Gestão de Operações e Logística de Serviços

DHL Logistics Analysis

Farkhat Kainazarov, Raymond Fleming, Renato Chainho, Yen Nguyen, Zarina Kenzhetayeva

Porto, 2012 IndexIntroduction

I. The Corporation

Description of the corporation

About Deutsche Post DHL

DHL has been an innovative leader in the worldwide shipping business for more than 35 years. DHL was formed in 1969 by three friends, Adrian Dalsey, Larry Hillblom, and Robert Lynn, in San Francisco. Originally, the company was in business to take ships’ documentation by air from San Francisco to Honolulu (carried by the founders themselves) so that cargoes could clear customs before the ships arrived, thus saving days of waiting in the harbour while customs officials processed paperwork. The company is now part of Deutsche Post, the modern privatized German mail service. Deutsche Post acquired Airborne Express in 2003 and integrated it into DHL, creating a division now known as DHL Express.

Deutsche Post DHL is the world’s leading mail and logistics services group. The Deutsche Post and DHL corporate brands represent a one-of-a-kind portfolio of logistics (DHL) and communications (Deutsche Post) services. The Group provides its customers with both easy to use standardized products as well as innovative and tailored solutions ranging from dialog marketing to industrial supply chains. About 470,000 employees in more than 220 countries and territories form a global network focused on service, quality and sustainability. With programs in the areas of climate protection, disaster relief and education, the Group is committed to social responsibility. In 2010, Deutsche Post DHL revenues exceeded $ 51 billion.

Corporate Divisions

DHL has a range of unique services across the globe. Deutsche Post DHL offers integrated services and tailored, customer-focused solutions for managing and transporting letters, goods and information.

1. MAIL Division

Service is in effect an alternative post office for the world.

2. EXPRESS Division

Service deals with transporting urgent documents and goods reliably and on time from door to door.

3. GLOBAL FORWARDING, FREIGHT Division

The products and services offered by DHL’s Global Forwarding and Freight business units extend from standardised logistics operations to multimodal transport solutions and highly individualised industrial projects.

4. SUPPLY CHAIN Division

The SUPPLY CHAIN division comprises the two business units of Supply Chain and Williams Lea. In the Supply Chain business, DHL provides contract logistics solutions along the entire supply chain for customers from a wide variety of sectors. Williams Lea is a global provider of Business Process Outsourcing and a specialist in corporate information solutions, the management of companies' information and communication processes.Due to the fact that DHL logistic company are operating in variety division, in this research we are only want to focus on DHL express to perceive their operation and what factors make them success.

Corporate Strategy

In March 2009 CEO Frank Appel unveiled his Strategy 2015 aimed at making the company fit for the future. The management board recognized that country-level managers would need to make hard-line decisions about:

“who” should be the right customers in DHL’s market “what” product bundles would be contracted or promised to customers via the service

concept “how” the service components would be executed throughout the service delivery

system.These three concepts represent the basics for any service operations strategy (Heskett et al. 1987, Goldstein et al. 2002, Roth and Menor 2003). A high level of strategic fit, congruence, or alignment between all three concepts usually leads to greater customer satisfaction and desirable performance.

Market Position:

DHL is the world's leading provider of international postal solutions. Only in Germany, at some 20,000 retail outlets and points of sale, around 2,500 Packstations and around 1,000 Paketboxes, they are available for their customers practically everywhere to send and collect parcels and small packages at any time they like. They ship about 2.9 million of these items in Germany each working day. Their Packstations are located in approximately 1,600 towns and cities across Germany. Nearly 90% of all residents in Germany are just about

ten minutes or less away from the nearest Packstation. The German parcel market volume totalled around €7.3 billion in 2011, nearly 7% more than the prior year. For years now, e-commerce has been a central driver of growth. In 2011 Germans purchased products online at record levels, leading to another year of double-digit growth in e-commerce. This had a positive impact on growth in the mail-order and parcel services business. Overall, DHL expanded their market in the reporting year to approximately 40%.

Their core market of Germany is not only the only place in which they offer their services. They also carry mail across borders and offer international dialogue marketing services to many countries all over the world. The global market volume for outbound international mail was approximately €6.7 billion. The market is growing because the economy is recovering from the crisis and more heavy items are being shipped instead of simple letters. Despite increasing competition, DHL was able to grow with the market and maintain their share of 15.7%.

