger cargo volumes per truck will enhance the operational capacity and allow for fuel efficiency by allowing an increase in the amount of goods carried per trip. An important aspect of modernization and improvement of the transport system must be complemented by employee training and development (Zhou, 2013). To achieve efficient logistics, it is important to offer training and development to the drivers and supporting staff to ensure the supply chain is better coordinated. Employee training and development will build employee awareness of the specific technical skills required to run the intelligent transport systems and also build their awareness of the legal, social and environmental considerations involved in the logistics process. Employee training will not only help to build employee knowledge but also help to build favorable job characteristics required for employees to perform efficiently. Favorable job characteristics include job involvement, job satisfaction and organizational commitment, all which motivate an employee towards developing accountability and professionalism towards their job (Olsson, 2015). The training and development of employees should be continuous and relevant to meet employee learning needs for more consistent performance and adaptation to industry dynamics.

Lineja should be willing to collaborate with external stakeholders to ensure strong establishment of operations. Partnerships and alliances with strategic players in the transport industry will ensure sharing of information, resource and markets for better expansion (Lineja Transport, 2018). Expansion of business operations can be a resource intensive and complex process that may lead an organization to challenges. Selecting a strategic partner to help with various resources and information will ensure a smoother transition of the business model.

The expanding European and Russian market present a lot of potential for logistic companies. The Lithuanian transport services grew in response to increasing export demand to Northern and Western Europe countries. Lineja is therefore in a more strategic position to provide logistics services to countries like Germany, Denmark, Russia and Sweden. Providing cross-border road transport will be critical in supplementing the free movement of goods from one economic power house to another. To do so, it will be important for Lineja to increase their potential for intermodal logistics, the internal environment effectiveness, innovation and learning as well as customer service quality.

 

 

 

 

 

 

 

 

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