Customer segments:

An understanding of the target market is fundamental to service operations and accepted wisdom recognizes that there may be advantages to segmenting markets and offering different service packages to different segments. In a B2B context, segmenting customers can be difficult and prior efforts to integrate customer requirements into operations strategies have not demonstrate significant business value. DHL applied a three-step process to select the best segment solution: (1) identify the model with the best information criterion-based fit; (2) examine the classification statistics for the preferred model to ensure that the models has an acceptably low ratio of classification errors; and (3) plot the estimates for each segment in the preferred model against one another to ensure that the segment solution is not an artefact of scale-factor differences that would result in a systematic tendency to respond to questionnaire items on a basis other than what the specific items were designed to measure.An examination of the fit statistics, classification statistics, and estimates for each segment revealed that a three-segment solution is the preferred model. Figure x shows the relative main effects for each segment. In a simple, visual way, it highlights the variation between segments based on the order of magnitude of difference for each attribute. Segment 3 is highest on the

broader value-based attribute such as customer interaction, customer service recovery, and supply chain innovation; it aligns most closely with the integrator-developer coding metric. Segment 2 is driven most noticeably by reliable performance; its score is more than twice as high as the nearest alternative group. It aligns most closely with the integrator-administrator coding metric. Segment 1 is clearly dominated by price and supply chain capacity, which aligns closest with the administrator-producer coding metric. One of the most interesting aspects of these models is that they show how segments differ both in terms of what does and does not matter to respondents. This point was critical in developing their service delivery system.

Figure x: The graph illustrates the relative importance of attributes across segmentHaving determined that a three-segment model provides the best statistical solution, then in Industry base, DHL includes these sectors below into their target customers:

Automotive Engineering/Manufacturing Healthcare Chemical Technology Retail Consumer Goods

Competitive analysis

Strengths:

Strong Brand Image: In 1997, DHL became the global express transportation company

to obtain simultaneous system-wide ISO 9001 certification in international quality

standards. DHL has also developed their own quality system that matches their

customer’s standards. In the Global rankings of Brand Finance plc, London, a UK market

research company, the DHL brand climbed 16 places from number 107 in 2010 to

number 91 in 2011. Brand Finance calculates current brand value by benchmarking the

strength, risk and future potential of a brand relative to the competition. The study put the

brand value of DHL at US $9.78 billion in 2011, up from US $7.30 billion in the previous

year.

Globalism: DHL operates on a global scale. They operate in more than 220 countries.

They provide service that appeal to most of the world. They have such a large market in

which to operate, and thus realize tremendous revenues. They can also achieve global

economies of scale.

E-Services and technology: DHL uses and continues to search for new technology.

They spend nearly 10% of total revenues for information technology. DHL also has

excellent e-Service that provide access to systems that ensure customers have control

and visibility of their supply chains at all times. Products can be tracked, queried and

ordered online.

Creativity and innovations are encourage for improving the effectiveness of DHL

Corporate symbiosis: DHL has developed its own organizational structure to serve the

global market, which it has called “corporate symbiosis”. This approach encompasses

the empowerment of the DHL personnel at a local level, at the same time recognizing

the interdependence of the parts of DHL as a corporate whole.

Smart-truck Project: It is the programme which allows DHL to deliver faster.

SmartTruck is about dynamic route planning, in the real time. Additional, the SmartTruck

is one of the solutions that will reduce CO2 emissions in their daily operations. They were

succeed in their test in Germany, for example, in Berlin their intelligent transporters

drove on average 15% fewer kilometres and routes were completed 8% faster. Shorter

routes mean redced fuel consumption and lower emissions.

Weaknesses

High Prices: DHL’s prices are above some of their competitors. This can be a weakness

if their customers do not perceive a difference between DHL and its competitors’

services. And in the fact, some of their price-sensitive customers turned to their

competitors.

Mistakes in the Market-Share estimate: The biggest weakness is DHL/s market-share

estimate. It is difficult to estimate even when the market is stagnant and contains few

competitors, and all market-share estimates should be viewed with circumspection.

Weak Visibility: It has weak visibility in the community compared with its potential.

Loyalty problems on customer behaviour

Not as well known as UPS and Fedex

Opportunities:

Expansion Globally: DHL can continue to expand globally, including the other

companies under DHL.

Joint-Ventures: DHL can form joint ventures to enjoy the growth if integrating their

customer bases.

Expansion of E-commerce: DHL already has a major presence of shipping online.

They should keep finding Internet companies to contract delivery of their products. Since

the growth of e-commerce is rapid now, DHL could enjoy both profit and brand name

recognition from this kind of expansion.

Increase in the Number of Manufactured Goods: The World Trade Organization

estimates that the rate of world trade in manufactured good will increase exponentially.

- Logistics industry will continue to grow much faster than national economies (this is especially

true of Asia, where trade flows will continue to increase both within the continent and to other

regions.)

- We offer integrated logistics and transport solutions from a single source to an ever-increasing

extent, which gives us a major competitive advantage.

- Online communication and e-business are creating demand for transporting documents and

goods. This is in turn creates growth opportunities for us in our mail and parcel businesses.

- Finally, environmental awareness on the part of customers brings opportunities for above

average growth. Customers want to reduce their carbon emissions permanently, which is why

they are increasingly requesting energy- efficiently transport and climate-neutral products. We

lead our sector in this area, offering carbon-neutral mail, parcel and express products plus air

and ocean freight transport.

Threats

Relations with foreign countries: Through DHL’s expansions globally, they are subject

to laws and regulations of all foreign countries. There could be major problems in this

area, stunting growth and raising costs. Everywhere DHL goes, they are at risk for

regulations that hinder their operations or efficiency.

Competitors caught DHL strategies

Political and regulatory environment: Risks associated with the general business

environment primarily arise from the fact that DHL provides some of its services in a

regulated market. The regulatory authority approves or reviews prices, formulates the

terms of downstream access and undertakes special monitoring of market abuse. The

general regulatory risk could lead to a decline in revenue and earnings in the event of

detrimental decisions.

New tax system: changing in tax authorities could raise risk to the company. For

instance, the German tax authorities have announced their intention to qualify several

VAT-exempt mail products retroactively as subject to VAT, this decision strongly effected

to DHL’s pricing policy.

Restriction: Some restrictions such as “To prevent import from China” are big problems

in the logistic sector. Their operations probably are disrupted when they were subject to

legal restrictions in some countries (especially in North Africa and the Middle East).

Economic downturn: Economic downturn is decreasing the number of products that

are produced. The national debt crisis in the euro zone represents another element of

uncertainty, not only for logistic companies, and has lowered economic expectation. Cost

flexibilities is therefore becoming increasingly necessary to allow a fast response to

changes in market demand.

Fuel prices go up: As the previous year, most of the risks arising from commodity price

fluctuation, in particular fluctuating prices for kerosene and marine diesel fuel, were

passed on to customers via operating measures. However, the impact of the related fuel

surcharges is delayed by one to two months, so that earning may be affected temporarily

if there are significant short-term fuel price variations.

Positioning strategy: 

DHL Express’s “Focus” strategic programme extends to four areas:

Employee motivation: Employees are very important to the company and constitute

their main competitive advantage in retaining current customers and winning new ones.

Their Certified International Specialist (CIS) training initiative ensures that employees

have the requisite knowledge of the international express business at their disposal. The

programme additionally reinforces the team atmosphere in and loyalty to the division. All

employees in international shipping, whether couriers or call centre staff, are expected to

consider themselves are DHL ambassadors and place the customer at the centre of their

work. DHL regularly honour employees who have proved to be outstanding International

Specialist through special achievements. Since September 2011, all DHL’s employees

have been CIS-certified. They are now being trained in additional modules specific to

their functions.

Service quality: DHL is increasing their focus on promoting customer loyalty through

high service quality in order to differentiate theirselves from the competition. To this end,

they keep a constant eye on changing customer requirements and adapt their services

accordingly. They are improving their workflows to make them the provider of choice

when it comes to speed, reliability and cost-efficiency. At their quality control centres

they track shipments globally and adapt processes dynamically to enable them to

guarantee quick delivery, even in the event of unforeseen circumstances. Reliability and

speed are vital to their position as experts in international shipping.

Customer loyalty: The customer is always the focus of attention of their approximately

100,000 employees. DHL makes it as easy as possible for their customers to give

feedback on their performance, from conventional customer service to in-person

surveys. Moreover, they use their First Choice methodology constantly to review

customer behaviour and customer response and to draw the necessary conclusions,

starting with the customer’s very first contact with the call center, internet site or sales

employee all the way to delivery of the shipment to the recipient and invoicing.

Profitability: To ensure a stable earnings contribution and continue growing over the

long term, they monitor costs continuously and make sustainable investments in their

business. For instance, they are expanding and revamping their fleet of aircraft to enable

them to offer additional and more frequent flight connections. An international advertising

campaign has been initiated to increase the name recognition of the DHL brand. They

also actively seek profitable business opportunities, for example through the

establishment of a new hub in Shanghai to expand our Asia business. DHL uncovers

potential and takes measures accordingly to improve their earnings through targeted

monitoring of their portfolio. Each country and each location in their network has

contributed to these endeavours.

Service process classification

Order winners and order qualifiers

2. Role of Operations, Logistics and S&M Strategies in the corporation

Location

Design and Layouts

Warehousing and Storage layouts

Bottlenecks and Queueing

LEAN in services

Logistics

Supply chain management

1. The concept of supply chain management:

All for one and one for all: The spread of globalization has an impact on the entire supply chain. The driving forces of this trend are primarily the increasing homogenization of economic regions, rising customer requirements and new developments in information technology. To meet today’s competitive demands, the supply process must be optimized across all levels of the supply chain – beginning with raw-material extraction and extending to the final customer. This requires all participating companies to cooperate together. This integrated approach is called supply chain management.

2. Supply chain in term of DHL

In DHL, SCM is managing flow of materials, information and assets as they progress from suppliers to installation through complete asset life cycle.

Works planning: “Fail to plan and you’re planning to fail”. You have heard it before. They know it is a fact. That is why DHL has made project management a core discipline and key differentiator. They have designed, from the ground up, a proprietary management approach that simply works better. Procurement: Procurement works continuously to reduce the Group’s expenditures and this includes providing support to the divisions to make important investments cost-effectively. For instance, a master agreement for aircraft fuel, into which the department entered for European Air Transport, reduces annual costs by more than €1 million. Procurement also makes progress as an internal service department and supports the divisions with recycle projects. Procurement is centralised function in the Group. The heads of Global Sourcing and their 14 category managers work closely with regional procurement managers and report to the head of Corporate Procurement. This allows them to bundle the Group’s worldwide requirements and still meet the local needs of the business units. Additional, DHL is greater using of procurement systems. The use of IT applications to procure goods and services more efficiently again increase in 2011, they also use e-sourcing to make their procurement processes more efficient and transparent. Suppliers:

Distribution centersOutbase locationsField works

3. A typical supply chain at DHL’s express

4. The supply chain and Competitive advantage (Competence)

The supply chain is used to manage the Business Processes as a Visionary of DHL express.

Supply Chain Metrics that used at DHL usually cover 4 areas:- Financial. For instance, the cost of manufacturing, warehousing,

transportation- Customer. This includes Order Fill Rate, Backorder Levels, On Time

Delivery, Feedback of Customers.- Internal Business. For instance: Adherence-To-Plan, Forecast Error.- Training. Relating to all training programme that company organized to

train their employees, for instance “In house Training Hours”5. DHL’s Supply Chain Innovation

Supply chain flows

Physical

Information

Financial

Vendor Managed Inventory

One of the most important challenges facing supply chain managers is the effective control of inventory. At the core of inventory management resides a fundamental dilemma. When it comes to the timely fulfillment of customer requirements, inventory is necessary and useful. DHL has some innovations to improve their Supply chain:

Partnership with a leading financial company Access to low cost capital Delay buyer purchases, free up cash tied in inventories Transitioned from “Just in Case” to “Just in Time” (JIT) inventory

management Improve cash to cash cycles, reduce inventory balance sheet and

increase inventory turnover Leveraged IT to provide global visibility of goods on hand and goods in

transit for 350 suppliers and scores of carries

The innovations bring them many benefits:

6. The mission of logistics management7. The supply chain and competitive performance8. The changing competitive environment

Capacity management

Inventory management

Conclusion Annex